SEC Greenlights DTC’s Tokenization Pilot Program

Introduction

The “tokenization” of securities, i.e., the process of issuing or representing the ownership of traditional securities on a blockchain rather than through “book entry,” aims to enhance operational and financial efficiencies for market participants. By converting traditional securities into blockchain-based “tokens,” some market participants anticipate benefits such as increased mobility and transferability (potentially reducing settlement times, expanding trading hours and increasing the ability to post tokens as collateral) and programmability (potentially reducing intermediation costs and automating compliance functions and streamlining proxy voting through smart contracts), among other potential benefits.

On December 11, 2025, the staff of the SEC’s Division of Trading and Markets (“Staff”) granted DTC no-action relief to launch the pilot version of a securities tokenization program.¹ Specifically, the Staff will not recommend enforcement action under various provisions of the Securities Exchange Act of 1934 in relation to DTC’s operation of the tokenization program for three years from the program’s launch which is expected to occur in the second half of 2026.

DTC’s Tokenization Pilot Program

DTC is an SEC-registered clearing agency that functions as the only central securities depository in the U.S. securities markets and in which many broker-dealers and other financial institutions participate (“DTC Participants” or “Participants”). DTC’s primary services include custodying a range of traditional securities, facilitating the transfer and recordation of book-entry securities, and settling securities transactions. These core services are available to DTC Participants, who, in turn, may provide custodial or other services to their customers. A DTC Participant’s securities custodied by DTC are typically registered in the name of Cede & Co., DTC’s nominee. DTC records each Participant’s entitlement to the securities in an account on its centralized ledger system (an “Entitlement”).

Under the terms of the no-action letter, certain approved DTC Participants² can elect to have their Entitlements to DTC-held securities recorded using distributed ledger technology. Only Entitlements to certain specified highly liquid securities are eligible to be tokenized in the pilot program. These are:

• securities in the Russell 1000 Index at program launch (including subsequent additions);
• U.S. Treasury securities (i.e., bills, bonds, and notes); and
• ETFs tracking major indices (e.g., S&P 500, Nasdaq-100).

To participate in the tokenization pilot program, a DTC Participant must first register with DTC one or more addresses on an approved blockchain (each, a “Registered Wallet”) to hold tokens corresponding to the tokenized Entitlements. Registered Wallets may be created for DTC Participant proprietary positions or for the benefit of their customers.³ Any DTC Participant with a Registered Wallet can instruct DTC to tokenize a securities Entitlement. Upon accepting a tokenization instruction, DTC will debit the securities from the Participant’s account and credit them to a “Digital Omnibus Account,” an account on DTC’s centralized ledger that reflects the sum of all tokenized Entitlements held in all Registered Wallets. DTC will then use proprietary software to mint and deliver to the Participant’s Registered Wallet a token representing the Participant’s Entitlement to the securities. Through this process, DTC Participants will convert an Entitlement recorded in “book entry” form (i.e., an Entitlement recorded via a credit to the Participant’s account) into a tokenized Entitlement (i.e., a security entitlement recorded using tokens on a distributed ledger).

Importantly, the pilot program seeks to tokenize a DTC Participant’s Entitlements to securities, not the securities themselves or a “wrapped” version of the securities. Registered ownership of the underlying securities will at all times remain the same: in the name of Cede & Co. as DTC’s nominee.

Any DTC Participant will be able to transfer a tokenized Entitlement directly to the Registered Wallet of another Participant without having to instruct DTC to effectuate the transfer. Further, DTC Participants may, through contractual arrangements, enable their customers to transfer tokenized Entitlements between the Registered Wallets of Participants without having to send transfer instructions to such Participants. DTC Participants and their customers will be able to transfer such tokens at any time, rather than only during DTC’s hours of operation, and will be able to use smart contracts⁴ to optimize their allocation of securities across various securities financing transactions and collateralization arrangements. Tokenized Entitlements may be transferred to DTC Participants not participating in the program by issuing a de-tokenization instruction, then a transfer instruction to DTC on the off-chain record of ownership.⁵

The pilot program will not prescribe a particular blockchain on which Registered Wallets must be maintained or a particular tokenization protocol, but DTC will prescribe objective, neutral, and publicly available technology standards for blockchains and tokenization protocols. A list of public and private distributed ledgers that meet those standards will be provided to DTC Participants. Tokenization protocols will have to demonstrate “compliance aware” features, such as “distribution control” which will prevent tokens from being transferred to any address other than a Registered Wallet. DTC will track all token transfers from one Registered Wallet to another through LedgerScan, an off-chain software system that resides in a public cloud. LedgerScan’s record will constitute DTC’s official books and records for purposes of recording tokenized Entitlements. Another key compliance feature will be transaction reversibility, which will enable DTC to take actions without the private keys to Registered Wallets to resolve errors, lost tokens, malfeasance, and administer corporate actions.⁶

Under the no-action letter, DTC must provide quarterly reports to the Staff, including the identities of the DTC Participants participating in the pilot program at the end of each quarter, the total shares and value tokenized, average daily volume of transfers, number of Registered Wallets, and names of blockchains used.

Towards Total Tokenization

The DTC no-action letter follows a number of favorable pronouncements on the tokenization of traditional securities by SEC Chair Paul Atkins⁷ and SEC Commissioner Hester Peirce.⁸ Chair Atkins has also specifically identified the tokenization of traditional securities as a key element of the SEC’s “Project Crypto” — a comprehensive initiative to modernize the U.S. regulatory framework for digital assets and position the United States as the leader in global crypto markets.⁹

The no-action letter may also support other ongoing tokenization efforts — in particular, Nasdaq’s recent proposal to enable the trading of securities on its exchange in tokenized form.¹⁰ That proposal contemplates that Nasdaq will communicate an exchange participant’s instruction to tokenize its securities to DTC, which will then implement the instruction and clear and settle trades in tokenized form. While that Nasdaq proposal is still under review by the SEC’s Division of Trading and Markets, the no-action relief to DTC may improve the proposal’s chances of approval.

The DTC pilot program offers a route to tokenization in a familiar setting, preserving existing market clearing systems. The no-action letter confines tokenization activity to regulated intermediaries, emphasizes strong compliance controls, and seeks to avoid disruption to existing clearing and settlement infrastructure. However, some in the crypto industry may view the no-action letter and the pilot program as limiting innovation and entrenching incumbent infrastructure, with limited integration or support of decentralized finance systems, limited portability beyond DTC-registered wallets, and DTC’s continued centralized oversight. These criticisms notwithstanding, it is clear that efforts to tokenize the traditional securities market and market infrastructure are well underway and will likely continue to benefit from a relatively favorable regulatory environment.