Notice2026-19388
Order Granting Temporary Conditional Exemptive Relief, Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934, From the Definition of “Exchange” in Section 3(a)(1) of the Exchange Act for the Use of Certain Distributed Ledger Trading Venues for Tokenized NMS Stocks and From the Definition of “Dealer” in Section 3(a)(5) of the Exchange Act for Certain Liquidity Providers for Tokenized NMS Stocks, and Request for Comment
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 22, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 91 Issue 182 (Tuesday, September 22, 2026)</title>
</head>
<body><pre>
[Federal Register Volume 91, Number 182 (Tuesday, September 22, 2026)]
[Notices]
[Pages 60168-60184]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-19388]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-106402; File No. 4-927]
Order Granting Temporary Conditional Exemptive Relief, Pursuant
to Section 36(a)(1) of the Securities Exchange Act of 1934, From the
Definition of ``Exchange'' in Section 3(a)(1) of the Exchange Act for
the Use of Certain Distributed Ledger Trading Venues for Tokenized NMS
Stocks and From the Definition of ``Dealer'' in Section 3(a)(5) of the
Exchange Act for Certain Liquidity Providers for Tokenized NMS Stocks,
and Request for Comment
September 17, 2026.
I. Introduction
The Securities and Exchange Commission (``Commission'' or ``SEC'')
hereby issues these temporary, conditional exemptions to facilitate the
permissioned trading of tokenized NMS stock using innovative automated
market makers (``AMMs'') and liquidity pools (together referred to as
``AMM Liquidity Pools''). Specifically, the Commission hereby issues to
``Tokenized Securities Venues'' (``TSVs'') an exemption from the
definition of ``exchange'' in section 3(a)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') (``TSV Exemption''). The
Commission also hereby issues an exemption from the definition of
``dealer'' in section 3(a)(5) of the Exchange Act to certain liquidity
providers in an AMM Liquidity Pool that supply liquidity in the form of
tokenized NMS stock (``Covered Firm Exemption'').
A TSV is an organization, association, or group of persons that
brings together buyers and sellers of Tokenized NMS Stock by: (1)
providing one or more AMM Liquidity Pool(s) for permissioned
participants to interact and agree to terms of a trade and (2) setting
standards for persons to access trading on such AMM Liquidity Pool(s).
For purposes of this order (``Order''), ``Tokenized NMS Stock'' means
an NMS stock \1\ that is (1) a security tokenized \2\ by, or on behalf
of, the issuer of the underlying NMS stock; or (2) a security tokenized
by a third party that is unaffiliated with the issuer of the underlying
NMS stock.\3\ ``Tokenized NMS Stock'' does not include securities where
a third party issues a crypto asset representing its own security that
provides synthetic exposure to an underlying security, such as a
tokenized linked security or a tokenized security-based swap.\4\
---------------------------------------------------------------------------
\1\ ``NMS stock'' means any NMS security other than an option.
17 CFR 242.600(b)(65). ``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 national market system plan for
reporting transactions in listed options. 17 CFR 242.600(b)(64).
\2\ Tokenization is the process of creating a digital
representation of a tangible or intangible asset using distributed
ledger technology. See Statement on Tokenized Securities, Division
of Corporation Finance, Division of Investment Management, Division
of Trading and Markets, dated Jan. 28, 2026, available at <a href="https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826-statement-tokenized-securities">https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826-statement-tokenized-securities</a>
(``Statement on Tokenized Securities''), at n. 3. The statement, and
any other staff statement referenced in this release, is not a rule,
regulation, guidance, or statement of the Commission, and the
Commission has neither approved nor disapproved its content. Staff
statements have no legal force or effect: they do not alter or amend
applicable law, and they create no new or additional obligations for
any person. See id. at n. 2.
\3\ See generally id. (stating that ``tokenized securities''
generally fall in such categories). See also id. at nn. 5, 11, 13-15
and accompanying text.
\4\ See id. at n. 16 and accompanying text. In addition,
Tokenized NMS Stock eligible for trading on a TSV does not include
rights and warrants.
---------------------------------------------------------------------------
Over the past several years, advancements in distributed ledger \5\
technology have facilitated innovations in trading across non-security
crypto assets.\6\ These innovations have enhanced access and
efficiencies for buyers and sellers to discover prices, interact, find
counterparties, and execute trades in these assets. Additionally,
distributed ledger technology and related applications have led to
developments in the tokenization of securities.\7\
---------------------------------------------------------------------------
\5\ A ``distributed ledger'' is technology in which data is
shared across a network that creates a public digital ledger of
verified transactions or information among network participants and
cryptography is used to link the data to maintain the integrity of
the public ledger and execute other functions. Section 2(8) of the
Guiding and Establishing National Innovation for U.S. Stablecoins
Act, Public Law 119-27, 139 Stat. 419 (2025) (``GENIUS Act'').
\6\ A ``crypto asset'' is any digital representation of value
that is recorded on a cryptographically secured distributed ledger.
The foregoing definition of ``crypto asset'' is identical to the
definition of ``digital asset'' in section 2(6) of the GENIUS Act. A
``non-security crypto asset'' is a crypto asset that itself is not a
security. See Securities Exchange Act Release No. 11412 (Mar. 17,
2026), 91 FR 13714, 13716 (Mar. 23, 2026) (``Crypto Asset
Interpretative Statement'').
\7\ See, e.g., Statement on Tokenized Securities; Crypto Asset
Interpretative Statement at section III.E.
---------------------------------------------------------------------------
Increasingly, retail investors, institutional investors, and
professional securities market participants are seeking to buy and sell
Tokenized NMS Stock on trading venues that use distributed ledger
applications.\8\ Such distributed ledger applications include smart
contracts \9\ that automate transactions in crypto assets, such as
smart contracts within an AMM Liquidity Pool. An AMM consists of a
smart contract (or smart contracts) that enforces terms of trading,
including setting token prices based on the ratio of the quantities of
the assets committed to a liquidity pool. AMM smart contracts act in
tandem with liquidity pool smart contracts. A liquidity pool is a
portfolio of crypto assets that is algorithmically bound and traded
based on the terms of the smart contracts that compose the AMM
Liquidity Pool.
---------------------------------------------------------------------------
\8\ A ``distributed ledger application'' means any executable
software that is deployed to and maintained on a distributed ledger
and composed of source code that is publicly available, including a
smart contract or network of smart contracts.
\9\ A ``smart contract'' is a self-executing contract or program
that (A) is stored using distributed ledger technology and (B)
automatically executes or enforces digital asset transactions upon
the occurrence of explicit, pre-determined conditions encoded in the
contract or program, without intervention, other than to provide
data, by any entity or natural persons.
---------------------------------------------------------------------------
Distributed ledger technology and associated applications,
including smart contracts, can be employed in various other ways in
connection with crypto assets. For example, smart contracts can be
programmed with permissioning criteria to allow certain participants to
access trading in certain crypto assets, AMM Liquidity Pools, or both.
While AMM Liquidity Pools for non-security crypto assets generally
operate on a permissionless basis, certain market participants have
expressed the desire to provide access to trading of Tokenized NMS
Stock on a
[[Page 60169]]
permissioned basis and using AMM Liquidity Pools selected by such
market participants.
Section 36(a)(1) of the Exchange Act grants the Commission the
authority to ``conditionally or unconditionally exempt any person,
security, or transaction . . . from any provision or provisions of [the
Exchange Act] or of any rule or regulation thereunder, to the extent
that such exemption is necessary or appropriate in the public interest,
and is consistent with the protection of investors.'' \10\
---------------------------------------------------------------------------
\10\ See 15 U.S.C. 78mm(a)(1).
---------------------------------------------------------------------------
For the reasons discussed below, the Commission finds it
appropriate in the public interest and consistent with the protection
of investors to issue a temporary exemption, under section 36(a)(1) of
the Exchange Act, from the definition of ``exchange'' to a TSV, subject
to conditions.
Additionally, the Commission finds it appropriate in the public
interest and consistent with the protection of investors to issue a
temporary exemption from the definition of ``dealer'' under section
3(a)(5) of the Exchange Act to any liquidity provider in an AMM
Liquidity Pool that supplies liquidity in the form of Tokenized NMS
Stock using proprietary capital and may also be engaged in additional
activities that are indicia of dealing activity, such as quoting
pricing to customers or entering into agreements to provide committed
capital (``Covered Firm''), subject to conditions.
On January 21, 2025, Acting Chairman Mark T. Uyeda established the
Crypto Task Force to help provide greater clarity on the application of
the Federal securities laws to the crypto asset markets.\11\ The Crypto
Task Force's focus is to support, among other things, the Commission's
efforts to draw clear regulatory lines; appropriately distinguish
securities from non-securities; craft tailored disclosure frameworks;
provide realistic paths to registration for crypto asset offerings and
intermediaries subject to the Federal securities laws; and ensure that
investors have the information necessary to make informed investment
decisions.\12\ To this end, the Crypto Task Force has hosted a series
of roundtables, including an April 11, 2025 roundtable on secondary
market trading,\13\ and requested and received written input from,\14\
and held meetings with, members of the public.\15\
---------------------------------------------------------------------------
\11\ See U.S. Securities and Exchange Commission, Crypto Task
Force, <a href="https://www.sec.gov/about/crypto-task-force">https://www.sec.gov/about/crypto-task-force</a>. Acting Chairman
Mark T. Uyeda designated Commissioner Hester M. Peirce to lead the
Crypto Task Force. See Crypto Task Force Designation Letter from
Acting Chairman Mark T. Uyeda (Feb. 4, 2025), available at <a href="https://www.sec.gov/files/crypto-task-force-designation-letter.pdf">https://www.sec.gov/files/crypto-task-force-designation-letter.pdf</a>. On April
21, 2025, Chairman Paul S. Atkins was sworn into office. See U.S.
Securities and Exchange Commission, Paul S. Atkins Sworn In as SEC
Chairman (Apr. 21, 2025), available at <a href="https://www.sec.gov/newsroom/press-releases/2025-68">https://www.sec.gov/newsroom/press-releases/2025-68</a>.
\12\ See U.S. Securities and Exchange Commission, Crypto Task
Force, <a href="https://www.sec.gov/about/crypto-task-force">https://www.sec.gov/about/crypto-task-force</a>.
\13\ See U.S. Securities and Exchange Commission, Crypto Task
Force Roundtables, ``Between a Block and a Hard Place: Tailoring
Regulation for Crypto Trading,'' <a href="https://www.sec.gov/about/crypto-task-force/crypto-task-force-roundtables">https://www.sec.gov/about/crypto-task-force/crypto-task-force-roundtables</a>.
\14\ See U.S. Securities and Exchange Commission, Crypto Task
Force Written Input, <a href="https://www.sec.gov/about/crypto-task-force/crypto-task-force-written-input">https://www.sec.gov/about/crypto-task-force/crypto-task-force-written-input</a>.
\15\ See U.S. Securities and Exchange Commission, Crypto Task
Force Meetings, <a href="https://www.sec.gov/about/crypto-task-force/crypto-task-force-meetings">https://www.sec.gov/about/crypto-task-force/crypto-task-force-meetings</a>.
---------------------------------------------------------------------------
In addition, on January 23, 2025, the White House issued an
executive order, stating the policy to ``support the responsible growth
and use of digital assets, blockchain technology, and related
technologies,'' including by ``providing regulatory clarity and
certainty built on technology neutral regulations, frameworks that
account for emerging technologies, transparent decision making, and
well-defined regulatory boundaries.'' \16\ Pursuant to the executive
order, in July 2025, the President's Working Group on Digital Asset
Markets released a report entitled, ``Strengthening American Leadership
in Digital Financial Technology'' that, among other things, provides a
framework for regulatory reforms relating to crypto asset markets.\17\
In connection with the release of the PWG Report, Chairman Paul S.
Atkins launched ``Project Crypto,'' a Commission-wide initiative to
modernize rules and regulations under the Federal securities laws in
accordance with the President's Working Group's recommendations to
enable America's financial markets to move onchain.\18\
---------------------------------------------------------------------------
\16\ Exec. Order No. 14,178 (``Strengthening American Leadership
in Digital Financial Technology''), 90 FR 8647 (Jan. 31, 2025).
\17\ See The President's Working Group on Digital Asset Markets,
Strengthening American Leadership in Digital Financial Technology,
dated July 30, 2025, available at <a href="https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf">https://www.whitehouse.gov/wp-content/uploads/2025/07/Digital-Assets-Report-EO14178.pdf</a> (``PWG
Report'').
\18\ See Chairman Paul S. Atkins, ``American Leadership in the
Digital Finance Revolution,'' July 31, 2025, available at <a href="https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125">https://www.sec.gov/newsroom/speeches-statements/atkins-digital-finance-revolution-073125</a>. For purposes of this Order, ``onchain'' refers to
transactions or data that are processed and recorded directly on a
crypto network, ``offchain'' refers to transactions or data that are
processed and recorded outside of a crypto network, and a ``crypto
network'' is a blockchain or similar distributed ledger technology
network.
---------------------------------------------------------------------------
This Order is informed by the extensive feedback the Commission and
its staff have received from the public to date, including from the
Crypto Task Force's roundtables, written input, and meetings.\19\ Some
of the feedback addressed various risks and benefits associated with
the trading of tokenized securities using distributed ledger technology
and the ability of the Commission's current regulatory regime to
address them.\20\ Based in part on this feedback, the Commission has
determined to issue temporary exemptions to allow permissioned trading
of Tokenized NMS Stock on a TSV, subject to conditions. Public feedback
has informed the formulation of the exemptions, including the scope,
term, and breadth of the exemptions. As described in detail below, the
exemptions are carefully scoped to ensure that they further the goals
of protecting investors; maintaining fair, orderly, and efficient
markets; and facilitating capital formation. The conditions applicable
to TSVs, which are tailored to activities that are akin to activities
that currently occur on registered national securities exchanges and
alternative trading systems (``ATSs'') pursuant to SEC rules, are
informed by the Commission's extensive experience regulating securities
trading and are designed to ensure the relief is in the public interest
and consistent with the protection of investors.
---------------------------------------------------------------------------
\19\ See supra notes 13-15.
\20\ See id.
---------------------------------------------------------------------------
Set to expire five years after publication, this Order is intended
as an interim, targeted measure to facilitate the trading of Tokenized
NMS Stock using distributed ledger technology, subject to the
limitations and conditions specified herein, while the Commission
considers the need for future rulemaking or other related actions.
Although the Commission may determine to undertake rulemaking in the
future, this Order is intended to address the immediate concerns of
market participants seeking to establish a TSV while maintaining
appropriate investor protections and allowing the Commission to proceed
in a deliberate manner as it considers potential regulatory changes or
other actions. The Commission anticipates that experience with the
Order, both in the form of public input and the practical application
of the exemptions, which are time-limited and subject to enumerated
conditions, will help inform any future Commission actions in this
area, including rulemaking. As an initial step in that process, the
Commission solicits public comment about possible modifications to the
exemptive relief provided in this Order
[[Page 60170]]
and potential next steps.\21\ The Commission looks forward to continued
public engagement to help the Commission further assess the efficacy
and sufficiency of the temporary exemptions.
---------------------------------------------------------------------------
\21\ See infra section VI.
---------------------------------------------------------------------------
A. Definition of Tokenized Securities Venue
A TSV is defined as an organization, association, or group of
persons that brings together buyers and sellers of Tokenized NMS Stock
by: (1) providing one or more AMM Liquidity Pool(s) for permissioned
participants to interact and agree to terms of a trade and (2) setting
standards for persons to access trading on such AMM Liquidity Pool(s).
First, a TSV can make available for trading only a Tokenized NMS
Stock \22\ that is trading in a pair \23\ with another Tokenized NMS
Stock, a non-security crypto asset (e.g., a payment stablecoin issued
by a permitted payment stablecoin issuer),\24\ or a tokenized money
market fund.\25\ Any non-security crypto asset or tokenized money
market fund must be directly paired and traded alongside a Tokenized
NMS Stock to be eligible for trading on a TSV. The TSV Exemption does
not limit the type of non-security crypto asset a TSV can pair with a
Tokenized NMS Stock. A TSV will determine which Tokenized NMS Stock,
non-security crypto assets, and tokenized money market funds can trade
on a TSV, subject to conditions as discussed herein.
---------------------------------------------------------------------------
\22\ The Order does not provide an exemption for purposes of the
Investment Company Act of 1940 (``Investment Company Act'').
Activities related to tokenized investment companies may raise
issues under the Investment Company Act, such as multi-class issues
under section 18 of the Investment Company Act and the application
of section 22(d) and rule 22c-1.
\23\ A trading ``pair'' on a TSV can include two or more legs.
Each such leg must be a Tokenized NMS Stock, non-security crypto
asset, or tokenized money market fund.
\24\ The terms ``payment stablecoin'' and ``permitted payment
stablecoin issuer'' have the meanings set forth in section 2 of the
GENIUS Act. A ``payment stablecoin'' does not include a digital
asset that is a security, as defined in section 2 of the Securities
Act of 1933 (``Securities Act''), section 3 of the Exchange Act, or
section 2 of the Investment Company Act. See section 2(22) of the
GENIUS Act. Payment stablecoins issued by a permitted payment
stablecoin issuer categorically will not be securities by operation
of statute after the effective date of the GENIUS Act, which is the
date that is the earlier of 18 months after its date of enactment
(July 18, 2025) or the date that is 120 days after the date on which
the ``primary Federal payment stablecoin regulators'' (as such term
is defined in section 2(25) of the GENIUS Act) issue any final
regulations implementing the GENIUS Act. See sections 17 and 20 of
the GENIUS Act. This Order does not provide any interpretation as to
whether TSVs are, or could be, ``digital asset service providers,''
as the term is defined in the GENIUS Act. See section 2(7) of the
GENIUS Act.
\25\ Money market funds are a type of fund registered under the
Investment Company Act and regulated pursuant to Rule 2a-7 under the
Investment Company Act.
---------------------------------------------------------------------------
Second, a TSV provides one or more AMM Liquidity Pool(s) for
verified or credentialed users and liquidity providers (``TSV
Participants'') to interact and agree to terms of a trade. An AMM
Liquidity Pool typically operates pursuant to programmed rules and
algorithms to set the prices of assets offered to users based on the
ratio of assets committed by liquidity providers in the AMM Liquidity
Pool. Liquidity providers commit assets to the liquidity pool and, in
return, receive liquidity pool tokens (``LP tokens'') that are
proportionate to the percentage of assets they have contributed to the
liquidity pool.\26\ A user willing to buy and sell particular assets
can obtain prices and sizes either directly from the AMM Liquidity Pool
or from an offchain functionality.\27\ As users trade against offered
prices derived from liquidity providers' assets, or as liquidity
providers add or remove their assets from the AMM Liquidity Pool, the
AMM smart contract rebalances the price of the assets offered for
trading in the AMM Liquidity Pool. Generally, thereafter, asset
allocation among liquidity providers is updated and the value that the
LP token represents will fluctuate based on the proportion of assets in
the pool. Liquidity providers normally earn a fee as an incentive for
depositing assets in the liquidity pool, which is paid by users who
interact with the liquidity pool.
---------------------------------------------------------------------------
\26\ See PWG Report at 23, n. 61.
\27\ The TSV Exemption is limited to activity performed through
the functionalities and systems provided by a TSV.
---------------------------------------------------------------------------
AMM Liquidity Pool business models and pricing mechanisms vary,
generally depending on the protocol from which they are derived. TSVs
can also use distributed ledger applications in conjunction with AMM
Liquidity Pools to, for example, set fees or halt trading. AMM
Liquidity Pools consist of distributed ledger applications that are
encoded with non-discretionary rules under which TSV Participants
interact and agree to the terms of a trade for a Tokenized NMS
Stock.\28\ A TSV that designates or controls an AMM Liquidity Pool as
the means and location for trading Tokenized NMS Stock ``provides'' the
AMM Liquidity Pool for purposes of the TSV definition. For example, a
TSV provides an AMM Liquidity Pool by selecting and designating the AMM
Liquidity Pool as the means and location for TSV Participants to
trade.\29\ A TSV may also provide an AMM Liquidity Pool by exercising
control over certain aspects of an AMM Liquidity Pool, including, for
example, by deploying an AMM smart contract for trading a given pair of
assets, setting or altering the rules or parameters of the pool,
determining the fees for the pool, and/or having the ability to pause
trading in the pool.
---------------------------------------------------------------------------
\28\ A TSV may consist of various functionalities that operate
collectively to bring together buyers and sellers. If a TSV provides
the use of a functionality to enter, display, or agree to terms of a
trade on an order (e.g., a website, browser extension, or other
software application), such functionality would be considered part
of the TSV for purposes of the TSV Exemption.
\29\ A person that solely performs the administrative act of
encoding a smart contract to whitelist an AMM Liquidity Pool would
not be providing an AMM Liquidity Pool.
---------------------------------------------------------------------------
Third, a TSV sets standards for persons to access trading on an AMM
Liquidity Pool. A TSV dictates which person(s) can access trading on
the AMM Liquidity Pool. This includes, for example, the ability of TSV
Participants to enter, display, and receive displayed orders, interact
with counterparties, and agree to terms of a trade.\30\ A TSV sets
standards to allow only permissioned TSV Participants to access trading
and to buy and sell Tokenized NMS Stock on the TSV. Permissioning
access to trading a Tokenized NMS Stock on the TSV can, for example,
help ensure that TSV Participants trading against each other are not
subject to economic and trade sanctions and do not present illicit
finance risks. Applicable identification or eligibility screening
processes may be done through, for example, active, offchain management
or onchain protocols.
---------------------------------------------------------------------------
\30\ Under the TSV Exemption, a TSV is not limited to using only
orders and may offer TSV Participants the use of other trading
interest, such as indications of interest or requests for quotes,
which are generally non-firm trading interest. For purposes of the
TSV Exemption only, ``trading interest'' collectively refers to
orders, quotes, indications of interest, and requests for quotes.
For context, other Commission requirements--including Form ATS-N for
ATSs that trade NMS stock (``NMS Stock ATSs''), which was adopted in
2018--apply to both orders and non-firm trading interest. See Form
ATS-N, Part II, Item 1 (providing examples of ``trading interest''
including quotes, conditional orders, or indications of interest).
See also Securities Exchange Act Release No. 83663 (July 18, 2018),
83 FR 38768 (Aug. 7, 2018).
---------------------------------------------------------------------------
The permissioning criteria for trading set by a TSV to grant access
or limit levels of access may be enforced using a distributed ledger
application in different ways. For example, an AMM Liquidity Pool used
by the TSV may be encoded with criteria or a list of persons to ensure
that only certain ``white-listed'' or ``allow-listed'' crypto asset
wallet participant addresses (i.e., wallet addresses that meet certain
credentialing requirements) gain access
[[Page 60171]]
to trading in the TSV.\31\ Alternatively, a Tokenized NMS Stock could
be encoded with criteria to only allow transfers of the Tokenized NMS
Stock to crypto wallet addresses of persons that meet the TSV's
credentialing requirements.
---------------------------------------------------------------------------
\31\ If a third-party service provider performs permissioning
services, such as verification-related services, for example, at the
direction of or on behalf of the TSV, the TSV, not such third-party
service provider, would be responsible for ensuring that the TSV
services comply with the conditions of the TSV Exemption.
---------------------------------------------------------------------------
B. Exemption From the Definition of ``Exchange'' and Scope
Today, permissioned AMM Liquidity Pools are unavailable for trading
Tokenized NMS Stock, which may be a result of ambiguity surrounding the
regulatory status of a TSV and how a TSV trading Tokenized NMS Stock
could comply with the Federal securities laws. Federal securities laws
and Commission rules today may not fully accommodate the use of a
trading venue that incorporates AMM Liquidity Pools for trading
Tokenized NMS Stock without requiring potentially burdensome changes to
its business model. Given the nature of the TSV business model and the
unique characteristics of trading tokenized securities, a TSV may face
substantial challenges as a national securities exchange or ATS for
Tokenized NMS Stock under Regulation NMS.\32\ For example, as prices on
AMM Liquidity Pools are generally set based on the ratio of the
quantities of the assets in a liquidity pool without directly
considering external pricing, a TSV using an AMM Liquidity Pool may be
unable to comply with the trade-through requirements of Rule 611 under
Regulation NMS.\33\ Additionally, there may be challenges for a TSV to
meet the requirements of Rule 602(a) under Regulation NMS, which
requires a national securities exchange to establish and maintain
procedures and mechanisms for collecting and processing quotation
information, including best bids and offers, from its member broker-
dealers and making such information available to vendors; and to
establish and maintain procedures for ascertaining and disclosing to
other members of the exchange the identity of the responsible broker or
dealer who made such bid or offer and the quotation size associated
with it.\34\ For example, determining the best bids and offers of a TSV
may be challenging where a TSV may be composed of multiple distinct
liquidity pools that contain different pair combinations for a
Tokenized NMS Stock and where a TSV disseminates prices that are based
on a particular ratio of such assets in each pool. Further, a TSV might
be encumbered by being required to identify best bids and offers of a
particular broker or dealer given that AMM pricing and asset allocation
among liquidity providers is continually updated based on the
proportion of assets in the pool. In addition, pricing from an AMM
Liquidity Pool may include quoting Tokenized NMS Stock in finer
increments than the minimum pricing increments required by Rule 612,
and compliance with such rule by, for example, rounding pricing, may
have ramifications on AMM pricing and affect arbitrage.\35\ In addition
to such potential compliance challenges, certain features of
distributed ledger technology, such as the transaction, price movement,
and participant interaction transparency provided by AMMs, may
potentially obviate the need for certain regulations.
---------------------------------------------------------------------------
\32\ 17 CFR 242.600-614.
\33\ 17 CFR 242.611(a). On June 11, 2026, the Commission
proposed to rescind the trade-through rule for NMS stocks, the
provision regarding locking and crossing quotations for NMS stocks,
and certain defined terms. See Securities Exchange Act Release No.
105655 (June 11, 2026), 91 FR 36656 (June 17, 2026).
\34\ 17 CFR 242.602(a).
\35\ Depending on the decimal conventions of the blockchain
network used for tokenization, a Tokenized NMS Stock (and its crypto
asset pair) could be quoted at a price and volume using six to 18
decimal places. See, e.g., Decimal Precision, Chainscore Labs,
available at <a href="https://chainscorelabs.com/glossary/token-standards-erc-20-721-1155-and-beyond/fungible-tokens/decimal-precision">https://chainscorelabs.com/glossary/token-standards-erc-20-721-1155-and-beyond/fungible-tokens/decimal-precision</a>;
Decimal Calculator, available at <a href="https://www.tokendecimals.com">https://www.tokendecimals.com</a>.
---------------------------------------------------------------------------
Considering questions surrounding the application of securities
regulations to a TSV, the Commission hereby issues, subject to the
conditions set forth herein, a temporary exemption from the definition
of ``exchange'' to a TSV,\36\ finding it necessary and appropriate in
the public interest and consistent with the protection of
investors.\37\ TSVs and the use of distributed ledger technology under
this exemption can offer several benefits to various market
participants. TSVs provide another choice of venue for permissioned
buyers and sellers to come together to trade Tokenized NMS Stock. In
addition, TSVs offer the potential to benefit investors by enabling
investor self-custody, around-the-clock trading, fractional ownership
of shares, and near instantaneous settlement. Further, TSVs' use of
distributed ledger technology to permission access to trading could
facilitate investor verification to, for example, help assure investors
that their counterparties are not subject to economic sanctions and may
not present elevated money-laundering risks. TSVs' use of distributed
ledger technology may also strengthen their controls by improving
auditability and recordkeeping, thereby advancing investor protection
and market integrity. The use of such technology may also lower
operating, recordkeeping, and transaction costs,\38\ and improve
efficiencies.\39\ Additionally, distributed ledger technology may
provide greater transparency, potentially reducing information
asymmetries in furtherance of investor protection.
---------------------------------------------------------------------------
\36\ An ``exchange'' is ``any organization, association, or
group of persons, whether incorporated or unincorporated, which
constitutes, maintains, or provides a market place or facilities for
bringing together purchasers and sellers of securities or for
otherwise performing with respect to securities the functions
commonly performed by a stock exchange as that term is generally
understood, and includes the market place and the market facilities
maintained by such exchange.'' 15 U.S.C. 78c(a)(1). Exchange Act
Rule 3b-16(a) provides a functional test to assess whether a trading
platform meets the definition of an exchange and, if so, triggers
the requirement to register as a national securities exchange
pursuant to section 5 of the Exchange Act and comply with the
requirements applicable to exchanges. See 17 CFR 240.3b-16(a); 15
U.S.C. 78f. Under Rule 3b-16(a), ``an organization, association, or
group of persons shall be considered to constitute, maintain, or
provide `a market place or facilities for bringing together
purchasers and sellers of securities or for otherwise performing
with respect to securities the functions commonly performed by a
stock exchange,' if such organization, association, or group of
persons: (1) brings together the orders for securities of multiple
buyers and sellers; and (2) uses established, non-discretionary
methods (whether by providing a trading facility or by setting
rules) under which such orders interact with each other, and the
buyers and sellers entering such orders agree to the terms of a
trade.'' 17 CFR 240.3b-16(a).
\37\ Because the evaluation of whether an organization,
association, or group of persons is an exchange depends on facts and
circumstances, no presumption that a TSV is an exchange shall arise
on the basis of reliance on the TSV Exemption.
\38\ For example, a TSV's use of distributed ledger technology
may enable proxy communications with company shareholders at a lower
cost than is otherwise available today.
\39\ See, e.g., Sarah Dean, Kevin McCabe, Aleksander Psurek and
Nalin Bhatt, Modeling Arbitrage with an Automated Market Maker 3-4
(GMU Working Paper in Economics No. 22-48, 2022), available at
<a href="https://ssrn.com/abstract=4247283">https://ssrn.com/abstract=4247283</a> (``Since traders in [centralized
exchanges] must be matched with one another to trade, an incomplete
contract may occur, where one party decides to renege on the
exchange at the last minute. This is not possible with AMMs because
they eliminate the matching of two parties. Instead of an order
book, AMMs are smart contracts, which are agreements built from code
that automatically run when certain conditions are met. They allow
users to create, hold, and trade digital assets, and can solve the
incomplete contract problem with their automatic fulfillment. Once a
trader makes an acceptable buy or sell offer to an AMM it is
immediately executed; therefore, there is no opportunity for a party
to leave the contract unfulfilled.'').
---------------------------------------------------------------------------
Section 11A(a)(2) of the Exchange Act directs the Commission,
having due regard for the public interest, the protection of investors,
and the
[[Page 60172]]
maintenance of fair and orderly markets, to facilitate the
establishment of a national market system for securities (which may
include subsystems for particular types of securities with unique
trading characteristics).\40\ Pursuant to the TSV Exemption, TSVs will
make available Tokenized NMS Stock for trading using AMM Liquidity
Pools, which generally do not directly consider external pricing or
executions. As discussed above, a TSV could not comply with the
requirements of Regulation NMS \41\ without significant modifications
to its trading model, which may adversely impact TSV Participants.
Given that we are exempting TSVs from the definition of ``exchange,'' a
TSV that meets the conditions of the TSV Exemption would not be
considered an exchange for purposes of the Exchange Act and would not
be required to register as a national securities exchange nor operate
under the exemption from such registration available to an ATS.\42\ As
a result, such TSV would not be considered a trading center or a market
center under Regulation NMS,\43\ and thus the rules under Regulation
NMS applicable to exchanges, ATSs, trading centers, and market centers
would not apply to such TSV.\44\ Trading activity conducted through
TSVs pursuant to the conditional and time-limited TSV Exemption will
help the Commission evaluate the impact of trading Tokenized NMS Stock
using AMM Liquidity Pools and the TSV trading model on the national
market system and determine whether and how trading activity in
Tokenized NMS Stock on TSVs should be integrated into the national
market system.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78k-1(a)(2).
\41\ 17 CFR 242.600-614.
\42\ See 15 U.S.C. 78e, 15 U.S.C. 78f, and 17 CFR 242.301-304.
\43\ 17 CFR 242.600(b)(106), 17 CFR 242.600(b)(55).
\44\ See, e.g., 17 CFR 242.605, 17 CFR 242.610, 17 CFR 242.611,
17 CFR 242.612, and 17 CFR 242.613.
---------------------------------------------------------------------------
The TSV Exemption does not apply to securities activity conducted
outside the TSV. Such securities activity may be subject to Commission
registration requirements, as applicable, and rules and regulations
under the Federal securities laws. An organization, association, or
group of persons that is registered with the Commission for securities
activity unrelated to a TSV could be eligible to operate under the TSV
Exemption but must keep any registered activity separate from the
operation of the TSV. For example, a registered entity may operate an
affiliate \45\ in compliance with the conditions of the TSV Exemption,
provided the operation of the TSV affiliate is kept separate from any
registered activity.
---------------------------------------------------------------------------
\45\ For purposes of this Order, ``affiliate'' shall mean, with
respect to a specified person, any person that, directly or
indirectly, controls, is under common control with, or is controlled
by, the specified person. ``Control'' is defined for purposes of
this Order to mean the power, directly or indirectly, to direct the
management or policies of a TSV, whether through ownership of
securities, by contract, or otherwise. The definitions of
``affiliate'' and ``control'' are aligned with definitions in rules
under the Exchange Act. See 17 CFR 242.300(c) and (f).
---------------------------------------------------------------------------
This Order does not provide an exemption from any other applicable
laws, including but not limited to the anti-fraud and anti-manipulation
provisions of the Federal securities laws, such as the obligations
under section 10(b) of the Exchange Act \46\ and Rule 10b-5
thereunder.\47\ As set forth in statute and relevant rules,
regulations, and judicial decisions thereunder, such Federal securities
law requirements will apply to securities activities performed on a
TSV.\48\ In addition, as stated below, the TSV must be a U.S. person
and thus must comply with economic and trade sanctions programs
administered and enforced by the Office of Foreign Assets Control
(``OFAC'').
---------------------------------------------------------------------------
\46\ See 15 U.S.C. 78j(b).
\47\ See 17 CFR 240.10b-5.
\48\ This Order also does not relieve a TSV or a TSV Participant
from any applicable registration requirements for securities
transactions under the Securities Act.
---------------------------------------------------------------------------
The TSV Exemption cannot be relied upon if the organization,
association, or person within a group that comprises a TSV is subject
to a statutory disqualification, as defined in section 3(a)(39) of the
Exchange Act,\49\ unless that organization, association, or person has
been permitted by the Commission or any relevant self-regulatory
organization (``SRO''), by order, rule, or otherwise, to continue its
membership in or participation with such SRO or its association with a
member of an SRO or other Commission registrant notwithstanding that
organization, association, or person's statutory disqualification. Any
such organization, association, or person who has not received such
permission from the Commission or the relevant SRO cannot rely on the
TSV Exemption as there is an increased potential for that person to
adversely affect the public interest by, for example, creating an
unreasonable risk of harm to investors or the markets without
additional regulatory oversight of such person.
---------------------------------------------------------------------------
\49\ See 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------
Finally, TSV Participants, which include users and liquidity
providers, may consist of a variety of market participants, such as
retail investors (i.e., natural persons), institutional investors, or
registered entities such as broker-dealers. As a wide range of market
participants may desire increased investor choice, including the
ability to trade Tokenized NMS Stock on a TSV,\50\ it is in the public
interest not to limit the types of participants that may trade on TSVs
under the TSV Exemption. The TSV Exemption does not apply to nor
address the regulatory or registration status of securities activities
performed by TSV Participants. Depending on their securities
activities, TSV Participants may be subject to SEC and SRO registration
requirements, as applicable, and rules and regulations under the
Federal securities laws, including the rules of any SRO of which they
are a member and anti-money laundering/countering the financing of
terrorism (``AML/CFT'') compliance requirements.
---------------------------------------------------------------------------
\50\ See PWG Report at 18-19 (discussing the types of market
participants that use digital assets).
---------------------------------------------------------------------------
A TSV must comply with all of the conditions set forth herein.\51\
The Commission welcomes feedback regarding the application of the TSV
Exemption and related conditions to particular facts and circumstances.
Staff will be available to answer questions and may publish responses
to frequently asked questions, as needed.
---------------------------------------------------------------------------
\51\ See infra section II.
---------------------------------------------------------------------------
II. Conditions of the TSV Exemption
The exchange regulatory framework is designed to promote fairness,
efficiency, and transparency by applying requirements rooted in
investor protections and fair and orderly market principles. As
discussed above, pursuant to section 36(a)(1) of the Exchange Act,\52\
the Commission is granting a temporary exemption to TSVs from the
definition of an ``exchange,'' subject to the conditions set forth
herein.
---------------------------------------------------------------------------
\52\ See 15 U.S.C. 78mm(a)(1).
---------------------------------------------------------------------------
The conditions of the TSV Exemption are designed to mitigate risks
and challenges that might arise from a TSV performing exchange
activities outside the protections offered by the exchange regulatory
framework and the national market system. A TSV that meets the
conditions of the TSV Exemption would not be subject to the exchange
regulatory framework and therefore would not be subject to the same
books and records, examinations, and other oversight requirements
applicable to national securities exchanges and ATSs. Without
appropriate conditions, the TSV Exemption could introduce certain risks
or challenges that may otherwise be addressed by rules applicable to a
national securities exchange or an ATS.
[[Page 60173]]
For instance, TSVs could provide TSV Participants differing levels of
transparency regarding, for example, permissioning, fees, and trading
services, which could put some TSV Participants at an informational
disadvantage. More generally, the use of distributed ledger technology
could present cybersecurity and manipulation risks that, if not
disclosed, could go unknown to TSV Participants.\53\ In addition, fair
and orderly markets could be impeded if, in the absence of a
requirement to stop trading, a TSV continues to trade a Tokenized NMS
Stock in the event of a stoppage of trading in the underlying security
on the primary listing exchange. The conditions attendant to this Order
are designed to address these types of risks and challenges, facilitate
transparency and fair and orderly markets, and ensure that the TSV
Exemption is in the public interest and consistent with the protection
of investors.
---------------------------------------------------------------------------
\53\ See PWG Report at 38 (stating that, similar to traditional
markets, digital asset markets face risks from fraud, manipulation,
and illicit conduct, and that ``[s]mart contracts may introduce
certain risks due to potential coding errors, inadequate testing or
auditing of code, or security vulnerabilities that can be exploited,
leading to unauthorized transfers or loss of funds''). See also
Campbell R. Harvey, Joel Hasbrouck, and Fahad Saleh, The Evolution
of Decentralized Exchange: Risks, Benefits, and Oversight, Research
Policy, Volume 55, Issue 3 (2026) (discussing types of front-running
that can occur on AMMs).
---------------------------------------------------------------------------
A. TSV Distributed Ledger Applications
To ensure transparency, distributed ledger applications (i.e.,
smart contracts) used by a TSV must be auditable, public, and deployed
on a public, permissionless distributed ledger.\54\ ``Permissionless''
generally means that anyone can read or write to the distributed ledger
without authorization.\55\ Requiring distributed ledger applications to
be deployed on a public, permissionless distributed ledger will provide
information that could help TSV Participants understand how their
trades are effected on a TSV.
---------------------------------------------------------------------------
\54\ TSVs are welcome to engage with Commission staff on
questions regarding whether the distributed ledger on which their
distributed ledger applications are deployed satisfies the
requirements of this condition. The Commission encourages market
participants, including TSVs that may not meet one or more of the
conditions of the TSV Exemption, to engage with the Commission staff
on whether additional relief from any requirement of the federal
securities laws is necessary, or the conditions should be otherwise
modified.
\55\ A permissioned AMM Liquidity Pool can be deployed on
``permissionless'' blockchain.
---------------------------------------------------------------------------
In addition, requiring that the distributed ledger application be
auditable, public, and deployed on a public, permissionless distributed
ledger will enhance TSV transparency, support market integrity, and
reduce systemic and operational risk by empowering participants and
third parties to audit and report vulnerabilities, as well as help TSV
Participants better assess the risks of trading on a particular TSV.
B. U.S. Persons
To be eligible for the TSV Exemption, a TSV must be a U.S.
person.\56\ U.S. persons are required to comply with economic and trade
sanctions programs administered and enforced by the OFAC, including,
but not limited to, the prohibition from engaging in transactions with
persons on the Specially Designated Nationals and Blocked Persons
(``SDN'') List and the requirement to block property of SDNs that are
in the U.S. person's possession or control.\57\ Requiring a TSV to be a
U.S. person, and thereby to comply with OFAC prohibitions and
requirements as a U.S. person, should help mitigate the risk of illicit
actors accessing the U.S. financial system and deter behavior that
undermines U.S. national security or foreign policy.
---------------------------------------------------------------------------
\56\ A ``U.S. person'' means any United States citizen,
permanent resident alien, entity organized under the laws of the
United States or any jurisdiction within the United States
(including foreign branches), or any person in the United States.
See, e.g., 31 CFR 560.314 (Iranian Transactions and Sanctions
Regulations (ITSR)); 31 CFR 598.318 (Foreign Narcotics Kingpin
Sanctions Regulations); 31 CFR 591.312 (Venezuela Sanctions
Regulations).
\57\ ``All U.S. persons must comply with OFAC sanctions,
including all U.S. citizens and permanent residents regardless of
where they are located, all individuals and entities within the
United States, and all U.S. incorporated entities and their foreign
branches.'' Basic Information on OFAC and Sanctions, available at
<a href="https://ofac.treasury.gov/faqs/11">https://ofac.treasury.gov/faqs/11</a>. See also 31 CFR 500-599.
---------------------------------------------------------------------------
C. Public Notice
To qualify for the TSV Exemption, at least 30 calendar days before
operating, a TSV must publish a copy of a notice (``Notice'')
prominently on its publicly available website that includes the
information described below.\58\ Such Notice must be written in plain
English and presented in a clear, concise, and understandable manner.
Within one business day of the publication of the Notice, the TSV must
provide the Commission written notice at <a href="/cdn-cgi/l/email-protection#5024223134393e37313e343d31223b352423102335337e373f26"><span class="__cf_email__" data-cfemail="e5919784818c8b82848b818884978e809196a5968086cb828a93">[email protected]</span></a> that
it intends to operate pursuant to the TSV Exemption, including the
means for contacting the TSV (e.g., an email address and phone number)
and the location of the Notice (e.g., website URL). Such Notice will
help inform market participants and the Commission about when the TSV
begins to operate.\59\
---------------------------------------------------------------------------
\58\ See infra section III. With respect to all notices required
by conditions of the TSV Exemption, if a TSV comprises a group of
persons, one person from that group can be designated to provide
notice on behalf of all such persons.
\59\ See infra section III.
---------------------------------------------------------------------------
A TSV must, in the same form and location as the initial Notice,
publish a revised Notice: (1) within five business days to disclose
that it has commenced or ceased making any Tokenized NMS Stock
available for trading, paused or resumed trading in connection with the
volume thresholds under the TSV Exemption, or received a timely Notice
of Issuer Objection; \60\ (2) 20 calendar days in advance of any
material change to the operations of the TSV or to the disclosures in
the Notice; (3) no later than 30 calendar days following the end of any
calendar quarter to describe any non-material change to the operations
of the TSV or to the disclosures in the Notice; and (4) within five
business days of the discovery of any materially inaccurate or
incomplete information in the Notice, including in any previous
revisions to the Notice.\61\
---------------------------------------------------------------------------
\60\ See infra sections II.D, II.F.
\61\ Each revision to the Notice must indicate which of these
categories the change that is being made falls under, and if the
change has not yet been made, the date such change will go into
effect.
---------------------------------------------------------------------------
Pursuant to the TSV Exemption, a TSV must provide the Commission
written notice within one business day of publishing any revised Notice
on its website. The TSV must maintain all versions of its Notice on its
website.\62\
---------------------------------------------------------------------------
\62\ The TSV may identify the changes in a marked document or
``redline'' to help market participants and the Commission easily
review changes it is making in any revision.
---------------------------------------------------------------------------
Revised Notices will provide market participants and the Commission
with current information about whether the TSV has commenced, ceased,
paused, or resumed trading in a Tokenized NMS Stock; material changes
to the TSV operations and Notice disclosures that are forthcoming; and
non-material changes that have been made to the operations of the TSV
or its Notice disclosures. By providing advance notice of material
changes, the revised Notice will allow market participants to protect
their interests and consider whether the use of the TSV, as modified,
would be consistent with their trading objectives. Furthermore,
requiring a revised Notice to correct any materially inaccurate or
incomplete information in the Notice will help ensure the disclosure of
accurate information to market participants that rely on the Notice
disclosures.
D. Issuer Notice and Notice of Issuer Objection
Before making available for trading a Tokenized NMS Stock that is
tokenized by a third party unaffiliated with the
[[Page 60174]]
issuer of the underlying NMS stock, a TSV must provide written notice
to the issuer of the underlying NMS stock (``Issuer Notice'').\63\
Trading of a Tokenized NMS Stock on the TSV may not commence until at
least 30 calendar days from the date when the issuer receives the
Issuer Notice.\64\
---------------------------------------------------------------------------
\63\ Issuer Notice must be sent to the physical or email address
for the issuer's principal executive offices listed on the cover
page of the issuer's Exchange Act reports. Issuer Notice must
include the TSV's current and accurate contact information for the
issuer to provide any notice of its objection.
\64\ A TSV can obtain confirmation of whether and when an issuer
received an Issuer Notice by, for example, requesting a return
receipt/proof of delivery or a receipt notification depending on
whether the Issuer Notice was sent to the issuer's physical or email
address.
---------------------------------------------------------------------------
If the issuer provides, on or prior to the 30th calendar day
following receipt of the Issuer Notice, written notice to the TSV that
it objects to a Tokenized NMS Stock that was tokenized by a third party
unaffiliated with the issuer being made available for trading on the
TSV (``Notice of Issuer Objection''), the TSV cannot make such
Tokenized NMS Stock available for trading on the TSV. Within five
business days, the TSV must amend the public Notice \65\ to inform the
public that it has received the Notice of Issuer Objection.
---------------------------------------------------------------------------
\65\ See infra section III.j.
---------------------------------------------------------------------------
An issuer's ability to object to the trading of a Tokenized NMS
Stock that was tokenized by a third party unaffiliated with the issuer
on a TSV will enable the issuer of the underlying NMS stock to consider
the balance of potential benefits and risks accompanying trading of its
Tokenized NMS Stock on a TSV. For example, an issuer of the underlying
NMS stock may be concerned about the risk of maintaining its
shareholder register related to onchain transfers or 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.
A TSV operating under the TSV Exemption that fails to provide
Issuer Notice, or makes available for trading the Tokenized NMS Stock
of an issuer that has delivered a Notice of Issuer Objection to the TSV
in the manner set forth above, would not meet the conditions of the TSV
Exemption with respect to trading such Tokenized NMS Stock.
E. No Primary Issuance and Rights of the Holders of the Tokenized NMS
Stock Traded
All offers and sales of Tokenized NMS Stock under the TSV Exemption
must be registered under the Securities Act or conducted pursuant to an
exemption from the registration requirements of the Securities Act. No
primary issuance or initial offerings of securities are permitted on a
TSV under the TSV Exemption.
A TSV must verify that the Tokenized NMS Stock made available for
trading on the TSV provides holders the same rights and privileges as
does traditional NMS stock of an equivalent class. A Tokenized NMS
Stock would be deemed to provide the same rights and privileges as does
traditional NMS stock if, among other things, it conveys the same
interest in the company that holders of the underlying NMS stock have,
a right to receive the same dividends that the company issues to
holders of the underlying NMS stock, a right to exercise the same
voting rights that holders of the underlying NMS stock may exercise,
and a right to receive the same share of the residual assets of the
company upon liquidation as holders of the underlying NMS stock
receive. For example, regardless of the mechanism used to pass through
any voting rights of the underlying NMS stock, a TSV can only make
available for trading an NMS stock tokenized by a third party that is
unaffiliated with the issuer of the underlying NMS stock if the third
party distributes or otherwise makes available to holders of the
Tokenized NMS Stock any related proxy materials or other issuer
communications at no cost to the issuer or the shareholders.
F. Limitations on Number of Symbols and Volume of Tokenized NMS Stock
Traded
Tokenized NMS Stock traded on a TSV under the TSV Exemption is
subject to limitations on the number of symbols and volume traded.
Tokenized NMS Stock is divided into two tiers: Tier 1 (``Tier 1
Tokenized NMS Stock'') and Tier 2 (``Tier 2 Tokenized NMS Stock'').
Tier 1 and Tier 2 Tokenized NMS Stock comprise the NMS stocks in Tier 1
and Tier 2, respectively, of the National Market System Plan to Address
Extraordinary Market Volatility (``Limit Up-Limit Down Plan'' or ``LULD
Plan'').\66\
---------------------------------------------------------------------------
\66\ The Commission approved, on a pilot basis, the LULD Plan in
2012. See Securities Exchange Act Release No. 67090 (May 31, 2012),
77 FR 33531 (June 6, 2012) (Order Granting Accelerated Approval of
Proposed Rule Changes as Modified by Amendments No 1, Relating to
Trading Halts Due to Extraordinary Market Volatility). The
Commission approved the LULD Plan on a permanent basis in 2019. See
Securities Exchange Act Release No. 85623 (Apr. 11, 2019), 84 FR
16086 (Apr. 17, 2019). There have been subsequent amendments to the
LULD Plan. See, e.g., Securities Exchange Act Release No. 103845
(Sept. 3, 2025), 90 FR 43254 (Sept. 8, 2025). See also <a href="https://www.luldplan.com/plans">https://www.luldplan.com/plans</a>.
---------------------------------------------------------------------------
Tier 1 Tokenized NMS Stock traded on a TSV under the TSV Exemption
cannot exceed 75 symbols traded and 0.25 percent of the average daily
share volume during the prior month in the relevant NMS stock as
reported by an effective transaction reporting plan.\67\ Tier 2
Tokenized NMS Stock traded on a TSV under the TSV Exemption cannot
exceed 250 symbols traded and 2.5 percent of the average daily share
volume during the prior month in the relevant NMS stock as reported by
an effective transaction reporting plan. The percentage of the average
daily share volume during the prior month for a given security shall be
calculated using the average daily share volume of a given Tokenized
NMS Stock traded on the TSV as the numerator, and the average daily
share volume of the NMS stock (as reported by an effective transaction
reporting plan) as the denominator.\68\ When calculating volume for
purposes of compliance with the TSV Exemption, a TSV must aggregate its
trading volume with that of its affiliated TSVs for a given Tokenized
NMS Stock. Similarly, when calculating the number of symbols traded for
purposes of compliance with the TSV Exemption, the TSV must aggregate
its number of symbols traded with the number of symbols traded by its
affiliated TSVs.\69\ This is intended to help avoid a situation in
which businesses are structured into multiple
[[Page 60175]]
TSVs to avoid triggering the volume and symbol limitations.
---------------------------------------------------------------------------
\67\ ``[A]s reported by an effective transaction reporting
plan'' means as reported by the Consolidated Tape Association Plan/
Consolidated Quotation Plan (CTA/CQ Plans) and the Joint Self-
Regulatory Organization Plan Governing the Collection,
Consolidation, and Dissemination of Quotation and Transaction
Information for Nasdaq-Listed Securities Traded on Exchanges on an
Unlisted Trading Privilege Basis (UTP Plan) for inclusion in the
securities information processor (SIP). These include data from
various market centers, including national securities exchanges,
FINRA, and broker-dealers.
\68\ NMS stocks are, by definition, securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan. See supra note
1.
\69\ For purposes of determining the trade date for the
calculation of daily share volume and the number of symbols, the
next trade date will start concurrently with when trades must be
reported to the SIP. TSVs should monitor for amendments to the UTP
and CTA/CQ Plans for any changes in the SIPs' operating hours and
the definition of a trading day.
---------------------------------------------------------------------------
As noted above, the Tokenized NMS Stock in Tier 1 and Tier 2 are
the NMS stocks in LULD Plan Tier 1 and Tier 2. The NMS stock in Tier 1
of the LULD Plan consists of all NMS stocks included in the S&P 500
Index, the Russell 1000 Index, and certain exchange-traded products
(``ETPs'') that trade over $2,000,000 in notional consolidated average
daily volume.\70\ Tier 2 NMS stock under the LULD Plan is NMS stock
that is not Tier 1 NMS stock and is not rights and warrants.\71\ LULD
Plan Tier 1 NMS stocks have the largest capitalization of all U.S.
equities and are generally more liquid and have higher average daily
trading volume than those in Tier 2.\72\ The LULD Plan has been in
place since 2012, and market participants are familiar with the
categorization of LULD Plan Tier 1 and Tier 2 NMS stocks. Using Tier 1
and Tier 2 of the LULD Plan in the TSV Exemption corresponds with an
established standard used for NMS stocks and provides a commonly
understood and publicly available basis for categorizing the Tokenized
NMS Stock offered for trading by a TSV for purposes of applying the TSV
Exemption's volume limitations.\73\
---------------------------------------------------------------------------
\70\ The LULD Plan Appendix A, Schedule 1 lists the ETPs that
are currently eligible for inclusion as a Tier 1 NMS Stock for
purposes of the LULD Plan. See <a href="https://www.luldplan.com/plans">https://www.luldplan.com/plans</a>. The
LULD Plan Appendix A, Schedule 1 is generally updated semi-annually.
For purposes of the TSV Exemption, Tier 1 Tokenized NMS Stock
includes all Tokenized NMS Stock included in the S&P 500 Index, the
Russell 1000 Index, and eligible ETPs as provided by the LULD Plan.
See id.
\71\ Tier 2 Tokenized NMS Stock includes all Tokenized NMS Stock
other than those in Tier 1.
\72\ Based on staff analysis of equity consolidated market data
feeds for 2025, the daily weighted average trading volume for LULD
Plan Tier 1 NMS stocks and Tier 2 NMS stocks was 3,022,668 shares
and 1,207,978 shares, respectively, for the year ending 2025. To
calculate the daily averages for the year, staff first calculated
monthly daily averages for each NMS stock in the tiers, and then
calculated a daily weighted average based on the number of trading
days in each month. For avoidance of doubt, the TSV Exemption is
using the LULD Plan tiering methodology only to categorize Tokenized
NMS Stock; the TSV Exemption does not in any way alter or modify, or
propose to alter or modify, the LULD Plan.
\73\ The NMS stock that comprises Tier 1 and Tier 2 of the LULD
Plan are specified in Appendix A to the LULD Plan, which is publicly
available on the LULD Plan website. See <a href="https://www.luldplan.com/plans">https://www.luldplan.com/plans</a>. For purposes of designing the TSV Exemption, the Commission
used the NMS stocks in Tier 1 and Tier 2 of the LULD Plan as the
model for Tier 1 and Tier 2 Tokenized NMS Stock. Because the LULD
Plan excludes rights and warrants from LULD Tier 1 and Tier 2,
Tokenized NMS Stock for purposes of the TSV Exemption excludes
rights and warrants.
---------------------------------------------------------------------------
Different limits for Tier 1 and Tier 2 Tokenized NMS Stock are
designed to better calibrate the trading limits to the types of
securities within each tier. As average daily trading volume limits can
more easily be exceeded for less liquid securities, Tier 2 Tokenized
NMS Stock is subject to higher volume limits under the TSV Exemption
than is Tier 1 Tokenized NMS Stock. Separate trading percentage limits
for Tier 1 and Tier 2 Tokenized NMS Stock, rather than a single
threshold applicable to all Tokenized NMS Stock, are designed to better
calibrate the characteristics of stocks that trade in each tier.
Because there are also more LULD Plan Tier 2 securities than in LULD
Plan Tier 1, it is appropriate to set a higher limit on the number of
symbols that can be Tier 2 Tokenized NMS Stock. Furthermore, separate
limits on the number of symbols traded for Tier 1 and Tier 2 Tokenized
NMS Stock incentivize TSVs to make available for trading Tokenized NMS
Stocks that are not only the most liquid securities.
Exceeding the volume limit in any Tokenized NMS Stock will,
depending on the circumstances, cause a TSV to not meet the conditions
of the TSV Exemption with respect to trading such Tokenized NMS Stock
and require the TSV to pause trading in the applicable Tokenized NMS
Stock for three months. The Commission recognizes that a TSV may
inadvertently exceed a volume threshold, for example, due to a
miscalculation in either a numerator or denominator. The first time a
TSV exceeds a volume threshold in a Tokenized NMS Stock, it will not be
required to take any action, other than to ensure that it does not
exceed the volume thresholds going forward. As TSVs are likely new to
trading Tokenized NMS Stock, a stepped compliance approach will allow
TSVs to become acclimated with complying with the trading limitations
and will not be overly punitive if TSVs initially experience
inadvertent errors coming into compliance.\74\
---------------------------------------------------------------------------
\74\ The stepped compliance approach only applies with respect
to the volume limitations and not to the limitations in the number
of symbols. A TSV that exceeds the symbol number thresholds would
not meet the conditions of the TSV Exemption.
---------------------------------------------------------------------------
After the first time a TSV exceeds the volume threshold in a given
Tokenized NMS Stock, each time the TSV subsequently exceeds the volume
threshold in the applicable Tokenized NMS Stock, the TSV must
immediately pause trading in such Tokenized NMS Stock for three
months.\75\ The TSV may resume trading in the same Tokenized NMS Stock
three months from the date the TSV exceeded the volume threshold.
During such pause, a TSV may continue to trade Tokenized NMS Stocks
that have not exceeded the thresholds. Upon approaching a volume
threshold but before triggering the threshold, a TSV may choose to
pause trading in a Tokenized NMS Stock to avoid triggering the volume
threshold. Each time that it has paused trading in a Tokenized NMS
Stock in connection with the volume threshold, whether it be TSV-
initiated or pursuant to the condition to pause, the TSV must
immediately notify its TSV Participants of the pause in trading through
any regular means of communication with its TSV Participants (e.g.,
website, software application, or interface) \76\ and must accordingly
amend its public Notice \77\ within five business days.
---------------------------------------------------------------------------
\75\ Affiliated TSVs must accordingly pause trading in the same
Tokenized NMS Stock.
\76\ A TSV has flexibility to determine an efficient way to
disseminate the information to TSV Participants shortly after
pausing trading in a Tokenized NMS Stock.
\77\ See infra section III.
---------------------------------------------------------------------------
The symbol number and trading volume limitations under the
conditions of the TSV Exemption are designed to mitigate potential
risks to the broader markets as TSV Participants experiment with
trading Tokenized NMS Stock on TSVs and as the Commission considers
rulemaking to address the trading of Tokenized NMS Stock. The
thresholds of 0.25 percent for Tier 1 Tokenized NMS Stocks and 2.5
percent of average daily share volume during the prior month for Tier 2
Tokenized NMS Stocks are designed to mitigate potential disruptions in
trading in the overall market for the NMS stock (whether tokenized or
in traditional format) for the duration of the TSV Exemption. The
Commission is mindful of the risk of potential adverse impacts of
trading Tokenized NMS Stocks on TSVs on the broader markets for NMS
stocks that are required to comply with Regulation NMS. In this regard,
the prices of Tokenized NMS Stock trading on a TSV could dislocate from
the prices of the NMS stock in traditional format, particularly given
that AMM Liquidity Pools generally use the ratio of the quantities of
assets in the liquidity pool to determine pricing. The trading volume
limitations are designed to help limit the potential impact of any
price dislocations between the Tokenized NMS Stock and the NMS stock in
traditional format and any adverse effects on market quality for NMS
stocks. Finally, the thresholds allow TSV Participants to engage in
meaningful trading volume in a Tokenized NMS Stock on a TSV. The
conditions to immediately announce a pause on a TSV's website or via
any regular means of communication and to
[[Page 60176]]
amend its public Notice allow TSV Participants to adjust their trading
strategies in a timely manner.
G. Transaction Transparency
A TSV must make U.S. dollar-denominated data concerning
transactions freely and publicly available in a machine-readable format
for all transactions within the past thirty (30) days. The transaction
data must be updated within ten (10) minutes of the occurrence of any
transaction \78\ and include, at minimum, the following: (i) the
symbols for each Tokenized NMS Stock and paired asset (non-security
crypto asset, tokenized money market fund, or Tokenized NMS Stock),
(ii) the transaction price, (iii) the transaction size, (iv) the
transaction time at the AMM Liquidity Pool,\79\ and (v) the transaction
direction.\80\ In addition, the TSV must provide information pertaining
to the AMM Liquidity Pool and its smart contract address, daily asset
pair share volume,\81\ and end-of-day size of the AMM Liquidity Pool
per asset pair.\82\
---------------------------------------------------------------------------
\78\ A TSV, for example, could provide a separate data feed of
transaction reports (accessible, for example, via API) or make such
information available on a public website or software application.
The TSV must provide pricing and transaction data in U.S. dollars
using consistent, impartial, and reasonable methods commonly applied
by market participants for converting the value of an asset that is
not quoted in U.S. dollars.
\79\ The transaction time should be reported in UTC time
(Coordinated Universal Time), the time standard used for crypto
asset transactions. See UTC Time Definition, Gate, <a href="https://www.gate.com/learn/glossary/utc-time-definition">https://www.gate.com/learn/glossary/utc-time-definition</a>.
\80\ For each transaction, the direction shall specify the asset
within the pair that is being contributed to the AMM Liquidity Pool
and the asset that is being withdrawn from the AMM Liquidity Pool.
\81\ The daily asset pair trading volume is the volume
calculated between the time of data publication as determined by the
TSV and the previous 24 hours.
\82\ The end-of-day size of the AMM Liquidity Pool per asset
pair is the size calculated at the time of data publication as
determined by the TSV.
---------------------------------------------------------------------------
Registered national securities exchanges and ATSs are subject to
certain transaction reporting obligations to facilitate transparency
and oversight. With distributed ledger technology, TSVs may provide
transparency that could mitigate some of the risks that national
securities exchange and ATS transaction reporting obligations are
assigned to address. The transaction transparency conditions under the
TSV Exemption require that all TSVs provide certain standard
information to be eligible for the exemption. A TSV must make such
transaction data publicly available to market participants at the same
time and on the same terms. Conditioning the TSV Exemption on such
transaction data from the TSV being denominated in U.S. dollars and
being made publicly available to all market participants at the same
time and on the same terms will help reduce information asymmetries and
provide market participants with equivalent data to evaluate the TSV
and protect their interests. Further, the condition that transaction
data be denominated in U.S. dollars will help facilitate compliance by
TSVs and TSV Participants with other Commission rules and the Federal
securities laws, as applicable.\83\
---------------------------------------------------------------------------
\83\ For example, FINRA Rule 6110 requires FINRA members to
``report transactions in NMS stocks, as defined in Rule 600(b) of
SEC Regulation NMS, effected otherwise than on or through a national
securities exchange to FINRA.''
---------------------------------------------------------------------------
H. Stoppage of Trading
A TSV must stop trading in a Tokenized NMS Stock concurrently with
any stoppage of trading in the underlying NMS stock on the primary
listing exchange, which includes a halt or a suspension. Stoppages in
trading in a Tokenized NMS Stock occur for various reasons, such as,
among others, a trading halt in the underlying NMS stock in the event a
market-wide circuit breaker is triggered or pending dissemination of
material news or a trading suspension of the underlying NMS stock by
the SEC, the SRO, or associated with delisting proceedings.
Following any stoppage of trading in a Tokenized NMS Stock, a TSV
must immediately notify its TSV Participants of the stoppage through
any regular means of communication with its TSV Participants (e.g.,
website, software application, or interface).\84\
---------------------------------------------------------------------------
\84\ A TSV has flexibility to determine an efficient way to
disseminate the information to TSV Participants about the stoppage
shortly after the stoppage. In addition, the TSV must make and keep
current as part of its books and records, for any stoppage of
trading by the TSV, the Tokenized NMS Stock that stopped trading,
reasons for the stoppage, the start time and end time of the
stoppage, the reasons for resuming trading, and the notice(s) it
provided to TSV Participants and the public for the stoppage. See
infra section II.L. In the Notice (discussed below), the TSV must
describe the circumstances under which it would stop trading or
displaying trading interest, any risk controls, and the
circumstances and procedures for resuming trading, accepting trading
interest, or displaying trading interest after a stoppage. See infra
section III.cc.
---------------------------------------------------------------------------
Given the speed of trading and interconnected nature of the markets
for Tokenized NMS Stock and the underlying NMS stock, a stoppage of
trading at a single entity may quickly create losses and liability for
market participants, including TSV Participants and particularly
liquidity providers who commit assets to the liquidity pool. The
condition to immediately publish stoppages on a TSV's website or via
any regular means of communication allows TSV Participants to adjust
their trading strategies in a timely manner. The condition to stop
trading a Tokenized NMS Stock concurrently with any stoppage of trading
in the underlying NMS stock on the listing exchange will help prevent
material price dislocations that could result from continuous trading
of a Tokenized NMS Stock while the underlying NMS stock is under a
stoppage of trading.
In addition, if the TSV determines on its own accord to stop making
available a Tokenized NMS Stock for trading, the TSV must immediately
notify TSV Participants.\85\ This will provide TSV Participants,
including liquidity providers that have committed assets to the
liquidity pool, with information that will help them determine how and
when to exit their positions.
---------------------------------------------------------------------------
\85\ If the TSV ceases making a Tokenized NMS Stock available
for trading for any reason, it also must revise its Notice within
five business days. See supra section II.C.
---------------------------------------------------------------------------
I. Significant Operational Event
TSVs are dependent on sophisticated technology, which could
potentially bring risks of exposure to cybersecurity events from threat
actors intent on doing harm, and also operational systems problems that
can arise inadvertently. To mitigate adverse effects of any such
events, a TSV must immediately notify its TSV Participants,\86\ and
promptly notify the Commission,\87\ of an event that has a significant
impact on the operation of the TSV or on its participants
(``significant operational event'').\88\ One example of such
significant operational event would be a known disruption to the
systems that support the TSV, such as functionalities relating to
trading, the AMM Liquidity
[[Page 60177]]
Pool or protocol, or the entry of trading interest. Another example
would be a known intrusion,\89\ such as a system intrusion, that
impacts trading or the assets of TSV Participants or the security of
their information.\90\
---------------------------------------------------------------------------
\86\ In the context of a significant operational event, the TSV
must notify the TSV Participants of the event upon having a
reasonable basis to conclude that the event has occurred. Notice to
TSV Participants can be accomplished various ways, including a TSV
making information publicly available on its website or its public
communication channels (e.g., <a href="http://X.com">X.com</a>). As part of the books and
records conditions of the TSV Exemption, a TSV must also keep a
record of the notice(s) it provided to TSV Participants of the
event. See infra note 96 and accompanying text.
\87\ The requirement for prompt notification, as opposed to
immediate notification, is designed to provide some limited
flexibility to the TSV to keep the Commission apprised of the
significant operational event simultaneously as, or shortly after,
the TSV notifies the TSV Participants of the occurrence. The TSV
must provide notification of a significant operational event to the
Commission in writing by email at <a href="/cdn-cgi/l/email-protection#790d0b181d10171e18171d14180b121c0d0a390a1c1a571e160f"><span class="__cf_email__" data-cfemail="8afef8ebeee3e4edebe4eee7ebf8e1effef9caf9efe9a4ede5fc">[email protected]</span></a>.
\88\ A significant operational event could take various forms.
For example, an event is likely to be a ``significant operational
event'' if it impacts systems (including systems that support
distributed ledger applications or entering or disseminating trading
interest) by limiting or precluding the TSV from permissioning
access or offering trading services to TSV Participants.
\89\ The term ``intrusion'' includes unauthorized external
intrusions as well as unauthorized internal personnel access to the
systems and the information residing therein.
\90\ The notice should provide information about the event,
including the nature and the time of the event, the TSV's systems
impacted by the event, and the event's impact on TSV Participants
and the TSV's market for Tokenized NMS Stock.
---------------------------------------------------------------------------
A TSV must remedy any known significant operational events as soon
as reasonably practicable and notify its TSV Participants of the
remediation. Notification of potential systems disruptions, for
example, will allow TSV Participants to adjust their trading strategies
and, in the case of a system intrusion that might put TSV Participants'
assets at risk of loss, take precautionary steps to limit any damages.
If a system used by a TSV is adversely impacted by a significant
operational event, it may disrupt and impede orderly and efficient
market operations of Tokenized NMS Stock and the NMS markets more
generally. Notifications will allow the Commission to monitor the risks
posed by systems that are used by the TSVs and facilitate the
Commission's mission of maintaining fair and orderly markets. In
addition, such notifications will inform the Commission as it considers
establishing an appropriate regulatory framework to help ensure the
resiliency of Tokenized NMS Stock markets. Appropriate remedial action
following a significant operational event will mitigate potential harm
to investors and enhance market integrity.
J. No Leverage
A TSV cannot engage in financing activities, which are generally
not exchange activities, and are inappropriate for an entity that is
not subject to requirements such as capital and margin rules to help
ensure that such activities are conducted in a financially responsible
manner. Thus, a TSV cannot borrow, whether secured or unsecured,
securities or non-security crypto assets on the TSV, and cannot,
directly or indirectly, hypothecate or arrange for or permit the
hypothecation of any securities or non-security crypto assets on the
TSV. A TSV is not permitted to extend credit to a TSV Participant for
the purpose of purchasing a Tokenized NMS Stock on the TSV.
K. No Misrepresentations and Public Disclaimer
A TSV cannot make any statements--public or private--to the effect
that it is ``registered'' with the Commission or that the TSV's
activities involving Tokenized NMS Stock and non-security crypto assets
or tokenized money market funds used to trade in pairs with Tokenized
NMS Stock have been ``approved'' or ``endorsed'' by the Commission, or
any similar formulation. The TSV must also affirmatively disclose in
its public Notice (discussed below) that it is not registered with the
Commission. This condition will inform market participants that the TSV
is not subject to the investor protection requirements of Commission
registration as an exchange.
L. Books and Records
A TSV must make and keep current trading records as well as any
information related to compliance with the conditions of the TSV
Exemption, including:
a. Information regarding trading interest in Tokenized NMS Stock,
including date and time of receipt, size, and price (denominated in
U.S. dollars);
b. Information about transactions, including date and time of
execution, size, non-security crypto assets or tokenized money market
funds traded in pairs with a Tokenized NMS Stock, cancellations,
modifications, and price (denominated in U.S. dollars);
c. Information regarding the methods used to verify or screen TSV
Participants and verify the wallet addresses associated with each TSV
Participant used to access the TSV;
d. Fees, rebates, and discounts, and any material sources of
compensation to the TSV related to activities on the TSV;
e. For any stoppage of trading by the TSV, the Tokenized NMS Stock
that stopped trading, reasons for the stoppage, the start time and end
time of the stoppage, and the reasons for resuming trading;
f. The average daily share trading volume of each Tokenized NMS
Stock traded on the TSV;
g. Events that impact the operation of the TSV or the TSV
Participants, such as system intrusions and system disruptions; \91\
and
---------------------------------------------------------------------------
\91\ The TSV must provide immediately to the TSV Participants,
and promptly to the Commission, notice of a significant operational
event. See supra section II.I. In its books and records, the TSV
must make and keep current such events it has reported to the
Commission. The books and records must also include details about
events that impact the operation of the TSV or the TSV Participants
that are not reportable as significant operational events.
---------------------------------------------------------------------------
h. All notices submitted to the public, Commission, issuers, and
TSV Participants in connection with the TSV Exemption (e.g., public
Notice,\92\ Issuer Notice,\93\ notice of pausing trading in a Tokenized
NMS Stock in connection with a volume threshold,\94\ notice of a
stoppage of trading in a Tokenized NMS Stock,\95\ notice of a
significant operational event \96\).
---------------------------------------------------------------------------
\92\ See infra section III.
\93\ See supra section II.D.
\94\ See supra notes 75-77 and accompanying text.
\95\ See supra note 84 and accompanying text.
\96\ See supra notes 86-88 and accompanying text.
---------------------------------------------------------------------------
A TSV must preserve all such books and records while the TSV
Exemption is effective and for a period of three years after the end of
the TSV Exemption, maintain such books and records in the United
States, and make promptly available all books and records of the TSV to
the Commission staff in both a human-readable format and a reasonably
usable electronic format \97\ upon request. A TSV must consent to
examinations of its books and records by the Commission staff at any
time, including for ongoing compliance with the conditions of the TSV
Exemption.\98\ Under the TSV Exemption, records from a distributed
ledger would satisfy such books and records requirements if they can be
readily accessed by the Commission in a human-readable format and a
reasonably usable electronic format.
---------------------------------------------------------------------------
\97\ A human-readable format would be a format that can be
naturally read by a human, and a reasonably usable electronic format
would be a format that is common and compatible with commonly used
systems for accessing and reading electronic records.
\98\ See generally section II.
---------------------------------------------------------------------------
The books and records requirements will facilitate the Commission's
ability to determine compliance with the conditions of the TSV
Exemption. These books and records requirements are similar to those
required of registered national securities exchanges and ATSs and
tailored to the activities of a TSV. The books and records conditions
are also intended to provide the Commission with prompt access to
information needed to help determine whether fraudulent or manipulative
activity has occurred and whether additional steps are necessary to
halt such activity.
III. Information Included in the Public Notice
To operate under the TSV Exemption, the TSV must publish and, as
necessary, revise a public Notice as set forth above.\99\ As described
herein, the Notice will include information designed to help market
participants understand how to access and trade on a TSV and protect
their interests. In addition, the
[[Page 60178]]
information will help the Commission oversee securities activities of
the TSV and monitor developments in the trading of Tokenized NMS Stock.
Accordingly, the following information must be in the Notice:
---------------------------------------------------------------------------
\99\ See supra section II.C.
---------------------------------------------------------------------------
a. Disclaimer: State that: (i) the TSV is not registered with the
Commission in any capacity for the activities performed under the TSV
Exemption and the Commission has not passed upon the merits or accuracy
of the disclosures in the Notice; (ii) the TSV is not subject to the
fair access requirements applicable to registered national securities
exchanges and ATSs subject to Rule 301(b)(5) of Regulation ATS \100\
and that unfair and unreasonably discriminatory denials or limitations
of access of TSV Participants by the TSV are not subject to SEC review;
and (iii) the TSV is not subject to Regulation NMS.
---------------------------------------------------------------------------
\100\ National securities exchanges must maintain standards for
access, and provide fair procedures for disciplining members,
denying membership, barring of any person from becoming associated
with a member, and prohibiting or limiting access to services. 15
U.S.C. 78f(b). ATSs that are subject to the fair access requirements
of Rule 301(b)(5) of Regulation ATS are required to establish
reasonable written standards for access to the ATS and apply those
standards to all prospective and current subscribers in a fair and
non-discriminatory manner. 17 CFR 242.301(b)(5).
---------------------------------------------------------------------------
b. Use of the Exemption: The TSV must acknowledge that its use of
the TSV Exemption is subject to Commission oversight and that operating
a TSV in a manner inconsistent with the TSV Exemption could result in a
Commission enforcement action.
c. Overview of the Tokenized Securities Venue: Describe generally
the structure and organization of the TSV and its products, services,
and operations. Describe the ownership and/or governance structure of
the TSV, including both offchain and onchain governance mechanisms, and
provide the name of any affiliated TSV. Include, as applicable, a
description of any governance rights of LP tokens.
d. Non-Exempt Activities: Identify whether the organization,
association, group of persons, or any person within a group that
comprises the TSV is registered in any capacity with the Commission
and, if so, provide a summary of the activities that require such
registration with the Commission.
e. TSV Participants: Describe the types of persons who are eligible
to access and participate on the TSV (e.g., retail investors,
institutional investors, liquidity providers, broker-dealers),
including the types of persons that can access the TSV by way of a
broker-dealer.
f. Permission Trading Access Eligibility: Describe the criteria or
standards used to grant a person access to the services of the TSV.
Describe the procedures for approving access (e.g., white-listing or
permissioning) of potential TSV Participants or wallet addresses,
including, among others, any procedures to verify a person's identity,
and the procedures for providing access based on such approval.
Describe any conditions or circumstances for denying or limiting a
person from accessing TSV services, including for purposes of
compliance with economic and trade sanctions programs administered by
OFAC and applicable AML/CFT requirements.
g. Securities, Non-Security Crypto Assets, and Tokenized Money
Market Funds Traded: Identify the Tokenized NMS Stocks and non-security
crypto assets and tokenized money market funds that the TSV makes
available for trading in pairs with Tokenized NMS Stock on the
TSV.\101\ If applicable, indicate whether the TSV has paused trading in
a Tokenized NMS Stock in connection with the limitations on the volume
traded.\102\
---------------------------------------------------------------------------
\101\ By including in the Notice disclosure of Tokenized NMS
Stock that is tokenized by a third party unaffiliated with the
issuer, the TSV is representing that it has provided Issuer Notice
pursuant to section II.D of this Order.
\102\ See supra notes 75-76 and accompanying text.
---------------------------------------------------------------------------
h. Tokenization of Securities: Describe the Tokenized NMS Stock
traded, including whether they are tokenized by or on behalf of the
issuers of the underlying NMS stock, or are tokenized by third parties
unaffiliated with the issuers of the underlying NMS stock, and the
processes used for tokenizing the Tokenized NMS Stock. Describe any
procedures the TSV uses to evaluate the legal status, technical
soundness, and operational integrity of each Tokenized NMS Stock it
makes available for trading, and the distributed ledger system on which
that security is issued and transferred.
i. Tokenization: Describe the steps (e.g., audits, certifications,
attestations) the TSV has taken to verify that the Tokenized NMS Stock
provides holders the same rights and privileges as does traditional NMS
stock of an equivalent class.\103\
---------------------------------------------------------------------------
\103\ See supra section II.E for criteria for when a Tokenized
NMS Stock would be deemed to provide the same rights and privileges
as the underlying NMS stock.
---------------------------------------------------------------------------
j. Notice of Issuer Objection: Identify any issuer of an NMS stock
underlying a Tokenized NMS Stock that has provided a timely Notice of
Issuer Objection to trading the Tokenized NMS Stock.\104\
---------------------------------------------------------------------------
\104\ See supra section II.D.
---------------------------------------------------------------------------
k. Tokenization by the TSV or its Affiliates: State whether the
organization, association, group of persons, or any person within a
group of persons that comprises the TSV, the TSV's affiliates, or both,
issued or tokenized any Tokenized NMS Stock that is made available for
trading on the TSV and identify any such Tokenized NMS Stock. Describe
any differences in treatment between Tokenized NMS Stock that is issued
or tokenized by any such person and any other Tokenized NMS Stock made
available for trading on the TSV.
l. Trading Activities of the TSV and Its Affiliates: State whether
the organization, association, group of persons, or any person within a
group of persons that comprises the TSV, the TSV's affiliates, or both,
can directly or indirectly display or enter trading interest on the TSV
and, if so, state the capacity in which the TSV, its affiliates, or
both, display or enter trading interest into the TSV as a TSV
Participant (e.g., as a user or as a liquidity provider). For example,
a TSV should state whether any organization, association, group of
persons, or person within a group of persons comprising the TSV that is
an issuer of Tokenized NMS Stock that is, or will be, available for
trading on the TSV, can directly or indirectly display or enter trading
interest on the TSV and the capacity in which it will engage in this
activity.
m. Differences in Treatment of TSV Participants: Describe any
standards, policies, and procedures the TSV uses to differentiate among
TSV Participants. Identify and describe any differences in treatment
between or among TSV Participants (including any organization,
association, group of persons, or any person within a group of persons
that comprises the TSV and/or the TSV's affiliates that display or
enter trading interest on the TSV). For example, identify and describe
differences with respect to access, entry or display of trading
interest, onchain or offchain trading procedures, market data, and
fees.
n. Distributed Ledger Technology: Describe distributed ledger
applications and networks of distributed ledger applications used by
the TSV including the distributed ledger on which such applications are
deployed and any cryptographic protocols employed to verify
transactions on the distributed ledger; the smart contract addresses of
distributed ledger applications; any use of protocols and applications
(e.g., user interfaces, wallets, aggregators, solvers, relayers); and
whether those protocols and applications are provided by the TSV, by
related parties, or third parties,
[[Page 60179]]
or a combination thereof. Explain whether the distributed ledger
applications are interoperable with third-party service providers.
Describe whether and how TSV Participants can access the TSV via custom
integrations or direct interaction with smart contracts. Describe any
circumstances under which the distributed ledger applications used by
the TSV can be upgraded, modified, suspended, overridden, or ceased,
the persons (whether unilaterally or in combination) that can upgrade,
modify, suspend, override, or cease the distributed ledger applications
used by the TSV, and the methods for upgrading, modifying, suspending,
overriding, or ceasing the distributed ledger application. Provide the
names of any entities and/or the roles of persons permitted to upgrade,
modify, suspend, override, or cease each distributed ledger
application.
o. Entry of Trading Interest: Describe any procedures and
functionality made available by the TSV for entering and interacting
with trading interest in Tokenized NMS Stock and information solicited
from TSV Participants (e.g., slippage tolerance, assets available to
trade, price and quantity parameters). Describe the methods by which
transactions are approved, confirmed, or verified on the relevant
distributed ledger. In addition, describe procedures governing price
and size parameters, including, but not limited to, minimum or maximum
trade size, any daily trade limits, and any messages or flags provided
to users.
p. AMM Liquidity Pool Trading Procedures: Describe any procedures
for creating, modifying, accessing, and funding liquidity pools
provided by the TSV. Describe procedures for purchasing and selling
Tokenized NMS Stock using an AMM Liquidity Pool, including, among
others, procedures governing the interaction among and between TSV
Participants and trading in Tokenized NMS Stocks, including pricing,
such as pricing models or curves (e.g., x * y = k), priority, ranking,
order types, trading rules, allocation, and execution, as
applicable.\105\ Describe any procedures for using any features that
the TSV offers to allow liquidity pool customization; the applicability
of the customization (e.g., the terms available to customize, including
fees, and where in a trade's lifecycle it may be implemented); any
permissioning required to use such customization features or customized
liquidity pools; and procedures for addressing any requests made by
users to alter or permit additional customizable settings.
---------------------------------------------------------------------------
\105\ To the extent that the TSV relies on a third-party
protocol, in addition to a description of such protocol, the TSV may
also include a link to a website of the third party describing such
protocol.
---------------------------------------------------------------------------
q. Offchain Trading Procedures: Describe any offchain functionality
used by the TSV to facilitate trading on the TSV, how and where in the
lifecycle of a trade such offchain functionality is used, and whether,
and how, TSV Participants access the offchain functionality to support
their use of the TSV.
r. Hours of Operations: State the hours of operations of the TSV,
including whether the TSV offers trading on a 24/7 basis.
s. Use of Market Data: Describe whether, and if so, how, the TSV
uses or integrates external market data, such as with oracles.\106\
Name any third-party service providers to the TSV for market data and
describe the sources of any such market data. Describe the purposes of
the market data (e.g., providing safeguards during periods of
volatility or preventing manipulation) and how oracles are used by or
on the TSV.
---------------------------------------------------------------------------
\106\ An oracle is a service that ``connect[s] external data
sources to blockchain networks. This enables smart contracts to
execute onchain agreements based on real world prices and events.''
PWG Report at 12.
---------------------------------------------------------------------------
t. Display: Describe any display of trading interest, including
what is displayed, when it is displayed, whether it is displayed
onchain or offchain, and how such displayed trading interest can be
accessed. Describe any dissemination of information resulting from a
transaction on the TSV, including what information is disseminated by
whom, to whom, when, and how.
u. Fees: Describe the fee structure of the TSV, including any
charges, fees, rebates and discounts and any other forms of
compensation and the source of compensation, including whether (and if
so, how much of) fees are shared with TSV Participants. Include or
provide a link to any applicable fee or rebate schedule. Any relevant
formulas or protocols used to determine and/or allocate fees are
responsive. If fees or rebates are individually negotiated with TSV
Participants or imposed in any other non-standardized manner (e.g.,
applying exceptions), describe the variables that impact the fees or
rebates established.
v. Complaints and Disputes: Describe any procedures for resolving
TSV Participant complaints and execution errors and disputes. If the
TSV does not have these procedures, state so in the Notice.
w. Procedures to Protect TSV Participant Information: Describe any
procedures and safeguards to protect the confidentiality of TSV
Participants' information, including information that the TSV considers
confidential, which can include any trading information on associated
technology made available by the TSV (e.g., wallets). If the TSV does
not have such procedures and safeguards, state so in the Notice. State
whether the TSV will share TSV Participant confidential information and
personally identifiable information (``PII'') with other parties.
Describe any policies and procedures designed to address Maximal
Extractable Value (``MEV'').\107\ If the TSV does not have such
policies and procedures, state so in the Notice.
---------------------------------------------------------------------------
\107\ Sequencing transactions on a blockchain involves multiple
actors ultimately aimed at creating a block with the highest fees to
the validators or ``MEV.'' See PWG Report at 27. While this process
typically leads to both the most efficient use of block space and
the highest fees to the validators, the sequencing of transactions
can be abused in attacks against users (such as front-running) or
leveraged to protect users with price-stabilizing actions (such as
back-running). See id.
---------------------------------------------------------------------------
x. Systems Safeguards: Describe any procedures related to the
capacity, integrity, resiliency, availability, and security of the TSV,
including any offchain or onchain systems, such as distributed ledger
applications, used with the TSV. Such procedures include, but are not
limited to: code review; the types of audits used (e.g., third-party
audits, security audits, SOC 2 audits, code audits, incident audits,
audits of distributed ledger applications, public auditability of the
distributed ledger on which the distributed ledger applications are
deployed); pre-trade risk assessments; post-deployment monitoring;
authorization controls; stress tests; business continuity and disaster
recovery plans testing; and any other contingency or incident response
planning. If the TSV does not have such procedures, state so in the
Notice. Identify the entity that performs each of the described
functions, to the extent this information is available.
y. Clearing procedures and arrangements: Describe any procedures or
material arrangements undertaken to facilitate clearance and settlement
of transactions on the TSV, including a description of any requirements
applied to TSV Participants related to such procedures or material
arrangements.
z. Risks: Describe any known material risks to TSV Participants or
the integrity of the TSV's market, such as artificial intelligence
exploits or attacks, loss of private keys, compromised wallets, smart
contract coding errors or bugs, access control failures, reentrancy
attacks, denial-of-service attacks, congestion, impermanent loss, any
[[Page 60180]]
abusive activity involving MEV (e.g., front-running, back-running,
sandwich attacks), oracle manipulation, network cyber-attacks, or
phishing attacks. Explain any actions the TSV takes to mitigate the
risks and compensate for any losses.
aa. Service Providers: Identify any entities, other than the TSV,
that support the services or functionalities of the TSV and describe
their roles and responsibilities with respect to the TSV. These
include, among others, service providers that perform services related
to permissioning subscribers, identifying and mitigating cyber risk,
monitoring trading activity, displaying trading interest,
recordkeeping, and clearance and settlement.
bb. Trading Oversight: Describe any monitoring by the TSV to detect
fraudulent or manipulative trading activity (e.g., spoofing, wash
trading, front running, pump-and-dump schemes), illegal trading of
Tokenized NMS Stock, and other market abuses occurring on the TSV. If
the TSV does not perform such monitoring, state that in the Notice.
cc. Stoppage of Trading: Describe the circumstances under which the
TSV would stop trading or displaying trading interest (e.g., a trading
halt in the underlying NMS stock in the event a market-wide circuit
breaker is triggered or pending dissemination of material news, a
trading suspension of the underlying NMS stock associated with
delisting proceedings or by the SEC, or a TSV-initiated stoppage upon
approaching the volume threshold). 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. Describe the circumstances and procedures for
resuming trading, accepting trading interest, or displaying trading
interest after a stoppage.
dd. Exclusive or Predominant Venue for Trading of a Tokenized NMS
Stock: Describe whether the TSV may be the exclusive or predominant
trading venue for a Tokenized NMS Stock (e.g., a Tokenized NMS Stock is
encoded to trade exclusively on the TSV), and if so, describe any
potential risks to TSV Participants associated with the TSV being the
exclusive or predominant trading venue for a Tokenized NMS Stock. For
example, such risks may include TSV Participants being unable to trade
the Tokenized NMS Stock on another trading venue, which may subject TSV
Participants to having no choice other than accepting the terms and
conditions, including fees, of the exclusive or predominant TSV to
trade that Tokenized NMS Stock. Describe any procedures to address such
risks, such as, for example, processes to burn or detokenize the
Tokenized NMS Stock.
Transparency has long been a hallmark of the U.S. securities
markets and is one of the primary tools used by investors to protect
their interests. One of the most important functions the Commission can
perform for investors is to ensure that they have access to the
information they need to protect and further their own interests.
National securities exchanges and NMS Stock ATSs make public
disclosures about their trading operations and potential conflicts of
interest. These disclosures allow market participants to assess whether
to participate on a trading venue, and if they choose to do so, have
the necessary information to carry out their trading objectives and
protect their interests. The disclosures in the Notice are designed for
similar purposes. The information provided by a TSV in its Notice can
help TSV Participants, which may include a wide variety of retail,
institutional, and professional market participants, make informed
trading decisions and evaluate their participation in a TSV.
The disclaimer condition requiring that a TSV state in its Notice
that it is not registered with the Commission and that the Commission
has not passed upon the merits or accuracy of the Notice; that the TSV
is not subject to any fair access requirements \108\ and that unfair
and unreasonably discriminatory denials or limitations of access of TSV
Participants by the TSV are not subject to SEC review; and that the TSV
is not subject to Regulation NMS, is intended to inform market
participants that there are risks involved in participating in a TSV.
---------------------------------------------------------------------------
\108\ See supra note 100.
---------------------------------------------------------------------------
Disclosure of the structure and organization of a TSV, its
products, services, operations, affiliates, its governance structure,
and whether the organization, association, group of persons, or any
person within a group that comprises the TSV is registered in any
capacity with the Commission, will inform potential TSV Participants in
deciding whether to trade on a TSV. Likewise, disclosing whether LP
tokens provide governance rights will inform liquidity providers in
deciding whether to do business on a TSV.
Information in the Notice about permissioned trading access
requirements for a TSV, including the conditions or circumstances for
denying or limiting a person from accessing a service, and the
categories of persons eligible to access and participate on the TSV
will inform potential TSV Participants of what they need to do to trade
a Tokenized NMS Stock on the TSV, either as a user or a liquidity
provider. Further, it will help market participants better assess
potential counterparties permitted to access the TSV and the risks of
trading with such counterparties on the TSV. Disclosure of the
conditions or circumstances for denying or limiting a person from
accessing TSV services, including for purposes of compliance with
economic and trade sanctions programs administered by OFAC and
applicable AML/CFT requirements, will assure market participants that
their counterparties do not present elevated money-laundering risks or
are subject to economic sanctions.
Additionally, information in the Notice about the Tokenized NMS
Stock and non-security crypto assets and tokenized money market funds
trading in pairs with Tokenized NMS Stock that are made available for
trading on a TSV, including whether the Tokenized NMS Stock is
tokenized by or on behalf of the issuers of the underlying NMS stock or
by third parties unaffiliated with the issuers of the underlying NMS
stock, and the steps that the TSV has taken to verify that the
Tokenized NMS Stock provides holders with the same rights and
privileges as does traditional NMS stock of an equivalent class, is
designed to help TSV Participants fully understand the features of such
assets. Disclosure of the procedures used by a TSV to evaluate the
legal status, technical soundness, and operational integrity of the
Tokenized NMS Stock it makes available for trading, and the distributed
ledger system on which that security is issued and transferred, should
inform potential TSV Participants in deciding whether to trade in the
Tokenized NMS Stock on the TSV. Information regarding Notices of Issuer
Objection will provide TSV Participants with notice of Tokenized NMS
Stock that the TSV may not make available for trading.
Describing a TSV's fundamental operational information, such as the
distributed ledger technology used by a TSV, its use of offchain
functionality and market data, AMM Liquidity Pool trading procedures,
its business hours, its procedures for entering trading interest and
for trading, procedures related to stoppages of trading, and any
differences in treatment among TSV Participants will allow market
participants to understand how the TSV operates and how they can effect
their
[[Page 60181]]
trading strategies on the TSV. Describing the TSV's procedures or
material arrangements to facilitate clearance and settlement and the
requirements applied to its TSV Participants related to such procedures
or material arrangements should provide useful information for market
participants considering whether to trade on the TSV, such as when
trades will settle. Information in the Notice about how a TSV displays
trading interest will allow TSV Participants to readily decide to act
on a price and size of trading interest disseminated from an AMM
Liquidity Pool.
Disclosure in the Notice of the distributed ledger technology used,
including any protocols and applications such as user interfaces,
wallets, aggregators, solvers, or relayers, and the providers of those
protocols and applications, and the circumstances and the methods under
which the distributed ledger applications used by the TSV can be
upgraded, modified, suspended, overridden, or ceased, including the
persons permitted to perform such actions, will help provide market
participants with reasonable expectations regarding how the distributed
ledger applications used by the TSV operate and if and how they can be
changed.
Information in the Notice describing the handling of TSV
Participant confidential information and PII will allow market
participants to weigh the potential risks of participating in a TSV and
protect their interests. For example, describing if or how a TSV
protects TSV Participant information from unauthorized access, theft,
and other threats and intrusions should inform a potential TSV
Participant's decision whether to use a TSV. Likewise, whether a TSV
shares TSV Participant confidential information with other parties is
important to potential TSV Participants. Additionally, disclosing how a
TSV addresses MEV will inform TSV Participants about how their
transaction information may be used in a way that adversely impacts the
price they receive from trading on the TSV.
Disclosure in the Notice of material risks, including those related
to the security of the smart contracts, impermanent loss, abusive
activity involving MEV, oracle manipulation, and others, and how a TSV
mitigates or addresses such risks, will help market participants
determine whether to trade on a TSV and what, if any, additional
security or loss mitigation measures TSV Participants should implement
with respect to their use of the TSV. Disclosure of the TSV's oversight
of trading activity in Tokenized NMS Stock is also designed to help
potential TSV Participants decide whether to participate on a TSV.
Additionally, disclosure of whether a TSV may become the exclusive or
predominant trading venue providing access to trade its Tokenized NMS
Stock--and if so, the associated risks \109\ and any procedures used to
address those risks--will inform potential TSV Participants of the
risks of trading on such venue and whether those risks are mitigated,
helping them to decide whether to trade on a TSV.
---------------------------------------------------------------------------
\109\ For example, if a TSV is the exclusive venue providing
access to a particular Tokenized NMS Stock and that TSV had to cease
all trading in that Tokenized NMS Stock, then holders of the
Tokenized NMS Stock would have limited options to liquidate their
holdings.
---------------------------------------------------------------------------
Furthermore, the interests of a TSV and/or its affiliates may
compete against the interests of TSV Participants. These competing
interests may give rise to conflicts of interest for the TSV and its
affiliates, or potential leakage of TSV Participants' confidential
trading information. Information about trading participation by the
TSV, its affiliates, or both on the TSV, the services provided by the
TSV, interoperability with third-party service providers, fees and
sources of compensation, tokenization by the TSV or its affiliates, and
governance will help TSV Participants understand potential conflicts of
interest that may impact their trading on the TSV and assess the
potential for information leakage.
The Notice requirements regarding the disclosure of system
safeguards used by a TSV will aid potential TSV Participants in
evaluating the integrity and security of a TSV. TSV Participants will
directly interact with their TSV so the use of such safeguards by a TSV
can help assure TSV Participants that they can trade safely and
reliably on the TSV. For example, a TSV's code review procedures can
assure TSV Participants that the code is checked for errors and
security or design flaws. Disclosure of whether and how a TSV conducts
post-deployment monitoring of its smart contracts can inform potential
TSV Participants if the TSV surveils transactions and monitors for and
responds to suspicious or abnormal activity and security incidents
(like hacking attempts). The presence of smart contract audits can
provide assurances that the AMM Liquidity Pool smart contracts used by
a TSV are reviewed for, among other things, code errors,
vulnerabilities, security risks, and compliance with evolving
regulatory requirements, and that problems identified by these audits
are remedied.\110\ The regular testing of a TSV's business continuity
and disaster recovery plans can demonstrate to potential TSV
Participants that the TSV will be able to continue its operations after
a significant system disruption. Disclosures of safeguards such as
these examples evidence whether a TSV employs protections that may
prevent or mitigate the severity of systems issues, which could reduce
trading outages or other problems that impact TSV Participants in other
ways, such as compromising the confidentiality of their data or causing
financial harm. Disclosure of the system safeguards used by a TSV can
help potential TSV Participants better evaluate a TSV when deciding
which TSV to use as a trading destination.
---------------------------------------------------------------------------
\110\ The PWG Report recommends the following measures to
mitigate against smart contract vulnerabilities: (i) adhere to
secure development practices, conduct quality assurance and control
of smart contracts prior to deployment, and employ third-party
auditing to reduce risk of software defects; (ii) leverage trusted
code libraries; (iii) monitor for new vulnerabilities; (iv) consider
emergency stops and circuit breakers for unexpected smart contract
issues. See PWG Report at 122. To the extent a TSV has adopted these
recommendations, it should be discussed in its Notice.
---------------------------------------------------------------------------
Information in the Notice regarding how a TSV handles TSV
Participant complaints, disputes, and execution errors are intended to
protect investors by providing transparency into whether and how a TSV
offers any protections and recourse to TSV Participants in the event of
these commonplace incidents. Additionally, this information should
inform potential TSV Participants as they decide whether to participate
on a TSV.
The Notice will also aid the Commission in its efforts to protect
investors and maintain fair, orderly, and efficient markets by enabling
the Commission to review for compliance with certain conditions of the
TSV Exemption, such as whether the TSV falls under the scope of the
exemption and whether the requirements of the TSV distributed ledger
applications are met. Further, the Notice will provide the Commission
with valuable information about developments in TSVs and in the trading
of Tokenized NMS Stock.
IV. Exemption for Covered Firms
Section 3(a)(5) of the Exchange Act defines the term ``dealer'' to
mean ``any person engaged in the business of buying and selling
securities . . . for such person's own account through a broker or
otherwise,'' but excludes ``a person that buys or sells securities . .
. for such person's own account, either individually or in a fiduciary
capacity,
[[Page 60182]]
but not as a part of a regular business.'' This statutory exclusion
from the definition of ``dealer'' is often referred to as the
``trader'' exception.\111\ Absent an exception or an exemption, section
15(a)(1) of the Exchange Act makes it unlawful for a ``dealer'' to
effect any transactions in, or to induce or attempt to induce the
purchase or sale of, any security unless registered with the Commission
in accordance with section 15(b) of the Exchange Act.
---------------------------------------------------------------------------
\111\ The purpose of the ``trader'' exception is to ``exclude
from the definition of `dealer' members of the public who buy and
sell securities for their own account as ordinary traders.'' See SEC
v. Am. Inst. Counselors, Inc., Fed. Sec. L. Rep. (CCH) ] 95,388
(D.D.C. 1975) (citing Loss, Securities Regulation (2d ed. 1961)).
See also 2002 Release (``[A] person that is buying securities for
its own account may still not be a `dealer' because it is not
`engaged in the business' of buying and selling securities for its
own account as part of a regular business''); River North, 415 F.
Supp. at 859 (traders purchase securities already in the marketplace
and turn a profit from selling them after they appreciate in value);
Sodorff, 1992 WL 224082, at *5 (same); Crypto Freedom Alliance of
Tex. v. SEC No. 4:24-cv-00361-0, 2024 WL at *8 (N.D. Tex. Nov. 21,
2024) (``Crypto Freedom Alliance'') (stating that ``for nearly the
last 100 years, it has been commonly understood that anyone who buys
and sells securities ``not as a part of a regular business'' is a
trader--not a dealer--under the Exchange Act.''). See also
Definition of Terms in and Specific Exemption for Banks, Savings
Associations, and Savings Banks Under sections 3(a)(4) and 3(a)(5)
of the Securities Exchange Act of 1934, Exchange Act Release No.
46745 (Oct. 30, 2002), 67 FR 67496 (Nov. 5, 2002) (explaining that
``a person that is buying securities for its own account may still
not be a `dealer' because it is not `engaged in the business' of
buying and selling securities for its own account as part of a
regular business,'' and that ``[t]his exclusion is often referred to
as the dealer/trader distinction'').
---------------------------------------------------------------------------
Liquidity provision alone does not constitute engaging in dealer
activity, and the Commission anticipates that, absent other indicia of
dealer activity, persons acting as liquidity providers in an AMM
Liquidity Pool would typically be engaged in trader (and not dealer)
activity. The Commission recognizes, however, that depending on the
facts and circumstances,\112\ certain liquidity provider activity may
raise questions regarding whether it is dealer activity, as opposed to
trader activity, under section 3(a)(5) of the Exchange Act. As an
example, uncertainty may arise for liquidity providers if they were to
provide pricing to customers or assert control over pricing and
inventory of committed liquidity to AMM Liquidity Pools pursuant to
agreements, arrangements, or other understandings.
---------------------------------------------------------------------------
\112\ See Definition of Terms in and Specific Exemption for
Banks, Savings Associations, and Savings Banks Under Sections
3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934,
Securities Exchange Act Release No. 47364 (Feb. 14, 2003), 68 FR
8685, 8688 (Feb. 24, 2003) (citing to Definition of Terms in and
Specific Exemption for Banks, Savings Associations, and Savings
Banks Under Sections 3(a)(4) and 3(a)(5) of the Securities Exchange
Act of 1934, Securities Exchange Act Release No. 46745 (Oct. 30,
2002), 67 FR 67496, 67499 (Nov. 5, 2002) (``2002 Release'')
(concluding that ``. . . the analysis of whether a person meets the
definition of a dealer depends upon all of the relevant facts and
circumstances'')).
---------------------------------------------------------------------------
The Commission recognizes that liquidity providers that supply
Tokenized NMS Stock and paired assets to smart contract-based AMM
Liquidity Pools and may also engage in additional activities carrying
indicia of dealing activity, are necessary and integral to a TSV's core
functionality. Absent committed liquidity, the automated pricing and
execution mechanisms of AMMs related to AMM Liquidity Pools cannot
operate as designed.
Accordingly, the Commission believes it is necessary or appropriate
and consistent with the public interest and the protection of investors
to provide a temporary, conditional exemption from the definition of
``dealer'' in section 3(a)(5) of the Exchange Act to Covered Firms
solely within the limited context of AMM Liquidity Pools operating
pursuant to the TSV Exemption.\113\ The Commission believes that
narrowly tailored, temporary exemptive relief is warranted to
facilitate responsible innovation in tokenized securities markets by
providing greater legal certainty while the Commission evaluates the
scope of the term ``dealer'' more broadly,\114\ as well as the
application of existing broker-dealer regulatory frameworks to these
novel market structures more specifically.
---------------------------------------------------------------------------
\113\ See 15 U.S.C. 78o(a)(2) and 15 U.S.C. 78mm.
\114\ As described in the SEC's Spring 2025 Regulatory
Flexibility Agenda, the Division of Trading and Markets
(``Division'') is considering recommending that the Commission
propose amendments regarding the scope of, and exceptions from, the
term ``dealer.'' See Securities Exchange Act Release No. 103337
(June 27, 2025), 90 FR 45652 (Sept. 22, 2025); see also <a href="https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST¤tPub=true&agencyCode=&showStage=active&agencyCd=3235">https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST¤tPub=true&agencyCode=&showStage=active&agencyCd=3235</a>.
---------------------------------------------------------------------------
This section 3(a)(5) exemption is limited in duration and scope and
is conditioned on operational, disclosure, and transparency
requirements applicable to the TSV and Covered Firms.\115\
---------------------------------------------------------------------------
\115\ Because the evaluation of whether a person is a dealer
depends on the facts and circumstances, no presumption shall arise
on the basis of a person's reliance on the Covered Firm Exemption
that the person is a dealer.
---------------------------------------------------------------------------
The Covered Firm Exemption cannot be relied upon if the Covered
Firm or any of its affiliates are subject to statutory disqualification
as defined in section 3(a)(39) of the Exchange Act,\116\ unless the
Covered Firm or any of its affiliates has been permitted by the
Commission or any relevant SRO, by rule, order or otherwise, to
continue its membership in or participation with such SRO or its
association with a member of the SRO or other Commission registrant
notwithstanding that Covered Firm or affiliate's statutory
disqualification.\117\
---------------------------------------------------------------------------
\116\ 15 U.S.C. 78c(a)(39).
\117\ Any such person who has not received such permission from
the Commission or any SRO cannot rely on the Covered Firm Exemption
as there is an increased potential for that person to adversely
affect the public interest by, for example, creating an unreasonable
risk of harm to investors or the markets without additional
regulatory oversight of such person as appropriate.
---------------------------------------------------------------------------
A. Conditions for the Covered Firm Exemption
As detailed below, the Covered Firm Exemption is subject to
conditions designed to protect investors and maintain market integrity,
including requirements relating to liquidity provider operations,
activities, disclosures, and notices. These conditions are designed to
facilitate the operation of the TSVs while preserving the Commission's
ability to oversee and assess the development of these markets.
Additionally, the Covered Firm Exemption is temporary, expiring at the
end of five years, running in parallel with the TSV Exemption. TSV
Participants acting as a Covered Firm pursuant to the conditions herein
remain subject to the anti-fraud and anti-manipulation provisions of
the federal securities laws.
TSV Provided AMM Liquidity Pool. For purposes of compliance with
the Covered Firm Exemption, a Covered Firm's securities activities must
be limited to activities related to the trading of Tokenized NMS Stock
in an AMM Liquidity Pool operating pursuant to the TSV Exemption.\118\
---------------------------------------------------------------------------
\118\ Provided that the conditions herein are met, a Covered
Firm relying on this Covered Firm Exemption may engage in the
trading of Tokenized NMS Stock on more than one TSV operating
pursuant to the TSV Exemption. In addition, the Covered Firm
Exemption does not limit a Covered Firm's non-securities activities,
such as activity related to payment stablecoins.
---------------------------------------------------------------------------
Proprietary Accounts. A Covered Firm must provide liquidity through
a TSV, engage in such trading activity solely for its own account, and
must not hold or custody customer assets.
Maintenance of Records. A Covered Firm must make and retain records
relating to: its ability to maintain sufficient liquid assets to cover
potential losses associated with trading activity (e.g., financial
statements); any liquidity supplied in an AMM Liquidity Pool; any
agreement, arrangement or understanding with a TSV to provide
liquidity, including market making, services to an AMM Liquidity Pool;
and
[[Page 60183]]
any incentives, fees, rebates, or any other form of compensation
received for any liquidity provision, including for achieving certain
volume thresholds.
Disclosures. A Covered Firm must prominently disclose on any
public-facing website, if applicable: (1) that it is not registered as
a broker-dealer with the Commission, (2) that it may enter into
liquidity provision, including market making, agreements or
arrangements with a TSV to provide liquidity to an AMM Liquidity Pool,
and (3) that it may receive fees, tokens, or other incentives for
providing liquidity or achieving certain volume thresholds from a TSV-
provided AMM Liquidity Pool.
Notification. A Covered Firm must notify the Commission in writing
at <a href="/cdn-cgi/l/email-protection#5c282e3d3835323b3d3238313d2e3739282f1c2f393f723b332a"><span class="__cf_email__" data-cfemail="87f3f5e6e3eee9e0e6e9e3eae6f5ece2f3f4c7f4e2e4a9e0e8f1">[email protected]</span></a> of its role as a Covered Firm including:
the participant's name; a description of its business model and an
overview of its risk controls, as applicable; its designated regulatory
contact; a description of any liquidity provision or market making
agreements, arrangements, or understandings it has entered into; a
description of any fees, tokens, or other incentives it receives for
providing liquidity or achieving certain volume thresholds from a TSV-
provided AMM Liquidity Pool; an acknowledgement that neither the
Covered Firm nor any of its affiliates is subject to statutory
disqualification; its consent to requests for information from
Commission staff of the Covered Firm's activities; and an
acknowledgement that use of the Covered Firm Exemption is subject to
Commission oversight and that operating a Covered Firm in a manner
inconsistent with the Covered Firm Exemption could result in a
Commission enforcement action.
V. Duration for the Exemptions
The exemptions are effective from September 17, 2026, until
September 17, 2031. The Commission may modify the length or any other
aspect of the exemptions pursuant to its authority under section 36 of
the Exchange Act if it determines that such modification is necessary
or appropriate in the public interest and consistent with the
protection of investors.
VI. Solicitation of Comments
The Commission intends to monitor closely the use of the exemptions
and whether any modifications to the exemptions may be necessary. The
Commission solicits public comment on all aspects of the exemptions,
including:
1. Should the Commission modify the TSV Exemption in any way? Why
or why not? If so, describe how the TSV Exemption should be modified.
2. Should the TSV Exemption be permanent? If so, what conditions of
the TSV Exemption should TSVs be subject to on a permanent basis? Is
the length of the temporary TSV Exemption appropriate? If not, what
should the duration be?
3. How could trading of Tokenized NMS Stock on a TSV potentially
impact the liquidity, pricing, or trading of underlying NMS stock in
the broader market and how, if at all, should the TSV Exemption be
potentially modified to account for any such impact? What effects could
transaction reporting within ten minutes of the occurrence of a
transaction and overnight trading have on market quality in underlying
NMS stock, including on the market opening, reopening and closing
processes of the exchanges? What, if any, modifications should be made
to the TSV Exemption to account for such potential impacts?
4. Should the TSV Exemption be modified to permit a TSV to trade
securities other than Tokenized NMS Stock? Which types of securities
should TSVs be limited to trading under the TSV Exemption? Should the
non-security crypto assets or tokenized money market funds that are
permitted to trade in pairs with Tokenized NMS Stock on a TSV be
limited to certain types of non-security crypto assets or tokenized
money market funds?
5. Should the conditions of the TSV Exemption be modified in any
way? Do any of the conditions pose any challenges for market
participants? Please explain.
6. Is the categorization into Tier 1 and Tier 2 Tokenized NMS Stock
appropriate for the limitations on volume and number of symbols for
Tokenized NMS Stock? Are the limitations to trading 75 symbols and 0.25
percent of the average daily share volume during the prior month in the
relevant NMS stock appropriate for Tier 1 Tokenized NMS Stock? Are the
limitations to trading 250 symbols and 2.5 percent of the average daily
share volume for Tier 2 Tokenized NMS Stock during the prior month in
the relevant NMS stock appropriate? Please explain and provide any
potential modifications to the limitations you believe may be
appropriate.
7. Are there compliance or operational challenges impeding
regulated entities from being TSV Participants? Should the Commission
provide any relief from the requirements of Regulation NMS under the
Exchange Act to TSV Participants that are registered broker-dealers?
Why or why not? If so, please specify the provisions of Regulation NMS
from which broker-dealer TSV Participants would need relief and explain
the necessity of such relief.
8. Should the Commission modify the Covered Firm Exemption in any
way? Why or why not? If so, describe how the Covered Firm Exemption
should be modified.
9. Should the Covered Firm Exemption be permanent? If so, what
conditions of the exemption should Covered Firms be subject to on a
permanent basis? Is the length of the temporary Covered Firm Exemption
appropriate? If not, what should the duration be?
10. Are the conditions of the Covered Firm Exemption appropriate?
Do any of the conditions, including those relating to the activities of
the market participant as well as the maintenance of records, and
disclosures, pose any challenges for market participants? Please
explain.
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/comments/4-927/order-granting-temporary-conditional-exemptive-relief-pursuant-section-36a1-securities-exchange-act">https://www.sec.gov/comments/4-927/order-granting-temporary-conditional-exemptive-relief-pursuant-section-36a1-securities-exchange-act</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b9cbccd5dc94dad6d4d4dcd7cdcaf9cadcda97ded6cf"><span class="__cf_email__" data-cfemail="1664637a733b75797b7b737862655665737538717960">[email protected]</span></a>. Please include
File Number 4-927 on the subject line.
Paper Comments
<bullet> Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number 4-927. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (<a href="https://www.sec.gov/rules-regulations/2026/09/4-927">https://www.sec.gov/rules-regulations/2026/09/4-927</a>). Persons submitting comments are cautioned that we do
not redact or edit personal identifying information from comment
submissions; you should submit only information that you wish to make
available publicly.
VII. Conclusion
It is hereby ordered that pursuant to section 36(a)(1) of the
Exchange Act that, until September 17, 2031, a Tokenized Securities
Venue complying with the conditions set forth herein shall be exempt
from the definition of ``exchange'' under section 3(a)(1) of the
Exchange Act and a Covered Firm complying with the conditions set forth
[[Page 60184]]
herein shall be exempt from the definition of ``dealer'' under section
3(a)(5) of the Exchange Act. The Commission determines the exemptions
set forth above are consistent with the public interest and the
protection of investors and are necessary and appropriate in the public
interest, consistent with section 36(a)(1) of the Exchange Act.
By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2026-19388 Filed 9-21-26; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on September 22, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.