Yesterday, the Staff of the SEC’s Division of Trading and Markets issued a no-action letter to the Depositary Trust Company (DTC) to provide relief under various provisions of the Exchange Act for DTC’s a pilot version of the DTCC Tokenization Services, which would allow DTC Participants to elect to have their security entitlements to DTC-held securities recorded using distributed ledger technology, rather than exclusively through DTC’s current centralized ledger.

In a statement regarding the no-action letter, Commissioner Hester Peirce noted:

Although this program is a pilot subject to various operational limitations, it marks a significant incremental step in moving markets onchain. DTC plays a central role in our securities markets. I am looking forward to seeing how DTC’s participants benefit from this program and the extent to which DTC’s tokenization model can enhance the functioning of our securities markets.

DTC’s tokenized entitlement model is a promising step along the tokenization journey, but other market participants are exploring alternate experimental avenues. As I have said repeatedly, the Commission’s crypto work is iterative. We welcome and expect other market participants’ continuing efforts to innovate and experiment. Their experiments may involve other securities tokenization models. Investor choice is critical, particularly at this early stage when the market is testing what works. For example, some issuers have begun tokenizing their own securities, which may make it easier for investors to hold and transact in securities directly, rather than through an intermediary. As I previously cautioned, market participants should be aware that different tokenization structures may raise distinct regulatory considerations.

– Dave Lynn