SEC Approves Nasdaq's Tokenized Securities Trading Proposal

Introduction

The SEC has approved Nasdaq Stock Market LLC's (“Nasdaq” or the “Exchange”) proposed rule change permitting the trading of securities on the Exchange in tokenized form.¹ The new rule is a significant step forward in the broader effort to modernize U.S. market infrastructure through blockchain technology and builds on the SEC staff’s earlier grant of no-action relief for the DTC Pilot to tokenize securities entitlements.² We first provide a brief background on the DTC Pilot before discussing Nasdaq’s new rule and how it will operate.

Background: The DTC Pilot

In December 2025, the staff of the SEC’s Division of Trading and Markets granted DTC no-action relief to pilot a three-year tokenization program for certain highly liquid securities custodied through DTC, subject to certain technology, observability, and reporting requirements. (We have previously covered this development in our OnPoint here.)

Under the DTC Pilot, certain DTC participants may elect to have their “security entitlements” to DTC-held securities recorded using distributed ledger technology (rather than “book entry”) to create tokenized entitlements held in blockchain wallets registered with DTC. Participants with DTC-registered wallets will be able to transfer tokenized entitlements to each other, without requiring DTC to effectuate such transfers, and at any time, including outside DTC’s hours of operation.

Only entitlements to certain specified highly liquid securities are eligible to be tokenized, namely securities in the Russell 1000 Index at program launch, U.S. Treasury securities, and ETFs tracking major indices such as the S&P 500 and Nasdaq-100. The DTC Pilot does not prescribe a particular blockchain, but DTC will establish objective, neutral, and publicly available technology standards for blockchains and tokenization protocols, with compliance features including transaction reversibility and transfer controls that prevent tokens from moving to non-registered wallets.

Nasdaq's Tokenization Rule Change

The newly approved rule change enables Nasdaq market participants that are eligible to participate in the DTC Pilot (“DTC Eligible Participants”) to trade tokenized versions of certain equity securities and exchange traded products on the Exchange that are eligible for tokenization as part of the DTC Pilot (“DTC Eligible Securities”). Under the proposed rule, a share of a tokenized DTC Eligible Security would be tradable in the Nasdaq Market Center together with, on the same order book as, and with the same execution priority as, its traditional counterpart, but only if the tokenized security (i) is fungible with, (ii) shares the same CUSIP number and trading symbol with, and (iii) affords its shareholders the same rights and privileges as does a share of an equivalent class of the traditional security.

DTC Eligible Securities that would be eligible to trade in tokenized form on the Exchange are:

1. Securities in the Russell 1000 Index at the time Nasdaq tokenization service launches (as well as any additions to the index thereafter and notwithstanding the subsequent removal of any securities from the index); and
2. ETFs that track major indices, such as the S&P 500 index and Nasdaq-100 index.³

Under the new rule, a DTC Eligible Participant that seeks to have its order in a DTC Eligible Security clear and settle in tokenized form must note its preference upon order entry in the Nasdaq System by selecting a special tokenization “flag”. The DTC Eligible Participant may also be required to include other information or instructions, in accordance with DTC’s rules and DTC Pilot, such as a selected blockchain and a digital wallet address for a tokenized DTC Eligible Security. Trading DTC Eligible Securities in tokenized form is permissive rather than mandatory. 

When a DTC Eligible Participant enters an order for a DTC Eligible Security with the tokenization flag, Nasdaq, as an agent or designee of such DTC Eligible Participant, will communicate this tokenization preference to DTC on a post-trade basis. DTC will then carry out the DTC Eligible Participant’s flagged tokenization preference. However, if at the time of order entry, a market participant is not a DTC Eligible Participant, the security to be tokenized is not a DTC Eligible Security, or there are other reasons why DTC cannot execute a tokenization preference or instruction, DTC would settle the executed order in traditional (i.e., non-tokenized) form.

As the preceding paragraph suggests, the tokenization feature of the new rule will largely be operationalized by DTC. Nasdaq’s trading procedures and behavior will remain the same regardless of whether a DTC Eligible Participant opts to trade tokenized or traditional shares of a DTC Eligible Security. In addition, market data feeds will not differentiate between tokenized and traditional shares and market surveillance of tokenized and traditional securities would rely upon the same underlying data, which will continue to be accessible by Nasdaq and the Financial Industry Regulatory Authority.

The new rule will become effective once the required infrastructure and post-trade settlement services have been established by DTC. Nasdaq will alert its members in an Equity Trader Alert at least 30 calendar days before the Exchange begins trading DTC Eligible Securities in tokenized form.

Takeaways

Nasdaq’s new rule is the latest step in the SEC’s journey towards the tokenization of U.S. securities markets and their underlying infrastructure.⁴ At the time the DTC Pilot received no-action relief, we had predicted that such no-action relief would likely improve Nasdaq’s tokenization proposal’s chances of approval — that has now come to pass. We had also noted that while the DTC Pilot offered a familiar route to tokenization by preserving existing market clearing and settlement systems, some in the crypto industry might view the no-action letter and the pilot program as limiting innovation and entrenching incumbent infrastructure. Nasdaq’s new rule will likely not temper those viewpoints— for example, crypto market participants will note that the new rule facilitates settlement on the existing T+1 model, thereby offering no real benefit in terms of settlement speed.

These viewpoints notwithstanding, Nasdaq’s new rule and the DTC Pilot are the latest but certainly not the last steps in tokenization. At least one other exchange has publicly noted its intention to offer a tokenization trading platform that would, if approved, “enable tokenized trading experiences, including 24/7 operations, instant settlement, orders sized in dollar amounts, and stablecoin-based funding.”⁵ Nasdaq has also made clear “that its tokenization proposal is not exclusive but rather is one of multiple forms that currently exist or may come to exist.”⁶ Nasdaq has also stated that other forms of tokenization and clearance and settlement are under discussion. In short, the tokenization of U.S. security markets is well under way and will continue to evolve.