The U.S. Securities and Exchange Commission (SEC) has approved Nasdaq’s rule change that allows certain securities to be tokenized and traded. This step is considered an important development in terms of the integration of blockchain technology into the traditional stock exchange infrastructure.
A new era in tokenized securities
Within the scope of the regulation approved by the SEC, stocks in the Russell 1000 Index and exchange-traded funds that track major indices such as the S&P 500 will be tokenized and traded on the Nasdaq platform. Tokenized securities will be fully interchangeable with original shares and will carry the same codes, symbols and shareholder rights. Investors will retain standard protections and rights in tokenized assets, such as voting, receiving dividends, and having rights over the company’s residual assets.
Infrastructure and control mechanism
The system will be operated as a pilot program through the Depository Trust Company (DTC), which carries out the clearing and tokenization transactions of securities. Market participants can choose tokenized swaps with a special instruction at order entry. Transactions that do not meet the specified criteria will be concluded in the current traditional way. Nasdaq states that tokenized and traditional shares will be recorded in the same order book, with no differences in pricing and priority. There will be no change in the existing trading infrastructure, order types, session applications and data flow.
Regulation, surveillance and notification processes
Custody of tokenized securities will be tracked by Nasdaq and the Financial Industry Regulatory Authority of America (FINRA) with the same data set, in both traditional and new forms. The exchange will notify its members in advance which securities will be traded as tokens and will make an announcement at least thirty days before launching a new token vehicle. The clearing process will continue in T+1 format in accordance with current market standards.
In its approval decision, the SEC stated that the regulation complies with legal principles aimed at protecting investors and ensuring fair, orderly markets. The Commission emphasized that both types of securities should be exactly the same in terms of rights and privileges. Thus, it is planned to prevent value differentiation and protection gaps.
Through the pilot program, DTC allows blockchain-based asset trading to be tested under controlled conditions. The practice will be carried out in a regulated environment without increasing market risk.
Additionally, Nasdaq recently launched a collaboration with Payward, the parent company of digital asset exchange Kraken. With this collaboration, trading of tokenized shares between traditional market assets and blockchain networks will be opened through Payward’s xStocks platform.
Nasdaq announced that different tokenization methods may also be on the agenda, but such applications will be submitted to the SEC in separate applications.
SEC stated that the regulation meets all the necessary conditions in terms of investor protection and market fairness.
