NMS Stock Goes Onchain: The SEC’s “Innovation Exemption” for the Tokenization of Securities and What It Means for Public Companies

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On September 17, 2026, the Securities and Exchange Commission (the “SEC”) issued a five-year conditional exemptive order designed to facilitate trading in tokenized public company stock using blockchain technology (the “Order”).[1]  In order to permit this “onchain” trading, the Order establishes an “Innovation Exemption,” consisting of two components: (i) a temporary exemption (the “TSV Exemption”) from the definition of “exchange” under the Securities Exchange Act of 1934 (the “Exchange Act”) for tokenized securities venues (“TSVs”) that sponsor tokenized securities trading through automated market makers (“AMMs”) and liquidity pools (collectively, “AMM Liquidity Pools”), and (ii) a temporary exemption (the “Covered Firm Exemption”) from the definition of “dealer” under the Exchange Act for certain firms (“Covered Firms”) that provide liquidity in AMM Liquidity Pools using proprietary capital and that engage in other dealer-type activities.

The SEC’s Order ultimately reaches every public company whose stock is listed on a national securities exchange. That is, the Innovation Exemption allows any National Market System (“NMS”) stock to be tokenized by an unaffiliated third party and made available for trading on a TSV (“Tokenized NMS Stock”), subject to the TSV’s compliance with the Order and the ability for public company issuers to opt out of such trading under certain conditions, as discussed below.  

The Innovation Exemption became effective immediately and expires on September 17, 2031. The Order is accompanied by a request for comment on all aspects of the Innovation Exemption.

SEC Chairman Paul Atkins characterized the Order as “a significant step forward . . . to bring America’s capital markets into the digital age.”[2] While the Innovation Exemption is primarily directed at trading venues and liquidity providers, it carries direct implications for public company issuers because of an issuer notice-and-objection mechanism that gives issuers the right to block tokenized trading of their stock by unaffiliated third parties.

This client alert summarizes the key terms of the Order, with a particular emphasis on the TSV Exemption, and identifies onchain trading risks and next steps for public companies.

Key Conditions for the TSV Exemption

The TSV Exemption is subject to a number of conditions, the most significant of which include the following:

• Permissioned Access. While a TSV’s smart contracts must be deployed on a public, permissionless distributed ledger, the TSV must be a U.S. person and comply with applicable OFAC requirements, and participant access to a TSV’s AMM Liquidity Pools must be permissioned (not permissionless), with the TSV establishing a screening process and credentialing standards for participants,[3] which may consist of offchain and/or onchain protocols.
• Classification of Issuers. Each TSV is subject to limitations on the number of symbols and volume that may be traded on the TSV, as described below. These limitations are based on a two‑tier structure in which Tokenized NMS Stocks are classified either as “Tier 1” stocks (S&P 500 and Russell 1000 constituents, as well as certain high volume exchange-traded products) or “Tier 2” stocks (all other NMS stocks, excluding rights or warrants). 
• Maximum Symbols per TSV.  A TSV is permitted to make up to 75 Tier 1 stock symbols and up to 250 Tier 2 stock symbols available for tokenized trading on the TSV. These limits on symbols aggregate across affiliated TSVs.
• Trading Volume Limits. The trading volume in any single “Tier 1” Tokenized NMS Stock on a TSV is capped at 0.25% of the average daily share volume in the underlying NMS stock during the prior month, while the trading volume in any particular “Tier 2” Tokenized NMS Stock is capped at 2.5% of average daily share volume. These volume limits likewise aggregate across affiliated TSVs.  The Order allows a TSV to exceed the volume limit one time per issuer; however, any subsequent instance of exceeding the volume limit triggers a three-month trading pause for the affected Tokenized NMS Stock on that TSV.
• Full Shareholder Rights. A TSV must verify that the Tokenized NMS Stock provides holders with the same rights and privileges as traditional NMS stock, including dividends, voting and liquidation rights. Synthetic instruments that merely provide economic exposure to an NMS stock without conferring the same rights and privileges possessed by holders of the underlying stock are excluded from the definition of Tokenized NMS Stock and are not permitted to be traded on a TSV. Additionally, TSVs must confirm that third‑party tokenizers will distribute or otherwise make available proxy materials to holders of tokenized securities (at no cost to the issuer or shareholders).
• Trading Halt Coordination. A TSV must stop trading in a Tokenized NMS Stock concurrently with any halt or suspension in trading in the underlying NMS stock on the primary listing exchange.
• Public Notice by TSV. At least 30 days before commencing operations, a TSV must publish on its website a public notice setting forth detailed information prescribed by the Order that is designed to help market participants understand how to access and trade on a TSV and protect their interests. The TSV must update the prescribed information periodically.
• Transaction Transparency. The TSV must make U.S. dollar-denominated transaction data freely and publicly available in machine-readable format for all transactions within the past 30 days, with the transaction data updated within 10 minutes of the occurrence of any transaction.
• No Primary Issuances. No primary issuances of tokenized securities are permitted on a TSV; the exemption applies only to secondary trading.
• Other Requirements. There are a number of additional conditions imposed on TSVs under the Order, and the Order makes clear that the anti-fraud and anti-manipulation provisions of the federal securities laws, including Section 10(b) of the Exchange Act and Rule 10b‑5 thereunder, apply in full to trading in Tokenized NMS Stock.

The Covered Firm Exemption

The Covered Firm Exemption temporarily exempts from the definition of “dealer” under the Exchange Act any Covered Firm (i.e., a liquidity provider) that supplies Tokenized NMS Stock to AMM Liquidity Pools that are operating under the TSV Exemption. The Covered Firm Exemption is subject to a number of conditions set forth in the Order, which are not addressed in this alert.

Notice and Objection Rights of Public Companies

One of the most consequential provisions for public company issuers is the notice-and-objection mechanism set forth in the Order. Before a TSV may make available for trading any Tokenized NMS Stock (where tokenization has been proposed by an unaffiliated third party), the TSV must provide written notice to the issuer at the physical or email address of the issuer’s principal executive offices listed on the cover of the issuer’s Exchange Act reports (e.g., the cover page of the issuer’s Form 10-K or Form 10-Q). Trading may not commence until at least 30 calendar days after the issuer receives the notice.

If an issuer objects in writing on or before the 30th calendar day after its receipt of the TSV notice, then the TSV may not make that objecting issuer’s Tokenized NMS Stock available for trading. Furthermore, the TSV must publicly disclose the issuer’s objection within five business days. If an issuer does not object within the 30-calendar-day period, then the TSV may proceed with making that non-objecting issuer’s Tokenized NMS Stock available for trading.

Several critical ambiguities remain. The Order does not address whether an objection is effective against all TSVs or only the notifying TSV (issuers should assume the latter for now), whether an objection can be withdrawn once made, or whether an issuer that initially declines to object can later change course and block tokenized trading (presumably not).

Risks and Open Questions for Public Company Issuers

Although the Innovation Exemption may provide certain benefits for investors, including reducing intermediary costs for onchain transactions, facilitating investments in U.S. public companies by foreign investors, and enabling trading in fractionalized interests (perhaps attracting broader retail participation), the exemption raises a number of practical risks and open questions for public company issuers:

• Price Dislocation Risk. AMM pricing is normally based on the ratio of the quantities of assets in a liquidity pool, not on external market data.[4] As a result, prices for Tokenized NMS Stock traded on TSVs could diverge significantly from the price of the underlying NMS stock traded on a traditional stock exchange, potentially creating confusion for investors, adversely affecting the price of the underlying NMS stock and complicating corporate actions tied to market price, including stock splits and reverse stock splits.  
• Shareholder Identification. Blockchain-based custody could make it more difficult to identify beneficial owners with voting rights for purposes of proxy solicitation, shareholder engagement, and rights plan administration. In particular, while the TSV’s smart contracts must be deployed on a public, distributed ledger, it is unclear what level of visibility, if any, an issuer will have into beneficial owners of tokenized securities where a third party follows one of the primary tokenization models described by the SEC Staff in its Statement on Tokenized Securities earlier this year that would be eligible for trading on a TSV in reliance on the Innovation Exemption (i.e., via a broker or other intermediary’s issuance of a securities entitlement in the format of a digital asset using distributed ledger technology).[5]
• No Mandatory Surveillance. TSVs are not required to conduct trading surveillance; they are required only to disclose whether they do so. This could create enforcement gaps and increase the risk of manipulative trading activity in Tokenized NMS Stock.
• Temporary and Conditional Nature. The exemptions in the Order expire in five years and can be modified or revoked at any time. SEC Chairman Paul Atkins characterized the Innovation Exemption in his Statement as a “bridge toward durable rulemaking,” signaling that further regulatory action is expected. Companies that build processes and infrastructure around the framework in the Order face the risk of regulatory change and the need to make adjustments.
• Uncertainty with Existing Obligations. The Order does not address how tokenized trading interacts with Rule 10b-18 (the stock repurchase safe harbor), Rule 10b5-1 trading plans, or Section 16 reporting obligations.
• Overnight and Around-the-Clock Trading. Tokenized securities trading on TSVs may occur around the clock, creating challenges for material event disclosures that are traditionally timed around exchange trading hours and for companies seeking to address aberrant trading activity that occurs onchain during non-exchange trading hours.
• No Regulation NMS Protections.  Due to the TSV Exemption, TSVs will not be considered “trading centers” or “market centers” under Regulation NMS.  As a result, Rule 611 trade-through protections, Rule 610 access requirements, Rule 612 minimum pricing increments, and Rule 605 order execution quality reporting do not apply to trading on TSVs.

Action Items for Public Companies

The Innovation Exemption introduces a new dimension to the public company securities trading landscape. Even companies that have no intention of tokenizing their own stock may find that a third party seeks to do so. Companies should consider taking the following steps:

• Establish Procedures for Handling TSV Notices. Companies should establish internal procedures for receiving, evaluating and responding to TSV notices within the 30-day window.  Notices will be sent by TSVs to the physical or email address of the company’s principal executive offices listed on the cover page of the company’s Exchange Act reports, so companies need to confirm where notices sent to that address are being routed internally within the company so that appropriate personnel are monitoring for these notices.
• Brief the Board. The board (or an appropriate committee of the board) should be briefed on the Innovation Exemption and advised on the company’s planned approach for responding to TSV notices.
• Coordinate with Transfer Agents and Proxy Solicitors. Companies should seek feedback from their transfer agents and proxy solicitors to understand how tokenized ownership may affect shareholder identification and communications. In particular, given the potential risk of lack of visibility into beneficial owners of tokenized securities (as noted above) and the related difficulty of maintaining the shareholder register related to onchain transfers (a potential concern noted in the SEC’s Order), a company might elect to object to a tokenization notice from a TSV absent the TSV committing to a model that establishes a linkage between the master securityholder file maintained by the transfer agent and any intermediary holding shares that are then tokenized, in order to provide the issuer continued visibility into its shareholder base.
• Diligence on TSVs. Before the 30-day objection window expires, companies that are willing to allow tokenization of their securities should conduct diligence on the TSV operator. Key areas of inquiry include the TSV’s permissioning and credentialing standards for participants, the transparency and auditability of the smart contracts used by the TSV, whether the TSV is committing to conduct ongoing trading surveillance to detect fraudulent or manipulative activity, the TSV’s procedures for complying with volume and symbol cap limitations, the TSV’s fee structure and sources of compensation, and the identity, reputation, and financial resources of the TSV operator and its principal liquidity providers. This diligence is relevant because the Order does not impose any ongoing issuer governance role once the objection window closes. Accordingly, the 30-day objection window is the issuer’s only opportunity to evaluate whether the TSV’s operational controls, participant screening and risk management practices are sufficient to protect the issuer’s interests and its shareholders.
• Consider Establishing Volume and TSV Caps. Companies willing to permit some level of tokenized trading in their stock may wish to establish internal thresholds to manage risk, including by establishing an overall cap on the percentage of average daily share volume that the company is comfortable allowing to occur onchain across all TSVs (an “ADSV Cap”) and/or a cap on the total number of TSVs on which tokenized trading can occur (a “TSV Cap”).  For example, a Tier 1 issuer that sets an overall ADSV Cap of 1.0% could permit tokenized trading in its stock to occur on up to four TSVs (based on the 0.25% per‑TSV Tier 1 volume cap described above). These internal limits might help mitigate the risks of price dislocation and liquidity fragmentation.
• Revisit Company Disclosures. Public companies that permit tokenized trading should review risk factor disclosures (including risks relating to volatility in stock price due to tokenization), proxy statements and other disclosures for potential updates.
• Review Insider Trading Policies and 10b5-1 Trading Plans. Public companies that allow tokenization should review insider trading policies and Rule 10b5-1 plans for adequacy, including taking into account expected 24/7 tokenized trading.
• Monitor the Transfer Agent Modernization Proposal. On September 1, 2026, the SEC separately proposed amendments to its transfer agent rules to accommodate blockchain technology, including permitting transfer agents to use a distributed ledger as their master securityholder file.[6] Companies should monitor this rulemaking, as any final rules will affect how transfer agents interface with tokenized shares and maintain shareholder records onchain.

Consider Submitting Comments to the SEC. Companies and their trade associations should consider submitting comments on the Order, particularly on issues such as the adequacy of the issuer notice-and-objection mechanism, the appropriateness of volume and symbol caps, and the interaction of tokenized trading with existing securities law obligations. The Securities Industry and Financial Markets Association (“SIFMA”), the leading trade association for broker-dealers and investment banks, has urged the SEC to commence formal rulemaking “as soon as possible,” citing concerns about “investor protection and market integrity” and the risk of “price and liquidity fragmentation” from multiple tokenized versions of U.S.-listed securities trading on parallel, lightly regulated markets.[7]  The SEC has not set a deadline for receipt of comments on the Innovation Exemption.

For additional information about any of the above developments, or to discuss any questions that you may have, please contact a member of Maynard Nexsen’s Public Company Advisory Group.

This Client Alert is for information purposes only and should not be construed as legal advice. The information in this Client Alert is not intended to create and does not create an attorney-client relationship.

^{[1]  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 Comment, Exchange Act Release No. 34-106402 (Sept. 17, 2026).
[2]  Chairman Paul S. Atkins, Statement on the Innovation Exemption: A Bridge Toward Durable Rulemaking (Sept. 17, 2026) (the “Statement”).
[3] TSV participants consist of the “users” who buy or sell Tokenized NMS Stock, as well as the “liquidity providers” that commit assets to the AMM Liquidity Pool. 
[4] As discussed in the Order, AMM Liquidity Pools operate pursuant to programmed rules and algorithms to set the prices of assets offered to users, with prices generally based on the ratio of the quantities of the assets committed by liquidity providers in the pool and without directly considering external pricing.
[5] Statement on Tokenized Securities, Division of Corporation Finance, Division of Investment Management, Division of Trading and Markets (Jan. 28, 2026), at Third Party-Sponsored Tokenized Securities – First Model: Custodial Tokenized Securities. 
[6] Transfer Agent Rules, Securities Exchange Act Release No. 106246 (Sept. 1, 2026).
[7] SIFMA, “SIFMA Statement on SEC Innovation Exemption” (Sept. 17, 2026) (statement of Kenneth E. Bentsen, Jr., President and CEO).}