[co-author: Jason Berkun]*
On September 8, 2025, Nasdaq submitted a first-of-its-kind application to the Securities and Exchange Commission (SEC) to amend Nasdaq rules to permit the trading of tokenized securities alongside traditional, non-tokenized securities. Investors would have the ability to trade, settle, and clear securities on Nasdaq’s trading facilities through a permissioned, or in other words, restrictively accessed, blockchain run by the Depository Trust Company (DTC). The tokenized trading feature may be available as soon as the end of Q3 2026, if approved. This effort seems likely to garner serious attention from the SEC in light of the Trump administration’s and SEC Chairman Paul Atkins’ emphasis on strengthening American leadership in digital financial technology and making America the “crypto capital of the world.”
What Is Tokenization and What Are the Benefits?
Tokenization is the process of representing the economic value of a real-world asset on a cryptographically secured distributed ledger, or blockchain. The process begins with the issuer creating or “minting” a fungible alphanumeric identifier for the asset, referred to as a “token,” any number of which can be transmitted directly to the recipient. Unlike traditional mechanisms for electronic settlement and clearance of orders through a centralized clearing agent, “miners” or “validators” authenticate the validity of transactions on a public blockchain by solving complex mathematical puzzles without taking custody of parties’ funds. The benefit is that trade orders can be executed and settled within seconds, oftentimes for fractions of the cost of payment processors, and without the need to relinquish control of digital assets to a third party, such as a bank or custodian.
Tokenization also opens new avenues to exchange economic value, most notably for illiquid assets. Decentralized exchanges — automated trading platforms that operate on a programmable blockchain — facilitate trading of one digital asset for another without the need for a centralized counterparty to stand ready to exchange those assets. It does so by incentivizing third parties to deposit their digital assets into a liquidity pool, maintained by the exchange, in which the depositor can earn interest. In effect, it substitutes the facilities of a traditional securities exchange with a digital, permissionless platform.
How Will Nasdaq’s Blockchain Trading Platform Work?
Nasdaq’s tokenized trading platform will deviate from the public, permissionless model of a blockchain in important ways. Although Nasdaq’s application for a rule change lacks detail on this point, Nasdaq is likely to rely on a single participant to operate the platform, including creating digital wallets, validating transactions, and transmitting digital assets to other blockchains. It is likely that the SEC will ask for more details on these elements before approving the proposed rule change.
Under Nasdaq’s proposed blockchain trading platform, a tokenized security will be traded on the same order book and with the same priority as its non-tokenized security counterpart. Members of Nasdaq will be presented with the option of whether a trade will be executed and settled on DTC’s blockchain, so long as the tokenized security is fungible, shares the same Committee on Uniform Securities Identification Procedures (CUSIP) number, and affords the same shareholder rights as the non-tokenized security. Among other rights, these include (1) equity interest; (2) dividends; (3) voting rights; and (4) liquidation rights.
Once a member’s directive for tokenized trading is selected, Nasdaq will transfer the execution orders to DTC’s “control account.” DTC will then execute automated code that creates and transmits the member’s tokenized security to the member’s DTC-registered digital wallet. Presumably to maintain parallel market pricing with trading of non-tokenized securities, tokenized securities will settle on a T+1 basis. Nasdaq’s fee schedule, market data, market surveillance, price structure, rates, order types, and routing strategy will be the same regardless of whether the transaction involves a tokenized security.
In contrast to the more experimental decentralized finance trading markets, Nasdaq has indicated that its approach using a centralized depository “leverages existing structures and players and rules,” which would be less “potentially detrimental to investors,’ issuers,’ and the markets’ best interests.” Although Nasdaq is still assessing other alternative approaches to DTC and the more intricate details of DTC’s blockchain have not been publicly disclosed, for now decentralized financial markets will remain segregated from Nasdaq.
National securities exchange rules related to membership, listing requirements, and privacy limit the degree to which an exchange may use a blockchain-based trading platform unless the exchange controls both the miners or validators required to authenticate transactions and access to the automated code. This is why DTC’s blockchain will likely be permissioned and incompatible with public blockchains. Nevertheless, this application represents a milestone in developing a robust tokenized securities market.
Programmable Blockchains Have Existed Since 2015, So Why Now?
Nasdaq’s filing comes amidst a confluence of factors favoring tokenization. DTC has been experimenting with its own blockchain, dubbed “Project Ion,” since 2022. The GENIUS Act, signed into law on July 18, 2025, creates a federal regulatory framework for private issuers of “stablecoins,” which among other things, would require reserves to be limited to high quality, liquid assets like cash, Treasury bills, and short-term government bonds. The SEC is looking to amend its rules to accommodate the use of blockchains in the distribution, trading, and custody of tokenized securities. Even the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an international cooperative of thousands of banks used to send messages for international payments, recently announced the development of a blockchain for cross-border payments. Competition is also heating up with the Intercontinental Exchange, the parent company of the New York Stock Exchange, announcing that it will invest up to $2 billion in Polymarket, a blockchain-based prediction market platform, and partner on tokenization initiatives.
In addition, Nasdaq is concerned that digital asset exchanges are already offering tokenized equity derivatives in overseas markets for certain securities, which it believes could result in a fragmented market for tokenized versions of the underlying securities. Although a Nasdaq tokenized trading platform would not necessarily diminish investor interest in tokenized equity derivatives, it could provide a mainstream facility for investors who do want to trade in tokenized securities as opposed to tokenized derivatives of those securities.
How Will the SEC View a Tokenized Trading Platform?
It is unclear and many questions still need to be answered. Not only is a tokenized trading platform a first-of-its-kind for any national securities exchange, but the SEC must create appropriate guidelines for approving such an exchange. Complicating that uncertainty is the status of how members of a national securities exchange may use their account to streamline access to newly registered digital commodity exchanges, if the CLARITY Act, passed July 17, 2025, in the U.S. House of Representatives, becomes law.
Notwithstanding these challenges, the SEC appears ready to move forward. Atkins has asked the SEC staff to work with firms to distribute tokenized securities. Commissioner Hester Peirce also issued a statement promoting the capital formation benefits of tokenization and encouraged market participants to meet with the SEC and its staff. It will be up to the SEC’s Division of Trading and Markets, of course, with the support of the Crypto Task Force, to work out the details and craft for SEC approval the regulatory framework governing tokenized trading platforms.
What Questions Should the SEC Answer to Ensure Investor Protection?
There are numerous questions that the SEC should consider before the approval of a tokenized trading platform. Some of these questions will apply not only to permissionless blockchains but also to permissioned blockchains, such as the blockchain to be employed in Nasdaq’s proposed trading platform. The extent to which our questions apply to a permissioned blockchain will become clear as more details of Nasdaq’s tokenized trading platform are provided to the SEC. Among other things, these questions include:
Custody
- What prudential requirements must be met for clearing agents, subsidiaries of national securities exchanges or associations, or custodian banks to hold private keys on behalf of members of an exchange?
- Under what circumstances could exemptive relief be appropriate for members of an exchange to permit their customers to independently custody their securities instead of transmitting custody to a third party?
- Must a member of an exchange hold one general account for itself or individual accounts for each client?
- Is the utility of a member’s account limited to that of one exchange or can the funds be transmitted to other accounts on other exchanges?
Settlement and Record-Keeping
- Must the tokenized trading platform settle securities on a T+1 basis, or may it settle securities instantaneously?
- Must the operator of the tokenized trading platform be registered as a clearing or transfer agent if custody of securities or funds are never transmitted to the operators of the platform and the records of the exchange are publicly available?
- If there is a discrepancy between the non-tokenized securities ledger and the tokenized securities ledger, how will such disputes be resolved?
Order Book
- Must the exchange use the same order book for non-tokenized securities as for tokenized securities?
- When processing orders for tokenized securities, does the operator of the platform submit two simultaneous orders for the purchase and sale of a security, or can a more sophisticated system, equivalent to a decentralized exchange, be feasible?
- Should members of an exchange pay a fee for the selection of orders?
- How can an order book be designed to minimize the impact on price discovery and prevent a mispricing of securities?
Issuance, Issuer Authorization, and Redemption
- Can an issuer of securities opt out of the trading of its securities on a tokenized trading platform?
- Who will be in control of the source code for the minting and redemption of an issuer’s securities?
- How will potential errors affecting the issuance and redemption of the issuer’s securities be handled?
Membership Restrictions, Privacy, and Interoperability
- Is exemptive relief possible to enable greater access to an exchange beyond its members if, among other things, counterparty credit risk is minimized by the tokenized trading platform?
- Must the ledger that records tokenized trading publicly disclose the identities of each transacting party?
- Can new technological methods be used to comply with anti-money laundering requirements?
- What rules define the connectivity of one tokenized trading platform to another, both as to a permissioned blockchain and a permissionless blockchain?
Consensus Model: Miners and Validators
- If proof of work is the preferred consensus model for a tokenized trading platform, what are the requirements for the quantity and control of the miners?
- If instead proof of stake is the preferred consensus model for a tokenized trading platform, who may participate in staking and what is the minimum staking amount?
- To what degree may an entity, such as an exchange, control the network nodes?
Immutability, Security, and Fair Trading
- Are irreversible transactions permissible?
- What standards may be used to prevent a bad actor from amassing enough computing or staking power to override immutable transactions?
- How should transactions be arranged, monitored, and/or blocked to prevent fraudulent trading, such as front-running, wash trading, and banging the close?
- What methods can be used to reduce potential cybersecurity risks?
In answering these questions, the SEC may be able to work within the existing regulatory structure to approve Nasdaq’s application, but the use of a permissionless blockchain for a tokenized securities trading platform will require a serious rethinking of the regulatory structure. Some rules related to custody, settlement, transfer agents, and record-keeping may only require additional guidance. But other changes, such as membership restrictions, listing standards, and privacy are fundamental to the structure of a national securities exchange, and may not permit the use of permissionless blockchains. Nasdaq, however, has likely come far along in establishing the necessary infrastructure for trading tokenized securities and would possess a first-mover advantage if it were to secure SEC approval to launch a tokenized securities trading platform.
What Do the Next Five Years Hold?
It’s difficult to predict if or when we will see true peer-to-peer trading of tokenized securities on a public blockchain like Ethereum or Solana, given the myriad regulatory issues that would need to be resolved. That said, it is very well possible, if not probable, that the rules governing the trading of securities on a national securities exchange will be revised to permit the use of a permissioned blockchain to trade tokenized securities. Exactly how this might be accomplished remains to be seen, but it will likely affect virtually all market participants, from issuers to brokers to investment advisers.
Carlton Fields will be actively monitoring the SEC’s regulatory agenda for further developments and comments on Nasdaq’s application.
*law clerk
