What public companies need to know about the SEC’s “Innovation Exemption” for tokenized stock

Key contacts: Allison Handy, Joshua Ashley Klayman, and James Walker

On September 17, 2026, the Securities and Exchange Commission (SEC) announced a five-year “Innovation Exemption” designed to facilitate the trading of tokenized versions of stocks listed on major U.S. stock exchanges and markets. This exemption permits regulated Automated Market Makers (AMMs) and Tokenized Securities Venues (TSVs) to operate AMM liquidity pools under specified conditions and make available tokenized versions of exchange-listed stocks.

Why this exemptive order matters now for public companies

• Market activity is imminent: Tech-forward exchanges and third parties are moving quickly to establish operations for AMM liquidity pools and tokenize public company stock.
• 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 after receiving notice that a TSV intends to make a tokenized version of the company’s stock available.
• Investor relations and market complexity: The systems and mechanics of managing shareholder records, engagement, and communications for holders of tokenized stock have yet to be established and tested. Trading in tokenized stock is expected to happen 24/7 with near instantaneous settlement, introducing potential new complexity for announcements of material nonpublic information and setting record dates for shareholder meetings and dividends.
• Litigation and reputational risk: Misunderstandings regarding tokenized securities trading or an inadvertent failure to object could create uncertainty, or even possible liability, with respect to market participants, shareholders, or regulators.
• Strategic flexibility: Decisions about whether to object to third-party tokenization by a TSV, or collaborate with a TSV to make a tokenized security available on behalf of the company, may affect a public company’s future options and risk profile.

Notification and objection process

For public companies, a critical aspect of the exemptive order is the process for TSVs to provide notice of tokenization and the ability for a company to object. The process includes the following:

• Notice requirement: Before tokenizing and listing the stock, the TSV must provide written notice to the company’s principal executive office address or email as shown on the cover page of the company’s Exchange Act reports and must request proof of delivery to establish the date of notice.
• 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 of tokenized stock made available by a third-party TSV unaffiliated with the company 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 for an objection notice and no grounds need to be stated. The TSV must update its public notice and inform the SEC accordingly.

Selected practical considerations

The Innovation Exemption provides the opportunity for capital markets innovations. TSVs will need to comply with a wide range of requirements to take advantage of the exemption. Notwithstanding these protections, companies could conceivably be exposed to reputational or litigation risks with respect to tokenized stock where a TSV has a compliance failure. Company risks related to tokenized stock that would qualify for the exemption include the following:

• Equivalent shareholder rights: TSVs must deliver rights to token holders “substantially equivalent” to shareholders, including for dividends, voting, and tender offers, but tracking these rights could create practical challenges and risks.
• KYC/AML/Sanctions compliance risks: TSVs operating under the exemption will be required to comply with economic and trade sanctions programs. However, gaps in third-party compliance may allow sanctioned or restricted persons to become token holders, which could create potential regulatory exposure for the company.
• Market and litigation risks: TSVs will be limited in the amount of tokenized stock that they can make available to only a small percentage of average daily share volume. However, price mismatches and volatility between tokenized and traditional shares could create investor confusion or litigation risk.
• Enforcement and recourse: Legal remedies for harms suffered in connection with unauthorized or problematic TSVs may be unclear or resource-intensive.

Action items to consider

• Review contact addresses and prepare for notices: Confirm that executive office addresses and emails in Exchange Act filings are current. Ensure that physical addresses are monitored frequently. If you have included an email address on the cover of Exchange Act filings, confirm procedures to ensure read notices are not generated automatically and that email received at the address is monitored. 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; lapses could be irreversible.
• Enhance investor and public communications: Consider whether to issue any proactive statements addressing company policies on tokenization. Monitor investor input regarding interest in tokenized versions of company stock.
• Cross-functional coordination: Ensure legal, compliance, finance, IT, governance, and investor relations teams are aligned and ready to respond together, including developing playbooks for rapid coordination if notice is received.
• Monitoring: Consider employing technology and monitoring protocols to track the market for unauthorized or synthetic tokenized versions of your stock. Consider legal, regulatory, and communications remedies if you detect noncompliant offerings.
• 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.

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.