Recently, I blogged about nine things you should know about tokenization in the wake of the SEC’s Order that provides an “Innovation Exemption” for certain tokenized securities venues (“TSVs”). Although the SEC’s Order doesn’t force companies to tokenize their shares, it has created a framework for the trading of securities tokenized by third parties unaffiliated with issuers – putting the burden on you to be prepared to make a potentially consequential decision whether to allow the trading of third-party tokenized securities within 30 days of receiving notice from a TSV.
The questions keep rolling in from our clients – so here’s nine more things you should know:
1. Can a company issue an industry-wide opt-out to trading on every TSV or does it need to respond to each TSV for which it receives notice?
Companies can’t issue a blanket objection. They have 30 days from the receipt of each TSV notice to object to each notice on a TSV-by-TSV basis.
2. Is tokenization actually happening?
Yes, tokenization in some form was happening before the SEC issued its Order. Tokenized versions of securities issued by U.S. public and private companies (or synthetics) have been trading on decentralized exchanges and offshore centralized exchanges since mid-2025. That market has grown significantly in the last year, drawing public criticism from some issuers.
The SEC’s Order is best understood as an effort to bring certain activity onshore and into a more structured US regulatory framework to allow for experimentation that will inform future rulemaking. TSVs have already begun to publicly identify companies whose shares they intend to make available for trading in tokenized form.
3. How can I learn more about a particular TSV?
Before a TSV begin operations, it’s required to post on its company website a public notice that describes its operations, including 30 items enumerated in the Order (note this “notice” is distinct from the notice sent to companies giving them the opportunity to object).
The public notice must be in plain English – and be posted on the TSV’s company website at least 30 days before the TSV begins operations. The TSV is required to notify the SEC – by email – of its intentions within one business day of posting the public notice.
4. How does the public learn that a company has objected to its third party tokenized shares being traded on a TSV?
Under the SEC’s Order – if a company has made a timely objection to the TSV within the 30-day window in response to the TSV’s notice to the company about its intent to list third party tokenized securities – the TSV is required to revise its public notice to reflect the company’s objection on its website within five days (but they aren’t required to post the company’s actual objection).
There is no central SEC repository that tracks TSV public notices, nor the companies that have objected to being listed on a TSV. Absent other considerations, we would generally not expect a company’s objection alone to warrant public announcement by the company of such objection.
5. Will the SEC be regulating TSVs?
Yes, but TSVs will operate under a more limited regulatory framework than national securities exchanges or alternative trading systems. The SEC’s Order exempts a qualifying TSV from being deemed an “exchange” under the Exchange Act, alleviating the need to comply with Reg NMS and related requirements and doesn’t prescribe a comprehensive framework for their operations (including clearance and settlement).
The Order does, however, impose safeguards including:
- Trading volume limits;
- Certain trading halts implemented by the TSV;
- Prompt notification of trading stoppages; and
- Public disclosure by the TSV of transaction data, liquidity arrangements and how it monitors for spoofing, wash trading, front-running, pump-and-dump schemes and other manipulative or abusive conduct.
The Order provides no relief from Section 10(b), Rule 10b-5, insider-trading restrictions or any other federal antifraud or anti-manipulation provisions.
This relatively limited regulatory framework is one factor companies should consider when deciding whether to object to trading on a TSV.
6. Should we revise our insider trading policy to address tokenized stock?
Potentially. Companies should consider whether they should amend insider trading policies and related materials to explicitly address tokenized stock, in addition to whether any changes are warranted in connection with Nasdaq’s targeted December 6th launch of 23×5 trading, though many companies may find that existing language provides sufficient coverage.
Definitions of covered securities, trading activity, hedging transactions and references to particular instruments – as well as restricted trading windows – are areas to review; though often companies have language that may provide broad coverage even in the absence of specific references to tokenization.
It’s worth keeping in mind that there is a movement toward near-continuous trading and after-hours price discovery in general, which may necessitate changes in approach to disclosure of information and insider trading governance over time as the market evolves.
7. If a company objects to a TSV’s notice, can it later withdraw that objection?
The SEC’s Order provides for a one-time, time-limited objection right – and it doesn’t spell out a formal mechanism for withdrawing an objection once made.
As a practical matter, a company that wants to reverse course would likely need to contact the TSV directly and express interest in having its stock trade on that venue, rather than relying on any process set out in the Order itself.
In practice, it’s likely that TSVs would be enthusiastic to accommodate companies that change their mind and want to participate. Importantly, there’s no ability for a company to opt out for the rest of the five-year term of the SEC’s Order if it fails to object within the 30-day period.
8. Does tokenized trading create any issues for shareholder records, proxies or dividends?
Potentially. As also discussed in this recent blog, third-party tokenization may introduce additional intermediaries between a company and the ultimate token holder, limiting visibility into beneficial ownership.
These arrangements could also complicate the delivery of proxy materials, the exercise of voting rights, and the distribution of dividends, particularly if token holders rely on intermediaries to receive and pass through shareholder communications and payments.
Although TSVs and tokenizers have obligations designed to preserve shareholder rights, how these arrangements will operate in practice remains to be seen.
9. What are the overall tradeoffs a company should weigh in deciding whether to object?
Given how new this framework is, many companies are treating potential initial objection decisions as provisional and plan to revisit them as SEC guidance develops and the market matures.
There is no uniformly right answer and companies are weighing a range of considerations. On the potential upside, tokenization could broaden a company’s investor base by giving crypto-native and global retail investors easier access to its stock and could eventually support faster settlement.
For many companies, the most immediate drawback is general novelty and implementation uncertainty. Other more specific considerations include risks related to thin off-hours trading, differences between token prices and the underlying stock’s price on its primary exchange, delays in trade data reporting, liquidity fragmentation across many TSVs, and concern that employees may potentially take greater insider trading risks with tokenized securities.
In addition, to the extent companies don’t object to the tokenization of their stock by TSVs under the SEC’s Order, there could be multiple TSVs and multiple tokenizers, leading to potentially different versions of tokens for a single company’s stock.
Overall, companies will need to weigh the benefit of potentially gaining access to new investors, liquidity and blockchain-based market infrastructure against concerns with giving up some control over how shares are represented, traded, and serviced and corresponding uncertainties.
Authored by
Broc Romanek