- Nasdaq tokenized stocks have been approved by the SEC and will be treated as having the same rights as traditional securities.
- The system enables brokers to select tokenized settlement while retaining their current infrastructure.
- Following amendments from Nasdaq, the SEC resolved issues related to pricing and surveillance.
The United States Securities and Exchange Commission has formally approved Nasdaq’s proposal to launch tokenized securities on its current trading platform as a structurally significant step towards representing securities with blockchain solutions in regulated markets.
The SEC states that the framework is meant to align the tokenised shares with their traditional equivalents and, therefore, investor rights, trading symbols, and order priority will not be affected.
Nasdaq tokenized securities to reflect conventional securities
With the approved structure, Nasdaq tokenized stocks will initially comprise securities in the Russell 1000 index and in selected exchange-traded funds. Such tokenized instruments should mimic the nature of their real counterparts, such as the same ownership rights and trading identifiers.
According to the SEC, this requirement aims to avoid the gap between token and non-tokenized versions of the same asset. The concept of tokenization, as presented in the proposal, is the process of digitizing traditional financial assets such as stocks or ETFs using a blockchain. These digital securities are connected to the underlying securities and designed to bear the same rights.
In its previous filing, Nasdaq stated that current regulatory frameworks enacted by Congress would remain relevant to these tokenized instruments, regardless of the underlying technology used to represent them.
The approved system allows participating brokers to designate trades for tokenized settlement at the point of order entry. After the trade is executed, Nasdaq would send the tokenized settlement instruction to the Depository Trust & Clearing Corporation.
However, this will ensure that post-trade settlement continues to occur within the existing infrastructure, rather than a complete transition to a blockchain-based infrastructure.
SEC Review Contests Market structure issues
During the review, several market participants and industry organizations commented on Nasdaq tokenized stocks, focusing on surveillance mechanisms and price stability. The SEC also indicated that commentators had raised concerns about the potential for divergent pricing between tokenized and traditional securities and about how market supervision would be conducted under the new system.
The regulator claimed that these issues were resolved through amendments submitted by Nasdaq, which provided further detail on operational processes and controls.
Consequently, the SEC found that the revised proposal was subject to regulatory approval requirements. Meanwhile, other feedback highlighted uncertainties regarding the Depository Trust & Clearing Corporation’s role in the tokenization model. SIFMA and Cboe Global Markets, both industry participants, underlined the need for clarity on how DTC would process settlement instructions for tokenized trades.
Nasdaq Tokenized Stocks Develop in Line with the Industry
The acceptance of tokenized stocks on Nasdaq is aligned with contemporary trends among other market participants. Earlier in the month, Nasdaq announced plans to collaborate with crypto exchange Kraken to enable clients to transition securities from traditional systems into tokenized formats usable on blockchain networks. The initiative also includes provisions for public companies to create and issue tokenized shares.
Separately, Intercontinental Exchange, the parent company of the New York Stock Exchange, has also moved toward tokenized markets. Early this March, the company invested in crypto exchange OKX as part of its efforts to build tokenized stock offerings. Such activities suggest that several exchange operators are considering similar strategies of incorporating blockchain-based images of securities in regulated environments.
Nevertheless, SEC Chair Paul Atkins stated that the agency plans to seek public comment on a range of crypto-related exemptions. Among the proposals under consideration is a fundraising exemption that would allow certain crypto-linked securities to raise a specified amount within 12 months without registering under existing securities laws.
