SEC Staff No-Action Letter to DTC for Tokenization Services: The Coming 2026 Transformation of Trading Securities on a Blockchain

[co-author: Jason Berkun]

On December 11, 2025, the Depository Trust Co. (DTC) received what could prove to be a landmark no-action letter from the staff of the Securities and Exchange Commission (SEC) Division of Trading and Markets. In that no-action letter, the staff indicated that it would not recommend an enforcement action against DTC if DTC operates tokenization services, effectively allowing the transfer of tokenized securities on certain permissionless blockchains on a trial basis.

Pursuant to the assurances provided by SEC staff, in 2026, DTC will begin instituting a “preliminary base version” of tokenization services under which certain securities could be represented as tokens on an “approved blockchain” and recorded in a DTC participant’s wallet. These wallets must be registered with DTC, which will screen them for compliance with the requirements of the Office of Foreign Assets Control (and are referred to here as “whitelisted wallets”). The no-action letter follows Nasdaq’s rule filing to integrate tokenized trading through a DTC tokenization service, and is part of a broader goal of the Trump administration to promote financial innovation as articulated in the executive order on digital asset technology issued early in the Trump administration.

What Is DTC’s Tokenization Service?

The tokenization services to be offered by DTC will permit any DTC participant to transfer a qualifying security to their wallet address whitelisted by DTC on a DTC-approved public or private blockchain. Once a security is transferred to a participant’s wallet, the owner of the wallet address will be permitted to transfer the tokenized security to other whitelisted wallet addresses. No transfers will be permitted, however, to non-whitelisted wallets.

Individual investors may be able to cause transfers of tokens to other whitelisted wallets, but DTC would only view the participant associated with the whitelisted wallet as the entitlement holder. The extent to which a customer of a broker-dealer can use a whitelisted wallet will be determined by future agreements between broker-dealers and their customers.

Although DTC is not creating its own privately controlled blockchain, it is still imposing various restrictions on the use of tokenized securities. Among other things, these restrictions include:

• Qualifying securities will be limited to highly liquid securities, such as securities comprising the Russell 1000 index, U.S. Treasuries, and exchange-traded funds that track major market indices, such as the S&P 500 index.
• Tokenized securities will not count toward a participant’s collateral or settlement value in specific tests DTC will use to determine the adequacy of that participant’s anticipated liquidity for risk management purposes.
• DTC will maintain the ultimate final record of current entitlements to tokenized securities.
• DTC will have the unilateral authority to alter transactions and even destroy tokenized securities under specified conditions such as erroneous or illegal transfers.

Further, the blockchain or protocol to which the tokenized security is subject must meet objective, neutral, and publicly available standards. Such standards include that the blockchain or protocol is reliable, secure, subject to robust consensus or governance mechanisms, and will not be subject to bad actors, hostile nation state exploitation, frequent forking, or governance uncertainty.

How Does This Compare to Nasdaq’s Tokenization Plan?

Back in September 2025, Nasdaq filed a rule proposal with the SEC to offer trading of tokenized securities on its exchange. As discussed previously, Nasdaq’s proposal left open many questions as to the intricacies of its proposal, including its reliance on DTC’s services or an alternative approach. Although much of Nasdaq’s proposal goes to matters unaddressed in the DTC letter, Nasdaq will likely need to reassess its proposal.

Under Nasdaq’s proposal, a member of the exchange would select a trade in tokenized form and transfer the execution orders to DTC, whereas DTC’s tokenization service does not involve clearing or settling trades of tokenized securities. The tokenized security would then be traded on the same order book, with the same priority as its non-tokenized security counterpart, and settle on a T+1 basis, while trades between wallets, as contemplated under the DTC letter, could presumably be settled instantaneously.

Further, Nasdaq’s fee schedule, market data, market surveillance, price structure, rates, order types, and routing strategy would be the same regardless of whether the transaction involves a tokenized security. In contrast, DTC’s tokenization service would defer to a blockchain’s transaction authentication process, with varying fees and order routes. It remains to be seen how Nasdaq will resolve the discrepancies between its proposal and DTC’s no-action relief. Because DTC’s tokenization services permit the use of a public blockchain, tokenized securities transactions on those blockchains will occur according to the underlying technology, which may or may not be compatible with Nasdaq’s requirements.

Why Did DTC Seek No-Action Relief?

DTC’s purpose for offering a tokenization service is to provide DTC participants and their customers access to the many use cases of programmable blockchains, to the extent permitted by law, including securities financing transactions, 24/7 trading, and peer-to-peer transactions. As the no-action letter notes, however, the decentralized system at the heart of these services is incompatible with certain provisions of the securities laws and rules, driving the need for no-action relief.

As a central securities depository and clearing agency, DTC is subject to regulation under the Securities Exchange Act of 1934 (Exchange Act). Applicable provisions include:

• Rule 17ad-22, imposing wide-ranging requirements designed to assure the stability of certain clearing agencies, including DTC, and Rule 17ad-25, requiring approval by those clearing agencies of agreements with third parties for “core services.”
• Regulation SCI, imposing requirements designed to ensure the security of the systems used by self-regulated entities such as DTC.
• Section 19(b) and Rule 19b-4, requiring (among other things) advance notice by a “systemically important financial market utility” (SIFMU), which includes DTC, of any changes to its rules, procedures, or operations that could “materially affect the nature or level of risk presented” by the SIFMU.

The “preliminary base version” of DTC’s tokenization services is just that, a preliminary version that is likely to be changed, and quickly, as its capabilities are tested and refined in the “sandbox” environment DTC proposed. The features of this environment include the narrow reach of the tokenization services, the segregation of the systems used to support those services from DTC systems used to provide clearing and settlement services for non-tokenized securities transactions, and extensive periodic and event reporting to the SEC.

Aside from pointing out these safeguards, DTC emphasized that these provisions would “smother” the ability of DTC to develop its services in a timely manner in response to feedback, technological changes, and learned experiences and make the preliminary base version “practically infeasible.” DTC sought no-action assurance for a three-year period from these provisions in order to allow the preliminary base version of its tokenization services to proceed and, based on these arguments and safeguards, SEC staff provided that assurance.

How Can a DTC Participant Use DTC’s Tokenization Service?

A DTC participant:

1. Creates a wallet address on a DTC approved blockchain.
2. Registers their wallet address with DTC, i.e., verifies the identity of the wallet address.
3. Instructs DTC to mint the tokens representing the participant’s qualifying security and transfer the tokenized security to the participant’s wallet address.
   1. After DTC accepts the tokenization instruction, DTC will debit the qualifying security from DTC’s participant account and credit the security to a digital omnibus account. The digital omnibus account reflects the sum of all tokenized securities held in every whitelisted wallet. Ownership of the tokenized security remains registered in the name of Cede & Co., DTC’s nominee.
   2. DTC will then execute programmable code maintained by DTC to create and transfer the qualifying security to the participant’s wallet address.
   3. Transfers from the omnibus account will be blocked until de-tokenization occurs.

The DTC participant can then either:

1. Transfer the tokenized security to any whitelisted wallet, as well as use the tokenized security for securities financing transactions or access to trading venues, subject to applicable legal requirements.
   1. DTC will track and record changes in entitlements to tokenized securities using their own blockchain explorer instead of a centralized ledger.
2. Instruct DTC to burn the tokenized security and convert the security back into book-entry form on the participant’s DTC account.
   1. After DTC accepts the de-tokenization instruction, DTC will debit the qualifying security from the digital omnibus account and credit the security to the participant’s DTC account.

Where Is Tokenization Headed in 2026?

DTC intends to pilot its tokenization service in the first half of 2026, followed by a public launch in the second half of 2026. Currently, there are a handful of securities that have been tokenized directly by the issuer’s transfer agent. But DTC’s approach would leapfrog an issuer-by-issuer approach due to the fact it can onboard nearly all U.S. equities in which its nominee, Cede & Co., serves as the registered owner.

Another big step toward reaching SEC Chair Paul Atkins’ articulated goal for tokenized securities to “trade … competitively in liquid on-chain environments” is integrating tokenization with national securities exchanges (NSEs), alternate trading systems (ATSs), and potentially decentralized exchanges (DEXs). On this point, on December 17, 2025, the Division of Trading and Markets staff supplemented an FAQ to clarify, among other issues, that NSEs can offer security/non-security digital asset trading pairs and ATSs can perform broker, custodial, and clearing functions, in addition to operating its ATS.

Another big question now is whether tokenized securities will be able to trade, in addition to transfer, on a DEX — the answer to which depends on whether a DEX fits the definition of an “exchange” under the Exchange Act. The SEC has yet to offer guidance on this question. If the SEC were to provide guidance that permits the use of DEXs under specified conditions, then large scale trading of securities may arise outside the tightly controlled regulatory framework of a national securities exchange, marking a significant departure from the current trading of securities.