SEC's Five-Year Innovation Exemption Puts Tokenized Listed Stocks on AMMs — With Hard Caps and an Issuer Veto

On Tuesday, September 22, 2026, the Securities and Exchange Commission's (SEC) temporary conditional exemptive order for tokenized National Market System (NMS) stock appeared in the Federal Register. The order — Release No. 34-106402, File No. 4-927, cited as 91 FR 60168 — was adopted September 17 and runs through September 17, 2031. Industry commentary has taken to calling it the "Innovation Exemption." On paper it is five years of relief from the Exchange Act definitions of "exchange" and, for certain proprietary liquidity providers, "dealer" — so permissioned automated market makers (AMMs) can trade issuer-backed or third-party tokenized listed stocks under a structured set of conditions.

That framing matters for RWA readers. Tokenized Treasuries, money-market funds, and private credit have been tokenized through fund wrappers and bank platforms without suspending Regulation NMS. Listed equities are different: an AMM that prices by pool ratios does not route to a national best bid or offer. Trade-through rules and quotation obligations were never designed for constant-product curves. The Commission's answer is a temporary venue class — Tokenized Securities Venues (TSVs) — and a five-year evidence window for possible permanent rules.

What a TSV Is — and Is Not

A Tokenized Securities Venue (TSV) brings buyers and sellers of Tokenized NMS Stock together by providing AMM liquidity pools for permissioned participants and setting access standards. Tokenized NMS Stock means an NMS stock tokenized by or for the issuer, or by an unaffiliated third party.

Scope is narrow by design. Synthetics — tokenized linked notes, security-based swaps structured as tokens — and rights and warrants are out of scope. Eligible trading pairs are: tokenized NMS stock against another tokenized NMS stock, a non-security crypto asset (such as a permitted payment stablecoin), or a tokenized money-market fund. No primary issuance on the TSV. Tokens must convey the same economic interest, dividends, voting, and liquidation rights as traditional shares of the equivalent class.

A complying TSV is not an exchange under Section 3(a)(1) of the Exchange Act, need not register as an exchange or alternative trading system (ATS), and is not a Reg NMS trading center. Anti-fraud rules remain fully in effect. The TSV must be a US person (OFAC applies). Smart contracts must be auditable, public, and deployed on a public permissionless ledger — even though trading access itself is permissioned.

Jones Day's September 2026 client alert notes parallel relief for Covered Firms: proprietary liquidity providers (LPs) supplying tokenized NMS stock — who may also quote to customers or commit capital — can rely on a temporary "dealer" exemption if they trade only for their own account, do not custody customer assets, keep records, disclose, and notify the Commission.

Volume Caps: On-Ramp, Not Parallel Market

The most consequential investor-protection condition is quantitative. Tokenized names map to Limit Up-Limit Down (LULD) tiers — the same tiers used by the existing NMS circuit breaker system:

Affiliated TSVs must aggregate their symbol and volume counts. A first accidental volume breach triggers a stepped remediation path. A subsequent breach requires an immediate three-month pause in that name, participant notice, and a public Notice amendment. Exceeding symbol caps jeopardizes reliance on the exemption entirely.

Those numbers are small by design — enough for price discovery, self-custody, and 24/7 settlement experiments, not enough for an AMM's pool ratio to become the market. The Commission is explicit: AMM prices track pool balances, not the consolidated quote. Caps limit dislocation risk versus Reg NMS venues.

The Issuer Veto

Where a third party — not the issuer — tokenizes the NMS stock, the TSV must send a written Issuer Notice to the issuer's principal executive offices as listed on its Exchange Act reports. Trading may not begin for at least 30 calendar days after confirmed receipt. If the issuer objects in writing on or before day 30, the TSV may not list that tokenized stock and must update its public Notice within five business days.

Issuer-sponsored tokenization faces no equivalent veto. This provision directly resolves the legal ambiguity at the center of the AMC versus Robinhood dispute: issuers worried about register integrity or market dislocation can block unaffiliated wrappers under the Innovation Exemption framework. Issuers that want on-chain transferability can sponsor their own tokens. That is a clearer rule than anything in the pre-September 22 landscape.

Operating Conditions: A Supervised Pilot

Beyond caps and vetoes, the exemption reads as a disclosure-and-records regime for venues that are not exchanges. Complying TSVs must maintain:

• A plain-English public Notice at least 30 days before launch, emailed to the Commission, covering governance, permissioning, fees, MEV policies, system safeguards, conflicts, and stoppage rules
• US dollar-denominated transaction data freely available in machine-readable form within 10 minutes
• Concurrent stoppage when the primary listing exchange halts or suspends the underlying
• No leverage, borrowing, hypothecation, or credit extension on the TSV
• US-kept books and records for the life of the exemption plus three years, producible on demand
• No claim of Commission "registration," "approval," or "endorsement"

Fail a material condition on a given tokenized name and reliance on the exemption for that activity fails with it — not for the whole TSV, but for that specific token.

How This Differs from Treasury and Credit Tokenization

Treasury and credit tokens typically sit inside fund or depositary structures; prices reference off-chain markets; liquidity is often request-for-quote (RFQ) or dealer-mediated. Tokenized NMS stock on a TSV inverts that stack: a Reg NMS equity with a continuous tape, priced by an AMM that does not obey trade-through logic, with near-instant self-custodied settlement and optional 24/7 hours.

The Commission's response to that inversion is not "more fund tokenization." It is a time-boxed exemption with volume brakes, an issuer kill switch on third-party tokens, and antifraud enforcement intact. Compare this to the DTCC October launch, which tokenizes actual securities within existing settlement infrastructure. The Innovation Exemption creates a second path — AMM-based, self-custodied, 24/7 — that is explicitly outside the DTCC model.

Real On-Ramp, Not an Unbounded Sandbox

Calling the Innovation Exemption a sandbox undersells the legal craft and oversells the commercial freedom. Sandboxes often waive broad categories of law for experiments that never touch the core market. This order creates a lawful path for permissioned AMM trading of genuine (not synthetic) tokenized listed stock, on public ledgers, under US person and OFAC constraints, with quantitative brakes and issuer agency.

What it does not do: open the national market system to unlimited on-chain equity volume, bless every offshore stock token, or relieve participants of registration analysis for activities outside the TSV. Broker-dealers who want to participate still face their own Reg NMS and self-regulatory organization (SRO) questions — the Commission is already soliciting comment on whether further relief for those participants is needed.

For issuers, market-structure teams, and RWA builders, the operational checklist is concrete: stay inside the symbol and average daily volume (ADV) caps; get issuer acceptance or sponsor the token directly; meet public-ledger and auditability tests; operationalize 10-minute USD tape, halt mirroring, and US books-and-records. Firms that treat those as product requirements — not afterthoughts — are the ones for whom September 22's Federal Register notice is an on-ramp rather than a press release.

The five-year clock runs to September 17, 2031. Experience under the order, the Commission says, is meant to inform future rulemaking. The sober reading: not a declaration that AMMs have replaced exchanges, but a structured experiment in whether tokenized listed equity can coexist with the NMS without breaking it.

→ AMC vs. Robinhood — the dispute this order addresses
→ What You Actually Own — the tokenized stock spectrum
→ DTCC October — the other path to tokenized equity
→ SEC Regulation Crypto Assets — the broader rulemaking context