In addition to extending the period to act on recent market clean-up proposals, the SEC acted last week to approve Nasdaq’s proposal to allow for trading of “tokenized” securities during the pendency of the related DTC tokenization pilot program. Meredith blogged about Nasdaq’s original proposal last fall – it was later amended a couple of times to provide more detail about how the process works. Check out this January blog for key points about how the DTC pilot program works.

Here’s an excerpt from the SEC’s notice:

Nasdaq market participants that are eligible to participate in the DTC Pilot (“DTC Eligible Participants”) would be able to trade tokenized versions of certain equity securities and exchange traded products on the Exchange that are eligible for tokenization as part of the DTC Pilot (“DTC Eligible Securities”). According to Nasdaq, while they are actively assessing multiple methods of tokenization and trading of tokenized securities, the proposed rule change describes and applies to one method by which DTC Eligible Securities can trade on Nasdaq, using DTC to clear and settle trades in token form, per order handling instructions that DTC Eligible Participants may select upon entering their orders for DTC Eligible Securities on Nasdaq.

And:

Pursuant to the Nasdaq proposal, a tokenized share of a DTC Eligible Security must be fungible with, share the same CUSIP number and trading symbol with, and afford its shareholders the same rights and privileges as a share of an equivalent class of the traditional security for it to trade on Nasdaq. Further, Nasdaq has represented that it would trade DTC Eligible Securities “within the confines of existing securities laws and rules” and that its trading system and procedures, except as described above, would be the same regardless of whether a security is tokenized.

A tokenized share of a DTC Eligible Security and its traditional counterpart would trade on the same order book and with the same execution priority. Moreover, market data feeds would not differentiate between tokenized and traditional shares and market surveillance of tokenized and traditional securities would rely upon the same underlying data, which would continue to be accessible by Nasdaq and FINRA.

We’re posting memos about the pilot program and related issues in our “Crypto” Practice Area.

– Liz Dunshee