The US Securities and Exchange Commission (SEC) has formally approved Nasdaq’s pilot scheme to facilitate the trading of tokenized versions of stocks and other securities. This is an important milestone towards the fusion of blockchain-based assets with traditional market systems. According to the approved structure, qualified individuals may execute trades in a tokenized manner by participating in a pilot program managed by the Depository Trust Company (DTC).

Tokenized Stocks

Tokenized assets will be traded just like conventional stocks on the same order book, at the same price, bearing the same ticker and identifying number, and will have the same shareholder rights. However, the options for tokenized stock are confined to securities that are part of the Russell 1000 Index, and the exchange-traded funds that mirror the S&P 500 and Nasdaq-100 indices.

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Key Similarities and Differences

The SEC pointed out that the Nasdaq’s proposal around tokenized shares was initially criticised for issues around market surveillance and the risk of diverging prices. These concerns were later resolved through an amendment.

Tokenized shares will be traded on the same order book and have the same execution priority as regular stocks, and must offer exactly the same rights and benefits to shareholders. Those investing in tokenized shares will continue to enjoy the usual safeguards, such as voting rights, dividends, and claims on residual assets.

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The decision is a recognition of the increasing interest in the tokenization of regulated financial markets, as stock exchanges and operations providers are turning to blockchain technologies to represent traditional assets. This innovation, on one hand, can unlock the potential for greater efficiency and accessibility; on the other hand, it also opens the door to questions around the regulatory environment and investor protection.

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