SEC’s innovation exemption opens a path for tokenized stock trading

The SEC issued its long-previewed Innovation Exemption on September 17, 2026, granting two temporary, conditional exemptions designed to allow tokenized versions of NMS stocks (U.S.-listed equities and exchange-traded products) to trade onchain. The first exempts “tokenized securities venues” (TSVs)—permissioned trading venues utilizing automated market makers (AMMs) and liquidity pools—from the definition of “exchange” under the Securities Exchange Act of 1934. The second exempts liquidity providers to those pools (Covered Firms) from the definition of “dealer.” The order runs through September 17, 2031 and is immediately effective. 

The exemption is more limited than it may initially appear: it is only available for trading in certain types of tokenized securities—(i) those tokenized by or on behalf of its own issuer, or (ii) those tokenized by a third party, in each case only if the tokenized version provides “the same rights and privileges” as the security itself. “Synthetic” tokens are expressly out of scope. This means that third party “wrapped” tokens (i.e., tokens merely linked to an NMS stock) are likely not eligible for trading on TSVs. The exemption is also not for DeFi—TSVs must be centrally managed in order to meet the exemption’s conditions.

Finally, the order does not impact whether securities may be tokenized in the first place or by who, or impact offshore trading, other than providing that a primary offering of tokenized securities cannot occur on the TSV. It also does not provide for any exemptions under the Securities Act of 1933. It only sets conditions for whether centralized TSVs that otherwise might be considered “exchanges” need to register (as well as whether liquidity providers on those TSVs need to register as dealers). And issuers can “opt-out” of a particular TSV trading third-party issued versions of its stock, but the opt-out applies only to trading on the specific TSV, not the tokenization of its stock more generally.

The order is the most concrete step to date in the Commission’s Project Crypto effort to permit tokenized securities to trade onchain. It was issued two days after the digital asset market structure bill known as the Clarity Act failed to advance in the Senate, underscoring that, for now, the Commission is proceeding through exemptive relief rather than waiting for legislation. It builds off prior SEC staff statements addressing tokenized securities: 

• a December 2025 statement identifying conditions on the custody of crypto asset securities by broker-dealers;
• a January 2026 statement setting out a taxonomy of tokenized securities that is employed in the order; 
• an April 2026 statement providing a conditional, time-limited staff position that it would not treat certain self-custodial interfaces used to prepare crypto asset securities transactions as broker-dealers.

The order establishes a framework for venues to offer trading in tokenized NMS stock—paired against payment stablecoins, other non-security crypto assets, tokenized money market funds or other tokenized NMS stock—without registering as a national securities exchange, operating as an alternative trading system (ATS) or complying with Regulation NMS. Liquidity providers may commit capital to liquidity pools, effectively providing quotes to customers, and enter into committed-liquidity arrangements with the pools without registering as dealers. In exchange, TSVs accept conditions that borrow heavily from Regulation ATS and Form ATS-N: a detailed public disclosure document, caps on the number of symbols and the share volume traded, halts synchronized with the primary listing market, public transaction data, a prohibition on leverage, recordkeeping and examination consent, and a requirement that the underlying smart contracts be public and deployed on a public, permissionless blockchain.

For public companies, a consequential feature is a new notice-and-objection mechanism with respect to third-party tokenization of their stock. Before a TSV may trade a version of a company’s stock tokenized by an unaffiliated third party, it must notify the company, which then has 30 calendar days to object and keep the token off that venue. This functionality is novel for TSVs—public company issuers generally are unable to prevent any national securities exchange or ATS from trading in its stock. Public companies should refer to the “What each party needs to know—Issuers whose stock may be tokenized by a third party” section below for further information.

The order offers a path, if narrow, for onchain secondary trading of listed equities, that the Commission believes should allow experimentation and innovation, while limiting the risk of spillover into the traditional national market system. It appears to reflect input from the public, including no-action relief that we sought on behalf of a client that advanced similar legal analysis.

Below we summarize the order, discuss what it means for TSV operators, liquidity providers, issuers and other market participants, and identify the open questions we expect to shape the comment process and any follow-on rulemaking.

The exemptions

Section 36(a)(1) authorizes the Commission, by rule, regulation or order, to exempt any person, security or transaction from any provision of the Exchange Act or its rules to the extent the exemption is necessary or appropriate in the public interest and consistent with the protection of investors. The Commission relies on that authority for both exemptions.

A TSV that satisfies the conditions would be exempt from the definition of “exchange” under Section 3(a)(1)—so it need not register under Section 6 or operate under the Regulation ATS exemption. Covered Firms providing liquidity on TSVs are exempt from the definition of “dealer” under Section 3(a)(5) of the Exchange Act, and thus need not register under Section 15. Because a TSV is neither an exchange nor an ATS, and the liquidity providers on a TSV are not required to register as a dealer, Regulation NMS effectively will be inapplicable to trading on the TSV. This is likely necessary for the TSV to operate, as it would be structurally difficult for an AMM-based market or the Covered Firms trading on it to comply with the strictures of Regulation NMS, such as Rule 605 (execution quality disclosure), Rule 610 (access), Rule 611 (order protection), Rule 612 (minimum pricing increments) and Rule 613 (the consolidated audit trail).

The order also states that reliance on either exemption creates no presumption that a TSV is an exchange or that a Covered Firm is a dealer. The order does not exempt any person from the antifraud and anti-manipulation provisions; Securities Act provisions, including registration; the definition of “broker;” the Investment Company Act; or any other law; and it does not cover any securities activity conducted outside the TSV.

What is a TSV

A TSV is an organization, association or group of persons that brings together buyers and sellers of Tokenized NMS Stock by (1) providing one or more AMM liquidity pools for permissioned participants to interact and agree to the terms of a trade and (2) setting standards for access to trading on those pools.

A person “provides” a pool if it designates or controls the pool as the means and location for trading—for example, by selecting the pool, deploying the AMM smart contract, setting or changing pool parameters or fees, or holding the ability to pause trading. The order clarifies that a person that only encodes a smart contract to whitelist a pool does not “provide” it. Any functionality the TSV makes available to enter, display or agree to terms of a trade—a website, browser extension or other application—is part of the TSV, and the exemption covers only activity conducted through the TSV’s own functionality and systems.

Only verified or credentialed users and liquidity providers (TSV Participants) may trade on a TSV. The order contemplates enforcing access either at the pool level, through allow-listed wallet addresses, or at the token level, by encoding the Tokenized NMS Stock so that it transfers only to credentialed wallets, with screening performed offchain or through onchain protocols. A TSV that outsources credentialing remains responsible for compliance. TSV Participants may include retail investors, institutions and registered broker-dealers; the Commission expressly declined to limit the types of participants.

Because of the permissioning requirement (along with the other obligations placed on TSVs), decentralized exchanges—those operating solely through immutable code and smart contracts—cannot be TSVs.

What can trade

Tokenized NMS Stock. The order covers NMS stock—in practice, exchange-listed equities and exchange-traded products—that is tokenized either (1) by or on behalf of the issuer or (2) by an unaffiliated third party, where the tokenized stock provides the same rights and privileges of the stock itself. It excludes tokenized securities issued by a third party that seek to provide synthetic exposure to an underlying stock, such as tokenized linked securities or security-based swaps. Rights and warrants are also excluded. 

Permitted pairs. A Tokenized NMS Stock may trade only in pairs with (1) another Tokenized NMS Stock, (2) a non-security crypto asset (including, but not limited to, payment stablecoins) or (3) a tokenized money market fund. Pairs may have more than two legs, but every leg must be one of the three permitted asset types, and non-security crypto assets and tokenized money market funds are eligible only when paired directly with a Tokenized NMS Stock. 

Equivalent rights and privileges. A TSV must verify that each Tokenized NMS Stock gives holders the same “rights and privileges” as traditional NMS stock of the equivalent class. A token satisfies that standard if, among other things, it conveys the same interest in the company and the same rights to dividends, to vote and to share in residual assets on liquidation. For third-party tokenized stock, the third party must distribute or make available proxy materials and other issuer communications to tokenholders at no cost to the issuer or the holders. In practice, it is not clear what form of tokenized stock would provide this level of equivalence, other than tokenized securities entitlements issued by a custodian of the stock itself—such as DTC’s anticipated tokenized stock offering, which is subject to its own SEC no-action letter. 

Secondary trading only. No primary issuance or initial offering of securities may occur on a TSV, and all offers and sales of Tokenized NMS Stock must be registered under the Securities Act or exempt from registration. As a result, issuers cannot use a TSV to issue any of its tokenized NMS stock.

Conditions on TSVs

In addition to the definitional requirements, a TSV must satisfy each of the following conditions.

• Public, permissionless infrastructure. Though a TSV must be permissioned, the TSV must run on a public, permissionless distributed ledger system, with auditable smart contracts.
• U.S. person. The TSV must be a U.S. person, which subjects it to OFAC sanctions programs, including the prohibition on dealing with Specially Designated Nationals and the obligation to block their property.
• Public notice. At least 30 calendar days before operating, a TSV must publish a notice on its website and, within one business day of the publication, notify the SEC by email. We discuss the public notice in detail below.
• Issuer notice. Before trading third-party tokenized stock, the TSV must give the issuer written notice and wait at least 30 calendar days. A timely objection bars trading of that token on that TSV. We discuss this mechanism in detail below.
• Symbol and volume caps. Tokenized NMS Stocks are tiered using the tiers of the Limit Up-Limit Down (LULD) NMS Plan. A TSV’s trading of Tier 1 NMS stocks—generally, constituents of the S&P 500 and Russell 1000 and certain high-volume exchange-traded products—is capped at 75 symbols and at 0.25% of the stock’s prior-month consolidated average daily share volume. A TSV’s trading of Tier 2—all other NMS stock—is capped at 250 symbols and 2.5% of the stock’s prior-month consolidated average daily share volume. Volume and symbol counts are aggregated across affiliated TSVs. The first time a TSV exceeds a volume cap in a given stock it need only ensure future compliance; each subsequent breach requires an immediate three-month pause in trading that stock (at the TSV and its affiliated TSVs), immediate notice to participants and a revised public notice. Symbol caps have no grace period; exceeding them takes the TSV outside the “exchange” exemption. A TSV may pause trading in a stock voluntarily as it approaches a cap.
• Transaction transparency. The TSV must make available, free of charge and in machine-readable form, U.S. dollar-denominated data for all transactions in the past 30 days, updated within 10 minutes of each trade. The data must include the symbols of each leg, price, size, time and direction, as well as the liquidity pool’s smart contract addresses, daily volume by pair and end-of-day pool size.
• Synchronized halts. The TSV must halt trading a Tokenized NMS Stock concurrently with any halt or suspension of the underlying stock on its primary listing exchange and immediately notify participants. A TSV that stops trading a Tokenized NMS stock on its own initiative must notify participants of the stoppage immediately.
• Significant operational events. The TSV must immediately notify participants, and promptly notify the SEC, of any event that significantly affects its operations or its participants—for example, a system disruption or intrusion—and must remediate the event as soon as reasonably practicable.
• No leverage. The TSV may not borrow securities or non-security crypto assets on the TSV, hypothecate or arrange for or permit hypothecation of assets on the TSV, or extend credit to participants to purchase Tokenized NMS Stock.
• No misrepresentation. The TSV may not state or imply that it is registered with the SEC or that its activities have been approved or endorsed by the SEC.
• Books and records; examination. The TSV must make and keep records of trading interest, transactions, participant screening and wallet verification, fees and other compensation, stoppages, average daily volume by symbol, operational events and all required notices. Records must be kept in the United States for the life of the exemption plus three years and produced promptly to the staff on request in human-readable and usable electronic form, and the TSV must consent to staff examination at any time. Onchain records suffice if they meet those access standards.
• No statutory disqualification. Neither the TSV nor any person within a group that comprises it may be subject to a statutory disqualification (caused by certain historical regulatory or criminal misconduct), absent relief from the SEC or the relevant self-regulatory organization.
• Separation from registered activity. A registered firm may operate a TSV, typically through an affiliate, but must keep the TSV separate from its registered activity.

The public notice

The centerpiece disclosure document of the TSV exemption is the public notice, which requires extensive information about the TSV and its operations. At least 30 calendar days before operating, a TSV must publish a plain-English notice prominently on its website and, within one business day of the publication, notify the SEC by email. The notice must be revised within five business days after the TSV begins or stops trading a tokenized stock, pauses or resumes a tokenized stock under the volume caps, or receives an issuer objection; at least 20 calendar days before any material change; within 30 calendar days after each quarter-end for non-material changes; and within five business days after the TSV discovers a material inaccuracy or omission. Each revision must be reported to the SEC within one business day, and all versions must remain on the website.

The required content is reminiscent of Form ATS-N (which ATSs facilitating trading in NMS stock must publicly file), but with adjustments and additions specific to onchain trading and the requirements of the exemption. Of the 30 required items, the following warrant particular attention:

• mandatory disclaimers that the TSV is not registered with the SEC, that the SEC has not passed on the merits or accuracy of the notice, is not subject to Regulation NMS and is not subject to fair access requirements—meaning that unfair or discriminatory denials of access are not subject to SEC review;
• whether the TSV or its affiliates tokenized any stock traded on the TSV or trade on the TSV as users or liquidity providers, and any differences in treatment among participants;
• the smart contracts used, and who can upgrade, modify, suspend, override or shut them down, and how;
• the pricing model for each pool, any use of oracles or external market data, and any price bands or circuit breakers;
• policies addressing maximal extractable value (MEV), or a statement that there are none;
• known material risks—including smart contract bugs, key compromise, oracle manipulation, impermanent loss and MEV-related abuses such as sandwich attacks—and how the TSV mitigates and compensates for losses;
• trading surveillance for manipulation and other abuses, or a statement that the TSV performs none; and
• whether the TSV may be the exclusive or predominant venue for a token and, if so, the associated risks and any process for holders to burn or detokenize.

In many ways, the regime is disclosure-based, rather than mandating particular functionality or operating mechanics, and is not subject to SEC review or approval. Several items permit a TSV simply to state that it has no procedures, for example, for complaints, confidentiality, systems safeguards or surveillance. The TSV must, however, acknowledge in its notice that operating inconsistently with the exemption could result in enforcement action.

The Covered Firm exemption

In a notable departure from the positions taken and rule adopted (but later judicially vacated) under the prior administration (see our prior client update), the Commission indicated in the order that liquidity providers on an AMM pool typically, without more, would not be considered dealers, because “[l]iquidity provision alone does not constitute engaging in dealer activity” and engaging in such activity would likely be “trader” rather than “dealer” activity. Even if a liquidity provider on a TSV would otherwise be a dealer, a Covered Firm would be exempt from the definition of “dealer,” if it meets several conditions:

• its securities activities are limited to activities related to trading Tokenized NMS Stock in AMM pools operating under the TSV exemption;
• it trades solely for its own account and does not hold or custody customer assets;
• it makes and keeps records of its financial capacity, its liquidity provision (including market making) agreements or understandings with any TSV, and any fees, tokens, rebates or other compensation it receives for providing liquidity;
• it prominently discloses on any public website that it is not a registered broker-dealer, that it may enter into liquidity arrangements with a TSV and that it may receive fees, tokens or other incentives for providing liquidity or meeting volume thresholds;
• it notifies the SEC in writing of its role, including its name, business model, an overview of its risk controls, and its liquidity arrangements and compensation, and consents to staff information requests; and
• neither it nor any affiliate is subject to a statutory disqualification, absent relief.

The exemption runs to the dealer definition only. It does not address broker status, to the extent a person effects transactions on behalf of others.

What each party needs to know

Issuers that want to tokenize their stock

The order does not authorize or regulate issuer tokenization. It provides relief for venues on which a public company issuer’s tokenized shares might trade. An issuer considering tokenization should treat the order as one component of a broader project. 

Below we describe several key considerations.

• The token must be the listed class, not a new security. Only NMS stock qualifies, so an issuer-sponsored token must represent the listed class itself in a different recordkeeping form. In practice, that means working with the issuer’s transfer agent (and, where relevant, DTC) on how onchain holdings are reflected in the master securityholder file, how tokens are minted when shares move onchain and burned when they move off, and how onchain and traditional positions remain fungible. 
• No issuer notice applies, but expect possible verification requests. The notice-and-objection process applies only to third-party tokenized stock. A TSV trading issuer-sponsored tokens must still verify rights equivalence and describe in its public notice how the token was created and how it evaluated the token’s legal status and technical soundness. TSVs may request documentation from issuers regarding their issuer-sponsored tokens and so issuers should decide in advance what they will provide and on what terms.
• The issuer cannot seed liquidity with new shares. The prohibition on primary issuance on a TSV, together with Securities Act registration requirements, means an issuer cannot sell or supply any newly issued or treasury shares into a TSV liquidity pool. An issuer or affiliate that trades its own tokenized stock on a TSV raises Securities Act registration, Regulation M and anti-manipulation concerns, may not meet the Rule 10b-18 safe harbor and must be disclosed in the TSV’s public notice. 
• Compliance programs need to account for a 24/7 venue. Insider trading policies, blackout windows and Rule 10b5-1 plans should address tokenized shares, including trading outside regular hours. 
• Consider disclosure. An issuer that sponsors tokenization should consider risk factor and other disclosure regarding potential price divergence between tokenized and traditional shares, smart contract and custody risks borne by tokenholders, and how dividends, voting and other corporate actions operate for onchain holders.
• Expect limited liquidity at first. The volume caps apply equally to issuer-sponsored tokens. Using the staff’s 2025 figures cited in the order, a Tier 1 stock trading the average of roughly 3.0 million shares a day would support about 7,560 shares a day on a single TSV, and a Tier 2 stock at the average of roughly 1.2 million shares about 30,200. These figures are averages across each tier and are pulled upward by the most heavily traded names; for a typical Tier 2 stock, the permitted volume will be considerably smaller. Because the caps apply per TSV (aggregated only with affiliates), an issuer seeking deeper liquidity in tokenized form will need its token to trade on multiple unaffiliated venues.
• TSVs are not the only onchain route for issuers. The order provides one, nonexclusive basis for the trading of tokenized stocks. Tokenized stocks may trade through other means as well, although those will not benefit from the certainty of the exemption.

Issuers whose stock may be tokenized by a third party

Put a process in place now. The notice-and-objection mechanism is the issuer’s principal tool if it does not want its tokenized stock trading on unregistered U.S. platforms. The TSV must deliver the issuer notice to the physical or email address of the issuer’s principal executive offices as listed on the cover page of its Exchange Act reports, and it must include contact information for any objection. The 30-day window runs from receipt, and the objection must be in writing and delivered to the TSV on or before the 30th calendar day. The order does not provide for late objections, so a notice that sits in a mailroom may cost the issuer its objection right. 

We recommend that issuers:

• designate a responsible function (typically the corporate secretary or general counsel’s office) and have a process to ensure that the mailroom, reception and investor relations route any notice from a TSV to the appropriate party immediately;
• consider whether to permit or object to third-party tokenized trading on a TSV, and if to object, whether to do so for all TSVs or to consider TSV notices on a case-by-case basis (e.g., permitting trading on TSVs operated by well-known firms); 
• determine in advance who may authorize an objection—management under a board-approved policy, or a board committee—so that a decision can be made well within 30 days;
• prepare a short-form objection letter if the issuer plans to object; and
• monitor TSV public notices, which must identify every third-party tokenized stock the TSV trades  and every issuer that has objected.

Understand what an objection does—and what it does not do. A timely objection bars the notifying TSV from making that third-party tokenized stock available for trading, and the TSV must disclose the objection publicly within five business days. A TSV that trades a third-party token without giving notice, or over a timely objection, falls outside the exemption for that stock. In such a circumstance, issuers may not have recourse on their own, but the Commission could pursue enforcement. 

An objection does not:

• bind other TSVs—each TSV must send its own notice, so an issuer that wishes to stay off TSVs must respond to every notice it receives;
• prevent the third party from tokenizing the stock, or prevent those tokens from trading through channels outside the TSV exemption, including offshore venues;
• reach synthetic products—tokenized linked securities, tokenized security-based swaps and similar instruments fall outside the definition of Tokenized NMS Stock altogether and a TSV may not trade them, so the order gives the issuer no objection right with respect to them; or
• apply to tokens sponsored by the issuer itself—if the issuer sponsors its own tokenized stock, it cannot opt-out of the token trading on particular TSVs, although the issuer may, as a technological matter, be able to do so through a wallet whitelisting process.

Weigh the considerations. The order does not require an issuer to justify an objection. The Commission identified two concerns it expects issuers to weigh: the difficulty of maintaining the shareholder register when shares change hands onchain, and the potential for AMM prices, driven by pool ratios, to diverge from and affect the price of the underlying stock. In our view, issuers should also consider the following:

• Shareholder identification and voting. Third-party tokenholders typically sit behind the tokenizer’s custody arrangement and are not reached through the Rule 14a-13 search process in the ordinary way. The tokenizer must deliver proxy materials at no cost, but the order leaves the mechanics of vote pass-through, reconciliation of over- and under-voting and record date cutoffs to the tokenizer.
• Holder rights. The TSV must verify rights equivalence, but whether a tokenholder can exercise state law rights that depend on record or beneficial ownership—inspection demands, appraisal and derivative standing—depends on the tokenizer’s structure, not on the order.
• Ownership monitoring. Pseudonymous wallets complicate surveillance for Section 13(d) accumulations, rights plan triggers and activist activity, although in ways similar to “objecting beneficial owners,” or OBOs.
• After-hours price formation. A TSV may trade around the clock, but its halt obligation only mirrors halts on the primary listing exchange. TSVs are not required to apply LULD price bands and have no obligation of their own to report trades to the consolidated tape. Material news released after the close may first be priced on a TSV, through a pool-ratio mechanism, before the primary market opens. This concern may become less pronounced as more traditional markets expand to nearly 24-hour trading.
• Access benefits. Issuers with significant retail or non-U.S. investor bases may see value in 24/7 trading, fractional ownership and self-custody, and may conclude that sponsoring their own token, such as through engagement with a well-structured tokenizer, is preferable to opposition.
• Silence has consequences. An issuer that does not object within 30 days cannot later block trading of that token on that TSV under the order. The order is silent on whether an issuer may withdraw an objection and whether a TSV may send a new notice to restart the clock after an objection. 
• Engaging with tokenizers. The order imposes no obligation on issuers to cooperate with third-party tokenizers. Issuers that decide not to object may nonetheless consider whether it wants to reach out to the third party tokenizer to understand how the shareholder rights are being passed through, including with respect to dividends, corporate actions and proxy materials and may want to alert its investor relations team on the questions they may receive from holders of the issuer’s tokenized securities.

Prospective TSV operators

Prospective TSV operators should consider the following.

• Define the perimeter. Because the TSV includes all functionality used to enter, display or agree to the terms of trades, operators should map every component—front end, permissioning, pools, administrative keys and pause functions—to the entity or group of persons that will be the TSV, confirm that each is a U.S. person free of statutory disqualification, and separate the TSV from any registered affiliate.
• Build for the caps. Compliance with the exemption requires that a TSV track volume against the prior month’s consolidated average daily volume for each symbol, aggregated across affiliates, and the ability to pause trading in a single stock promptly. Symbol counts are a hard limit. Operators should also monitor LULD tier assignments, which change with index reconstitutions and with the semiannual update of the LULD Plan’s schedule of Tier 1 exchange-traded products.
• Halts require reliable data and a pause function. Stopping trading concurrently with a primary listing exchange halt—including LULD trading pauses, which can occur at any point during regular trading hours—requires a dependable real-time feed of halt status and a smart contract pause mechanism. Both must be disclosed, including who controls the pause.
• Plan change management around the notice. Material changes require 20 calendar days’ advance notice. The order does not reconcile this with the need to deploy urgent security patches or to remediate a significant operational event “as soon as reasonably practicable,” and operators should draft their notices and upgrade procedures with that tension in mind.
• Analyze broker and BSA status separately. The exemption does not reach the broker definition. Registered exchanges may effect transactions in securities, but are typically not viewed as brokers because of their more stringent regulatory obligations. But a TSV operating based on the exchange exemption may need to consider the question. An operator whose front end solicits participants, handles participant assets or earns transaction-based compensation should analyze broker status independently. The Division of Trading and Markets’ April 2026 staff statement on covered user interfaces is the most relevant guidance. The statement contemplates an interface that connects users to venues selected on objective criteria, discloses any affiliated venue and interacts with it on the same terms as unaffiliated interfaces, and does not take or route orders. A TSV’s front end, by contrast, may connect only to the TSV’s own pools. Operators relying on the statement should map their front end against each of its conditions. Separately, the order requires OFAC compliance and disclosure of AML/CFT-based access controls, but it does not make a TSV a financial institution under the Bank Secrecy Act or impose an AML program requirement.
• A venue exemption rather than a comprehensive tokenization framework. The order resolves the status of the venue and liquidity providers on such venue, but not the status of the token. Whether a third-party token is the NMS stock itself (a custodial model) or a separate security issued by the tokenizer determines both eligibility and Securities Act treatment, yet the line between custodial and synthetic tokenization rests on a staff statement that the order acknowledges has no legal force. If a third-party token is a separate security, the tokenizer may be its issuer, and the requirement that all offers and sales be registered or exempt becomes a substantial constraint. Many tokenized U.S. equities in circulation today are issued offshore, potentially in reliance on Regulation S, and those structures cannot simply be carried over to trading on a TSV. TSVs should consider requiring a clear legal analysis before listing third-party tokens.
• Rights equivalence. The TSV must “verify” the equivalence of rights and privileges between Tokenized NMS Stock and the traditional stock, and the order lists four rights “among other things.” It does not specify what diligence suffices, whether reliance on a tokenizer’s representations is enough or how equivalence is maintained through corporate actions over time. Nor does it address whether a holder must be able to convert a token into a traditional share on demand. The consequence of getting this wrong falls on the TSV: a token that fails the test makes the exemption unavailable.
• The caps are per venue and some clarification is needed. The figures above suggest that the caps permit meaningful retail trading, but not institutional-scale activity. At the same time, because the caps apply per TSV rather than market-wide, aggregate tokenized volume across unaffiliated venues is not capped.  Additional clarification on calculating the trade volume limitation and what constitutes a breach of such caps may also be helpful. 

Liquidity providers 

Liquidity providers should consider the following.

• Covered Firm status generally requires a dedicated entity. The condition that a Covered Firm’s securities activities be limited to trading Tokenized NMS Stock in TSV pools reads as an entity-level limit. A diversified trading firm, or a firm that wishes to hedge its pool exposure by trading in the traditional stock or listed options, generally cannot rely on the exemption in the same entity—it would need to conduct its non-TSV trading activity through an affiliate. 
• Cannot hold customer assets. A Covered Firm may quote to customers and enter committed-liquidity agreements, but it may not hold customer assets. A model that involves managing liquidity for others, pooling third-party capital or providing custody falls outside the exemption.
• Registered broker-dealers carry a heavier burden. A registered broker-dealer providing liquidity on a TSV does not need the exemption, but it remains subject to its full regulatory regime, including net capital treatment of tokenized stock and pool positions, customer protection requirements, FINRA trade reporting for transactions in NMS stock effected otherwise than on an exchange, and CAT reporting. An unregistered Covered Firm performing the same function is not. The request for comment asks whether relief for registered broker-dealers is warranted. Unless relief is granted, in practice, it seems unlikely that firms would trade on TSVs through their registered broker-dealer, rather than establishing a separate, unregistered affiliate.
• Understand the economics. AMM pools expose liquidity providers to the risk of impermanent loss and to MEV-driven adverse selection, and pool pricing does not reference the national best bid and offer. Mandatory halts and cap-driven three-month pauses can strand liquidity; providers should confirm how and when they can withdraw assets during a halt or pause.

Broker-dealers, investment advisers and other intermediaries

Broker-dealers that consider routing customer orders to TSVs or offer customers access to tokenized stock will need to address best execution against pool-ratio pricing that is not protected under Rule 611, compliance with Rule 611 (that may apply to the broker-dealer, even if not the TSV), order routing disclosure, custody and control of tokenized securities held for customers, and trade reporting. 

Investment advisers will need to address the custody rule for tokenized holdings, particularly self-custodied tokens, and best execution.

Tokenizers, transfer agents and custodians receive no relief under the order and should assess their status under existing rules; third-party tokenizers should also analyze the Securities Act status of their tokens, as discussed below. 

ETF and money market fund sponsors should note that the order provides no Investment Company Act relief and specifically flags Section 18 multi-class issues and Section 22(d) and Rule 22c-1 issues for tokenized investment companies. Tokenized ETF shares and tokenized money market funds are within the order’s scope as tradable assets, but those issues must be resolved separately.

Open questions and observations

Direct retail access without a broker-dealer. Because TSV Participants need not trade through a broker-dealer, retail investors can trade NMS stock on a TSV directly from self-custodied wallets. 

Liquidity pools and liquidity pool tokens. The order describes liquidity pools and LP tokens but neither grants relief for them nor addresses their status. Some have raised concerns that an LP token representing a pro rata interest in a pool of Tokenized NMS Stock and paired assets (and earns a share of trading fees) may itself be a security, which sits uneasily with the prohibition on primary issuance on a TSV Operators and liquidity providers should consider the design of liquidity pools and LP tokens.

Public ledgers and institutional trading. Requiring smart contracts to be public and deployed on a permissionless ledger excludes private and permissioned networks and may exclude privacy-preserving designs in which code or state is not publicly visible. It also means that trading intent may be visible before execution, making MEV a practical concern for institutional participants. The order requires disclosure of MEV policies, but not mitigation.

Credit outside the TSV. The leverage prohibition applies only on the TSV. Tokenized NMS Stock is margin stock, so lending protocols that extend credit against it raise questions under Regulations U and X (promulgated by the Federal Reserve, but enforced by the Commission). These rules regulate extensions of credit against listed stock. The order does not address linkages between TSVs and onchain lending protocols.

Decentralized protocols remain unaddressed. The order applies to venues with an identifiable operator that provides pools and sets access standards. It does not address trading of tokenized stock through permissionless protocols without such an operator. Commissioner Peirce made the same point in her accompanying statement, noting “this order is not about decentralized finance.” In her view, truly decentralized systems run by automated software do not raise the core concern that securities regulation addresses—the risk that an intermediary acting for investors will fail them. She also observed that onchain trading models that can operate within existing Exchange Act requirements may not need an exemption at all. Her view, however, is not explicitly stated in the order—and her tenure at the Commission just ended. 

Comment process and next steps

The Commission poses ten specific questions and requests comment on all aspects of the order, including whether the TSV exemption should be modified or made permanent; whether the caps and five-year term are appropriate; how TSV trading may affect liquidity, pricing and trading in the underlying stock; whether TSVs should be permitted to trade additional securities or pairs; and whether relief is warranted for registered broker-dealers. The order does not set a comment deadline.