The U.S. Securities and Exchange Commission (SEC) on Wednesday approved a proposal by Nasdaq to allow select stocks and exchange-traded funds (ETFs) to be traded in a tokenized form, marking a significant step toward integrating blockchain technology into traditional American equity markets. This move, detailed in SEC Release No. 34-105047, opens the door for a new way to settle trades, potentially increasing efficiency and accessibility within the financial system. The approval centers around an “opt-in” system, meaning investors and market participants will have the choice to utilize the new technology.
The core of the change involves the introduction of a “tokenization flag” during the order entry process. When selected, this flag signals a preference for blockchain settlement through the Depository Trust Company (DTC), which is currently running a pilot program authorized by a Commission No Action Letter dated December 11, 2025. This doesn’t mean a radical overhaul of the existing system. tokenized shares will trade alongside traditional shares on the same order book, at the same price, and with the same rights. Investors will continue to have the same protections, voting rights, and dividend entitlements they currently enjoy.
What Does Tokenization Mean for Investors?
Tokenization, refers to the process of representing ownership of an asset – in this case, stocks and ETFs like those tracking the Russell 1000, S&P 500, and Nasdaq 100 – on a blockchain. Instead of traditional book-entry systems, trades can be settled using blockchain technology, potentially leading to faster and more transparent transactions. The SEC’s approval specifically allows for the tokenization of Russell 1000 stocks, as well as ETFs tracking major indexes. Crucially, the SEC has affirmed that these tokenized shares remain fully fungible with their traditional counterparts, sharing the same ticker symbols and CUSIP numbers.
The Depository Trust Company (DTC) will play a central role in this new framework, handling the clearing and settlement of these tokenized trades. Nasdaq originally filed its proposal with the SEC in September 2025, and subsequently revised it with Amendment No. 2 on January 30, 2026, before receiving the green light this week. The SEC emphasized that market surveillance, data reporting, and settlement timelines will remain consistent with current standards, ensuring investor protection isn’t compromised.
A Growing Trend in Financial Markets
Nasdaq isn’t alone in exploring the potential of blockchain technology. The move comes as tokenization of traditional assets gains momentum in the digital asset space, offering the promise of near-instant, 24/7 trading. Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE), has also entered the arena, investing in crypto exchange OKX with plans to launch tokenized stocks and crypto futures. Nasdaq itself has been actively developing a broader framework to allow publicly listed companies to issue blockchain-based versions of their shares and has partnered with crypto exchange Kraken to distribute these tokenized stocks globally.
The interest from major exchanges reflects a broader recognition of the potential benefits of blockchain technology. As noted in a recent report, Nasdaq and the NYSE are increasingly focused on bringing the $126 trillion equity market onto the blockchain, driven by the potential for increased efficiency, transparency, and accessibility.
How the System Will Function in Practice
For eligible Nasdaq market participants, the process will be relatively straightforward. When placing an order, they will simply select the designated tokenization flag, along with their preferred blockchain network and digital wallet address. This information will be communicated to the DTC, which will then handle the settlement of the trade on the blockchain. Trades in tokenized securities handled by the DTC will continue to settle on a T+1 basis, maintaining the current settlement timeline.
The SEC’s approval doesn’t mandate participation; it provides a framework for those who wish to embrace the technology. This phased approach allows for careful monitoring and evaluation of the system’s performance and impact on the broader market. The SEC has stated it will continue to monitor the implementation of this new framework and will adjust its approach as needed.
Looking ahead, the next step will be the full implementation of the DTC pilot program and the onboarding of market participants. The SEC will continue to assess the impact of tokenized securities on market stability and investor protection. Further updates and guidance are expected as the program progresses.
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