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Nasdaq’s proposal to trade some stocks in tokenized form received formal approval from the U.S. Securities and Exchange Commission on Wednesday, though the structure would still keep trading and settlement within traditional market rails.
Covering some securities already listed on the national securities exchange, the changes would begin with Russell 1000 stocks and certain index ETFs, with tokenized shares required to match their traditional counterparts in terms of rights, symbols, and trading priority.
Tokenization is the process of turning a traditional asset, such as a stock or ETF, into a digital asset on a blockchain, tied to the original security that carries the same rights.
Participating brokers can mark an order for tokenized settlement when they enter it, and Nasdaq would pass that instruction to the Depository Trust Company after the trade is executed, the SEC said.
If DTC cannot carry out the request because the broker or security is not eligible, or because the blockchain or wallet is not compatible, the trade will settle in traditional, non-tokenized form.
Decrypt has reached out to Nasdaq for comment on when tokenized trading could begin and what still needs to be in place before launch.
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Nasdaq filed its proposal in September last year, comparing tokenization to earlier market innovations like decimalization and electronification.
At the time, the exchange argued that existing regulatory structures "mandated by Congress" already apply to tokenized securities regardless of their blockchain properties.
The SEC acknowledged in its approval letter that during the review process, several commenters raised questions about how Nasdaq’s tokenization model would work.
SIFMA, the main trade group for the U.S. securities industry, and Cboe Global Markets, one of the largest U.S. exchange operators, focused on the lack of clarity around DTC’s role.
The Digital Chamber, a blockchain policy and advocacy group, argued the SEC should avoid favoring specific firms or technologies and give issuers more say.
Better Markets, a nonprofit focused on financial reform, opposed the proposal due to potential price gaps, surveillance concerns, and legal uncertainty.
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By late November, major exchanges and market groups urged the SEC to avoid broad exemptions on tokenized securities, warning that looser relief could create uneven rules and new risks around tokenized stocks.
