Tokenized securities rolling out on regulated market

This week, the Securities and Exchange Commission (SEC) in the United States has approved a proposal that enables the trading of tokenized securities on Nasdaq. It is the first time that trading and settling in tokenized form on the blockchain becomes listed on a stock market. This could be an indicator of future developments between regulated markets and blockchain networks.

In stock investing, people can buy and sell shares of a company. In recent years, tokenized stocks have become increasingly popular. These are digital tokens that represent shares of a publicly traded company, on the blockchain.

One of the reasons that they are popular is because blockchain technology allows them to be traded 24/7. It also allows for faster settlement of orders and fractional ownership.

Tokenized trading on Nasdaq

The market authority in the US, the Securities and Exchange Commission (SEC), has now approved Nasdaq’s proposal to enable trading tokenized securities. Eligible participants can now trade tokenized versions of stocks and ETFs. These shares will function just like traditional shares.

‘Tokenized shares must be fungible with the original stock’

The SEC has stated that a tokenized share needs to be “fungible with, share the same CUSIP number with and trading symbol, and afford its shareholders the same rights and privileges” as the original stock. This means that there can be no difference in ownership rights, voting or dividends. On the Nasdaq stock market, both versions will trade together on the same order book. They will also get identical execution priority.

‘Bridging the gap’

The rollout is still limited, under a pilot. It will only include large-cap equities and major ETFs. They will be placed under strict regulatory oversight. According to the SEC, it will not change how Nasdaq operates. However, the SEC does seem to be bridging the current gap between blockchain innovation and traditional trading. This could influence trading in Europe as well.

This decision could expand access to stocks. As mentioned earlier, fractional ownership is possible on the blockchain, which makes high-priced stocks more accessible to retail investors. Trading could become available beyond traditional market hours, and fees could possibly become lower over time.

At the same time, it could also put pressure on the financial ecosystem. Brokers could now face pressure to integrate blockchain technology, or lose relevance. If regulated markets will increasingly adopt tokenized trading, the demand for blockchain infrastructure can also increase. This could influence the value of crypto assets. The focus could shift from speculative use to more real-world financial applications of the blockchain.