The SEC's Innovation Exemption and the Coming Case for 24/7 Trading

How Washington's push to bring tokenised equities onshore is reshaping market structure, and what firms must build to be ready

The US Securities and Exchange Commission is preparing an “innovation exemption” for tokenised securities, a regulatory pathway that would, for the first time, allow stocks to trade on blockchain networks around the clock rather than being confined to the hours of conventional US exchanges. The initiative sits at the centre of Chairman Paul Atkins' Project Crypto agenda, and it marks the most consequential attempt yet to bring the fast-growing offshore market in tokenised equities inside the US regulatory perimeter.

The stakes are considerable. Blockchain infrastructure can, in principle, support continuous trading, fractional ownership and near instant or atomic settlement, a marked departure from the T+1 settlement cycle that still governs most US equities. Yet the Commission has been careful to stress that the exemption under discussion is limited and closely supervised, rather than a wholesale deregulation of tokenised stocks. What began as a narrow technical carve out has, over the course of 2026, become a live test of how far American market structure can change before Congress is forced to catch up.

A Structural Break From Exchange Hours

Traditional US equities trade during defined exchange hours, with limited extended sessions available through some brokers. Tokenised securities could remove that constraint altogether, because the blockchain networks that would settle them never close. SEC Commissioner Hester Peirce indicated in March that agency staff were developing an exemption to facilitate the “limited trading of certain tokenised securities”, and she raised a series of unresolved questions in the process, among them how atomic settlement should work, what intermediary obligations should apply, how investors would be protected outside normal market hours, and whether third parties ought to require an issuer's consent before wrapping its shares in tokenised form.

The Commission has already shown that round the clock securities trading is not, in itself, incompatible with its rulebook. Earlier in 2026 it granted exemptive relief permitting 24/7 trading and instant settlement for tokenised shares of a money market fund. Extending a similar logic to listed equities would carry far greater consequences. A tokenised Apple or Nvidia share could, in theory, change hands on a blockchain over a weekend or overnight, with ownership and payment settling almost simultaneously rather than moving through the multi day clearing chain that still underpins conventional markets. The SEC's own Investor Advisory Committee has recommended that the agency weigh either a dedicated innovation exemption or a broader, rule by rule reform programme for tokenised equities.

Wall Street and Crypto Converge on the Same Market

The exemption is emerging just as traditional exchanges and crypto native platforms race to build competing, and in places overlapping, tokenisation infrastructure. Nasdaq secured SEC approval in March 2026 to trade tokenised versions of Russell 1000 constituents and major index ETFs, and NYSE followed with its own approval the following month. The Depository Trust and Clearing Corporation, which custodies roughly 114 trillion US dollars in assets, has moved in parallel, announcing a limited production pilot for tokenised securities from July 2026 involving more than fifty institutions, including BlackRock, JPMorgan and Goldman Sachs, with a broader rollout planned for October. Separately, Coinbase has secured authorisation in Abu Dhabi to establish a tokenisation hub, and crypto native platforms continue to add the functionality needed to handle corporate actions and other equity specific mechanics.

What is taking shape, in effect, is not one onshore market for tokenised equities but two. The Nasdaq and DTCC rail preserves full shareholder rights and clears through existing post trade infrastructure, with tokenisation acting as a wrapper around a conventional, already settled position. The innovation exemption, by contrast, would open a second, lighter touch rail on which crypto native platforms could list tokenised exposure to public companies, created in some cases without the issuer's consent, and without the full set of shareholder rights, including voting and dividends, that attach to the underlying stock. The SEC's approach to that second rail will do much to determine whether this activity develops onshore in the United States or continues to migrate to offshore venues, where tokenised stock volumes have already expanded sharply over the past eighteen months.

A Rollout Delayed by Market Structure Concerns

The exemption has not, in fact, arrived on the timetable the market expected. Bloomberg reported in mid May 2026 that a draft had been prepared and reviewed by SEC staff, with publication expected within days. Days later, the Commission pulled the planned rollout after Nasdaq, NYSE and Cboe leadership raised market structure and surveillance concerns directly with the agency. Chief among them was a price discovery problem: listed equities trade roughly between 9.30am and 4.00pm Eastern Time, with regulated pre market and after hours sessions either side, whereas tokenised equities on a blockchain would clear continuously. For as much as sixteen hours a day, no reference price would be available on the listed market against which an off hours tokenised trade could be checked, leaving retail orders executed overnight with no National Best Bid and Offer to anchor them.

As of the time of writing, the exemption remains under active development rather than in force, and the delay illustrates a point compliance functions would do well to internalise early: the policy direction is settled, but the operational detail, particularly around price discovery, surveillance and investor protection outside exchange hours, is still being negotiated between the Commission and the incumbent exchanges. Firms preparing for 24/7 trading should treat the current pause as a planning window rather than a reason to stand down.

What Firms Will Need to Do to Accommodate 24/7 Trading

Whatever final form the innovation exemption takes, the direction of travel is now difficult to dispute. Firms that intend to participate in tokenised equity markets, whether as issuers, broker-dealers, custodians, exchanges or crypto native platforms, will need to rebuild significant parts of their operating model around continuous, always-on trading. The following areas are likely to require the most substantial work.

Market surveillance and price discovery

Surveillance systems built around a defined trading day will need to operate continuously, with the ability to detect manipulation, unusual volume and wash trading during hours when no reference price exists on the primary listed market. Firms will need robust methodologies for constructing a fair reference price overnight, whether by referencing offshore venues, derivatives markets or the tokenised order book itself, and clear, disclosed rules for how that reference price is used in execution and best execution assessments.

Custody, settlement and reconciliation

Continuous trading demands continuous settlement and reconciliation capability, not an overnight batch process. Firms will need to resolve how a token representing economic exposure to a share reconciles against the underlying security held at a custodian such as DTC, how corporate actions, including dividends, stock splits and voting, are reflected in or excluded from the token, and how counterparty and custody risk is managed when trading activity no longer pauses for a settlement cycle to catch up.

Liquidity risk and market making

Thin overnight liquidity is a known risk in any market that trades outside its natural hours. Firms will need market making and liquidity provision arrangements that function credibly at 3am as well as 3pm, circuit breakers and volatility controls calibrated for lower volume periods, and treasury and margining processes able to value tokenised positions and manage risk continuously rather than at fixed intraday checkpoints.

Compliance, AML and investor protection

Bringing 24/7 trading onshore does not relax the underlying securities laws, a point the SEC's joint divisional guidance made explicit in January 2026. Firms will need KYC and AML controls, suitability and disclosure processes, and complaints handling that operate around the clock rather than during a nine to five compliance shift, along with clear client-facing disclosure of what a tokenised instrument does and does not confer, particularly where voting rights or dividends are excluded.

Technology, resilience and operational readiness

Systems that previously had an overnight maintenance window will lose it. Firms will need resilient, highly available trading and settlement infrastructure with minimal scheduled downtime, incident response and business continuity plans built around continuous operation, and rigorous testing of blockchain settlement rails, smart contracts and interoperability with existing post-trade infrastructure such as DTCC's tokenisation service before committing meaningful volume to them.

Governance and regulatory engagement

Given that the exemption's final conditions, including exposure limits, eligible instruments and the length of any sandbox period, remain under negotiation, firms will need governance structures able to adapt quickly as rules are finalised, a clear internal owner for tokenisation strategy and regulatory engagement, and active participation in the consultation process, since the May 2026 delay shows that exchange and market participant feedback is already shaping the final framework.

Conclusion

The innovation exemption is best understood not as a single rule change but as the regulatory front line of a broader transformation in how US equities trade, are owned and are settled. If it succeeds, even in the limited and closely supervised form the SEC has signalled, it will begin to dissolve one of the oldest conventions in American capital markets, that stocks trade through centralised venues during defined hours and settle through separate clearing infrastructure. Blockchain collapses trading, ownership and settlement into components of a single programmable system, and the exemption is the regulated environment in which the SEC intends to test whether that architecture can move safely from crypto markets into Wall Street itself.

For firms, the practical implication is that 24/7 trading readiness can no longer be treated as a future contingency. The policy direction under Chairman Atkins is clear, the infrastructure being built by Nasdaq, NYSE, DTCC and the major crypto platforms is already in pilot, and the May 2026 delay was a matter of sequencing rather than a change of course. The firms best placed to benefit will be those that use this period, while the final conditions of the exemption are still being settled, to build the surveillance, custody, liquidity, compliance and technology capability that continuous markets demand, rather than waiting for the rule to be finalised before they begin.

This article on SEC coverage of the innovation exemption and incorporates subsequent market developments through August 2026. Firms should monitor the SEC's website directly for the final terms of the exemption once published.

DISCLAIMER

Nothing in this report constitutes legal advice, financial advice, investment advice, or a recommendation to adopt, implement, or refrain from any particular course of action. Readers should not rely on this report as a substitute for independent legal, regulatory, tax, financial, or technical advice tailored to their specific circumstances and jurisdiction. The Digital Commonwealth (DCW) accepts no liability for any loss, damage, or consequence arising directly or indirectly from reliance on the contents of this report.

The regulatory landscape for stablecoins and digital assets is evolving rapidly across all jurisdictions referenced herein. Whilst reasonable care has been taken to reflect the state of regulation, legislation, and market practice as at May 2026, this report does not purport to be a comprehensive or definitive statement of the law or regulatory position in any jurisdiction. It may not reflect developments occurring after the date of publication. Readers operating in regulated activities should conduct their own legal and compliance review and seek appropriate professional advice.

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Eric Williamson, Director of Compliance and Risk

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