A Conditional Path for On-Chain Trading of Tokenized U.S. Stocks

Key Takeaways

The SEC Order

If you work in a public company environment but have been ignoring blockchain technology, you should probably read this report. The SEC has issued an order and request for comments via Release No. 34-106402, available at https://www.sec.gov/rules-regulations/2026/09/4-927 (the Order), creating a time-limited (five-year) framework for secondary trading of tokenized national market system (NMS) stocks through permissioned automated market makers (AMMs) and liquidity pools. Because every stock listed on the New York Stock Exchange or the Nasdaq Stock Market is an NMS stock, the Order is potentially applicable to the stock of most major U.S. public companies.

Formally, the Order grants two targeted exemptions under Section 36(a)(1) of the Securities Exchange Act of 1934, as amended (the Exchange Act): one from the statutory definition of “exchange” for qualifying “Tokenized Securities Venues” (called TSVs), another from the statutory definition of “dealer” for certain proprietary liquidity providers (called Covered Firms). The Order is not a proposed rule. It is effective now.  

The Order creates a regulatory pathway for an alternative market structure offering self-custody, fractional trading, 24-hour access and nearly instantaneous settlement without fitting the venue itself into the “national securities exchange” or “alternative trading system” (ATS) regulatory framework. Subject to significant conditions, an unaffiliated person can tokenize any NMS stock and make it available for purchase and sale on a TSV, even without the issuer’s sponsorship or approval, unless the issuer objects within 30 days.

The SEC release describes the Order as an “interim, targeted measure” intended to generate operational data while it considers rulemaking or other action. Chairman Paul Atkins called the exemption a “bridge toward durable rulemaking” while Commissioner Mark Uyeda called it “a path to data-driven rulemaking” and Commissioner Hester Peirce described it as “a major step forward in allowing individuals greater personal autonomy to own and trade their own assets” in their separate statements on the Order issued September 17, 2026.

How the Innovation Exemption Works

Two Targeted Exemptions, Not a Comprehensive Regulatory Regime

Section 36(a)(1) authorizes the SEC, by rule, regulation or order, to exempt persons, securities, transactions or classes thereof from Exchange Act provisions when the exemption is necessary or appropriate in the public interest and consistent with investor protection. Relying on that authority, the SEC Order grants:

1. a TSV Exemption from the Exchange Act Section 3(a)(1) definition of “exchange”; and
2. a Covered Firm Exemption from the Section 3(a)(5) definition of “dealer.’

A compliant TSV is therefore not required, for covered activity, to register as a national securities exchange or operate as an ATS under Regulation ATS. It also is not treated as a “trading center” or “market center” for Regulation NMS purposes, so venue-level provisions such as Rules 605, 610, 611, 612 and 613 do not apply to the TSV. The SEC adopted this approach because AMM pool-ratio pricing may be difficult to reconcile with the Rule 611 trade-through prohibition, Rule 602 quotation-processing requirements and Rule 612 pricing increments.

This is best understood as a supervised market-structure experiment, not a general deregulation of tokenized securities. The SEC has invited comment on the framework and could decide to modify or shorten the duration of the Order from its scheduled September 17, 2031 expiration date. Market participants therefore have an incentive to document their experience and submit evidence-based comments rather than assume that the Order will become permanent without changes.

Eligible Venues, Securities, and Trading Pairs

A TSV is an organization, association or group of persons that brings together buyers and sellers of Tokenized NMS Stock by providing one or more AMM liquidity pools for permissioned participants and setting standards for access. A person establishes a pool by designating or controlling it as a trading venue (e.g., by deploying the smart contract, determining fees or parameters, or retaining the ability to pause trading). A website, browser extension or other functionality used to enter, display or agree to trading terms could form part of the TSV.

A “Tokenized NMS Stock” includes an NMS stock tokenized either by or for its issuer or by an unaffiliated person. It excludes rights, warrants and instruments in which someone other than the issuer a security providing mere “synthetic” exposure, such as a tokenized linked security or a tokenized security-based swap. Eligible stock must trade in a pair with another Tokenized NMS Stock, a non-security crypto asset (including an eligible payment stablecoin), or a tokenized money market fund. Non-security crypto assets and tokenized money market funds cannot trade independently on the TSV. Notably, the Order does not provide any exemption under the Investment Company Act of 1940, so tokenized investment company securities, including tokenized money market funds and tokenized exchange-traded funds, are ineligible for TSV trading in reliance on the Order.

The Order covers secondary trading only. No primary issuance or initial offering can occur on a TSV in reliance on the Order. Every offer and sale outside the scope of the order must be registered under the Securities Act or qualify for a Securities Act exemption.

A separate issuance question remains critical for unaffiliated models: The Order does not relieve the  stock tokenizer from the need for Securities Act registration or exemption. This could complicate attempts to replicate, in the United States, structures used for offshore tokenized equities. A TSV’s eligibility under the Order does not establish that the token was lawfully issued, offered or sold.

TSV Eligibility and Operating Conditions

A TSV must be a U.S. person and therefore subject to applicable Office of Foreign Assets Control sanctions requirements. Participation must be permissioned through verified or credentialed persons and wallet addresses. A service provider can perform verification, but the TSV will remain responsible for compliance. Relief generally is unavailable where a person comprising the TSV is subject to statutory disqualification unless the SEC or relevant self-regulatory organization has permitted continued participation.

The TSV must use distributed ledger applications that are auditable, public and deployed on a public, permissionless distributed ledger (a public blockchain), even though access to the AMM pools is permissioned. Few blockchains satisfy this condition. The condition is intended to facilitate independent review of code and transactions. It does not eliminate risks associated with coding errors, governance keys, oracle manipulation, network congestion, maximal extractable value, compromised wallets or cyber intrusion.

No less than 30 calendar days before operating, a TSV must publish a detailed notice on its website and notify the SEC by one business day later. The notice must address, among other matters, governance, affiliates, participant eligibility, permissioning, tokenization methodology, asset pairs, holder-rights verification, technology, smart-contract controls, trading procedures, pricing, fees, conflicts, clearing and settlement, service providers, privacy, cybersecurity, maximum extractable value, surveillance, trading halts, complaints, operational risks, and whether the TSV may be the predominant venue for a token. Material operational changes require 20 calendar days’ advance disclosure. Specified trading changes, issuer objections and material inaccuracies generally require updates within 5 business days, and nonmaterial changes must be reported no later than 30 days after quarter-end.

Relief is based on notice rather than an individualized order. This feature will facilitate entry, but will increase compliance risk as a TSV must determine for itself that every element of the definition and every condition is satisfied. Operators should maintain a condition-by-condition compliance matrix, assign responsibility to an individual for each representation made in the public notice, and retain evidence that the conditions remain satisfied after launch. Operation outside the conditions could trigger an SEC enforcement action for unregistered activity.

The notice must expressly state that the TSV is not SEC-registered, is not subject to Regulation NMS, and is not subject to the “fair access” protections applicable to national securities exchanges and certain ATSs.

Issuer Notice, Objection Rights, and Equivalent Shareholder Rights

Before trading stock tokenized by an unaffiliated person, the TSV must send written notice to the physical or email address of the issuer’s principal executive offices appearing on the cover of its Exchange Act reports. Trading cannot lawfully begin until at least 30 calendar days after the issuer receives that notice. If the issuer objects in writing on or before the 30th day, then TSV cannot make the tokenized stock available and must disclose the objection publicly within 5 business days.

The Order does not expressly provide a mechanism for withdrawing an objection or for objecting after the 30-day period has elapsed. Neither does an objection appear to operate market-wide, so companies might well receive notices from multiple TSVs. These omissions make advanced decision-making and speedy internal escalation important. Failure to act timely is a governance decision.

Each token must provide the same rights and privileges as the equivalent traditional share, including the same interest payments, dividends, voting rights and residual liquidation rights. For tokenization by an unaffiliated person, proxy materials and other issuer communications must be made available to token holders at no cost to the issuer or its shareholders.

The Order does not expressly require conventional-share redemption or convertibility, leaving the structure of the legal and custodial entitlement as a significant diligence issue.

Symbol, Volume, Transparency, and Market Controls

There are trading limits, set according to two tiers of NMS stocks:

Note how small the volume limits are.

Symbol counts and volume must be aggregated across affiliated TSVs. The first violation triggers prospective correction. Each subsequent violation for the same stock triggers an immediate 3-month trading pause by the TSV and any affiliated TSVs. The grace provision does not apply to symbol-limit breaches.

A TSV must publish U.S.-dollar-denominated trading data in a freely available, machine-readable format, updated within ten minutes of each trade and covering at least the preceding 30 days. Required data include the asset symbols, price, size, UTC time, direction, pool and smart-contract information, daily pair volume and end-of-day pool size.

Although this disclosure improves visibility into TSV activity, TSV trades are not incorporated into the consolidated tape. Conventional consolidated-volume sources may therefore understate total market activity in an issuer’s shares, potentially affecting internal liquidity analysis and how analysts or investors assess volume, turnover, and market quality. Issuers and their advisers should monitor TSV data separately and should not assume that the published data automatically count for every other regulatory or policy-based volume test.

The TSV must halt a tokenized stock concurrently with a halt or suspension of the underlying stock on its primary listing exchange. It must notify participants immediately of trading stoppages and significant operational events, promptly notify the SEC of significant operational events, remediate known events as soon as reasonably practicable, and preserve detailed records. Records must be maintained in the United States throughout the five-year duration of the exemption and for three years thereafter, must remain available in human-readable and reasonably-usable electronic formats, and must be subject to SEC examination.

A TSV may not extend credit for purchases, borrow securities or non-security crypto assets or hypothecate or arrange hypothecation of assets on the TSV. These restrictions prevent the venue from combining trading with margin, securities lending or comparable financing functions.

The maximum symbols and volume limits drastically restrict the ultimate size of the trading market per venue. Tier 1 covers S&P 500 and Russell 1000 constituent stock and certain ETPs. A venue is limited to 75 Tier 1 symbols, with volume capped at 0.25% of the prior month’s average daily share volume. Tier 2 covers all other eligible NMS stocks (excluding rights and warrants), with up to 250 symbols and a 2.5% volume cap. A single venue could therefore list up to 325 symbols in total, although the volume caps would keep any one stock’s on-chain trading quite small. Because the symbol and volume caps are calculated across affiliated venues, a firm cannot circumvent them by using multiple venues.

Covered Firms

The dealer relief applies to a liquidity provider that supplies Tokenized NMS Stock using proprietary capital and may have additional indicia of dealer activity, such as customer pricing or committed-capital arrangements. The SEC notably states that liquidity provision alone generally does not make a person a “dealer.” The Order addresses less-certain cases involving additional dealer-like conduct. Reliance on the Order creates no presumption that the firm otherwise would be a dealer.

A Covered Firm must:

• limit its securities activities to Tokenized NMS Stock trading in qualifying TSV pools;
• trade solely for its own account and hold no customer assets;
• maintain records regarding its liquid resources, pool contributions, arrangements and compensation;
• disclose, on any public-facing website, that it is not a registered broker-dealer and may receive liquidity incentives; and
• notify the SEC regarding its business model, controls, agreements, incentives, regulatory contact and absence of statutory disqualification, while consenting to information requests.

The relief concerns dealer status only. It does not excuse broker registration if a person effects transactions for others, solicits securities transactions, handles orders or assets, or receives transaction-based compensation. A Covered Firm’s off-TSV securities activity, including hedging and proprietary activity elsewhere, requires a separate analysis because the Order does not clearly address it.

What Public Companies Should Do Now

The immediate task for a company whose stock is listed on a registered exchange is to establish a TSV notice protocol. Mail and email reaching the principal executive office address disclosed in Exchange Act filings should be monitored and routed promptly to the general counsel, corporate secretary and relevant investor-relations and compliance personnel. Because the 30-day period runs from receipt, an unmanaged mailbox or decentralized intake process can effectively make the issuer’s decision by default.

OKXICE, a joint venture between OKX and NYSE parent Intercontinental Exchange, published a notice dated October 4 listing 63 stock tokens that it plans to offer, including Nvidia, Tesla, Apple, Microsoft, Amazon, JPMorgan, Goldman Sachs, Coinbase, Strategy, Circle and Robinhood. That is under the 75-symbol Tier 1 cap, so it appears to fit within the limit. Those companies each have 30 days from receiving notice to object.

Companies should decide whether or not to object before receiving a notice. Relevant diligence includes the token’s legal entitlement to underlying shares; custodian and transfer-agent arrangements; reconciliation of on-chain transfers with the shareholder register; voting and proxy-delivery mechanics; dividend and corporate-action processing; cybersecurity; detokenization or exit procedures; the TSV’s surveillance and conflicts; and potential price dislocation while primary markets are closed. Because an objection becomes public, investor-relations and communications considerations also matter.

For companies deciding whether to participate, success should be measured against the product’s intended use. In a September 2026 report about tokenized assets, Pantera Capital distinguished investors holding yield-bearing products (who need dependable subscription and redemption) from traders (who need competitive execution) and borrowers who use tokens as collateral (and need reliable financing and liquidation). For tokenized equities on TSVs, this points toward considering spreads, execution size, slippage, trading hours, market-maker coverage, and synchronization with the primary market while also assuring shareholder rights, good custody, and exit arrangements.

Pantera Capital also distinguished spot market equity ownership from synthetic price exposure: It observed $67.8 billion of June equity perpetual volume against $4.2 billion of tokenized equity spot volume — approximately 16 times the spot market volume. That comparison evidences demand for equity exposure but not equivalent invested capital, unique users, or market depth. Leverage and repeated repositioning in the perpetuals market amplify derivative trading volume. To evaluate the exemptions created by the Order, useful experience and data for companies and the SEC will include executable depth, spreads and slippage, market-maker coverage, actual spot market turnover, holder distribution, shareholder rights exercise, and exit mechanics.

A practical decision framework for a public company today should address both substantive diligence and corporate authority. A public company should prepare in advance: (i) a named intake owner and same-day escalation path; (ii) board or committee guidance on who may object for the company, using what standard; (iii) pre-approved diligence questions and a form of objection; and (iv) a documented record of the decision. Diligence should include the identity and regulatory status of the tokenizer and venue, custody of underlying shares, voting pass-through and deadlines, shareholder-register reconciliation, corporate-action processing, holder communications, redemption or detokenization, branding and disclaimers, and the venue’s controls for market abuse and operational incidents.

Issuer-sponsored tokenization can offer fractional ownership, direct wallet holding and extended trading, but the Order does not relieve the issuer, tokenizer, transfer agent or custodian from their otherwise applicable obligations. Transaction documents should allocate responsibility for shareholder records, proxy distribution, forks and airdrops, compromised keys, corporate actions, tax reporting, smart-contract upgrades, chain outages and termination of the TSV or the exemption.

Boards and disclosure committees also should consider whether 24/7 trading affects insider-trading controls, Regulation FD procedures, earnings-release practices and management of material developments occurring outside primary-exchange hours. The Order does not itself impose a new Form 8-K or periodic-report requirement, but a material tokenization arrangement, operational incident or developed market risk may require analysis under existing disclosure standards.

Because tokenized trading occurs outside primary-market hours and does not appear on the consolidated tape, investor relations, treasury, legal, and compliance teams may have incomplete or delayed visibility unless they establish a separate monitoring process.

What Exchanges and Trading Venues Should Consider

The exemption does not change primary-exchange listing standards or trigger a separate exchange listing requirement for stock tokens. The underlying NMS stock remains listed under the exchange’s rules. The TSV merely makes a tokenized version of that stock available for secondary AMM trading. The primary listing exchange remains operationally important to tokenized stock trading because its halts and suspensions must be mirrored by the TSV.

For exchange groups and broker-dealer operators, the Order creates both an opportunity and a separation requirement. An SEC-registered entity may operate a TSV through an affiliate, but registered and exempt activities must remain separate. Governance, staffing, systems, books and records, marketing, order handling and financial flows should be designed to prevent non-exempt exchange, ATS, broker or dealer activity from migrating into the TSV.

Registered broker-dealers participating on a TSV receive no general pass from best execution, supervision, books and records, net capital, custody, customer protection, FINRA reporting or applicable Regulation NMS obligations. The SEC release asks whether broker-dealer TSV participants require additional Regulation NMS relief, confirming that the present Order does not provide it.

Competitively, TSVs might offer features difficult for conventional venues to replicate under current rules, including AMM pricing, public smart contracts, direct wallet settlement and extended hours. But their small volume caps, absence of leverage, extensive disclosures and unresolved participant-level requirements constrain near-term scale. The result is best viewed as a supervised five-year market-structure pilot rather than immediate deregulation of U.S. public equity trading.

Key Takeaways

The Order is a consequential but carefully bounded experiment. It recognizes that AMM-based trading does not map cleanly onto rules designed for order-book exchanges, while preserving issuer objections, equivalent shareholder rights, volume controls, public data, synchronized halts, recordkeeping and SEC oversight. It also makes clear that tokenization changes the form of a security and not the application of the remaining federal securities laws.

We believe that SEC actions and interpretations in the wake of the Order are likely, although their form and timing are uncertain. Areas most likely to require guidance, rulemaking or further orders include the meaning of “same rights and privileges,” issuer objections after the 30-day window, redemption and detokenization, affiliated-volume calculations, blockchain eligibility, broker-dealer access, custody and transfer-agent models, off-TSV hedging by Covered Firms, and integration of TSV activity into the national market system. This is what we predict based on questions asked in the SEC release and the unresolved boundaries of the Order.

For now, listed companies should prepare to act within the short notice window. Market operators should treat compliance as a condition-by-condition legal and technical build. Investors and regulated intermediaries should resist assuming that venue-level relief resolves their own obligations. The exemption opens a meaningful pathway to on-chain equities, but durable regulatory certainty will depend on experience under the Order, further SEC action and (potentially) judicial review.

How We Can Help

Public companies, trading venues, investors, broker-dealers, and liquidity providers should evaluate how the Order’s conditions apply to them. First and foremost, public companies need to determine how to respond to a TSV notice if they do not decide to tokenize their stock themselves. Trading venues, investors, broker-dealers and liquidity providers have business opportunities within the scope of the Order. We can help our clients in Corporate America and the trading community accomplish all of these objectives. We can also help you comment to the SEC if you have thoughts, experience and data to share.