Nasdaq Wins SEC Approval to Trade Tokenized Securities in Pilot Program

Nasdaq’s proposal to sell some stocks in a formal format was accepted official approval from the US Securities and Exchange Commission on Wednesday, even if the system would continue to trade and be based on traditional markets.

Covering some of the secrets already listed on national security exchanges, the changes will begin with the Russell 1000 stocks and other ETFs, which have shares that are required to match their traditional counterparts in terms of rights, indicators, and trading.

A symbol is a way to convert traditional assets, such as stocks or ETFs, into digital assets on the blockchain, tied to the original security that has the same rights.

Participating businesses can order the issuance of the tokens upon entry, and Nasdaq will provide the instructions to the Depository Trust Company after trading, the SEC said.

If the DTC cannot process the request because the broker or security is not suitable, or because the blockchain or wallet is not compatible, the transaction will be settled in a traditional, non-token format.

Decrypt has reached out to Nasdaq to clarify when tokenized trading can begin and what must be in place before it can be implemented.

Same rails, new coating

Nasdaq listed its own an idea in September of last year, comparing tokenization with market innovations such as decimalization and electronification.

At the time, the exchange said that the existing legislation “mandated by Congress” already applies to tokenized securities regardless of their blockchain properties.

The SEC acknowledged in its official letter that during the review, several comments he asked questions about how the Nasdaq index works.

SIFMA, the largest trading group in the US Securities Markets, and Cboe Global Markets, one of the largest US companies that operate exchanges, looked at the lack of clarity in DTC services.

The Digital Chamber, a blockchain and advocacy group, said the SEC should avoid favoring certain companies or technologies and give providers more say.

Better Markets, a non-profit organization focused on financial reform, opposed the proposal because of potential price differences, audit difficulties, and legal uncertainty.

By late November, major exchanges and market groups had urged the SEC to avoid broad exemptions for fixed-income securities, warning that liberal relief can create new risk-averse regulations around token stocks.

The SEC’s approval of Nasdaq comes as regulators and exchanges take a big hit made by affiliates the proximity of tokenization, although the limits established in Nasdaq indicate that, for now, this can be done through the existing system instead of a separate place on the chain.

Earlier this year, SEC officials said that tokenized assets are safety first, technology second, affirming its position that putting security on the blockchain does not change its legal status under federal law.

Opening the door

The approval is needed because it “starts making the written currency possible, not the digital one,” Steven Wu, chief operating officer of Clearpool’s tokenization engine, said. Decrypt.

“The SEC is opening the door for the stock to continue trading and capitalize,” Wu said. “The real sign is where this is going. The market structure has already gone from T + 3 to T + 1, but the end is T + 0 and the markets are continuous, 24/7.”

The changes bring “flexibility to the tools without disrupting the way markets work today,” he said, pointing to long-term changes to faster stabilization and eventually markets that can operate closer to real-time.

“Tokenized news points to a model where price discovery is no longer driven by market timing,” he said.

For institutional players, the approval by the SEC “makes for a lot of flexibility in the financial sector,” Samar Sen, head of global markets at energy services firm Talos, said. Decrypt.

“Organizations will closely monitor how security information works after the sale, especially where the settlement still goes through the clearing process, and whether the investment continues to grow across the board,” he said.