SEC Innovation Exemption explained: five-year path for tokenized US stocks and AMM rules
SEC Release 34-106402 creates temporary, conditional relief for eligible tokenized NMS stock trading on qualifying U.S. venues. It is not a permanent rule or blanket approval.
- SEC Release 34-106402, issued on September 17, 2026, grants temporary, conditional exemptions for qualifying Tokenized Securities Venues and certain AMM liquidity providers; it is not a permanent rule or blanket product approval.
- A Tokenized Securities Venue uses one or more automated-market-maker liquidity pools for permissioned participants and must set the standards for access to trading.
- Eligible tokenized NMS stock must carry the equivalent traditional stock’s rights, including dividends and voting rights. Third-party synthetic exposure, including tokenized linked securities and tokenized security-based swaps, is excluded.
- For an unaffiliated third party’s token, the underlying issuer receives written notice and 30 calendar days to object. A timely written objection prevents that TSV from making the token available for trading.
- The exemptions run from September 17, 2026 to September 17, 2031. They come with symbol and volume caps, public and auditable smart-contract requirements, halt alignment, public disclosures and an open SEC comment file, 4-927.
What the SEC Innovation Exemption actually does
The SEC Innovation Exemption is a temporary, conditional route for a narrowly defined kind of U.S. trading venue to facilitate eligible tokenized NMS stock through permissioned automated-market-maker liquidity pools. Release 34-106402 gives a qualifying Tokenized Securities Venue relief from the Exchange Act definition of an exchange, and gives specified liquidity providers related relief from the definition of a dealer. The order was issued on September 17, 2026 and is effective until September 17, 2031.
This is not a permanent SEC rule, a blanket approval of tokenized-stock products or an authorization for every platform to launch. The relief applies only while a venue and, where relevant, a liquidity provider meet the order’s conditions. The order also does not remove the federal securities laws’ anti-fraud and anti-manipulation provisions. The SEC is using its exemptive authority to test a bounded market structure while it gathers experience and public input, rather than declaring a final framework for onchain securities trading.
A Tokenized Securities Venue is permissioned, even if its code is public
The order calls the eligible venue a Tokenized Securities Venue, or TSV. A TSV brings together buyers and sellers by providing one or more AMM Liquidity Pools, where participants interact and agree to a trade, and by setting standards for who may access that trading. An automated market maker, or AMM, is code that applies programmed trading terms and commonly derives prices from the mix of assets in a liquidity pool rather than relying only on a conventional order book.
Permissioned describes access to a TSV’s trading, not secrecy of the underlying ledger. The SEC requires the smart contracts used by a TSV to be auditable and public and to run on a public, permissionless distributed ledger. At the same time, the TSV must allow only participants that meet its access standards. It must be a U.S. person and therefore comply with applicable Office of Foreign Assets Control sanctions programmes. This structure means public code or a public blockchain is not the same thing as open, unverified trading access.
Eligible tokenized NMS stock must be more than price exposure
The order covers tokenized NMS stock, not every digital instrument that follows the price of a U.S. share. In this context, an NMS stock is an NMS security other than an option. The token may be created by, or for, the issuer of the underlying NMS stock, or by a third party unaffiliated with that issuer. Rights and warrants are excluded, as are primary issuances and initial offerings on a TSV. Offers and sales under the pathway still need Securities Act registration or an available registration exemption.
The critical distinction is ownership and rights. The order excludes a crypto asset that a third party issues as its own security merely to provide synthetic exposure to an underlying security. It expressly names tokenized linked securities and tokenized security-based swaps as excluded examples. A TSV instead has to verify that the token conveys the same interest in the company and the same rights and privileges as the equivalent traditional NMS stock. Calling a product a tokenized stock is therefore not enough to put it inside this order.
Dividends, votes and issuer communications are required safeguards
For a token to qualify, its holders must receive the same rights and privileges as holders of the equivalent conventional stock. The SEC lists the same interest in the company, the right to the same dividends, the same voting rights and the same share of residual assets in a liquidation. These are conditions a TSV must verify, not optional features that a venue may choose to add later.
The order adds a practical requirement for third-party tokenisation. Where an unaffiliated third party tokenises an NMS stock, related proxy materials and other issuer communications must be distributed or otherwise made available to token holders at no cost to the issuer or shareholders. That requirement matters because a token can be a different technical wrapper around a security. The regulatory condition focuses on whether the substantive shareholder entitlements travel with it.
An issuer gets a 30-day written-objection window for third-party tokens
Before a TSV can make an unaffiliated third party’s tokenised version of an issuer’s NMS stock available, it must send the issuer written notice. Trading cannot begin until at least 30 calendar days after the issuer receives that notice. The issuer notice must be sent to the physical or email address for the principal executive offices shown on the cover of the issuer’s Exchange Act reports.
If the issuer sends the TSV a written objection on or before the 30th calendar day, the TSV cannot make that tokenized NMS stock available for trading. The TSV must also update its public notice within five business days to say it received a timely objection. This mechanism is specific to third-party tokenisation by an entity unaffiliated with the issuer. It is not a general claim that every tokenised security needs a 30-day issuer approval process.
The exemption is capped by symbols and volume, with no primary issuance
The exemption limits both the number of symbols a TSV can trade and the share volume it can handle. For Tier 1 tokenized NMS stock, the limit is 75 symbols and 0.25% of the underlying stock’s average daily share volume in the prior month. For Tier 2, it is 250 symbols and 2.5%. The relevant NMS stock volume comes from an effective transaction reporting plan, and a TSV must aggregate its own figures with those of affiliated TSVs rather than divide activity across affiliates.
The Tier 1 and Tier 2 categories correspond to the Limit Up-Limit Down Plan’s tiers. The SEC says the limits are designed to help limit the potential market-quality impact of price dislocations between pool-based token pricing and traditional-market prices. This does not mean the SEC has set a fair value for a token or guaranteed close tracking. It is a scope limit on the temporary, conditional exemptions. Separately, no primary issuance or initial offering may occur on a TSV under the order.
Public data and halt alignment are conditions, not promises of safety
A TSV must make U.S.-dollar-denominated transaction data publicly available in a machine-readable format for transactions from the previous 30 days. The data must be updated within 10 minutes of a transaction and include, at a minimum, the asset-pair symbols, price, size, time and direction. The venue must also disclose the relevant pool and smart-contract address, daily asset-pair volume and end-of-day pool size. These measures are meant to make activity observable on equal terms, not to certify the quality of a venue or eliminate market risk.
Trading also must stop concurrently if the underlying NMS stock stops trading on its primary listing exchange, including a halt or suspension. The TSV must notify participants of that stoppage. Its public notice must describe operations, access rules, fees, affiliated activity, tokenisation process and a range of protections and risks. The SEC specifically calls for disclosure of matters such as code audits, continuity planning, wallet and private-key risks, smart-contract bugs, cyber-attacks, phishing, oracle manipulation and certain transaction-ordering risks. Disclosure and auditability reduce information gaps; they do not make technical or fraud risks disappear.
The AMM dealer exemption is for certain liquidity providers, not all activity
The second part of Release 34-106402 is the Covered Firm Exemption. It can apply to a liquidity provider that supplies tokenized NMS stock using proprietary capital in a qualifying AMM Liquidity Pool and may also perform activities that can indicate dealing, such as quoting prices to customers or agreeing to provide committed capital. The purpose is to address a specific dealer-definition question around liquidity that an AMM needs to function.
Its boundaries are narrow. A Covered Firm’s securities activity must be limited to tokenized NMS stock trading in AMM Liquidity Pools operating under the TSV Exemption. It must trade solely for its own account and must not hold or custody customer assets. It also faces recordkeeping, website disclosure and written-notice requirements. The order does not say that every AMM participant is a dealer, or that every liquidity activity receives a general exemption.
The expiry, comment file and India boundary
The exemptions are effective from September 17, 2026 through September 17, 2031. The Commission can change the duration or another aspect if it finds that necessary or appropriate in the public interest and consistent with investor protection. File 4-927 was live for public comments as of the September 18, 2026, 12:45 PM IST source cutoff. The order asks for comment on the model, its limits, market effects, the Covered Firm relief and whether any relief should become permanent. The order and docket page reviewed for this article do not state a calendar closing date for comments.
For readers in India, this is a U.S. SEC action under the U.S. Exchange Act. It does not change SEBI regulation, Indian stock-exchange or depository arrangements, foreign-exchange rules or the availability of a product to Indian residents. SEBI’s September 2026 Demat 2.0 material is a separate, defined pilot for tokenised corporate bonds using a private, permissioned DLT network operated through Indian market infrastructure. It is not an SEC-style pathway for tokenized U.S. NMS stocks. This article explains a regulatory development and does not assess or recommend any token, venue, security or transaction.
Reader guide
Article questions, answered
Short answers to common reader questions based on the reporting above.
Is the SEC Innovation Exemption a permanent tokenized-stock rule?
No. Release 34-106402 is a Commission order granting temporary, conditional relief under Exchange Act Section 36(a)(1), rather than a permanent rule. The TSV and Covered Firm exemptions are effective from September 17, 2026 until September 17, 2031. The Commission can modify their duration or other aspects, and it is seeking comments while it considers any future action.
Can any crypto platform start offering tokenized U.S. stocks under the order?
No. A platform must fit the order’s definition of a Tokenized Securities Venue and comply with every condition. Among other things, it must be a U.S. person, set permissioned access standards, publish a detailed public notice at least 30 calendar days before operating and notify the SEC in writing within one business day after publishing that notice. The order does not designate a venue or automatically approve a product or platform.
Does a qualifying tokenized NMS stock have to provide dividends and voting rights?
Yes. A TSV must verify that a tokenized NMS stock gives holders the same rights and privileges as the equivalent traditional stock. The order identifies the same interest in the company, dividends, voting rights and a share of residual assets on liquidation as examples. An unaffiliated third party that tokenizes an NMS stock also has to distribute or otherwise make related proxy materials or issuer communications available to holders at no cost to the issuer or shareholders.
Does the SEC order change SEBI rules or create access to tokenized U.S. stocks in India?
No. The SEC order is a U.S. Exchange Act measure and does not amend SEBI, Indian exchange, depository, foreign-exchange or investor-eligibility rules. SEBI’s September 2026 Demat 2.0 material concerns a defined pilot for tokenised corporate bonds on a private, permissioned DLT network. It is separate from the SEC’s pathway for certain U.S. NMS stocks.
Sources and further reading
These references support the factual context used in this article. Links open the original publisher.
- SEC Issues “Innovation Exemption” to Facilitate the Trading of Tokenized NMS Stock and Request for CommentU.S. Securities and Exchange Commission · accessed 18 September 2026
- Order Granting Temporary Conditional Exemptive Relief, Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934, from the Definition of “Exchange” in Section 3(a)(1) of the Exchange Act for the Use of Certain Distributed Ledger Trading Venues for Tokenized NMS Stocks and from the Definition of “Dealer” in Section 3(a)(5) of the Exchange Act for Certain Liquidity Providers for Tokenized NMS Stocks, and Request for CommentU.S. Securities and Exchange Commission · accessed 18 September 2026
- Fact Sheet: Order Granting Temporary Conditional Exemptive Relief for Trading of Tokenized NMS Stock on Tokenized Securities VenuesU.S. Securities and Exchange Commission · accessed 18 September 2026
- Order Granting Temporary Conditional Exemptive Relief, Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934, from the Definition of “Exchange” in Section 3(a)(1) of the Exchange Act for the Use of Certain Distributed Ledger Trading Venues for Tokenized NMS Stocks and from the Definition of “Dealer” in Section 3(a)(5) of the Exchange Act for Certain Liquidity Providers for Tokenized NMS Stocks, and Request for CommentU.S. Securities and Exchange Commission · accessed 18 September 2026
- Statement on the Innovation Exemption: A Bridge Toward Durable RulemakingPaul S. Atkins, Chairman, U.S. Securities and Exchange Commission · accessed 18 September 2026
- Statement on Tokenized SecuritiesSEC Division of Corporation Finance, Division of Investment Management and Division of Trading and Markets · accessed 18 September 2026
- SEC clears path for tokenized stocks, bringing the market closer to 24/7 tradingCNBC · accessed 18 September 2026
- SEC rolls out long-awaited 'innovation exemption' for tokenized securities venuesCoinDesk · accessed 18 September 2026
- FAQs on Demat 2.0: Pilot for Tokenised Corporate BondsSecurities and Exchange Board of India · accessed 18 September 2026
