SEC Weighs Blockchain Advancements Against Regulatory Prudence in Stock Tokenization Discussion

Nasdaq Pushes Forward with Stock Tokenization Initiative

Nasdaq Inc. is moving quickly to introduce blockchain-based settlement for publicly traded stocks, seeking prompt approval from the U.S. Securities and Exchange Commission (SEC) to incorporate this technology into its current market systems. The exchange has formally proposed allowing tokenized shares of listed companies to be traded alongside their conventional counterparts within the same trading environment, asserting that this innovation does not require special exemptions from existing national market regulations.

This initiative coincides with an upcoming SEC Investor Advisory Committee meeting scheduled for December 4, where representatives from Nasdaq, BlackRock, Coinbase, and other industry leaders will discuss the operational framework for issuing, trading, and settling tokenized equities.

Maintaining Regulatory Consistency

Nasdaq’s plan is designed to ensure regulatory stability. Tokenized stocks would retain the same identifiers, trading priorities, and shareholder rights as traditional shares, with blockchain technology serving as the settlement mechanism rather than fundamentally changing the market structure. The Depository Trust Company (DTC) would continue to guarantee settlement, while transfer agents would oversee tokenized records in line with current custody practices. Nasdaq stresses that this approach upholds compliance with Regulation NMS, ensuring that trades contribute to the national best bid and offer (NBBO) and remain subject to surveillance for manipulative practices like wash trading and spoofing.

SEC’s Cautious Approach

The SEC remains vigilant regarding these developments. Commissioner Hester Peirce has emphasized that tokenization does not alter the essential nature of securities, and that tokenized assets must still comply with all federal regulations. The advisory committee will also address technical hurdles, including secure blockchain custody, the logistics of short selling, and the possibility of round-the-clock trading without disrupting established market benchmarks.

Rejecting Synthetic Tokens

Nasdaq’s proposal explicitly rules out the use of “wrapper tokens”—digital assets that simulate stock exposure without conferring voting rights or legal ownership. Such practices, common on some offshore platforms, have led to discrepancies between token prices and the value of the underlying stocks, as seen with tokenized Apple and Amazon shares.

Broader Market Impact and Ongoing Debate

The conversation extends beyond technical implementation to the potential effects on the financial markets. Tokenization could accelerate settlement times and improve liquidity by enabling fractional ownership, but some critics caution that if unregulated platforms bypass traditional exchanges, it could fragment the market. The Securities Industry and Financial Markets Association (SIFMA) has highlighted the importance of ensuring that tokenized securities preserve the same legal and beneficial ownership as their physical equivalents to avoid creating unregulated derivatives. Meanwhile, the Responsible Financial Innovation Act, currently under Senate consideration, signals legislative intent to classify tokenized stocks as securities, reinforcing the SEC’s regulatory authority.

Looking Ahead: Industry Consensus and Regulatory Outlook

The upcoming December 4 meeting will test whether industry participants can agree on standards for custody, interoperability, and short selling. If consensus is reached, the SEC may use this as a blueprint for evaluating future tokenization proposals. However, a lack of alignment could slow down regulatory approvals as the agency addresses unresolved technical or incentive issues. While the panel will not directly decide on Nasdaq’s proposal, its findings are likely to influence the future regulatory landscape for blockchain integration in capital markets.

Nasdaq anticipates that live trading of tokenized stocks could begin as soon as the third quarter of 2026, provided that DTC’s blockchain infrastructure is completed on time. Nevertheless, the SEC’s current stance suggests that tokenization will remain subject to existing securities laws for the foreseeable future. The outcome of the advisory panel’s discussions will help determine whether the SEC views blockchain as a natural progression for market infrastructure or as a disruptive technology that requires new regulatory measures.