Briefing
Nasdaq has submitted a rule change proposal to the SEC to allow the trading of tokenized equity securities and ETPs, a decisive move that integrates distributed ledger technology directly into the core national market system. This initiative fundamentally alters the post-trade mechanism, allowing for optional blockchain-based settlement via the Depository Trust Company (DTC) while ensuring full fungibility and identical rights with traditional shares. The proposal is a strategic framework for market modernization, maintaining the existing regulatory structure and the unified order book to prevent liquidity fragmentation, while laying the groundwork for DTC’s Project Ion to achieve real-time, T+0 settlement.
Context
The traditional securities market operates on a complex, multi-day settlement cycle (T+1), which creates systemic counterparty risk and locks up capital inefficiently across the value chain. This legacy process relies on a fragmented system of intermediaries for clearing, settlement, and record-keeping, leading to high operational costs and reconciliation burdens for market participants. The prevailing challenge is the friction and time lag inherent in moving from trade execution to final ownership record, a delay that necessitates significant collateral requirements and limits capital velocity for broker-dealers and institutional investors.
Analysis
The adoption strategically alters the post-trade settlement system by introducing a DLT-based option for transaction finality. The mechanism is architecturally significant → tokenized and traditional shares trade on the same order book, preserving price discovery and liquidity. The innovation occurs when a participant selects the tokenized option, triggering DTC to record the asset as a blockchain-based token in a registered digital wallet.
This chain of cause and effect shifts the authoritative record of ownership from a centralized electronic ledger to a shared, immutable ledger, drastically reducing the need for reconciliation and paving the way for instantaneous delivery-versus-payment (DvP) once the underlying DTC infrastructure, Project Ion, is fully deployed. This minimizes counterparty risk for the enterprise and frees up operational capital.
Parameters
- Adopting Entity → Nasdaq Stock Market LLC
- Settlement Partner → Depository Trust Company (DTC)
- Target Asset Classes → Equity Securities and Exchange Traded Products (ETPs)
- Core Technical Requirement → Full Fungibility and Identical CUSIP
- Underlying DLT Project → DTC’s Project Ion
- Regulatory Filing → SR-NASDAQ-2025-072
Outlook
The immediate next phase is regulatory approval from the SEC, which will validate the model of integrating DLT within the existing national market system framework. This compliant, exchange-embedded approach will set a new operational standard, compelling competing exchanges and clearinghouses to accelerate their own DLT integration plans to maintain competitive parity on settlement efficiency. The long-term second-order effect is the establishment of a standardized, tokenized financial instrument that can seamlessly interface with new institutional-grade decentralized applications, unlocking new capital formation capabilities for issuers and liquidity channels for investors globally.
Verdict
This proposal represents the most critical structural pivot in U.S. capital markets this decade, embedding blockchain technology as a core utility layer for regulated securities settlement.
