SEC Takes Action: Who Can Handle "Compliant ICOs"?

Author: Meng Yan

The U.S. Securities and Exchange Commission (SEC) recently introduced exemptions for tokenized stock trading. This is certainly news worth noting for teams working on exchanges, especially those focused on RWA trading platforms. However, the distance between "operating in this sector" and "being able to utilize this exemption" may be much greater than expected. Do existing trading systems and RWA businesses qualify?

For the Chinese Crypto community, the most significant implication of this move may not be how many teams can directly participate, but rather that it indicates the SEC's stance: while congressional legislation is temporarily stalled, the SEC has no intention of waiting idly. This signal also makes the ongoing public fundraising rules more worthy of attention: can it accelerate implementation, and what changes will it bring to projects and ordinary investors?

1. TSV Is Not Related to You

TSV stands for Tokenized Securities Venue. The order issued by the SEC on September 17, 2026, provides a temporary exemption from the definition of "exchange" under the Securities Exchange Act of 1934 for qualifying venues, while also granting exemptions from the definition of "dealer" for specific liquidity providers, valid for five years. It allows authorized participants to trade tokenized U.S. National Market System stocks, or Tokenized NMS Stock, through automated market makers (AMM) and liquidity pools.

This indeed opens a door for trading platforms, but it does not grant a pass to all Crypto exchanges, nor to all RWA platforms. Even if you already have users, a trading system, and on-chain assets, the following thresholds will not disappear.

First, what assets are you trading? The core target of TSV is tokenized NMS stocks that meet the definition, not all assets labeled as RWA. Products like real estate shares or private credit cannot simply apply this exemption just because they are "real assets on-chain"; even if related to U.S. stocks, tokens issued by third parties that only provide synthetic exposure to stock prices are not included in the definition of Tokenized NMS Stock. Holders must receive the same rights as traditional stockholders, including dividends, voting rights, and residual asset rights upon liquidation. The ability to have token prices follow U.S. stocks and the ability to fully implement shareholder rights are two different capabilities. Platforms must also verify these rights and cannot rely solely on a claim of "asset-backed".

Second, having tokens does not mean you can list them whenever you want. If the stock is tokenized by a third party unrelated to the underlying issuer, the venue must notify the underlying issuer in writing beforehand and wait at least thirty calendar days after the issuer receives the notice; if the issuer raises objections within the specified period, the tokenized stock cannot be listed for trading at that venue. For platforms looking to quickly expand their offerings, this means that product design, rights verification, and communication with the underlying issuer must all be addressed, rather than simply selecting a popular asset and tokenizing it for immediate listing.

Third, existing trading systems may not be supported by this exemption. TSV must adopt AMM liquidity pools to provide trading for authorized participants and set access standards; relevant smart contracts must be public, auditable, and deployed on a public, permissionless distributed ledger. While public chains can be permissionless, trading entry points cannot be accessible to anyone with a wallet. Platforms must clarify the procedures for participant and wallet access approval, screening methods, and applicable sanctions compliance arrangements. Therefore, existing order book trading systems cannot directly replace the AMM model here, and an open pool that does not set participant access cannot simply be transplanted.

Fourth, U.S. entities are just the beginning; ongoing compliance is the subsequent task. TSV must belong to the U.S. person defined in the order; entities established under U.S. law are one such case, so overseas teams can explore meeting this condition through U.S. entities, but having an offshore entity does not automatically mean compliance. More importantly, platforms must adhere to applicable U.S. sanctions requirements, maintain trading and compliance records in the U.S., retain these records for three years during and after the exemption's validity period, and agree to inspections by SEC personnel at any time. If relevant entities or personnel are subject to statutory disqualifications, they must also meet the exception licensing conditions in the order to rely on the exemption. Registration procedures can be arranged, but the ability to maintain records, screening, and ongoing regulatory responses must be established in actual operations.

Fifth, being exempt from exchange registration does not mean exempt from daily compliance. At least thirty calendar days before starting operations, the platform must publish the required public notice on its website and notify the SEC in writing within one business day after publication, and must continue to update as required. Trading data for the last thirty days must be publicly disclosed in U.S. dollars in a machine-readable format, updated within ten minutes after each transaction; if the underlying stock is suspended on the primary exchange, the corresponding tokenized stock must also be suspended simultaneously. The venue cannot provide participants with credit to purchase such stocks or arrange for borrowing, pledging, or collateralizing securities and non-securities crypto assets within the venue.

If liquidity providers rely on accompanying dealer exemptions, their related securities business must be limited to trading in the specified TSV pool and conducted through their own accounts, without holding or custodizing client assets. A team that wishes to bundle trading, leverage, client assets, and market-making activities into this exemption must reassess its business arrangements.

Sixth, even if you cross the threshold, you cannot plan for unlimited expansion. The order sets two limits based on the existing market volatility control plans in the U.S.: the first limit allows a maximum of seventy-five trading codes, with a trading volume cap of 0.25% for each security; the second limit allows a maximum of two hundred fifty codes, with a volume cap of 2.5%. The ratio here compares the average daily trading shares of the corresponding tokenized stocks within the venue to the average daily trading shares of the underlying stocks over the past month, and the trading volume and code count associated with TSV must be combined. These are scale limits, not minimum capital thresholds, but they will constrain the business that the platform can support. Trying to bypass the limits by establishing several related platforms will not work.

Looking at these requirements together, the challenges are clear: teams need to simultaneously address securities rights, communication with underlying issuers, AMM and participant access, record-keeping and operations under U.S. regulation, and business arrangements within limited scale. Having an existing exchange, or even already working on RWA, does not equate to having these capabilities.

Based on an understanding of the actual preparedness of the industry, it can be judged that most overseas Chinese entrepreneurial teams currently find it difficult to directly fit their existing platforms into this framework; if they truly want to participate, they often need to adjust their asset structures, trading systems, and compliance operations. The difficulties arise from the distance between these specific conditions and existing businesses, not from the founders' Chinese identity. The notion that "TSV is not related to you" specifically targets those who expect a limited exemption to directly translate into business benefits.

However, not being able to use it directly does not mean one can ignore it. The policy signals from TSV may be more important than how many platforms it can directly benefit.

2. CLARITY Did Not Pass, SEC Took Real Action Instead

Just two days before this order was issued, on September 15, the U.S. Senate failed to pass a procedural vote to advance the CLARITY Act. SEC Chairman Paul Atkins subsequently mentioned in the statement introducing this exemption that Congress had failed to advance CLARITY and indicated that the SEC would continue to act using its existing statutory authority.

Understanding the blockage of the CLARITY Act as a halt to all Crypto regulatory reforms clearly does not explain the current action. Congress has its legislative process, and the SEC has the authority granted by existing laws; the former may be temporarily stalled, but that does not mean the latter must wait. The significance of TSV lies in the SEC turning this attitude into actual action.

Therefore, saying "let's wait until CLARITY passes" regarding other ongoing rules may not be a cautious approach; it could also be conflating two processes into one. Among them, the most noteworthy is the fundraising proposal that has already entered the public comment stage. It directly addresses how Crypto projects can issue and raise funds, and its impact on projects and ordinary participants is broader than a stock trading arrangement.

3. "Compliant ICO" Has a Pathway, Is Your Project Qualified?

RCA stands for Regulation Crypto Assets, which can be translated as the "Crypto Asset Regulatory Rules." This is a rule proposal put forward by the SEC in August 2026, currently still in the public comment phase, with the comment deadline set for October 20. It has not yet come into effect but has proposed two types of securities registration exemptions, attempting to provide a compliant pathway for Crypto projects to raise funds through Token issuance under certain conditions.

The need for such arrangements arises because whether a Token itself is a security and whether the fundraising surrounding it is subject to securities law are not the same question. For example, if a team sells Tokens while promising to develop a network and build products, and investors contribute funds in anticipation of the returns from these efforts, then even if the Token itself is not a security, the entire fundraising arrangement may still constitute an "investment contract." The two types of registration exemptions in RCA target arrangements that meet the definition: the underlying Token itself is not a security, and the contract does not involve other assets beyond that Token. Issuers relying on these exemptions for fundraising must still fulfill corresponding disclosure obligations and continue to bear anti-fraud responsibilities.

For the community, the most significant aspect of these two exemptions is that they both allow ordinary investors to participate, meaning investors who do not qualify as accredited investors under U.S. securities law. Consequently, projects can raise funds from the public by issuing Tokens, provided they meet the conditions, without limiting participation to institutions and high-net-worth investors. In this sense, RCA provides a conditional pathway for "compliant ICOs."

If this pathway can be implemented, users of the products will have the opportunity to provide funding for early project development while bearing investment risks; the teams receiving these funds must also disclose information to participants and continuously explain what they are doing. Projects that have the chance to receive funding from ordinary users must clarify the corresponding commitments and responsibilities.

The rules allowing public participation and your project's qualification to raise funds from the public are two different matters. The two types of exemptions have significant differences in terms of subjects, amounts, and ways of fulfilling obligations, and these differences will directly determine whether a project can utilize them and how much preparation is required for that.

Startup exemption can be translated as "Startup Exemption." According to the current proposal, issuers using this path can be entities, individuals, or teams composed of individuals or entities, without the requirement to establish a company first, nor are they subject to the conditions of U.S. registration, personnel, assets, and primary management location required for fundraising. Therefore, a project can still explore the applicability of the Startup exemption even without a U.S. company. Of course, if declaring as a team, each member must sign the declaration and certification as required and bear corresponding responsibilities.

The space for the subject is relatively broad, but the fundraising scale is subject to clearer constraints: this path allows public fundraising and sales to ordinary investors, and the current proposal does not set a personal investment cap, but a total of $5 million can only be raised within a maximum of four years. This limit is not recalculated annually, and issuers and their affiliates cannot repeatedly open new four-year cycles around the same or substantially similar tokens.

Moreover, when calculating this $5 million, it is not enough to look at how much cash has been received in the bank account. Transactions relying on this exemption must also value non-cash considerations according to the rules, and certain token distributions in development, testing, or network incentives may also be included. For projects that have arranged various token distribution methods, determining whether they are within the limit requires sorting through these arrangements together.

Before using the Startup exemption, issuers must submit Form NOR through the SEC's electronic filing system EDGAR, declaring reliance on this exemption, and provide the required information for free on the website at the time of submission or beforehand. It does not require obtaining qualification recognition for the offering memorandum like fundraising does, nor does it have the latter's financial statement requirements, but the disclosed project situation still needs to be revealed: including development plans, team and conflicts of interest, project commitments and progress, token distribution and economic mechanisms, as well as governance and risks.

These disclosures are also tied to subsequent performance obligations. In Form NOR, issuers need to certify their intention to complete the key management tasks promised to investors within four years, and thereafter must update information according to the rules, submitting a transition report no later than the end of the four-year period. Therefore, when the team begins fundraising, they must be able to explain what they commit to doing, who is responsible, how tokens will be distributed, and how they will report progress to participants. The white paper, statements on social media, and disclosure declarations must not contradict each other.

2. Fundraising: Is it enough to register a U.S. company?

If a project wishes to obtain larger-scale funding, it needs to further consider the Fundraising exemption, which is also known as "Fundraising Exemption." This path is internally divided into two tiers: Tier 1 allows up to $20 million within any twelve months, and Tier 2 allows up to $75 million. Projects can apply directly or first use the Startup exemption and then transition, but both paths must meet conditions separately, and related issuances must comply with the combined calculation rules, meaning the limits cannot simply be added together.

With the increase in limits, the requirements for the issuer's subject also significantly increase. Fundraising requires that the issuer must be an entity established under U.S. law and must simultaneously meet three substantive conditions: a majority of executives or directors must be U.S. citizens or residents, more than 50% of assets must be located in the U.S., and the business must be primarily managed in the U.S. These conditions apply to both Tier 1 and Tier 2, so merely registering a U.S. entity while keeping personnel, assets, and actual management elsewhere does not meet the requirements. For projects with existing entities in other jurisdictions, this means that what needs to be evaluated may be organizational and business arrangements, not just the registration process.

Even if the subject meets these conditions, it must also be checked whether the business type is within the allowed scope. Companies without specific business plans or purposes, or those in the development stage planning to merge or acquire unconfirmed companies, as well as specified investment companies, business development companies, etc., cannot issue based on this; in addition, both Startup and Fundraising are also subject to general applicable conditions and disqualification clauses.

After meeting the issuance qualifications, projects can raise funds from the public, which also includes ordinary investors. However, unlike Startup, which has no personal investment cap, both tiers of Fundraising require that the purchase amount for ordinary natural persons cannot exceed 10% of the higher value of their annual income or net worth; for non-natural persons that do not qualify as accredited investors, it is calculated based on 10% of the higher value of the income or net worth for the most recently completed fiscal year. Ordinary investors can participate, but this does not mean there are no limits on the participation amount, nor should this limit be understood as only Tier 2 needing to comply.

Before the formal sale, issuers must also submit Form 1-CRYPTO offering memorandum through EDGAR and obtain SEC qualification recognition. Although the rules allow for conditional pre-offering inquiries, known as testing the waters, to gauge market interest in the project, the inquiry of interest and the formal acceptance of investment funds are different stages, and investment funds cannot be accepted just because the documents have been submitted.

To complete such filings, both tiers require the disclosure of financial conditions and the provision of financial statements, usually involving the first two fiscal years; for those established for a shorter time, they provide according to the applicable shorter duration. One distinction between the two tiers is the audit: Tier 1 does not require mandatory audits, but any audit report obtained according to the prescribed standards must be submitted; Tier 2 requires an audit. Therefore, when choosing which tier to pursue, in addition to considering how much funding is needed, it is also necessary to consider whether existing financial data can support the corresponding requirements.

These tasks must continue after fundraising is completed. Both tiers require the submission of annual, semi-annual, and specified significant event reports, with annual reports generally due within 120 days after the end of the fiscal year, semi-annual reports within 90 days after the corresponding period ends, and designated significant events typically reported within four working days after they occur. Since obligations will extend beyond financing, projects need someone to continuously manage accounts, data, and disclosures, and cannot treat this as a one-time procedure completed only during fundraising.

3. Resale and Exit from Investment Contract Relationships

After fundraising, participants will naturally be concerned about how to resell the assets they hold. Investment contracts issued under both types of exemptions do not fall under the "restricted securities" of federal rules, and this exemption does not have a unified requirement for a lock-up period after purchase. However, specific contracts and other applicable rules may still impose restrictions, and whether trading can actually occur depends on the corresponding conditions, which does not guarantee that tokens will necessarily be listed on exchanges or obtain liquidity.

In addition to this resale after purchase, Fundraising also allows the original holder's sale to be included in the issuance, but with specific restrictions: in the initial issuance and in subsequent issuances recognized within one year after obtaining qualification, the original holder's sale portion cannot exceed 30% of the total price of that issuance. Therefore, this 30% restricts the original holder's sale share in that issuance, and it does not mean that ordinary investors can only sell 30% of their held tokens in all secondary market transactions. Sales by related holders included in such issuances have a separate twelve-month sub-limit, which is $6 million for Tier 1 and $22.5 million for Tier 2, and counts towards the corresponding total limit.

As for how to handle the relationship between tokens and investment contracts after the originally promised work is completed or stopped, RCA has designed a conditional safe harbor. After completing or permanently stopping all previously promised key management efforts, no new related commitments are made or intended, and after submitting a transition report and meeting other conditions, the underlying assets can be detached from the investment contract relationship based on this safe harbor. The previously mentioned Startup must submit a transition report no later than four years, but this does not mean that once the deadline arrives, these conditions are automatically met.

Optimistic Judgment: Implementation in Three to Six Months

Starting from September 2026, in the best-case scenario, RCA could be implemented within the next three to six months; even with slight delays, the probability of implementation before the end of the first half of 2027 remains relatively high. Here, implementation refers to the rules coming into effect and the relevant fundraising channels becoming available.

This prediction is based on policy progress, as the SEC has not yet published such a timeline. However, the formal proposal has entered the public comment phase, and this transaction exemption indicates that the SEC is still willing to act after being blocked in Congress. Together, these factors provide a basis for optimism about recent progress. Of course, after the comment collection ends, the final rules still need to go through adoption, effectiveness, and corresponding implementation arrangements, and it remains uncertain how long this will take.

Waiting for the Rules to Take Effect, Then Temporarily Seeking Help?

From regular industry contacts and observations, the Chinese Crypto community's attention to and preparation for RCA is far from sufficient. Many projects have a limited understanding of it, and very few have made adequate preparations for related fundraising.

Choosing Startup, the team needs to clarify existing commitments, token distribution, and responsibilities, confirming they can publicly explain and continuously update; choosing Fundraising requires considering U.S. entity, personnel, assets, and management conditions, as well as historical accounts, audits, and ongoing reporting capabilities. These preparations involve real business arrangements and daily work. Lawyers can help understand the rules and complete filings, but they cannot create real management arrangements and complete accounts out of thin air for a project. Leaving all issues until "later to find a lawyer for compliance" is merely pushing today's necessary work to tomorrow.

For investors and ordinary token holders, they cannot simply hand over the responsibility of judging a project to the SEC just because they hear the words "compliant ICO." Which exemption they plan to rely on, what commitments have been publicly made, how tokens will be distributed, how the raised funds will be used, and where progress can be seen afterward—all these relate to the actual risks participants undertake. Even if a project obtains a certain exemption or completes a filing, it does not mean the SEC guarantees its quality and investment returns. Regulation provides rules for conditional participation, and investors still need to judge what they are actually paying for.

How RCA will ultimately be adopted still depends on subsequent progress, but researching conditions, organizing materials, and identifying gaps can start now. If the previous time judgment holds roughly true, the time left for preparation may only be a few months.

If regulation remains closed for a long time, projects can criticize the regulation. But if the path has already opened and they have not even seriously read the conditions, they may miss a historic opportunity.

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