SEC Chair Paul Atkins and Commissioner Hester Peirce took the stage at ETHDenver on February 18, 2026, and laid out the most concrete framework yet for a tokenized securities innovation exemption, as reported by The Block. The joint appearance, titled "Number Go Down and Other Schadenfreude," went far beyond the market commentary the title suggests. Atkins described an exemption that would "facilitate limited trading of certain tokenized securities on novel platforms with an eye toward developing a long-term regulatory framework." The novel platforms he referenced include automated market makers, the backbone infrastructure of decentralized finance.
As of February 19, 2026, the tokenized real-world asset market has surpassed $21 billion in total value locked, and industry projections from CoinDesk estimate it could reach $100 billion by year-end. This exemption would provide the regulatory clearance that institutional capital has been waiting for.
What the Innovation Exemption Actually Looks Like
The exemption framework is not a sandbox in the informal sense. It is a structured pilot program with specific conditions that participating platforms and investors must meet. Based on Atkins' and Peirce's remarks and the SEC's published speech text, the key elements include:
- Whitelisted participants: Both buyers and sellers of tokenized securities would go through a whitelisting process before gaining access to exempted trading venues. This replaces the traditional broker-dealer intermediary with on-chain identity verification.
- Trading on AMMs: The exemption explicitly contemplates trading on automated market makers, not just traditional order book exchanges. This is the first time the SEC has formally included AMM-style venues in a securities trading framework.
- Temporary but meaningful duration: The exemption would last long enough for the SEC to gather data and develop permanent rules. Peirce described it as a "live, but controlled, environment" designed to avoid the chicken-and-egg problem where no one builds because no one trades, and no one trades because no one builds.
- Smart contract compliance: Atkins highlighted the ability to embed compliance directly into smart contract code. A company's founders could, for example, code lockup commitments so that restricted securities literally cannot be transferred before the lockup expires. No lawyers required to enforce it.
- Volume and asset ceilings: Initial restrictions would limit the number, types, and trading volume of tokenized securities. Platforms demonstrating strong compliance would see those ceilings raised over time.
Commissioner Peirce offered a reality check alongside the optimism: "The innovation exemption is not as monumental as either faction anticipated." She also reminded the audience that "tokenized securities are still securities," meaning disclosure requirements, anti-fraud provisions, and investor protection rules still apply regardless of the technology wrapping them.
The DTC Pilot That Is Already Running
The ETHDenver announcement does not exist in a vacuum. The Depository Trust Company, which handles settlement for virtually all US equity trades, has been operating its own tokenization pilot since receiving a no-action letter from the SEC's Division of Trading and Markets in December 2025.
The DTC pilot covers Russell 1000 equities, US Treasury securities, and major index ETFs tracking the S&P 500 and Nasdaq-100. Tokenized entitlements are recorded on distributed ledgers rather than the DTC's centralized system, with transfers occurring directly between registered wallets tracked by LedgerScan software. The pilot is expected to run for three years, with live participant testing beginning in the second half of 2026.
Two critical safeguards define the DTC approach: tokenized entitlements receive no collateral or settlement value for Net Debit Cap calculations, keeping them isolated from systemic risk during testing, and the DTC retains override keys for transaction reversal if something goes wrong. Only existing DTC participants can register wallets, which effectively limits the pilot to established broker-dealers and custodians.
The innovation exemption Atkins described at ETHDenver would extend beyond this institutional sandbox to include DeFi-native venues. The combination of the DTC pilot (traditional finance testing tokenization infrastructure) and the innovation exemption (DeFi platforms testing securities trading) creates a two-track approach that covers both ends of the market.
Why Smart Contract Compliance Changes the Game
The most technically significant detail from the ETHDenver speech was Atkins' emphasis on embedding compliance into smart contract code. This is not a theoretical concept. It solves several real problems that have slowed tokenized securities adoption.
Today, enforcing transfer restrictions on securities requires a web of legal agreements, transfer agents, and manual compliance checks. When a founder agrees to a 180-day lockup, that restriction exists as a contractual obligation enforced by lawyers and auditors. If a restricted share somehow reaches a secondary market, unwinding the trade is expensive and slow.
With smart contract compliance, the restriction lives in the code. A token representing restricted shares simply cannot be transferred to an unapproved address before the lockup expires. No human intervention needed, no compliance officer reviewing every trade. The smart contract is the compliance officer.
This has direct implications for the cost of issuing and trading tokenized securities. If compliance is automated, the overhead that currently makes small-scale tokenized offerings uneconomical could shrink dramatically. That opens the door for mid-cap companies, not just the BlackRocks and Goldman Sachs of the world, to tokenize equity.
What This Means for Crypto Exchanges and Card Issuers
The broker-dealer custody angle embedded in the broader SEC agenda is where this story intersects with the everyday crypto user. Atkins confirmed that the SEC plans to advance rulemaking on broker-dealer custody of non-security digital assets, including payment stablecoins. For exchanges like Coinbase, Kraken, and OKX that back crypto card programs, clearer custody rules remove one of the largest regulatory uncertainties in the business.
Every crypto card that lets users spend USDC or USDT relies on the issuer or partner exchange holding those stablecoins in custody. Today, the rules governing that custody are a patchwork of state money transmitter licenses, SEC guidance, and informal no-action positions. Formal broker-dealer custody rules for payment stablecoins would standardize the compliance framework, potentially lowering costs and expanding the number of platforms willing to offer stablecoin-funded spending.
The tokenized securities exemption also creates a pathway for a new category of crypto card utility. If tokenized equities can be held in the same wallets and traded on the same platforms as crypto assets, the line between a crypto debit card and a securities-backed spending account starts to blur. A self-custody wallet holding both tokenized Treasury bonds and USDC could theoretically serve as both an investment account and a spending account, with the card drawing from whichever asset the user prefers at point of sale.
The Regulatory Calendar From Here
Atkins and Peirce outlined a multi-track agenda that extends well beyond the innovation exemption:
- Investment contract framework guidance: The SEC will issue formal guidance clarifying when digital assets qualify as investment contracts, including how those contracts form and terminate.
- Broker-dealer custody rulemaking: Advancing rules on how registered broker-dealers can custody non-security digital assets, including stablecoins.
- Transfer agent modernization: Updating transfer agent regulations to account for blockchain-based recordkeeping.
- No-action letters: Continuing to issue targeted no-action relief for wallets, user interfaces, and other infrastructure that does not require full registration.
- SEC-CFTC coordination: Ongoing work with CFTC Chair Selig on harmonizing oversight and reducing jurisdictional overlap under the CLARITY Act framework.
The timeline is deliberately incremental. Peirce used the word "incremental" multiple times during the ETHDenver session, signaling that the SEC is not planning a single dramatic rule change but rather a series of measured steps. Each step produces data. Each data point informs the next step. This is regulatory pragmatism, not regulatory revolution.
For market participants, the implication is clear: do not wait for a single "green light" moment. The light is turning green one intersection at a time.
FAQ
What is the SEC innovation exemption for tokenized securities? It is a proposed temporary exemption that would allow trading of certain tokenized securities on novel platforms, including automated market makers, under restricted conditions. Participants would go through a whitelisting process, and platforms would need to meet market integrity and anti-fraud requirements.
Can anyone trade tokenized securities under this exemption? No. Both buyers and sellers would need to be whitelisted, and initial trading would be limited in volume, asset types, and participating platforms. The exemption is designed as a controlled pilot, not open access.
What does smart contract compliance mean? It means embedding regulatory requirements directly into the smart contract governing a tokenized security. Transfer restrictions, lockup periods, and investor eligibility checks can be enforced automatically by the code rather than through manual compliance processes.
How does this affect crypto card users? The broader SEC agenda includes broker-dealer custody rules for payment stablecoins, which directly impacts how exchanges and card issuers hold the USDC and USDT that fund crypto card spending. Clearer rules could lower compliance costs and expand card program availability.
When will the innovation exemption go live? No specific date has been announced. The DTC's tokenization pilot is expected to begin live participant testing in the second half of 2026. The broader innovation exemption will follow the SEC's incremental rulemaking timeline.
Overview
SEC Chair Atkins and Commissioner Peirce used their ETHDenver appearance to outline the most detailed tokenized securities framework the agency has produced. The innovation exemption would allow whitelisted participants to trade tokenized securities on automated market makers for the first time, with compliance embedded directly in smart contract code. Combined with the DTC's existing three-year pilot covering Russell 1000 equities, Treasuries, and major ETFs, the SEC is building a two-track bridge between traditional finance and DeFi. The agenda also includes broker-dealer custody rules for payment stablecoins and investment contract guidance, both of which carry direct implications for crypto card issuers and users. Peirce's caution that the exemption "is not as monumental as either faction anticipated" sets appropriate expectations: this is incremental progress, not a regulatory Big Bang. But incremental progress from the SEC on tokenized securities is still more than the market has seen from any previous commission.
Recommended Reading
- Ethereum Tokenized RWA Market Crosses $17 Billion After a 300 Percent Year-Over-Year Surge
- SEC Chair Atkins Tells Regulators Not to Panic Over Falling Crypto Prices
- CFTC Chair Selig Says the CLARITY Act Is on the Cusp of Becoming Law
