SEC Approves Nasdaq Tokenization Trading Trial

The US Securities and Exchange Commission on Wednesday approved Nasdaq’s pilot proposal to support the trading of tokenized versions of stocks and other securities.

Nasdaq first filed its proposal in September that sought to allow trades on high-volume stocks in either a traditional or tokenized form on the same exchange in a pilot with the key market infrastructure firm, Depository Trust Company.

The tokenized stocks would trade alongside their traditional counterparts on the same order book, at the same price, with the same ticker and identifying number and carry the same rights.

Tokenization, where an asset is represented on a blockchain, has seen a recent boom as major financial firms have tested the technology to shrink settlement times and experiment with longer trading hours.

Eligible participants can trade top tokenized stocks

According to the SEC’s approval filing, only “eligible participants” are to take part in the tokenization pilot and can choose whether to trade a traditional or tokenized stock.

The options for tokenized stock are limited to securities that trade in the Russell 1000 Index, which tracks the 1,000 largest publicly-traded companies in the US by market capitalization, along with exchange-traded funds tracking the S&P 500 and Nasdaq-100 indices.

The SEC noted the Nasdaq’s proposal received feedback with concerns around market surveillance and diverging prices, which it said was later allayed by an amendment laying out more details.

Related: SEC’s ‘Crypto Mom’ calls for simpler disclosure rules, flags tokenization debate

The approval comes after the Nasdaq announced earlier this month that it had partnered with crypto exchange Kraken to allow its clients to move securities from its infrastructure to tokenized versions that can be used on blockchains and to allow public companies to create and issue their own tokenized shares.

New York Stock Exchange owner the Intercontinental Exchange has also set its sights on tokenization, and invested in crypto exchange OKX in early March to launch tokenized stocks.

SEC Chair Paul Atkins said on Tuesday that the agency would soon be seeking public comment on a range of crypto-related exemptions, including a “fundraising exemption” to allow some securities involving crypto to raise a set amount in any 12-month period while being exempted from registering under securities laws.

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