The SEC Innovation Exemption, explained.

What the order does

Two exemptions, one philosophy. First, a qualifying Tokenized Securities Venue — an AMM-based venue for tokenized NMS stock on a public, permissionless ledger — is exempt from the definition of "exchange" under Exchange Act §3(a)(1). Second, Covered Firms that provide liquidity to TSV pools receive parallel relief from the "dealer" definition of §3(a)(5). Together they make regulated onchain market-making legally possible without each participant registering as an exchange or dealer.

The relief arrived the same week the SEC and CFTC converged elsewhere: CFTC Staff Letter 26-25 extended no-action posture to passive, non-custodial software and self-custodial wallets. The combined effect is a workable perimeter — venues and market-makers on one side, passive software on the other, custodial activity still fully regulated.

Every condition, in detail

AMM-only

The relief covers permissioned automated market makers and liquidity pools. Central limit order books — matching engines pairing orders — are not covered. This is a technology-scoped exemption, and the scope is the AMM.

Public, permissionless chain; auditable public contracts

Contracts must be auditable, public, and deployed on a public, permissionless distributed ledger — one where anyone can read and write without authorization. Permissioned pools on public chains are explicitly contemplated. No chain is named, no token standard is mandated, and there is no EVM requirement.

Symbol universe and volume caps

A TSV may list up to 75 symbols. Tier 1 covers S&P 500 ∪ Russell 1000 ∪ LULD-eligible ETPs; Tier 2 instruments carry their own smaller limits. Per-symbol trading is capped at 0.25% of the prior month's average daily volume (SIP-reported) — a monthly aggregate, not a live price. Exceeding a cap means an immediate three-month pause in that symbol, with affiliates pausing too, and no stepped-compliance cure. Cap monitoring is therefore zero-tolerance engineering: fail closed on data-feed loss, and treat a cap bug as a regulatory event.

Rights parity

The tokenized stock must give holders the same rights and privileges as traditional stock of the equivalent class — dividends, votes, residual claims. Wrappers and synthetics without underlying rights don't qualify. Operationally this makes instrument selection a compliance decision: no-dividend single-class commons and broad index ETPs carry the lightest parity burden; dividend-dense REITs and dual-class structures carry the heaviest.

Issuer notice and objection

When a third party unaffiliated with the issuer tokenizes the stock, the TSV must send written notice to the issuer's headquarters, wait until 30 days after the issuer receives it before trading, and honor the issuer's right to object — an objection kills the listing. Issuer- or agent-tokenized stock needs no notice. Every third-party symbol therefore carries a workflow object: notice sent, receipt date, clock, objection state.

Halt synchronization

TSV trading in a symbol must halt concurrently with any stoppage on the primary exchange. Scheduled closes — nights and weekends — are not halts, which is precisely the 24/7 window where an onchain venue adds value. The engineering: a halt-feed oracle watching the primary market, freezing the affected pool on a genuine halt and releasing on resumption, failing closed when the feed is lost.

Launch notice

A TSV must publish notice on its public website at least 30 days before operating — including its fee schedule — and give written notice to the SEC within one business day. Day-one filers therefore have an earliest go-live in mid-October 2026. The notice website is a legal instrument, not a marketing page.

US-person operator

The TSV itself must be a US person under a formation-based test — organized under US law, including foreign branches. Foreign ownership does not disqualify. The purpose is OFAC jurisdiction: the operator is squarely inside US sanctions law, which is why sanctions screening is a day-one component rather than an add-on.

Permissioned participants

Participants are admitted under standards the TSV itself sets — the order does not limit participant types. Admission is a real gate: the venue's contracts refuse actions from non-admitted actors, and admission state is the venue's to tier (identification levels, screening, attestations).

Books, records, and reporting

Onchain records satisfy the books-and-records requirement. The TSV reports USD-denominated 24-hour volume — which falls out naturally if every economically significant action emits a versioned event from one place and the reporting layer is a downstream consumer of that stream.

Screening

OFAC sanctions screening and statutory-disqualification screens across the venue's group. These are operating components with logs and evidence, not policy documents.

What the exemption does not do

• Securities Act: it does not exempt the offering or registration of the tokenized securities themselves.
• Broker-dealer questions: customer-facing interfaces that effect transactions are addressed in separate staff guidance — an interface operator may need BD registration regardless of the venue's status.
• Investment Company Act: no relief — pool and LP-token structures must be analyzed separately.
• State law and custody: untouched; custodial models still run the money-transmission and custody gauntlets.

The sizing reality

Using SEC staff's own 2025 data: Tier 1 weighted average daily volume is roughly 3.02 million shares per symbol, so 0.25% is about 7,550 shares per day per symbol — on the order of hundreds of thousands to millions of dollars daily depending on price, with mega-caps multiples higher. A 75-symbol book tilted to liquid names supports substantial theoretical volume. The cap math protects the venue from nothing; utilization is the whole game, and the caps are the sandbox that makes the experiment permissible.

How clarivyx maps each condition

Frequently asked questions