On 15 September the Senate voted 49 to 50 against invoking cloture on the motion to proceed to the CLARITY Act, three fifths being required. Two days later the Securities and Exchange Commission issued what it calls the Innovation Exemption: a five year, conditional order exempting certain onchain venues from the definition of an exchange, and certain liquidity providers from the definition of a dealer, so that tokenized listed shares can trade in automated market maker pools on public, permissionless blockchains.
The headline reading is that the SEC has legalised onchain stocks. The order is narrower than that, and its most consequential gap is not in what it permits. It is in when.
The anchor does not.
1 What The Order Permits
The order covers tokenized NMS stock: listed shares tokenized either by or on behalf of the issuer, or by a third party unaffiliated with it. It expressly excludes the synthetic versions, a third party's own security that tracks a share, such as a tokenized linked security or a tokenized security based swap. No primary issuance or initial offering may take place on one of these venues. A venue must stop trading a token concurrently with any stoppage of trading in the underlying stock on its primary listing exchange, "which includes a halt or a suspension."
It also rations volume, in a direction that surprises. Tier 1, drawn from the limit up limit down plan and covering the S&P 500, the Russell 1000 and exchange traded products above $2 million of daily notional volume, is capped at 75 symbols and 0.25 percent of the underlying's average daily share volume in the prior month. Tier 2, everything else, is allowed 250 symbols and 2.5 percent. The most liquid names get the tightest limit, and the order says that is deliberate: separate limits "incentivize TSVs to make available for trading Tokenized NMS Stocks that are not only the most liquid securities." A venue that breaches a limit more than once must pause that token for three months.
That inversion is worth noting and not worth resting on, for reasons we set out below. The more important design choice is about time.
2 The Hours With No Reference Price
The fact sheet lists the benefits of these venues, and one of them is "around-the-clock trading." The order describes how the price on such a venue is formed. Automated market maker pools set prices "based on the ratio of the quantities of the assets in a liquidity pool without directly considering external pricing," and prices disseminated by a pool "are most likely based only on the ratio of the quantities of assets in that liquidity pool."
Put those two sentences together and the structure is plain. The token can trade at any hour. The stock it represents trades on its home market during that market's hours, and the home market closes every evening and every weekend. The stoppage condition covers halts and suspensions. It does not treat the close as a stoppage, and the order's own request for comment assumes trading continues through it, asking commenters to describe "any risk controls, including any circuit breakers or reference price bands, and any procedures to address price volatility or trading involving, for example, corporate actions occurring when markets for the underlying securities are closed."
So for the hours this product exists to serve, the order describes the risk, names the tools that would address it, and asks the public what to do.
We wrote about this problem in our last note from the other side. The CFTC's May order approving a bitcoin perpetual explained that such a contract borrows its anchor from the spot market, and warned that without continuous spot trading "price dislocations could grow, triggering liquidations or leading to settlement at distorted levels before the spot market reopens." Its answer was to confine its approval to assets whose spot markets never close. The CFTC drew its line where the underlying stops trading. The SEC's order opens trading in exactly that interval.
3 Framework · Two Regulators, One Anchor
| CFTC perpetual order, May | SEC Innovation Exemption, September | |
|---|---|---|
| Instrument | Cash settled perpetual on bitcoin | Tokenized listed shares in automated market maker pools |
| Where the price comes from | Funding against a continuously observable spot reference | The ratio of assets in the pool, without directly considering external pricing |
| Hours of the underlying market | Around the clock | The home market's session. Closed evenings and weekends |
| How the gap is treated | Approval limited to assets with deep, active and continuous spot trading | Comment requested on trading when the underlying markets are closed |
| Who can stop a new listing | The Commission, contract by contract | For third party tokens, the issuer, within 30 days |
Read the fourth row. One regulator answered the anchor question by drawing a boundary. The other opened a docket.
4 The Issuer's New Veto
The last row deserves its own section, because it is a new power and its stated reason is the same problem.
Before a venue lists a token created by a third party unaffiliated with the issuer, it must send the issuer written notice. Trading may not begin for 30 calendar days. If the issuer objects in writing by the thirtieth day, the venue "cannot make such Tokenized NMS Stock available for trading," and must amend its public notice within five business days to say so. Tokens created by or for the issuer itself carry no such step.
Compare the listed market. Under the Exchange Act an exchange may extend unlisted trading privileges to a stock listed elsewhere without the issuer's consent, and an issuer that objects has a route only through the Commission, by applying to terminate or suspend those privileges. On a tokenized venue the issuer does not apply to anyone. It says no, and that is the end of it.
In our seventh paper the issuer held the key to leaving an investment contract, by certifying that its promised efforts had ceased. Here the issuer holds the key to who may wrap its shares for secondary trading. Different markets, different mechanisms, the same direction of travel: control moving toward the issuer and away from the Commission.
And the order's reason for giving issuers that key is the anchor. An issuer may worry about maintaining its shareholder register, and about "the potential price dislocation or adverse effects on the price of the underlying NMS stock, particularly given that prices disseminated by an AMM Liquidity Pool are most likely based only on the ratio of the quantities of assets in that liquidity pool." The order leaves the unanchored hours to public comment, and hands issuers a veto because of them.
5 The Other Side
Five arguments cut against this paper.
Exemptive relief is how new market structures normally begin. Several products that are now ordinary started life under conditional exemptions and became rules later. A five year, capped, interim order with an open comment file is a reasonable way to learn before writing rules. We agree. Our claim is not that the order is reckless. It is about where the unresolved interval sits, and that the interval is the product's selling point.
The caps may not bind anything. Tokenized listed shares are a small market today, and on most accounts much of it is synthetic and therefore outside this order entirely. If demand is the real constraint, the tier inversion is a label rather than a ration, which is why we do not rest the argument on it. The same logic cuts against us on the closed hours: a small market produces small dislocations. It will not stay small if the exemption does what it is meant to do.
Leaving the closed hours to comment may be prudence rather than omission. The order names the risk, names circuit breakers and reference price bands as candidate controls, and asks. Declining to bless a design it cannot yet evaluate is defensible. The test is whether the answer arrives before the volume does.
The veto is asymmetric. An issuer that wants onchain trading can tokenize its own shares, and no objection process arises. What the veto controls is who may wrap a stock, not whether it can trade onchain at all.
And one tempting point we would not lean on. The order notes that a pool pricing without reference to external prices "may be unable to comply with the trade-through requirements of Rule 611." But the Commission separately proposed in June to rescind that rule for all listed stocks, so it is not a gap peculiar to tokenized venues.
6 What Would Settle It
- What the comment file under File No. 4-927 says about the closed hours, and whether the Commission turns reference price bands or a close based stoppage into a condition.
- The first venue to post a 30 day notice for a third party token, and the first Notice of Issuer Objection. Which issuer files it will say more about who controls this market than any statement.
- Whether the published version of the order changes the tier figures.
- The first material overnight or weekend dislocation on one of these venues, and how it is handled, including what happens to trades executed against a stale pool when the home market reopens.
- Whether perpetuals on equities come through joint CFTC and SEC review, as the CFTC's May order suggested. That is the derivative form of the same anchor problem.
If the comment process produces a reference band before volume builds, this will read as a regulator learning in sequence. If volume arrives first, the unanchored hours will be priced by the pools, and the issuers the order empowered will be the first to object.
7 Sources
The SEC order and fact sheet are quoted from the primary documents. Retrieval 21 September 2026.
- SEC, Order granting temporary conditional exemptive relief for trading of tokenized NMS stock on tokenized securities venues, Release 34-106402, 17 September 2026. The exchange and dealer exemptions, the definition and exclusion of synthetic tokens, the ban on primary issuance, the tier composition and limits, the stated rationale for separate limits, the three month pause, the stoppage condition, the description of pool pricing, the issuer notice and objection procedure and its rationale, the request for comment on closed markets, the Rule 611 footnote and the June 2026 proposal to rescind that rule, and the five year term.
- SEC, Fact sheet, Release 34-106402, 17 September 2026. The listed benefits including around the clock trading, and the requirement to operate on a public, permissionless ledger.
- US Senate, Roll call vote 234, 15 September 2026. Cloture on the motion to proceed to H.R. 3633, rejected 49 to 50 with one not voting.
- 15 U.S.C. 78l(f). Unlisted trading privileges, and the issuer's application to the Commission to terminate or suspend them.
- CFTC, Order approving KalshiEX LLC BTCPERP futures contract, 29 May 2026.
- OX85, Who decides it is over?, August 2026, and What makes a perpetual a future?, September 2026.
On sourcing, and on what we did not use. Figures circulating for the total value of tokenized shares and for the share of synthetic tokens within it come from a data provider we did not consult directly, so we give no number. A reported weekend episode in which a tokenized share traded several times above its underlying's Friday close was not verified onchain and is not used. A written submission from the transfer agent industry urging issuer consent as a condition of relief, and remarks attributed to an unnamed SEC spokesperson, were reported but not read in the original. The five year term runs from publication in the Federal Register, whose date we have not confirmed. We make no claim about how individual commissioners voted, or about why individual senators voted as they did.
This paper is published for informational purposes and does not constitute investment, legal or tax advice. It describes a temporary exemptive order that is open for public comment and may be modified. It is not a recommendation regarding any security or digital asset. Figures and quoted language are as of the dates stated.