Nasdaq Wins SEC Approval for Tokenized Stock Settlement

SEC approves Nasdaq tokenized stock settlement pilot, allowing Russell 1000 stocks and ETFs to trade with blockchain-based clearing under DTC program.

The U.S. Securities and Exchange Commission approved a rule change for Nasdaq. Approval allows tokenised stock settlement during a pilot program. The change allows the settlement of some securities to be carried out using blockchain technology. This step demonstrates that there is careful testing of new systems in U.S. markets.

SEC Allows Tokenized Settlement in Nasdaq Pilot Program

With the approval, Nasdaq is permitted to participate in a tokenization pilot by the Depository Trust Company. The Depository Trust Company operates within the DTCC clearing system. The pilot will examine how tokenized shares settle within the existing regulated market system.

Tokenized settlement refers to shares being recorded by means of digital tokens. These tokens pass through a blockchain-based system. However, trades will still be conducted under current rules of the market. The SEC filing stated that tokenized shares have to provide the same rights as normal shares.

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Participants in the pilot may opt for tokenized settlement (in the form of an order flag). This flag indicates the system to settle the trade in tokenized form. Both tokenized and normal shares will trade against one order book. They will also retain the same priority of price.

Nasdaq filed this rule change in September for the first time. The proposal requested permission to enable listed stocks and exchange-traded products to trade in tokenized form. The SEC considered the request before approving the pilot program.

The pilot will be focusing on large and active stocks first. These include companies of the Russell 1000 Index. Some of the exchange-traded funds will also be included. In the filing, ETFs tracking the S&P 500 and Nasdaq 100 may join the test.

Tokenized Shares to Trade With Same Rights as Normal Stocks

Tokenized shares will be settled via the DTC system. This means that blockchain will work in conjunction with existing clearing systems. Because of this, the market will remain regulated in the process of testing new technology. The goal is faster and safer settlement.

The filing stated that tokenized and normal shares must have the same legal status. Shareholders will retain the same voting and ownership rights. Therefore, the investors will not lose protection when using tokenized settlement.

On the other hand, the company may help in providing tokenized shares to international investors. This partnership may assist the pilot in targeting more markets.

In addition, market groups believe that tokenization can be beneficial in stock trading systems. Blockchain can be used to decrease the settlement time and the cost. Due to this, exchanges are experimenting with distributed ledger technology in the real markets.

Intercontinental Exchange also announced such a project earlier this year. The company is developing a platform for trading in tokenized securities. It is still waiting for regulatory approval. This indicates that there are many exchanges that wish to modernize the market infrastructure.

Lastly, the Nasdaq pilot is limited, but important. If the test works, tokenized stocks may become commonplace in the future. The program will demonstrate how blockchain can fit inside regulated equity markets.

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