SIFMA Presses SEC for Answers on Innovation Exemption Before TSVs Launch

SIFMA has asked the SEC to resolve a set of open questions on the Innovation Exemption for tokenized NMS stocks before Tokenized Securities Venues begin trading, which could happen within 30 days of the venues' published notices.

The comment letter, submitted to the Commission on the recently published Innovation Exemption, sets out an initial set of questions and recommendations on how the Innovation Exemptive Order will work in practice. Because the relief took effect as soon as it was published, issuers and market participants had no opportunity to comment on its structure or its mechanics.

"Tokenization has real potential to modernize our markets, but getting the foundations right from day one is essential," said Kenneth E. Bentsen, Jr., president and CEO of SIFMA. "Issuers, investors and intermediaries need clarity on how the Innovation Exemption will operate as trading begins over the coming weeks, and we urge the Commission to act quickly on resolving the outstanding questions our members have identified."

The timeline is compressed. Several TSVs have already published notices and may begin operating within 30 days. Issuers have begun receiving Issuer Notices. The exemptive relief lasts five years, so early design choices will shape market practice well before the Commission adopts any permanent framework.

What does the letter target?

SIFMA identifies four areas that need immediate attention and offers a recommendation for each:

• Issuer notice and consent — how issuers are notified and what level of control they hold over the tokenization of their securities;
• Investor protection, illicit finance, oversight and enforcement — ensuring existing safeguards carry over to tokenized markets;
• Trading volume limits — how the limits apply on individual venues and in aggregate across the market;
• Beneficial ownership, corporate actions and transferability — protecting shareholder rights and the integrity of the ownership record for tokenized shares.

The last two items bear directly on execution workflows. Aggregate volume caps across venues raise questions about how a desk measures its own activity against a market-wide limit, and transferability rules will determine whether tokenized shares can move between venues or accounts without breaking the ownership record.

What is proposed versus what is mandated?

The letter separates fixes that guidance can deliver from fixes that require amending the Order itself. For the first bucket, SIFMA suggests the Commission address how the Innovation Exemption will operate through FAQs or guidance. The second bucket is heavier: amendments that could mandate affirmative issuer consent, lengthen the objection period, and create a universal issuer opt-out.

SIFMA also signaled support should the Commission decide that more time is needed before venues begin operating, whether to resolve these questions or to allow further industry engagement. The stated aim is that activity under the exemption starts in an orderly manner, without unintended harm to investors, core equity markets, or issuers.

The group welcomed statements by SEC Chairman Atkins and SEC Commissioner Uyeda outlining their expectation that formal notice-and-comment rulemaking will follow. SIFMA said it is ready to work with the Commission as it evaluates the impact of exempted activities on investors and core equity markets and develops a rulemaking proposal informed by that experience.

One request extends beyond tokenization itself. SIFMA asks the Commission, as it works toward rulemaking, to weigh the other interconnected and significant changes coming to equity markets and how those changes will interact with the exempted activity.

The exemption runs for five years; the first venues may open within 30 days. The gap between those two clocks is the letter's core argument, and the Commission's response — guidance, amendment, or delay — will set the operating terms for tokenized NMS stock trading from its first sessions.