The Dec. 4 assembly of the SEC’s Investor Advisory Committee opens with a query the company has spent years avoiding: “What does it really appear to be when publicly traded equities reside 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 in the present day.
The 2-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 not too long ago filed a proper proposal to commerce tokenized variations of listed shares alongside conventional shares on the identical order e-book, 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 skills 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 alternate proposes permitting listed equities to commerce in both conventional digital type 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 beneath the Securities Act, exchanges nonetheless function beneath 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 implies trades nonetheless contribute to the nationwide greatest bid and supply, 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 worth discovery, and depart issuers blind to the place their inventory really trades.
The submitting explicitly rejects exemptions: tokenization is a settlement expertise, 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 alternate’s matching engine and information feeds stay unchanged.
If that plumbing arrives on schedule, reside buying and selling might begin as early because the third quarter of subsequent yr.
The mannequin assumes that switch brokers keep tokenized registers the identical approach they keep book-entry registers in the present day, with the identical custody requirements and monetary duty guidelines, simply with a unique database underlying them.
The place the battle really 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, widespread on offshore platforms, supply solely financial publicity: worth goes up, traders revenue, however they’ll’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 alternate 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 move 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 cross by way of governance and financial rights.
If a token solely tracks worth, it could actually begin to resemble a security-based swap, triggering totally different disclosure and margining guidelines.
The Securities Business and Monetary Markets Affiliation (SIFMA) commentary explicitly said that traders should retain the identical authorized and useful possession in tokenized type, or the product morphs into one thing fully totally different.
What in all probability works beneath 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 methodology quite than a product innovation.
Blockchain as record-keeping expertise additionally matches, offered 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 may be 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 programs, additionally conflict with current guidelines.
Nasdaq and SIFMA each argue that permitting fairness quantity emigrate to unconnected platforms would shred the Nationwide Greatest Bid and Supply (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 implies any try to 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’ll, the SEC positive aspects a reference structure for evaluating filings like Nasdaq’s. If they’ll’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 outfitted 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.
