The SEC’s Innovation Exemption permits limited on-chain trading of tokenized US-listed equity securities, including third-party tokenizations subject to issuer notice and objection.

By Michele M. Anderson, Jenna B. Cooper, Paul M. Dudek, Zachary Fallon, Dan Gibbons, Gail S. Neely, Ian D. Schuman, Ellen Smiley, Julia A. Thompson, Thomas Vogel, Stephen P. Wink, and Dylan H. Lojac

The Basics

  • What is tokenization? Tokenization is creating a digital version of a share, or token, so that ownership changes hands by updating a distributed ledger, rather than by instructing a broker, clearing agency, or transfer agent. Under a new Order, an eligible token must carry the same economic and voting rights as the underlying share; tokens that merely track a stock’s price are not covered.
  • What can a third party do under the Order? The SEC’s Innovation Exemption (i) allows a company unrelated to the issuer to create tokens of a public company’s listed shares without the company’s involvement, and (ii) allows a new type of blockchain-based trading platform, called a tokenized securities venue (TSV), to offer those tokens for trading, subject to volume limits and other conditions. Before trading third-party tokens of a company’s stock, a TSV must send the company written notice, after which companies will have 30 calendar days from the date of receipt to object or else trading will begin.
  • Do public companies need to do anything? Public companies should consider developing a response framework immediately. Because the 30-day clock runs from receipt at the address on the cover page of the company’s Exchange Act reports, companies should begin the process to determine how to evaluate these notices.

Background

On September 17, 2026, the Securities and Exchange Commission issued an order granting temporary, conditional exemptive relief under Sections 36(a)(1) and 36(a)(5) of the Securities Exchange Act of 1934 to facilitate on-chain trading of tokenized National Market System stocks (the Order). The Order exempts entities that are TSVs from the “exchange” definition in Section 3(a)(1), and certain liquidity providers from the “dealer” definition in Section 3(a)(5).

This article focuses on what the Order means for public companies.

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