Tokenized Trading in Company Stock: What Public Companies Need to Know

Background

On September 17, 2026, the Securities and Exchange Commission (SEC or Commission) issued an order granting temporary,A five-year term, modifiable by the SEC, effective from September 17, 2026, to September 17, 2031. conditional exemptive relief under Sections 36(a)(1) and 36(a)(5) of the Securities Exchange Act of 1934 (Exchange Act) to facilitate on-chain trading of tokenized National Market System (NMS) stocks“NMS stock” means any NMS security other than an option. “NMS security” means any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective NMS plan for reporting transactions in listed options. The category covers virtually all exchange-listed stocks in the US, including those listed on the NYSE and Nasdaq. (the Order, or Innovation Exemption). The Order exempts entities that are TSVs from the “exchange” definition in Section 3(a)(1), and certain liquidity providers (Covered Firms) from the “dealer” definition in Section 3(a)(5). 

This article focuses on what the Order means for public companies. For more detail on the conditions and ongoing obligations that apply to venues and liquidity providers, see this Latham blog post.

Overview

At least initially, the scale of tokenized share creation and transactions should be limited. Each TSV, aggregated with its affiliated TSVs, may trade no more than 75 symbols and no more than 0.25% of a single stock’s prior-month average daily volume for “Tier 1” stocks (principally S&P 500 and Russell 1000 constituents and certain exchange-traded products), and no more than 250 symbols and 2.5% of average daily volume for all other stocks (“Tier 2” stocks).A TSV’s first volume breach in a stock requires only going-forward compliance, while any later breach forces a three-month pause in that stock. The Order does not provide any relief to a TSV for a symbol-cap breach. Because the caps apply on a per-TSV basis, however, aggregate on-chain trading in a single stock across unaffiliated TSVs could exceed these percentages.

Issuers should take note of two important points. First, on-chain volume is likely to be small relative to exchange trading at the outset, but the market, reputational, practical, and other questions raised by trading of tokenized shares may not be proportionate to that volume. Second, TSV volume is not reported to a securities information processor (SIP) and does not appear on the consolidated tape, so trading in a company’s own stock on a TSV will not show up in the volume data channels the company and its investors ordinarily follow. 

As a result, consolidated volume data ordinarily distributed through SIPs may understate trading in an issuer’s shares and related metrics for daily volume, turnover, and liquidity, which in turn could affect analyst coverage, index and ETF eligibility reviews, and how investors view an issuer’s stock. Instead, a TSV must separately publish transaction data within 10 minutes of each transaction occurring. It is not clear from the Order whether or how this additional transaction data could count toward certain rule- and policy-based volume thresholds, such as the Rule 10b-18 buyback safe harbor, Rule 144 volume limits, or Reg M tests for actively traded securities.

What the Order Means for Public Companies

The Order matters for public companies regardless of whether they have a tokenization strategy of their own because it creates a notice-and-objection process for third-party tokenized shares. A company that lets the 30-day window pass without objecting to a TSV request is effectively accepting third-party tokenized trading of its stock. The Order does not itself impose new disclosure or compliance obligations on issuers, although issuers may wish to consider the many practical and other questions surrounding tokenization when deciding whether or not to object to a TSV request.

Before a TSV makes available for trading a tokenized NMS stock created by a party unaffiliated with the issuer, the following sequence applies:

• Issuer Notice starts a 30-day clock. The TSV must send a written notice (Issuer Notice) to the physical or email address for the issuer’s principal executive offices listed on the cover page of its most recent Exchange Act report, including contact information for delivering an objection. Trading cannot begin until at least 30 calendar days after receipt. 
• Objections are public. A written objection delivered to the TSV on or before the 30th calendar day following receipt bars the TSV from making the token available for trading. The Order does not prescribe the form an issuer’s objection must take or require the issuer to state any basis for its objection. The TSV will have previously posted a public notice naming an issuer as to which it intends to trade tokenized shares, and it must then amend its public notice within five business days to say that it received the objection and identify the objecting issuer, and it must email the SEC within one business day of the amendment.
• No affirmative consent required. If the company takes no action, trading may begin on day 31 following receipt of the notice. Silence is therefore an irrevocable decision, and companies should treat it as one. The Order does not provide any mechanism to object after day 30 or withdraw a prior non-objection, and there are no means for a company to stop trading once participants hold positions. An objection blocks the requesting TSV’s reliance on the exemption as it relates to the issuer’s NMS stock only. It does not prevent third parties from tokenizing NMS stock in their own right, or other TSVs from making similar requests.
• Issuer-led tokenization remains available. No Issuer Notice is required where the issuer tokenizes its own stock or has it tokenized on its behalf. For companies that want to take a more active role, issuer-led tokenization would allow greater influence over the venue, permissioning,Permissioning refers to the controls that determine which investors may trade and hold tokenized shares on a trading venue. Permissioned access does not require a private chain or closed protocol; the Order requires the distributed ledger to be public and permissionless, meaning anyone may read or write to it without authorization, while the pool itself may be permissioned, meaning it does not provide open access to trading. A TSV may enforce its access standards in either of two ways: at the pool level, by encoding the liquidity pool so that only whitelisted or allow-listed crypto wallet addresses may trade; or at the token level, by encoding the tokenized stock itself so that it may transfer only to approved wallet addresses of persons meeting those standards. The Order offers token-level permissioning as an alternative, not a requirement, and imposes no token-level transfer restriction. Thus, theoretically, once shares are tokenized they could be traded outside of the original TSV unless the TSV or the token creator restricts this. wrapper,Wrapper refers to the legal and custodial structure through which a token represents the underlying share and delivers its rights to the token holder. The Order does not prescribe that structure. It defines tokenization only as creating a digital representation of an asset using distributed ledger technology, and addresses the mechanics through disclosure, requiring the TSV’s public notice to describe the processes used to tokenize and the ledger on which the security is issued and transferred. and disclosure, including the issuer’s own disclosure regarding tokenized trading and what the TSV says about the token in its public notice, while third-party tokenization can help create the market experience and data that may inform later issuer-led and follow-on regulatory approaches.
• The timeline is near-term, and two clocks run separately. The exemptions took effect immediately. A firm that meets the TSV definition must publish its notice at least 30 calendar days before operating, and email the SEC within one business day of notice publication. The Issuer Notice clock is separate: It runs 30 calendar days from the issuer’s receipt and relates only to trading in that tokenized NMS stock. The Order does not sequence the two, so a TSV may send Issuer Notices before, after, or alongside publishing its notice, and an issuer could receive a notice from a TSV that has not yet published anything.
• US-listed foreign private issuers are not exempt. Eligibility turns on whether the underlying security is NMS stock, which in practice covers virtually all equities listed on a US exchange, and the Order contains no carveout based on the issuer’s jurisdiction of organization or foreign private issuer status. A foreign private issuer whose shares or depositary receipts meet that definition is therefore exposed to third-party tokenization and to the Issuer Notice process on the same terms as a domestic registrant. This exposes ADR issuers to increased dual-halt coordination risk because the Order requires a TSV to immediately halt trading if a trading stoppage is called on the primary listing exchange, leaving tokenized shares vulnerable to overnight exploitation if the underlying non-US exchange freezes trading while the related US exchange is closed. For companies also listed on non-US exchanges, it is unclear whether TSVs will need to monitor for stoppages in those markets and what impact continued trading on the US exchange would have on the tokenized shares.

The Governance Question the Order Leaves Open

The Order presents companies with a decision they have not had to make before, including whether the decision to object is one for management or the board of directors. However companies address the governance surrounding this matter, a framework should be developed to assess potential consequences, such as creating additional trading venues and facilitating self-custody, fractional ownership, around-the-clock trading, on-chain transparency, and lower-cost proxy communications. Notably, the Commission identified certain operational risks of tokenization, such as the difficulty of maintaining an accurate shareholder register when interests in the underlying shares change hands on-chain and the potential for token prices to diverge from exchange prices.

Given the short 30-day window to respond to tokenization requests, issuers should stand ready to create a record of the factors they considered, whether they object or allow trading to proceed. A decision on an Issuer Notice should ordinarily be an informed business judgment that falls within management’s delegated authority, but the board should set the standard and be informed of outcomes.

Public companies may decide to take a variety of approaches:

• Proceed after diligence. Decline to object where the venue’s notice, rights-equivalence showing, and operational safeguards address issuer and investor concerns.
• Object to specific deficiencies, and condition agreement on corrections. Object where (i) TSV disclosure is deficient or its public notice is not yet live, (ii) the tokens are not rights-equivalent, (iii) issuer proxy materials and other communications cannot be delivered by the tokenizer at no cost, (iv) the TSV (or if separate, the tokenizer) are unable to represent compliant regulatory status, or (v) market-quality or operational controls are inadequate.
• Object as an interim posture. Object while market practice develops, without regard to any particular deficiency in the request. No venue has an operating track record, reliance on the Order is self-executing with no SEC confirmation that a structure qualifies, and objection is the only response that preserves optionality, because the Order provides no mechanism to object after day 30 or to withdraw a non-objection.
• Pursue issuer-led tokenization. Tokenize directly to shape approaches to permissioning, wrapper, venue, disclosure, and investor communications.

Because objecting issuers are named in the venue’s public notice, early decisions will be easy to track. Neither the Order nor Exchange Act reporting rules require specific reporting triggered by receipt of an Issuer Notice, an objection, or a non-objection, so any explanation a company offers would be voluntary. If well-known issuers object and publicly disclose their reasoned explanations in a press release, Form 8-K filing, or other public communication, the boards of other issuers may want to be prepared to publicly explain their response as well. Proxy advisers, plaintiffs’ firms, and activist investors may scrutinize company decisions relating to tokenization and any explanations offered for such decisions.

Practical Next Steps

A response framework prepared before a TSV notice arrives lets a company make an informed decision on its own terms rather than improvise inside a 30-day window.

• Confirm the intake path. Confirm who monitors the physical and email addresses for the principal executive offices shown on the cover page of the company’s Exchange Act reports, and route any notice about tokenization, a TSV, or the innovation exemption to the general counsel’s office the day it arrives. The 30-day clock runs from receipt, not from internal circulation.
• Educate the board early. Brief the board or appropriate committee before a notice arrives, and obtain a delegation specifying who may object and under what standard. Advance preparation helps avoid a rushed, reactive record. Board meeting dates and meeting agendas may not accommodate the 30-day objection period.
• Adopt a decision framework and form response. Decide in advance what diligence to perform, what factors matter, and who approves and signs the response. Keep a form response ready, including an objection and/or a prepopulated diligence request for TSVs if appropriate, and document the diligence so the file supports a reasoned business judgment either way.
• Ask about the TSV’s and tokenizer’s regulatory status. The exemptions reach only the TSV’s exchange status and a Covered Firm’s dealer status. The Order does not address (i) the regulatory status of any entity doing the tokenizing, clearing agency, or transfer agent status, or (ii) the status of activities performed by TSV participants. Companies should ask the TSV and tokenizer to confirm the basis on which each concludes that it need not register as a broker-dealer, clearing agency, or transfer agent, and should record any decision not to object as a non-objection rather than an approval, appointment, or endorsement. The Order does not define when a TSV acting as a tokenizer would be considered to act “on behalf of” an issuer, so a company may want to avoid any argument that a third-party tokenizer became its agent by limiting language that could be read as endorsement, authorization, or adoption.
• Diligence the TSV using its own public notice. The Order gives an issuer no right to information from the TSV beyond what the TSV publishes, although nothing in the Order prevents an issuer from asking the TSV or tokenizer for more information, or from objecting if the response is incomplete or unsatisfactory. For this reason, diligence questions should be prepared in advance. The notice a TSV must publish and keep current doubles as a diligence checklist, covering governance and ownership, permissioning and eligibility, the tokenization process, whether the venue or its affiliates tokenized or trade the token, differential treatment among participants, fees and rebates, clearance and settlement, service providers, manipulation monitoring, exclusive-venue status, and an itemized catalogue of technology and market-abuse risks. For this reason, issuers should be cautious about approving a TSV request where the TSV has yet to publish notice on its website in compliance with the Order.
• Assess token equivalence, in consultation with service providers. Assess whether the proposed token conveys the same interest in the company, including dividend rights, voting rights, and claim on residual assets as the underlying shares, and whether the tokenizer will make proxy materials and other issuer communications available at no cost to the company or its shareholders. Involve the transfer agent, proxy solicitor, and other service providers to confirm that arrangements are operationally workable.Foreign private issuers with exchange-listed ADSs may consider including the depositary in such discussions and assessing how tokenized trading infrastructure interacts with the deposit agreement.
• Watch continued listing standards. Exchange listing standards turn on measures such as publicly held shares, round lot or record holders, and trading activity, and continued exchange listing standards include an average monthly trading volume test that can expose a company to delisting if volume falls below the threshold. Because the Order does not address how tokenized positions count toward those measures, and because TSV volume is not reported to the consolidated tape, a company should confirm with its listing exchange and transfer agent how on-chain holdings and volume are treated before a tokenized market in its stock develops.
• Prepare the disclosure and investor relations approach. Objections are named in the TSV’s public notice, and non-objection may still prompt questions if trading begins. Have a short, consistent explanation ready, coordinate with investor relations, and expect questions from shareholders, analysts, and proxy advisers about voting, dividends, and record ownership. Consider whether risk factors should be updated to address third-party tokenized trading and price divergence, and whether disclosure controls should account for 24/7 on-chain trading outside regular stock exchange hours.
• Revisit trading-related policies. On-chain trading outside regular stock exchange hours raises questions for existing policies. Consider whether the insider trading policy and preclearance procedures should expressly cover tokenized shares, how blackout periods and the timing of material announcements (including after-hours and weekend press releases and social media posts) interact with 24/7 trading, and whether Regulation FD practices need adjustment. In addition, if they effect transactions in tokenized shares, Section 16 officers and directors, as well as beneficial owners monitoring Section 13(d) and 13(g) thresholds, will need to consider how tokenized positions are counted. Since eligible tokens must carry the same voting rights in the company as the underlying NMS stock, a token holder would be a beneficial owner of the underlying NMS stock within the meaning of Exchange Act Rule 13d-3(a). Unresolved questions remain with respect to companies with active buyback programs, such as how on-chain volume is treated for Rule 10b-18 purposes and whether repurchase plans should exclude TSV activity.
• Plan for more than one notice. Notices may come from different TSVs, with different permissioning, wrappers, chains, or share classes. Track each notice, receipt date, day-30 deadline, and response in one place. 
• Settle register reconciliation with the transfer agent. The Order imposes no reconciliation requirements, so how on-chain ownership records are reconciled against the official shareholder register, and who bears responsibility for discrepancies, is left to agreement between the company and its transfer agent, with potential input from the tokenizer. With third-party tokenization, token holders would likely be beneficial and not record owners of the underlying NMS stock for purposes of the company’s master securityholder file, although companies should confirm that is the case. Depending on the structure, the tokenizing entity itself or an affiliated entity may serve as a securities depository or intermediary in relation to immobilized underlying NMS stock and be considered the “record owner” of the NMS stock.For foreign private issuers, the shareholder register is typically maintained under home-country law, which may prescribe how holders are recorded and recognized. Those issuers should consider how home-country requirements accommodate on-chain transfer records. Companies may therefore want to ask who custodies the underlying shares, where they sit in the Depository Trust Company (DTC) chain, and who appears as the record holder.
• Confirm mechanisms relating to proxy voting. Companies should confirm the procedures for proxy voting with the TSV and third-party tokenizer, as well as with their transfer agents, proxy solicitors, and vote tabulators. A TSV may make available for trading a tokenized NMS stock only after verifying that token holders get the same rights as holders of the underlying stock, including the same voting rights. However, the Order expressly allows “any” mechanism for passing those rights through. Companies may want to ask for details about the voting mechanism, including whether and how votes will be cast outside the broker and Broadridge system, how votes will be tabulated, how uninstructed shares underlying tokens will be voted, whether companies will be able to ascertain the identity of token holders and the amount of their holdings, and whether companies will be able to communicate directly with token holders. A related question is how tokenized holders are identified for record date purposes, given that tokenized shares may trade around the clock.
• For companies preparing to go public. Pre-IPO companies fall outside the Order until they list, when they will typically enter as Tier 2 names subject to the 250-symbol and 2.5% parameters. Because Issuer Notices could arrive shortly after the IPO and listing, these companies may want to consider adding a tokenization response framework to their IPO-readiness workstreams.

Conclusion

The Innovation Exemption took effect immediately, the 30-day clock runs from the company’s receipt of a notice, and the TSV’s request for no objection and a company’s response will be visible to the market. Companies should confirm monitored delivery channels, identify decision-makers and outside advisers, and establish a process for requesting information promptly from the TSV or tokenizer.

The Commission has asked for comment on all aspects of the Order, including whether to modify, extend, or make permanent the exemptions.