Tokenized Trading of Listed Shares: What Public Companies Should Know About the SEC’s “Innovation Exemption”

On September 17, 2026, the Securities and Exchange Commission (SEC) issued an order (Release No. 34-106402; File No. 4-927) granting temporary, conditional exemptive relief that (if certain conditions are met) allows newly defined “Tokenized Securities Venues” (TSVs) to trade tokenized versions of exchange-listed stocks through permissioned, automated market makers and liquidity pools, without registering as an exchange or operating as an alternative trading system. Liquidity providers supplying capital to these venues are also conditionally exempted from dealer status. Although public company issuers must be notified before tokenization can occur, trading in those tokens can move forward without their affirmative consent. This Alert provides background on the exemptive order and the important implications for issuers. The relief is effective immediately and expires on September 17, 2031; however, the SEC has requested public comment.

Importantly for issuers, the order is not limited to trading in the stocks of crypto-native companies. It reaches every issuer whose stock trades on a national securities exchange. This means a company’s shares may be tokenized and offered for trading on a TSV by an unaffiliated third party, without the company’s affirmative consent. The order sets forth a venue-by-venue notice-and-objection process that places the burden on the issuer to spot and respond to a notice within 30 days. Absent an objection, the TSV can begin trading tokenized versions of the issuer’s stock up to a maximum volume threshold.

How Third-Party Tokenization Works Under the Order

“Tokenized NMS Stock” includes NMS stock (other than options, warrants and rights) tokenized either by or on behalf of the issuer, or by a third party unaffiliated with the issuer. Synthetic instruments, such as tokenized, linked securities or security-based swaps that merely provide economic exposure, are excluded. A TSV must verify that a tokenized stock provides holders the same rights and privileges as the traditional stock of the same class, including dividend and voting rights, and related proxy materials or other issuer communications must be distributed or made available to token holders by the third party that tokenized the NMS stock at no cost to the issuer or its shareholders.

Notably, the order grants no relief to the entity that actually performs the tokenization; relief runs to the TSVs and liquidity providers. Industry participants had urged the SEC to require issuer consent for third-party tokenization, while the Securities Transfer Association and others urged that any exemption be limited to issuer-sponsored tokens. The SEC ultimately chose an opt-out rather than an opt-in model and is permitting tokenization by third parties.

The Notification Process: Points for Issuers to Consider

To rely on the exemptive relief, before a TSV makes third-party-tokenized stock available for trading, it must send written notice to the issuer at the physical or email address of the issuer’s principal executive offices as listed on the cover page of its Exchange Act reports. The issuer has until the 30th calendar day after receipt of the notice to object in writing, and the TSV may not begin trading before the 30-day objection period has elapsed. A timely objection bars that TSV from trading the token, and the TSV must publicly disclose the objection on its website. In practice, this framework includes several features that issuers should be aware of:

• No response will allow trading to proceed. If an issuer misses or fails to act on a notice within 30 days, trading on that venue may go forward, so a timely, deliberate decision matters.
• Notices may arrive at inappropriate locations. Delivery to a cover-page physical or email address, which may be a general mailroom or mailbox, creates a real risk that a notice is never routed to the appropriate legal or investor relations team. Some issuers may specify a physical or email address on their SEC filings that differs from where they would expect to receive these types of communications.
• Objections are venue-specific. An objection applies only to the TSV that sent the notice. Each new venue may trigger a new notice and a new 30-day clock, and there is no central registry or SEC clearance process. That is, objecting to one TSV does not automatically result in objecting to subsequent notices by other TSVs.
• Limited issuer and shareholder visibility. Issuers may have reduced insight into who holds tokenized interests, how shareholder records are maintained, and how voting and communications will work in practice, even though the TSVs are obliged to verify equivalent rights.

The SEC’s order does include guardrails: symbol limits and volume caps (for Tier 1 stocks, such as S&P 500 and Russell 1000 constituents, 75 symbols and 0.25% of prior-month average daily volume; for Tier 2 stocks, 250 symbols and 2.5% of prior average daily volume), a requirement that TSVs halt trading whenever the primary listing exchange does, public smart contracts on permissionless ledgers, a ban on leverage, and 30 days’ public notice before a TSV commences operations. But the monitoring and oversight of these limits – and how the number of TSVs may affect trading and market behavior more generally – remain to be seen once the venues begin operating. The anti-fraud and anti-manipulation provisions of the federal securities laws continue to apply in full.

Recommended Steps for Issuers to Consider:

• Confirm and harden your notice intake. Verify the physical and email addresses on your Exchange Act report cover pages, and ensure any mail or email addressed there is monitored daily and routed promptly to the Legal Department or other appropriate contact.
• Adopt a tokenization policy now. Decide in advance, with Board input, whether to object to third-party tokenization, so a decision can be made well within 30 days of receiving notice.
• Prepare a template objection. For companies that want to opt out, have a form written objection ready for prompt delivery to any TSV that sends a notice.
• Monitor TSV public notices. TSVs must publish notice 30 days before beginning operations; tracking these filings gives early warning of new venues.
• Consider issuer-sponsored tokenization. Companies that view tokenization as positive or inevitable may prefer to tokenize their own shares, directly or through an agent, to retain control over the token’s design and record-keeping. Consider looking at programs being offered by listing exchanges as well as peer company practices to benchmark whether to initiate an issuer-sponsored program.
• Consider submitting comments. The SEC has requested comments and describes the relief as a bridge to future rulemaking, giving issuers an opportunity to advocate for an opt-in or centralized notice model.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Shelly Heyduk, an O’Melveny partner licensed to practice law in California; Robert Plesnarski, an O’Melveny partner licensed to practice law in Pennsylvania and the District of Columbia; Meaghan VerGow, an O’Melveny partner licensed to practice law in New York and the District of Columbia; Brant K. Brown, an O’Melveny partner licensed to practice law in Virginia and the District of Columbia; Jim Burns, an O’Melveny partner licensed to practice law in Maryland and the District of Columbia; and James M. Harrigan, an O’Melveny partner licensed to practice law in Maryland and the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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