On 17^th September 2026, the SEC paved the way for the trading of digital “token” versions of US-listed shares on crypto exchanges via the Innovation Exemption. A week on from the announcement, it’s important to provide a view on what has not just been positive for market sentiment in respect of digital assets, but is worth dissecting to understand the potential effectiveness and take-up of such an exemption.

In its official Order, the SEC acknowledges that the old rules don’t fit digital assets, and that uncertainty has held things back because the rules were unclear, and so Chairman Paul Atkins continues to seek new ways “to bring America’s capital markets into the digital age”, despite the Senate’s failure to advance the CLARITY Act.

So what does the exemption do? Usually, anyone running a marketplace needs to register as a stock exchange and anyone in the business of buying/selling shares must register as a broker-dealer. Both of these activities come with heavy red tape/rules. The SEC has ultimately made exceptions for tokenized trading venues and liquidity providers.
‍

The headline points of the exemption are:

• As above, trading venues do not need to register as a stock exchange so the usual US stock market trading rules do not apply to them.
  
• Firms supplying liquidity to an on-chain trading pool do not have to register as dealers, provided they trade only for their own account, hold no customer assets and carry on no other securities business.
  ‍
• Where a third party tokenizes a company's shares, the venue must notify the company in advance, and the company can block trading on that venue if it objects within 30 days. No notice is needed where the company tokenizes its own shares.
  ‍
• Everyone else - tokenization agents, transfer agents and custodians get no special treatment. The existing federal securities framework applies.
  ‍
• The Innovation Exemption applies for five years – the SEC wants feedback to shape permanent rules.
  ‍
• The benefits for investors are:
  
  • trading outside normal stock market hours (around the clock);
  • near-instant settlement;
  • holding tokens in their own wallet;
  • potentially buying fractions of a share; and
  • trading without a brokerage account.
    ‍

However, the Innovation Exemption is not without limits:

• Tokens must carry the same rights as regular shares.
  ‍
• Only a set number of stocks can be traded - up to 75 large-cap stocks (Tier 1) and 250 others (Tier 2) per venue.
  ‍
• Trading volumes are capped - 0.25% of a stock’s average daily volume (Tier 1), 2.5% (Tier 2).
  ‍
• Venues must publish a lot of information - disclosure of operations and affiliate trading, public auditable smart contracts.
  ‍
• Fraud, market manipulation and sanctions rules still apply.
  ‍
• Everyone who trades must pass the trading venue’s identity and eligibility checks.
  ‍

As with any new rule, the effectiveness of the rule is to be seen in its implementation. There are some grey areas to look out for, for example:  

• The smart contracts must run on a “public, permissionless” blockchain - the SEC hasn’t listed which blockchains qualify.
  ‍
• Tokens must give holders the same ownership, dividend and voting rights as the ordinary share - it’s unclear how this will be verified.
  ‍

Whilst it would be wrong to suggest that this is not an innovative step forward for the SEC and the US undoubtedly leads the way in influencing the parameters around digital assets, what has been proposed is not the first proposal of its kind worldwide.

The EU has its own DLT Pilot Regime. It's the regime that most closely matches what the SEC's Innovation Exemption does at its core. Both are formal, temporary exemptions from normal stock market rules that allow genuine tokenized shares to be traded on blockchain venues, and both use caps to limit risk whilst regulators learn.

It has been running since March 2023. It allows tokenized shares, bonds and funds, with exemptions from some of the EU’s normal market rules. After more than three years, only a handful of infrastructures/venues have been authorised and they have seen little trading due to caps being too tight, difficulty connecting venues to traditional market infrastructure, legal complexities and poor design.

The biggest difference with the SEC against other jurisdictions is that venues do not need pre-approval from the SEC to get started. Instead, the SEC limits how many different stocks a venue can offer and what share of each stock’s overall market trading it can handle.

So all in all, the exemption is welcome. We will have to see how it materialises in reality, but it’s worth bearing in mind that even in the SEC’s own words, this exemption is a stepping stone and not the final answer. Chair Atkins called it “A Bridge Toward Durable Rulemaking” so once we do see the implementation, there is no doubt there’s more to come (and more to comment on).

--

_{DISCLAIMER: All views expressed are Hivemind’s own views. The information provided herein has been produced and issued by Hivemind Capital Partners UK LLP and/or Hivemind Capital Partners LLC (“Hivemind”) and is being provided for informational purposes only. This document is not to be distributed or reproduced in any way. This document does not constitute or contain an offer to purchase or sell securities. This document is confidential and intended for the person to whom this was delivered. If you have not received this document from Hivemind you are hereby notified that you have received it from a non-authorized source and you are prohibited from reading, using, retaining, disseminating or copying this material without the prior express written consent of Hivemind. Neither Hivemind nor any of its affiliates or representatives makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein or any other written or oral communication transmitted or made to the recipient. The information contained in this document is current as of the date indicated, and Hivemind undertakes no obligation to update, modify or amend this document or to otherwise notify a reader in the event that any matter stated herein changes or subsequently becomes inaccurate. This document has not been compiled, reviewed, or audited by an independent accountant. Past performance should not be construed as an indicator of future results, and there can be no assurance that historical trends will continue. This document does not include information regarding each investment or investment strategy pursued by the Funds. References to investments included herein should not be construed as a recommendation of any particular investment. Certain information contained herein may constitute “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof, other variations thereon or comparable terminology. All such forward-looking statements are solely statements of opinion, and there is no assurance that they will be predictive of actual events.}

‍