US SEC Greenlights Stock Tokenization on Wall Street
The US Securities and Exchange Commission (SEC) has taken significant steps towards allowing stock tokenization on Wall Street, potentially bringing blockchain technology to traditional capital markets. The SEC approved an amendment to Nasdaq's trading rules in March, enabling eligible securities to be traded in tokenized form. This move is part of a larger experiment to migrate some underlying technologies supporting securities law and regulatory frameworks from traditional databases to blockchain.
The concept of stock tokenization involves representing traditional stocks on the blockchain as digital tokens. However, it's essential to distinguish between different types of tokenization: issuer-led tokenization, where the company or its agency connects the blockchain to shareholder registration systems, and third-party tokenization, where a platform purchases shares and issues separate tokens. The legal implications of these approaches are fundamentally different.
Nasdaq's pilot program with Depository Trust & Clearing Corporation (DTC) focuses on interoperability between traditional and tokenized securities. Eligible stocks can be traded in either format, using the same ticker symbols and CUSIPs, granting identical rights, entering the same order book, and following the same matching priority.
While this development may seem similar to other stock tokenization initiatives, such as Binance's bStocks or Robinhood's Classic Stock Tokens, it's crucial to understand that these projects have distinct roles and structures. The key takeaway is that the term 'stock token' can refer to different assets with varying legal implications.