Key Points

• Tokenized stock is still stock. A token that represents an equity security remains subject to the Securities Act of 1933 and the Securities Exchange Act of 1934, and the SEC staff has said so expressly in its January 28, 2026, Statement on Tokenized Securities. 
• The SEC’s September 17, 2026, Innovation Exemption opens a conditional path to onchain secondary trading of any shares of stock listed on a national securities exchange. The order grants temporary relief from the “exchange” definition for tokenized securities venues (TSVs) and from the “dealer” definition for certain liquidity providers, effective through September 17, 2031. 
• Issuers have a 30-day right to object. Before a TSV may trade a third-party tokenized version of an issuer’s listed stock, it must deliver written notice to the issuer’s principal executive offices, and the issuer may block the listing by objecting in writing within 30 calendar days. 
• An issuer’s objection right is narrow by design. An issuer’s objection applies venue by venue, reaches only stock tokenized by an unaffiliated third party, and does not cover synthetic products. The SEC adopted an opt-out model rather than the issuer-consent model some market participants had urged. 
• Companies should prepare. Companies should set up notice routing to make sure the notice gets to the legal department and determine whether to object to third-party tokenization.

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Executive Summary

On September 17, 2026, the Securities and Exchange Commission (SEC) issued the Innovation Exemption that opens a conditional path to onchain secondary trading of stock listed on the New York Stock Exchange (NYSE) and Nasdaq. The Innovation Exemption grants temporary relief, through September 17, 2031, from the definition of “exchange” under the Securities Exchange Act of 1934 (Exchange Act) for tokenized securities venues (TSVs) and from the definition of “dealer” for certain liquidity providers.

The Innovation Exemption reaches every company whose stock trades on a national securities exchange, not only companies active in digital assets. Before a TSV may trade a version of a company’s stock tokenized by an unaffiliated third party, the TSV must deliver written notice to the company, and the company may block that listing by objecting in writing within 30 calendar days from receipt of the notice. The SEC adopted this opt-out model rather than the issuer-consent model that some market participants had urged. The SEC has also published a list of persons that have notified it of their intent to operate as TSVs, along with a set of FAQs.

The relief permitted by the Innovation Exemption for TSVs is temporary, conditional, and capped in volume, and the SEC may modify it at any time. For most listed companies, we believe the prudent course while the framework remains provisional is to object to third-party tokenization of their stock and to put procedures in place now to exercise that right within the short objection window.

Immediate Issuer Action Checklist

• Determine the company’s position. Decide in advance whether the company will generally object to third-party securities tokenization. We recommend opting out of TSVs. For example, Nasdaq warned that the system permitted by the Innovation Exemption “impairs an issuer’s ability to maintain a complete, accurate and contemporaneous understanding of the price and trading behavior of its own securities” and that investors with poor outcomes on TSVs may blame the issuer. In fact, Nasdaq stated, “as an issuer ourselves, having carefully reviewed and weighed these current considerations of the Innovation Exemption, we intend for Nasdaq, Inc. (Nasdaq: NDAQ) to opt out of TSVs.” 
• Prepare to object on short notice (Legal). Keep a pre-approved objection form and a calendaring process for the 30-day deadline. 
• Route Issuer Notices now (Legal and Corporate Secretary). Name a recipient, require same-day escalation, and monitor both the physical and email addresses listed on the Exchange Act report cover page.

Overview of Tokenized Stock and the Innovation Exemption

Stock tokenization is the creation of a digital representation of an equity security using distributed ledger technology (DLT). The token is recorded on a blockchain, and ownership is evidenced by control of a cryptographic wallet rather than by a position on the books of a broker or central securities depository.

The Innovation Exemption applies to “Tokenized NMS Stock,” a defined term that captures tokenized versions of national market system (NMS) stock in two structures: stock tokenized by or on behalf of the issuer (issuer-tokenized stock) and stock tokenized by a third party unaffiliated with the issuer (third-party tokenized stock).

Synthetic instruments that a third party issues as its own security, such as tokenized linked securities and tokenized security-based swaps, are not Tokenized NMS Stock and fall outside the Innovation Exemption. Rights and warrants are also excluded. Many of the tokenized versions of U.S.-listed shares that have traded offshore since mid-2025 are wrapper or debt instruments that track a share price without conveying shareholder rights, and those products would not qualify for trading on a TSV.

Tokenization changes the form of a security but not its character. Every offer and sale of Tokenized NMS Stock must be registered under the Securities Act of 1933 (Securities Act), or made under an available exemption, and the antifraud and anti-manipulation provisions of the Exchange Act, including Section 10(b) and Rule 10b-5, continue to apply. The SEC staff confirmed this approach in its January 28, 2026, Statement on Tokenized Securities, which also supplied the taxonomy the Innovation Exemption now uses.

Chairman Paul S. Atkins described the Innovation Exemption as a “significant step forward” toward bringing U.S. capital markets “into the digital age,” while stressing that durable rulemaking must follow the interim relief.

Key Conditions of the Innovation Exemption

The Innovation Exemption has two components. The first component exempts a TSV from the definition of “exchange” in Section 3(a)(1) of the Exchange Act. A TSV brings together buyers and sellers of Tokenized NMS Stock through one or more automated market maker (AMM) liquidity pools open only to permissioned participants. A TSV that satisfies the conditions need not register as a national securities exchange or operate as an alternative trading system (ATS), and it is not a trading center for purposes of Regulation NMS.

Tokenized NMS Stock may trade on a TSV only in a pair with another Tokenized NMS Stock, a non-security crypto asset (for example, a payment stablecoin issued by a permitted issuer under the GENIUS Act), or a tokenized money market fund. The Innovation Exemption does not limit the type of non-security crypto asset that a TSV may pair with a Tokenized NMS Stock. The TSV is responsible for permissioning, which it may enforce by allow-listing wallet addresses or by encoding the token to permit transfers only to credentialed wallets, even when a third party performs that function. Smart contracts must be auditable, public, and deployed on a public, permissionless ledger, and the TSV must be a U.S. person that complies with Office of Foreign Assets Control (OFAC) sanctions requirements.

Each TSV must publish a Public Notice at least 30 calendar days before operating and must update it within five business days after it begins or stops trading a stock or receives an issuer objection. The Public Notice must disclose, among other things, whether each stock was tokenized by the issuer or a third party, how the TSV verified equivalent rights, its clearing and settlement arrangements, its upgrade and override powers, and that the venue is not registered and is not subject to Regulation NMS or Regulation ATS fair access requirements.

Before trading third-party tokenized stock, a TSV must deliver a written Issuer Notice to the physical address or email address, if any, of the issuer’s principal executive offices as listed on the cover page of its Exchange Act reports. Trading may not begin until at least 30 calendar days after receipt. A TSV can obtain confirmation of whether and when an issuer received an Issuer Notice by, for example, requesting a return receipt/proof of delivery or a receipt notification depending on whether the Issuer Notice was sent to the issuer’s physical or email address. If the issuer objects in writing on or before the 30^th calendar day, the TSV may not list the stock. Silence operates as consent.

The SEC grounded the objection right in two issuer concerns: maintaining an accurate shareholder register in the face of onchain transfers and the potential for price dislocation between tokenized and traditional markets. The right is unusual, because issuers generally cannot stop an exchange or ATS from trading their stock. It is also narrow. An objection applies venue by venue, reaches only stock tokenized by an unaffiliated third party, and does not cover synthetic instruments or issuer-tokenized stock.

A TSV must verify that each token confers the same rights and privileges as traditional stock of an equivalent class, including the same economic interest, dividends, voting rights, and share of residual assets on liquidation. The venue, not the SEC, performs that verification. For third-party tokenized stock, the tokenizing party must distribute proxy materials and other issuer communications to token holders at no cost to the issuer or its shareholders.

The Innovation Exemption also caps the number of symbols and the share of trading volume that can migrate to TSVs, using tiers modeled on the Limit Up-Limit Down (LULD) Plan and aggregated across affiliated TSVs.

Tier	Scope	Maximum Symbols	Volume Cap (% of Prior-Month Average Daily Volume)
Tier 1	S&P 500 and Russell 1000 components, and certain exchange-traded products with notional average daily volume above $2 million	75	0.25%
Tier 2	All other NMS stock, excluding rights and warrants	250	2.5%

A repeat volume exceedance triggers a three-month pause in trading in that stock, and exceeding a symbol limit results in loss of the exemption.

A TSV must publish free, machine-readable transaction data, updated within 10 minutes, and must halt trading whenever the primary listing exchange halts or suspends trading in the stock. Companies should factor that linkage into their procedures for releasing material news.

The second component exempts from the definition of “dealer” in Section 3(a)(5) of the Exchange Act certain liquidity providers (Covered Firms) that supply Tokenized NMS Stock to TSV pools using proprietary capital. As a result, liquidity in a tokenized version of a company’s stock may come from firms that are not registered broker-dealers.

Regulatory Context

The Innovation Exemption follows a series of SEC actions on digital assets, including the launch of the Crypto Task Force in January 2025, staff no-action relief in December 2025 for a Depository Trust Company (DTC) pilot to tokenize securities entitlements, and the SEC’s March 17, 2026, interpretive release on crypto assets.

The listed markets have moved in parallel. Nasdaq (Release No. 34-105047) and the NYSE (Release No. 34-105260) have each implemented rule changes permitting securities to trade on the exchange in tokenized form, with tokenized shares that are fungible with traditional shares, carry the same CUSIP and symbol, and settle through the DTC pilot. A TSV is different, however. It is a separate, fully onchain venue that prices through AMM pools outside the national market system.

The SEC is also pursuing related rulemakings, including its June 11, 2026, proposal to rescind the Rule 611 trade-through rule, its August 18, 2026, proposal of Regulation Crypto Assets, and its September 1, 2026, proposal to modernize the transfer agent rules to address blockchain recordkeeping. Following the Senate’s September 15, 2026, vote against invoking cloture on the CLARITY Act, the SEC is advancing tokenization through its existing exemptive authority rather than waiting for federal legislation.

The Innovation Exemption does not change the rules governing the transfer agents, depositories, and broker-dealers that support a company’s shareholder base. Broker-dealers that access a TSV remain subject to their existing obligations, and the Innovation Exemption provides no Investment Company Act relief, which leaves open when tokenized exchange-traded fund (ETF) shares can trade on a TSV.

Market Developments

On October 4, 2026, OKXICE LLC published its first Public Notice for OKXICE TSV. OKXICE LLC is a Texas company owned equally by Intercontinental Exchange (ICE), the parent of the NYSE, and the crypto exchange OKX. The notice describes 24/7 trading in tokenized U.S. stocks through permissioned Uniswap v4 pools on XLayer, starting with an initial list of 63 securities. The venue has not begun trading. Issuer objections are growing quickly. Each updated notice has added more objecting companies:

• October 4: Cerebras Systems was the only objector. 
• October 15: Nine issuers had objected, including Broadcom, CoreWeave, Verizon and UnitedHealth. 
• October 19: The total reached 16. Microsoft, Alphabet, Goldman Sachs, Qualcomm, Caterpillar, McDonald’s and Western Digital were added. 
• October 23: The total reaches 22, including Intuit, Wells Fargo, Marvell Technology, Cisco Systems, Moderna and Arm Holdings.

The notices did not state the objecting companies’ reasons. Once a venue publishes its Public Notice, companies should expect Issuer Notices to follow. Each company’s 30-day clock starts only when it receives the notice. A timely objection keeps a third-party token of that company’s stock off the TSV.

Industry groups have also begun to engage. In an October 19, 2026, comment letter, the Securities Industry and Financial Markets Association (SIFMA) urged the SEC to replace the opt-out model with affirmative issuer consent, to create a centralized portal through which issuers could track TSV notices and register a single universal opt-out, and to extend the objection period to 90 days. SIFMA also asked the SEC to clarify how issuers will identify beneficial owners of tokenized shares and whether Sections 13(d), 13(g), and 16 of the Exchange Act reach token holders. For now, the Innovation Exemption is in effect as written, and the 30-day opt-out mechanism governs.

Practical Considerations for Listed Companies

1. Notice routing is now a governance control. The 30-day window runs from receipt at the physical or email address on the cover page of a company’s Exchange Act reports. Companies should designate a recipient, confirm that both addresses are monitored, and instruct mailroom and corporate secretary personnel to escalate any notice referencing tokenization to the legal department on the day of receipt. 
2. Companies should decide their position before a notice arrives. We recommend companies object to inclusion on a TSV. Companies should keep a pre-approved form of objection and should confirm that the TSV amends its Public Notice within five business days after an objection. In addition to the 16 large-cap companies that have objected so far, Nasdaq also disclosed that it intends to opt out of TSVs as an issuer, citing concern that the framework impairs an issuer’s ability to understand the price and trading behavior of its own securities. 
3. Disclosure should be reviewed. Companies should consider whether third-party tokenization, price dislocation, and shareholder register risks warrant tailored risk factor disclosure under Item 105 of Regulation S-K, and whether tokenization activity is a known trend or uncertainty to be addressed in management’s discussion and analysis (MD&A) under Item 303 of Regulation S-K. Any statement about tokenization, including in press releases, investor presentations, and website content, is subject to Section 10(b) and Rule 10b-5, and companies should avoid implying that the SEC has approved any venue. 
4. Board oversight, insider trading policies, and Section 16 reporting should be updated. Companies may determine that a board committee will oversee tokenization and if so, should consider describing that in the proxy statement. Around-the-clock tokenized trading does not align with insider trading policies built around regular trading hours, so companies should confirm that blackout periods and preclearance procedures cover tokenized stock. Companies should also clarify with insiders and significant holders how tokenized positions will be treated for beneficial ownership and Section 16 reporting. 
5. Companies can help shape the permanent framework. The SEC has requested comment on all aspects of the Innovation Exemption, including whether to make it permanent and how tokenized trading could affect the liquidity and pricing of the underlying stock. There is no stated comment deadline, so companies that wish to comment should file promptly through the SEC’s comment form or by email to rule-comments@sec.gov, referencing File No. 4-927.

Final Thoughts

The Innovation Exemption is the first federal framework for fully onchain secondary trading of listed U.S. equities, and it is deliberately provisional. For most companies, the immediate task is procedural. A notice delivered to the principal executive offices starts a 30-day clock, and failing to act permits a third party to list a tokenized version of the company’s stock. Boards and management should also treat tokenization as an ongoing disclosure and governance matter and should track the related transfer agent, Rule 611, and Regulation Crypto Assets rulemakings.

Contact Us

If you have questions about the Innovation Exemption, the issuer objection process, or how tokenized trading may affect your company’s governance, disclosure, or shareholder communications, please contact any of the authors of this client alert or your regular Troutman Pepper Locke contact.

Troutman Pepper Locke’s Capital Markets and Corporate Governance teams regularly advise public companies on SEC reporting obligations, disclosure strategy, and corporate governance matters.

This client alert is provided for informational purposes only and does not constitute legal advice. It is not intended to create, and receipt of it does not create, an attorney-client relationship. Readers should not act on the information contained in this alert without seeking professional counsel regarding their particular circumstances.