Nasdaq Receives SEC Approval to Launch Tokenized Stock Trading Pilot Program
The securities exchange platform Nasdaq has secured regulatory approval from authorities to introduce tokenized stock offerings that will operate in parallel with conventional securities on its trading platform.
On Wednesday, the United States Securities and Exchange Commission granted approval to Nasdaq's experimental program proposal that would enable the trading of blockchain-based tokenized versions of stocks and additional securities instruments.
The exchange operator initially submitted its proposal documentation in September, requesting authorization to facilitate trades of high-volume stocks in both their conventional form and their tokenized equivalents on a single exchange platform through a pilot partnership with the Depository Trust Company, a critical market infrastructure organization.
Under the approved framework, the tokenized stock variants would operate alongside their conventional equivalents within the same order book structure, maintaining identical pricing, sharing the same ticker symbol and identification number, and preserving identical shareholder rights.
The concept of tokenization, which involves representing an asset through blockchain technology, has experienced significant growth recently as leading financial institutions have explored the technology's potential to reduce settlement timeframes and explore extended trading hour possibilities.
Eligible participants can trade top tokenized stocks
The SEC's approval documentation specifies that participation in the tokenization pilot will be restricted to "eligible participants" who will have the discretion to select between trading traditional securities or their tokenized equivalents.
The selection of securities available in tokenized format is restricted to those included in the Russell 1000 Index, a benchmark that monitors the 1,000 largest publicly-traded corporations in the United States measured by market capitalization, in addition to exchange-traded funds that track both the S&P 500 and Nasdaq-100 indices.
According to the SEC, Nasdaq's proposal attracted feedback expressing concerns regarding market surveillance capabilities and the potential for price divergence, which the agency indicated were subsequently addressed through an amendment providing additional clarifying details.
The regulatory approval follows Nasdaq's announcement from earlier in the month regarding its partnership with cryptocurrency exchange platform Kraken, which will enable Kraken's client base to transfer securities from existing infrastructure to tokenized alternatives usable on blockchain networks and permit publicly-traded companies to create and distribute their own tokenized share offerings.
The Intercontinental Exchange, which owns the New York Stock Exchange, has similarly turned its attention toward tokenization initiatives, making an investment in cryptocurrency exchange OKX during early March with plans to introduce tokenized stock products.
On Tuesday, SEC Chair Paul Atkins stated that the regulatory agency would be soliciting public commentary in the near future on various crypto-related exemptions, including a "fundraising exemption" designed to permit certain securities involving cryptocurrency to raise a specified amount during any 12-month period while receiving exemption from registration requirements under securities regulations.