The Dec. 4 assembly of the SEC’s Investor Advisory Committee opens with a query the company has spent years avoiding: “What does it truly seem like when publicly traded equities stay on a blockchain?”
Not as wrapped derivatives on offshore exchanges, not as speculative tokens indifferent from shareholder rights, however as registered securities buying and selling inside the identical regulatory framework that governs Apple shares immediately.
The two-hour panel, titled “Tokenization of Equities: How Issuance, Buying and selling, and Settlement Would Work with Present Regulation,” assembles market-structure architects from Nasdaq, BlackRock, Coinbase, Citadel Securities, Robinhood, and Galaxy Digital to sketch that path in public for the primary time.
The timing displays strain the SEC can now not deflect. Nasdaq just lately filed a formal proposal to commerce tokenized variations of listed shares alongside conventional shares on the identical order ebook, arguing that blockchain settlement requires no carve-outs from the nationwide market system.
Commissioner Hester Peirce made clear in July that tokenization “doesn’t have magical talents to remodel the character of the underlying asset.” Moreover, tokenized securities stay securities and are topic to the complete federal regime.
What Dec. 4 checks is whether or not that framing can survive contact with implementation particulars: Who holds the keys? How does the NBBO work when trades settle in seconds as a substitute of two days? Are you able to quick a token the identical approach you quick a share?
The compliant stack: similar guidelines, totally different plumbing
Nasdaq’s blueprint gives the clearest view of what “contained in the system” tokenization appears to be like like. The change proposes permitting listed equities to commerce in both conventional digital kind or as tokens, with each variations sharing the identical CUSIP, execution precedence, and financial rights.
The token lives on the settlement layer. Issuers nonetheless register below the Securities Act, exchanges nonetheless function below the Trade Act, broker-dealers nonetheless route orders by way of consolidated feeds, and the Depository Belief Firm (DTC) nonetheless ensures supply.
Blockchain replaces the back-end ledger, not the front-end rulebook.
That construction retains tokenized equities inside Regulation NMS, which suggests trades nonetheless contribute to the nationwide greatest bid and provide, market makers nonetheless face quote obligations, and surveillance nonetheless flags wash trades and spoofing.
Nasdaq warns that parallel venues exterior NMS would fragment liquidity, undermine value discovery, and depart issuers blind to the place their inventory truly trades.
The submitting explicitly rejects exemptions: tokenization is a settlement know-how, not a brand new asset class that warrants lighter-touch oversight.
On settlement, Nasdaq factors to DTC constructing blockchain infrastructure so token trades can clear on-chain whereas the change’s matching engine and information feeds stay unchanged.
If that plumbing arrives on schedule, stay buying and selling might begin as early because the third quarter of subsequent 12 months.
The mannequin assumes that switch brokers keep tokenized registers the identical approach they keep book-entry registers immediately, with the identical custody requirements and monetary accountability guidelines, simply with a unique database underlying them.
The place the combat truly sits: native issuance versus wrappers
The Dec. 4 agenda flags a distinction the crypto press typically collapses: natively issued tokenized shares versus wrapper buildings.
Native tokens imply the issuer itself locations fairness on-chain or directs its switch agent to keep up a blockchain register, conveying full voting rights, dividend claims, and liquidation preferences.
Wrapper tokens, frequent on offshore platforms, provide solely financial publicity: value goes up, traders revenue, however they will’t vote the shares or sue in a by-product motion.
Nasdaq’s submitting makes use of European venues as a cautionary story. Tokens monitoring Apple and Amazon traded there at costs wildly divergent from the underlying inventory, required no issuer consent, and granted holders neither voting rights nor liquidation rights.
When these tokens crashed, patrons found they owned artificial derivatives, not shares.
The change argues that letting such merchandise proliferate with out registration would intestine investor protections and create a shadow fairness market that regulators can’t see.
The panel will probe how possession rights stream by way of tokenized buildings, not as a result of the SEC is confused about what a share is, however as a result of wrapping introduces intermediaries who might or might not move by way of governance and financial rights.
If a token solely tracks value, it may begin to resemble a security-based swap, triggering totally different disclosure and margining guidelines.
The Securities Business and Monetary Markets Affiliation (SIFMA) commentary explicitly acknowledged that traders should retain the identical authorized and useful possession in tokenized kind, or the product morphs into one thing completely totally different.
What in all probability works below present regulation (and what doesn’t)
The Dec. 4 agenda spans a spectrum of regulatory friction. On the low-friction finish are issuers registering tokenized shares, itemizing them on nationwide securities exchanges, and buying and selling them interchangeably with conventional digital shares, as Nasdaq proposes.
Present statutes already allow that if tokenization is handled as a settlement technique quite than a product innovation.
Blockchain as record-keeping know-how additionally matches, supplied registered clearing companies and switch brokers meet present custody and books-and-records requirements.
Earlier SEC workers statements on digital asset custody body this as compliance engineering, not boundary-pushing.
On the high-friction finish, there’s precise 24/7 buying and selling of listed equities, which collides with Reg NMS assumptions about market hours and consolidated information.
Regulators float 24/7 markets within the crypto context, however making use of that to tokenized Apple shares means rewriting how greatest execution works when New York sleeps and Tokyo trades.
Fashions the place tokenized equities commerce solely on non-NMS blockchain venues, unregistered as exchanges or different buying and selling techniques, additionally conflict with current guidelines.
Nasdaq and SIFMA each argue that permitting fairness quantity emigrate to unconnected platforms would shred the Nationwide Finest Bid and Provide (NBBO) and depart retail traders with stale quotes.
Senate work on the Accountable Monetary Innovation Act factors in the other way, explicitly classifying tokenized shares and bonds as securities and cementing SEC oversight.
That means any try and deal with tokenized shares as exterior the company’s remit will hit legislative headwinds, not tailwinds.
What Dec. 4 decides and defers
The Investor Advisory Committee can submit findings and proposals, nevertheless it doesn’t write guidelines.
The panel is a stress check to see if Coinbase, Citadel, and Nasdaq can agree on what compliant tokenization appears to be like like once they’re pressured to reconcile custody fashions, interoperability requirements, and short-selling mechanics in the identical room.
If they will, the SEC features a reference structure for evaluating filings like Nasdaq’s. If they will’t, the company learns the place the technical or incentive mismatches sit earlier than approving something.
What the panel gained’t do is approve Nasdaq’s proposal, rewrite the definition of a safety, or bless offshore inventory tokens that skip issuer consent.
It additionally gained’t resolve whether or not 24/7 buying and selling or cross-chain interoperability requires new exemptive reduction, as these questions rely upon engineering particulars the advisory physique isn’t geared up to reply.
At most, Dec. 4 yields a menu of choices the Fee can reference when deciding whether or not tokenized equities belong within the nationwide market system or require a parallel construction that present regulation doesn’t but ponder.
The assembly issues as a result of it forces the query into the open. The reply nonetheless will depend on whether or not the market desires to retrofit blockchain into current rails or construct new ones, and the SEC has to authorize it from scratch.
