SEC's Innovation Exemption Transforms Tokenized U.S. Stock Trading

With its approval of blockchain-based trading for tokenized U.S. stocks, the SEC has launched a five‑year experimental regime—promising efficiency and inclusion while demanding vigilance and robust investor protections.

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1. A Landmark Regulatory Move: The Innovation Exemption Unveiled

On September 17, 2026, the SEC issued a landmark order—the “Innovation Exemption”—granting temporary, conditional relief under Section 36(a)(1) of the Securities Exchange Act to enable on‑chain trading of tokenized National Market System (NMS) stocks via Tokenized Securities Venues (TSVs) . The exemptions extend through September 17, 2031, giving market participants a five‑year runway to experiment within a controlled environment . This initiative reflects the SEC’s broader ambition under “Project Crypto” to modernize the capital markets by integrating blockchain infrastructure, while preserving investor protection and market integrity .

2. Key Conditions: Rights, Oversight, and Issuer Control

The exemption is carefully calibrated: tokenized shares must be fungible with traditional securities, carrying the same CUSIP, ticker symbol, dividend rights, and voting privileges . Synthetic instruments are expressly prohibited—a safeguard to prevent the creation of economically equivalent but regulatory‑light derivatives . Issuers maintain a critical right: TSVs must notify companies before listing and must suspend trading if the issuer objects . Additionally, TSVs and liquidity providers must comply with operational, transparency, and recordkeeping conditions, and covered firms in AMM liquidity pools are exempted from the “dealer” definition only under strict limitations .