SEC Approves Tokenization of Securities on Nasdaq

The SEC says yes to Nasdaq. The American financial authority now allows the trading of tokenized shares on the electronic exchange, marking a first that officially blends blockchain with Wall Street.

The approval was granted last Wednesday. Shares of the Russell 1000 can now be tokenized, as well as ETFs on the S&P 500 and other major indices. These blockchain versions retain the same stock symbols as traditional shares. Same CUSIP number, same shareholder rights. No difference on paper, but the technology changes everything under the hood. The system operates via a pilot program managed by the Depository Trust Company, which already handles post-trade settlement for most U.S. exchanges.

Investor Rights Preserved

Protections remain intact. Voting at general meetings, dividends, asset claims – nothing changes for the average investor. The DTC tokenizes the securities on demand. Traders can opt for tokenized settlement with a simple instruction during their order. If tokenization fails, settlement is automatically done the old-fashioned way.

Nasdaq maintains its central trading infrastructure. No major technical changes for the exchange. Tokenized and normal shares are traded on the same order book with the same execution priority. Surveillance systems use the same data to monitor both forms of securities, accessible to Nasdaq and FINRA.

And settlement continues on T+1. Tokenized transactions follow the same timelines as traditional trades, so as not to disrupt market habits.

Partnership with Kraken

In early March, Nasdaq partnered with Payward, the parent company of Kraken. Their xStocks platform enables trading of tokenized shares between traditional markets and blockchain networks. Jesse Powell, co-founder of Kraken, sees this as a huge opportunity to create synergies between traditional finance and crypto.

Tests of xStocks show promising results. According to a Payward report dated March 10, settlement times are significantly reduced and transaction transparency improves. No precise figures yet, but early feedback seems positive.

Nasdaq will issue alerts to identify securities eligible for tokenization. Members will receive at least 30 days’ notice before the launch of any new tokenized instrument. This is to avoid surprising traders. Analysts have linked this to The SEC and CFTC say in a changing context.

The SEC bases its approval on section 6(b)(5) of the Securities Exchange Act. The rules must prevent fraud and promote fair trading principles. The DTC pilot project provides a controlled framework for blockchain trading without introducing new market risks, according to the authority.

Supervision and Prospects

Nasdaq has created a task force dedicated to tokenized operations. Mark Peterson, director of market operations, leads the team responsible for ensuring regulatory compliance. Any future rule changes will require new SEC approval.

Adena Friedman, Nasdaq’s CEO, has big ambitions: “This initiative could transform how securities are traded globally.” She stated this on March 15 during a press conference, emphasizing the importance of innovation to maintain Nasdaq’s competitiveness.

The decision comes after several months of intensive consultations. In February, meetings were held to discuss the implications of tokenization on market volatility. Blockchain experts and Nasdaq representatives worked on transaction security issues.

Other tokenization methods are under study at Nasdaq. They would require separate filings with the SEC. The current approval only covers the DTC pilot program for now. This development aligns with DeFi groups drop their fight, highlighting broader trends.

The results of this program could influence other global exchanges. Europe and Asia are beginning to take a serious interest in asset tokenization. Nasdaq stands out as a pioneer with this SEC approval.