On September 17, 2026, the Securities and Exchange Commission issued an order creating what it calls the “Innovation Exemption”, a temporary, conditional grant of relief designed to let certain venues trade tokenized National Market System (NMS) stock on-chain. For fund managers watching the digital asset space, it is one of the clearest signals yet that the agency intends to build a workable path for tokenized securities rather than leave the question to enforcement.
It also extends the arc of the SEC’s proposed Regulation Crypto Assets framework from earlier this year, part of a broader shift toward structured rules over case-by-case enforcement.
What the SEC Did
The order grants two forms of temporary relief under the Securities Exchange Act of 1934. First, it exempts Tokenized Securities Venues, or TSVs, from the definition of “exchange” so they can trade tokenized NMS stock using permissioned automated market makers and liquidity pools. Second, it exempts qualifying liquidity providers in those pools from the definition of “dealer” when they supply liquidity with proprietary capital.
SEC Chairman Paul Atkins framed the action as a step to bring U.S. capital markets “into the digital age,” resolving the legal ambiguity that has pushed this kind of innovation offshore. The relief is deliberately narrow, and it is paired with a request for public comment on how the framework should evolve.
The Conditions Attached
The exemption is not a blank check. A TSV must, among other things:
- Observe limits on the number of symbols and the volume traded;
- Verify that each tokenized stock carries the same rights and privileges as the traditional NMS stock of an equivalent class;
- Give the issuer of the underlying stock written notice and an opportunity to object before listing a token created by an unaffiliated third party;
- Use smart contracts that are auditable, public, and deployed on a permissionless distributed ledger;
- Halt trading in a token whenever trading stops in the underlying stock on its primary listing exchange; and
- Publish information about its operations and trading activity.
In his accompanying statement, Chairman Atkins added further guardrails: the venue must be a U.S. person, participants must be cleared to trade, synthetic instruments are not permitted, and issuers may opt out.
Why It Is Temporary
The exemptions expire five years after publication. The Commission was explicit that it is not cementing today’s technology as tomorrow’s standard; the runway is meant to give the market room to develop while the agency evaluates durable rulemaking. The move follows Congress’s inability earlier in the week to advance the Clarity Act, with the SEC electing to use its own statutory authority to keep progress moving. Jamie Selway, Director of the Division of Trading and Markets, signaled that his staff is ready to work with prospective TSV operators and to field questions from market participants.
What This Means for Fund Managers
For funds already holding or exploring digital assets, the Innovation Exemption creates a defined, if provisional, route to on-chain secondary trading of tokenized equities. The details matter: eligibility contingencies, the issuer opt-out mechanics, and the smart-contract transparency requirements will all shape which venues become viable and how exposure is structured. Governance, valuation, and custody questions do not disappear under this framework; if anything, the public comment window is an invitation for sophisticated managers to weigh in while the rules are still being written.
What’s Next
The order will be published on SEC.gov and in the Federal Register, opening a comment period on possible modifications and next steps. Managers evaluating tokenized securities should track that rulemaking closely, since the durable framework, not this interim measure, will ultimately govern how on-chain markets operate.
If your fund is assessing how tokenization and evolving SEC guidance affect your strategy, compliance posture, or reporting, Richey May’s Alternative Investments practice can help you think it through. Reach out to Steve Vlasak at svlasak@richeymay.com.
