Key takeaways:
- SIFMA and its members strongly support innovation in the securities markets. At the same time, tokenized securities remain securities, and the same investor protection and market integrity principles that underpin the strength of U.S. securities markets should apply to them regardless of the technology used.
- SIFMA shares the SEC’s goal of making the Innovation Exemption a success. That will depend on the SEC gathering data on how venues operate and monitoring their activities from the outset, so that experimentation stays within clear guardrails, causes no unintended harm to investors, core equity markets, or issuers, and informs durable notice-and-comment rulemaking.
- Because the Innovation Exemption took effect upon publication, issuers and market participants had no opportunity to comment on its design. SIFMA’s initial letter therefore focuses on questions that should be resolved as trading begins, covering issuer notice and consent, investor protection and oversight, trading volume limits, and the rights of token holders.
- SIFMA’s initial recommendations focus on issuer notice and consent. As a threshold matter, a third-party tokenized version of an issuer’s stock should trade only with the issuer’s affirmative consent. Short of that change, we recommend an official, searchable portal for venue notices, issuer elections, and trading volumes; a 90-day objection period; and the ability for issuers to opt out universally or object at any time.
On September 17, 2026, the SEC issued the Innovation Exemption, a five-year conditional exemptive order (the “Order”) that exempts qualifying Tokenized Securities Venues (“TSVs”) from the definition of “exchange,” and certain liquidity providers from the definition of “dealer,” to facilitate permissioned trading of tokenized national market system (“NMS”) stocks through automated market makers (“AMMs”) and liquidity pools.¹ The Order took effect upon publication, with public comment requested after the fact. Within weeks, three prospective TSVs had notified the Commission of their intent to operate, and issuers had begun receiving notices that third-party tokenized versions of their shares may soon trade.
SIFMA’s initial comment letter, filed on October 19, 2026,² poses a wide range of questions on how the Order will operate and offers recommendations where members identified a practical solution. The staff of the Division of Trading and Markets has since issued its first frequently asked questions (“FAQs”) on the Innovation Exemption.³ While a useful first step on venue notices and issuer objections, the FAQs leave key operational questions in our letter unanswered, and it is crucial that the SEC address them as trading begins over the coming weeks.
Many of these same issues were discussed at SIFMA’s Digital Assets Conference on September 23, 2026, where participants agreed that tokenized securities are securities and should meet the same investor protection and market integrity standards.⁴ As then-Commissioner Hester Peirce put it, U.S. investor protections should apply “across the board whether you’re tokenizing or not.”⁴
That shared premise is SIFMA’s starting point. As we stated when the Order was released, any exemption should be narrowly drawn, open to all market participants, technology neutral, and subject to appropriate guardrails.⁵ The Order includes several, among them permissioned access, the exclusion of synthetic products, a bar on financing and leverage through the venue, and symbol and volume caps. However, it relies principally on TSVs’ own disclosures, which the SEC does not routinely verify and no self-regulatory organization is required to oversee, and it imposes very few conduct requirements. Its five-year term also means early design choices will shape market practice well before any permanent framework is adopted.
We raise these issues because SIFMA wants the Innovation Exemption to succeed, both in promoting innovation and in informing notice-and-comment rulemaking that gives market participants the durable rules and certainty they need to build new businesses and products.⁶ Experimentation under the Order must also remain bounded, so that it causes no unintended harm to investors, core equity markets, or issuers. That requires the Commission to gather systematic data on how TSVs operate and to monitor their activities closely from the outset, including trading volumes, price relationships with conventional markets, operational incidents, and issuer objections.
The sections below set out our initial recommendations, which we believe would help the Commission meet its policy objectives, and the most pressing questions to address as trading begins.
Issuer Notice and Consent
Before trading a stock tokenized by an unaffiliated third party, a TSV must notify the issuer, which then has 30 days from receipt to object. Notices go to the principal executive office address in the issuer’s Exchange Act reports, often a general mailbox, and silence is treated as consent. Issuers must therefore locate, authenticate, and respond to notices from potentially numerous venues within a short window. Beyond this administrative burden, an issuer whose stock trades in third-party tokenized form may be unable to identify token holders for shareholder communications, proxy solicitation, and corporate actions. Investors in these tokens, in turn, may lack clarity on how they can vote, receive dividends, or participate in those corporate actions.
As a threshold matter, SIFMA believes a third-party tokenized version of an issuer’s stock should trade on a TSV only with the issuer’s affirmative consent, which would better protect investors and issuers alike. Short of that change, we recommend two measures:
- An official, searchable TSV portal, operated by the Commission, FINRA, or a delegated body, that lists each venue’s notice and the stocks it intends to trade, links to each issuer notice and its response deadline, and records each issuer’s designated contact and elections. The objection period should run 90 days from the later of the notice’s posting on the portal and its confirmed receipt by the issuer’s designated contact.
- Standing issuer control under any model, including a universal opt-out from trading on all TSVs, the right to object to a particular venue or withdraw consent at any time, and a defined wind-down process for outstanding tokens and liquidity-pool positions if an issuer objects after trading has begun.
If these measures are not adopted, the Commission should at a minimum require venues to address notices to the issuer’s Corporate Secretary and extend the objection period to 90 days from confirmed receipt.
Our recommendations would also resolve many practical questions about the current process, such as what constitutes receipt, what happens to undeliverable notices, what information a venue must provide, and whether an issuer may object after the period expires.
The staff FAQs bring some clarity to how venues should disclose pending and lapsed objection periods and objections received, and the Commission’s list of prospective venues is a good first step toward the portal we recommend. But the FAQs operate within the Order’s objection-based approach, and a stock may still trade if an issuer does not respond in time. Because an objection applies only to the venue that sent the notice, issuers must also monitor and object to each new venue separately. Affirmative consent, a longer objection period, and a universal opt-out would require the Commission to amend the Order, and we encourage it to make those changes.
Investor Protection, Illicit Finance, and Oversight
The Order requires a TSV to disclose its customer verification and anti-money laundering (“AML”) procedures, customer complaint and execution error handling, protection of personal information, system capacity and security, trading oversight, and protections against maximal extractable value attacks, but only “if any” exist. These protections are normally required in the equity markets, and it is unclear why the Order does not require them. The SEC should clarify its baseline expectations in each of these areas.
Disclosures must be subject to verification and oversight. The Order requires TSVs to consent to SEC staff examination of their books and records at any time. Our letter asks how often, and with what resources, the Commission expects to examine venues, and whether that access adequately substitutes for the routine examinations of registered exchanges and broker-dealers. The FAQs underscore the point: they stress that each TSV’s notice must be accurate and complete, while the SEC’s list of prospective venues states that staff do not pass upon the accuracy of any notice.⁷ Regular examinations are therefore critical, both to verify TSV disclosures and to give the Commission data on whether the Order is working as intended.
Illicit finance raises a related gap: the Order does not identify which participants in the TSV transaction chain have Bank Secrecy Act obligations. Our letter asks who carries those obligations, whether the Commission will require minimum customer verification standards aligned with the risks, and how it will coordinate with the Treasury Department’s Office of Foreign Assets Control on sanctions. Speakers at our Digital Assets Conference noted that the full AML and customer identification regime does not apply under the Order, and FINRA’s Jason Foy emphasized that broker-dealers interacting with TSVs should map their obligations to their actual role and tell investors clearly which protections apply.⁴
Market Integrity: Volume Limits, Transparency, and Surveillance
The Order’s symbol and volume limits are an important guardrail, but they apply per venue and aggregate only across affiliated venues, so total tokenized trading in an individual stock could grow with each new TSV. Our letter asks how the Commission will monitor cumulative trading across unaffiliated venues and liquidity provider activity across venues, and how it will respond if aggregate trading reaches the levels the per-venue limits were designed to prevent. We recommend that the portal described above also publish trading volume in each tokenized stock, venue by venue and in aggregate. That would give the SEC and investors a consolidated view of activity now dispersed across venue websites, while giving the Commission the evidence to judge whether the limits are set at the right level.
Transparency and surveillance raise related questions. TSVs publish trade data on their own websites rather than through the consolidated tape, and they may operate outside the Consolidated Audit Trail and the cross-market surveillance framework to which exchanges and FINRA-member venues connect. Without comparable audit trail data, manipulation such as spoofing or layering may be difficult to detect, particularly when activity spans tokenized and conventional venues. We have also asked how venues will implement trading halts tied to the listing exchange and whether they will apply price bands comparable to Limit Up-Limit Down.
Pricing on TSVs raises a further concern. As the SEC’s Richard Gabbert told our Digital Assets Conference, the Order was designed around the fact that AMMs price trades algorithmically and cannot comply with Regulation NMS’s order protection rule. Other speakers noted that, under the Order, those prices need not reference the national best bid and offer, and that it is unclear whether and how best execution will work.⁴ Together with the transparency issues noted above, these features mean the Order as currently designed could fragment prices and liquidity across equity markets, leading to investor harm and confusion.
Shareholder Rights, Corporate Actions, and Transferability
The Order requires a TSV to verify that each tokenized stock it trades provides holders the same rights and privileges as the underlying security. As one panelist at our Digital Assets Conference put it, a tokenized stock should be a “digital twin, not a digital cousin or a digital second cousin.”⁴ Ensuring that equivalence requires mechanisms to confirm that third-party tokens remain backed one-for-one by the underlying shares, to enable issuers and their transfer agents to identify beneficial owners, and to assign responsibility for accurate and timely ownership information. Other panelists noted that a holder’s ability to express a voting preference is not the same as a legal voting right that transfers with the token, and that issuers need an authoritative record of positions across conventional and tokenized forms so that each dividend is paid once, to the holder entitled to it.⁴
Transferability raises further questions. Can a token bought on a TSV move off-venue, to other blockchains, peer-to-peer, or to offshore or unregulated venues? If not, how will that limit be enforced? If so, what AML, know-your-customer, and sanctions controls will keep prohibited persons from obtaining ownership? Because the Order does not require tokens to be redeemable for the underlying shares, SIFMA has also asked whether the Commission considered a redemption requirement, so that investors are not stranded during an extended trading pause on the only venue where a token trades.
Making the Innovation Exemption a Bridge to Durable Rules
Chairman Atkins has described the Order as a bridge toward durable rulemaking, and SIFMA welcomes his and Commissioner Uyeda’s statements that they expect notice-and-comment rulemaking to follow.⁸ Speakers at our Digital Assets Conference explained why that commitment matters: firms will be reluctant to make long-term investments without final rules, and exemptive relief can be reinterpreted or withdrawn by a future commission. Then-Commissioner Peirce said she shared SIFMA’s desire to begin rulemaking as soon as possible, warning that reaching the end of the five-year term without a clear end state would be a bad result.⁴ Our letter therefore asks whether the Commission will commit to a rule proposal and on what timeline, and how it will determine which elements will become permanent.
The conference also pointed toward what durable rules might look like. Mr. Gabbert compared the Order to the exemptive orders and no-action letters that preceded Regulation ATS, noting that exchanges and alternative trading systems can already trade tokenized shares.⁴ Consistent with a technology-neutral approach, our letter asks whether durable rules for venues that use AMMs and liquidity pools should take the form of a tailored regime similar to Regulation ATS, and on what terms registered broker-dealers may participate relative to the liquidity providers the Order exempts. Rulemaking should also account for related changes in the equity markets, including the Commission’s proposal to rescind Rule 611 of Regulation NMS and FINRA’s review of its best execution guidance.⁹
Conclusion
SIFMA shares the Commission’s objective of bringing tokenized trading in U.S. equities onshore and under U.S. investor protections. Achieving that objective requires the right foundations from the outset: strong and verifiable investor protections, rigorous monitoring and data collection, meaningful issuer consent, and clear, enforceable rights for token holders. Our letter recommends practical, targeted changes to the Order that would strengthen issuer consent and improve transparency for investors, issuers, and other market participants, and raises important operational questions, many of which the staff could address in the near term through FAQs or guidance.
SIFMA looks forward to working with the Commission and its staff to strengthen the Order and to begin the notice-and-comment rulemaking needed to develop durable rules for tokenized securities trading that protect investors, preserve market integrity, and promote innovation.
Endnotes
- Order Granting Temporary Conditional Exemptive Relief, Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934, from the Definition of “Exchange” in Section 3(a)(1) of the Exchange Act for the Use of Certain Distributed Ledger Trading Venues for Tokenized NMS Stocks and from the Definition of “Dealer” in Section 3(a)(5) of the Exchange Act for Certain Liquidity Providers for Tokenized NMS Stocks, and Request for Comment, Exchange Act Release No. 106402 (Sept. 17, 2026), 91 FR 60168 (Sept. 22, 2026), available at: https://www.sec.gov/files/rules/exorders/2026/34-106402.pdf.
- Letter from Kenneth E. Bentsen, Jr., CEO and President, SIFMA, to Vanessa A. Countryman, Secretary, SEC, Re: Innovation Exemption, Release No. 34-106402, File No. 4-927 (Oct. 19, 2026), available at: https://www.sifma.org/advocacy/letters/sec-innovation-exemption-for-tokenized-nms-stocks-and-distributed-ledger-trading-venues.
- SEC Division of Trading and Markets, Frequently Asked Questions on the Innovation Exemption (Oct. 20, 2026), available at: https://www.sec.gov/rules-regulations/staff-guidance/trading-markets-frequently-asked-questions/frequently-asked-questions-innovation-exemption.
- SIFMA Insights, 2026 SIFMA Digital Assets Conference: Conference Debriefing (Sept. 2026), available at: https://www.sifma.org/wp-content/uploads/2026/09/SIFMA-Digital-Assets-Conference-2026-Debrief.pdf.
- SIFMA, SIFMA Statement on SEC Innovation Exemption (Sept. 17, 2026), available at: https://www.sifma.org/news/press-releases/sifma-statement-on-sec-innovation-exemption.
- See Peter J. Ryan, “Tokenized Securities Markets Require Strong Investor Protections, Not Broad Exemptive Relief” (Dec. 3, 2025), available at: https://www.sifma.org/news/blog/tokenized-securities-markets-require-strong-investor-protections-not-broad-exemptive-relief; Letter from SIFMA to the Hon. Paul S. Atkins, Chairman, SEC, Re: Requests for Exemptive Relief from the Federal Securities Laws for Tokenized Securities (Nov. 26, 2025), available at: https://www.sifma.org/wp-content/uploads/2025/11/SEC-Exemptive-Relief-Short-Letter-11-26-2025-FINAL.pdf.
- SEC, Innovation Exemption (list of persons that have provided written notice to the SEC of their intent to operate pursuant to the TSV Exemption), available at: https://www.sec.gov/about/divisions-offices/division-trading-markets/innovation-exemption.
- Paul S. Atkins, Chairman, SEC, The Innovation Exemption: A Bridge Toward Durable Rulemaking (Sept. 17, 2026), available at: https://www.sec.gov/newsroom/speeches-statements/atkins-innovation-exemption-bridge-toward-durable-rulemaking-091726; Mark T. Uyeda, Commissioner, SEC, statement on the Innovation Exemption (Sept. 17, 2026).
- See The Trade-Through Rule and Locked and Crossed Markets Provisions of Regulation NMS, Exchange Act Release No. 105655 (June 11, 2026), 91 FR 36656 (June 17, 2026); FINRA, Regulatory Notice 26-15, Best Execution: FINRA Requests Comment on Modernizing FINRA’s Best Execution Guidance (July 24, 2026).
