The SEC’s 'Innovation Exemption' for tokenized stock: What public companies must know now

On September 17, 2026, the SEC announced a five-year Innovation Exemption designed to facilitate the trading of tokenized versions of stocks listed on the National Market System (NMS stocks). This exemption permits regulated Automated Market Makers (AMMs) and Tokenized Securities Venues (TSVs) to operate AMM liquidity pools under specified conditions. The goal is to foster innovation in capital markets while providing important protections for public companies.

This Legal Development summarizes the Innovation Exemption, outlines the notification and objection process for listed issuers, highlights key risks, and provides practical, actionable steps for public companies now facing this new regulatory environment.

As the SEC has solicited public comment concerning possible modifications to the exemptive relief and potential next steps, this Legal Development also contains suggestions for potential response topics. 

Why does this matter for public companies?

• Market activity is imminent: Tech-forward exchanges and third parties are moving quickly to tokenize public company stock, often with little advance notice to public company issuers. From both market and regulatory perspectives, a public company’s inaction or delayed response to a third-party TSV’s notice of plans to tokenize and trade the issuer’s stock will be interpreted as consent that cannot later be revoked.
• Time-pressured response: The exemption requires rapid review and coordinated responses. Public companies have only 30 calendar days to object before token trading can begin.
• Investor relations and market complexity: Shareholder records, engagement, and communications will grow more complex if, and when, stocks circulate as tokens in digital wallets.
• Litigation and reputational risk: Misunderstandings regarding tokenized securities or an inadvertent failure by the issuer to object to a TSV’s notice could create uncertainty, or even possible liability, with respect to market participants, shareholders, or regulators.
• Strategic flexibility: Decisions about whether to object to or collaborate with TSVs, or explore self-tokenization, may significantly affect a public company’s future options and risk profile.

Notification and objection process 

• Notice requirement: Before tokenizing and listing the stock, the TSV must provide written notice to the company’s principal executive office address or SEC-listed email (as shown on the company’s Exchange Act cover page) and must request proof of delivery. The company should ensure its address information is current, accessible, and closely monitored.
• Public notification: At least 30 days before trading, the TSV must publish a plain-English public notice and notify the SEC.
• 30-day waiting period: Trading cannot start until 30 calendar days after the company receives notice (assuming the company has not validly objected).
• Objection option: If the company sends a written objection within 30 days, the TSV is barred from listing and trading the tokenized stock. There is no required form and no grounds need be stated. The TSV must update its public notice and inform the SEC accordingly. Objections are public and will be reported to the SEC, potentially drawing market and media attention.
• No objection may lead to market assumptions: If a company does not object within 30 days, trading can commence—which the market may read as a form of acquiescence or approval, despite no explicit opt-in. 

Selected practical considerations

• Monitoring by public companies is vital: Third parties may attempt to offer or advertise unauthorized, synthetic, or noncompliant tokenizations. Ongoing market surveillance is crucial.
• KYC and AML and sanctions compliance risks: Gaps in third-party compliance may allow sanctioned or restricted persons to become token holders or equity holders, which could create potential regulatory exposure for the issuer. For instance, what happens if a third party permits a sanctioned person to become a holder of tokenized equity and the public company issuer does a tender offer, issues a dividend, or conducts a stock split?
• Equivalent shareholder rights: TSVs must provide token holders with rights “substantially equivalent” to those of ordinary shareholders, including rights relating to dividends, voting, and tender offers. However, tracking these rights could pose practical challenges and risks. Conceivably, issuers could be exposed to reputational or litigation risks.
• Market and litigation risks: Price mismatches and volatility between tokenized and traditional shares could create confusion or litigation risk. The company could face claims from token or non-token holders if tokenization disrupts market fundamentals. For example, announcements and events could occur after the traditional (non-tokenized) market closes that affect pricing, and the tokenized equity holders may be able to react more quickly.
• Disclosure and investor relations (IR) complexity: 24/7 token trading introduces new volatility and monitoring burdens. Investor communications, FAQs, and earnings disclosures may need a refresh to address the evolving landscape and distinguish authorized from unauthorized digital versions.
• Reputational and brand risk: The act of objecting (or not objecting) itself will become public. Companies should consider the reputational impact and stakeholder response in their strategy.
• Strategic considerations: Companies must assess not only whether to object, but how to manage ongoing communications, reputational impact, and potential future interest in authorized tokenization, including possible engagement with reputable TSVs or technology partners.
• Enforcement and recourse: Legal remedies for harms suffered in connection with unauthorized or problematic TSVs may be unclear or resource intensive.
• Notification management: Set explicit procedures for admin and mailroom staff to recognize and escalate notices from TSVs or regulatory-exempt venues to legal and compliance contacts.
• Advance objection templates: Prepare a “Notice of Objection” form and an accompanying communications strategy for rapid deployment and control of messaging to shareholders and the market.
• Reputation risk playbook: Consider potential media or investor reaction scenarios to both objecting and not objecting. Coordinate statements with public relations and IR functions.
• Proactive engagement: Engage with known, credible TSVs or AMMs before any notice is received, if interested in tokenization on controlled terms.
• Investor alert programs: Establish protocols to warn investors of unauthorized or scam listings of purported digital versions of your stock.

Recommended action steps

• Audit and update SEC-listed contacts: Confirm that executive office addresses and emails in SEC filings are current and monitored frequently. Train your mailroom and other staff to escalate such notices immediately to legal and compliance teams.
• Prepare rapid objection protocols: Draft template objections and establish internal review and escalation processes. The 30-day deadline is inflexible and strictly enforced—missing the deadline is irreversible.
• Enhance investor and public communications: Prepare FAQs, market alerts, and public statements in advance to address company policies on tokenization. Actively monitor media and trading venues to detect market misstatements or investor confusion that may require clarification.
• Cross-functional coordination: Ensure legal, compliance, finance, IT, governance, and IR teams are aligned and ready to respond together, including developing playbooks for rapid coordination if notice is received.
• Regular monitoring: Employ technology and monitoring protocols to track the market for unauthorized or synthetic tokenized versions of your stock. Act promptly if you detect noncompliant offerings and consider legal, regulatory, and communications remedies.
• Weigh strategic opportunities: If the company may wish to explore tokenization in the future, now is the time to consider criteria for partnership, potential use cases, and appropriate disclosures.
• Engage in public comment: The SEC is actively seeking feedback concerning the Innovation Exemption. Submitting thoughtful comments will help shape the evolving regulatory framework, and it is important that public companies make their concerns heard.

Potential questions to consider, including for an SEC response

• Should a public company be permitted to make a broad public statement (or SEC filing) declining all unauthorized tokenizations, or must responses be case-by-case?
• Is 30 days sufficient for a public company to conduct diligence and coordinated decision-making concerning a TSV’s proposed tokenization?
• What are the implications and processes if the company eventually wants to tokenize its own equity?
• Should a public company be able to withdraw its consent in the event of noncompliance with law by a TSV, investor harm, or confusion, or if the public company determines that it wishes to tokenize its own shares?
• How can shareholder record-keeping and voting be managed for tokenized holders on distributed ledgers?
• What liability might attach for failure to object in time, or for misunderstandings in the marketplace?
• The Innovation Exemption presumes that TSVs will follow the requirements to avail themselves of the exemption, but what about those who will not follow the law or may try to follow it but be negligent? Those third parties would not be able to benefit from the Innovation Exemption and would be subject to potential enforcement, but what protections are in place for the public company?
• Will public companies be seen as “deep pockets” and have to defend themselves from litigation, even if a TSV or other third party is responsible for harm?   
• Should TSVs be required, contractually or otherwise, to indemnify public companies?

Conclusion

The Innovation Exemption offers both opportunity and challenge for U.S. public companies. Boards, management, and cross-functional teams must proactively review protocols, communication strategies, and strategic options regarding tokenization, readying their organizations to respond rapidly and decisively as markets and regulations evolve.

Our Ashurst Perkins Coie team is here to help. For assistance with tokenization response playbooks, regulatory engagement strategies, board-level briefings, or other proactive strategies, please contact us.