U.S. Stock Tokenization at a Crossroads: From Nasdaq's False Signal to DTC's Real Experiment

Market Expectations vs. Regulatory Reality

On December 15th, Nasdaq submitted Form 19b-4 to the SEC, proposing to extend trading hours for U.S. equities and exchange-traded products to a 23/5 schedule (trading 23 hours daily, Monday through Friday). This news stirred quite a buzz in the market—many investors and industry observers immediately linked it to the prospects of 24/7 trading for stock tokenization.

But the reality is more complex. Nasdaq’s proposal is not simply about extending trading hours but involves the redefinition of two formal trading sessions: daytime trading (4:00 AM - 8:00 PM Eastern Time) and nighttime trading (9:00 PM - 4:00 AM), with a pause from 8:00 PM to 9:00 PM, during which all unexecuted orders are canceled. More importantly, Nasdaq explicitly states in the document that many traditional trading rules and complex order types do not apply during nighttime trading, and some functionalities will be limited.

In other words, this document does not mention tokenization at all. It pertains to reforms of traditional stock trading rules rather than the application of digital asset technology.

DTC Is the True Driver of Tokenization

The real development of note comes from another direction. On December 11th, the U.S. SEC’s Division of Trading and Markets sent a “No-Action Letter” (NAL) to DTCC (the Depository Trust & Clearing Corporation) and its subsidiary DTC (Depository Trust Company), which was subsequently published on the SEC’s official website.

The core message of this document is: under certain conditions, the SEC will not take enforcement action against DTC for tokenization services related to custodial securities.

First, it’s important to clarify what DTC is. As the largest and most influential central securities depository in the U.S., DTC currently manages and records over $100 trillion in securities assets. It can be said that DTC controls the ledger of the entire U.S. stock market. DTCC is the parent company of DTC, a group comprising multiple entities responsible for securities custody, settlement, and clearing.

The True Meaning of the No-Action Letter

Many people equate this document with the SEC’s “approval” for DTC to use blockchain for recording U.S. stocks. However, this understanding is fundamentally flawed.

According to Section 19(b) of the U.S. Securities Exchange Act, any self-regulatory organization (including clearing agencies) that amends rules or makes significant business adjustments must submit a rule change application to the SEC and obtain approval. This process is typically lengthy, potentially taking several months, with a maximum of 240 days.

To facilitate tokenization pilot projects, DTC requested a waiver during the pilot period, so it would not need to fully comply with the entire Section 19(b) process. The SEC agreed to this request.

Therefore, what the SEC has done is merely a procedural temporary exemption of certain notification obligations for DTC, not a substantive approval of tokenization technology in the securities market. This is a crucial legal distinction.

How DTC’s Tokenization Pilot Works

According to the NAL, DTC’s pilot involves two core issues:

Scope of the Pilot

Currently, the custody and bookkeeping of U.S. stocks are handled as follows: a broker opens an account with DTC, which records each stock trade through its central system. DTC’s proposal is to offer an alternative—recording stock positions via tokens on a blockchain.

The specific process is as follows: first, register a “Registered Wallet” approved and recognized by DTC. When a participant sends a tokenization instruction to DTC, DTC performs three steps:

1. Transfers the stock from the original account to a general account pool
2. Issues tokens on the blockchain
3. Transfers the tokens to the participant’s wallet, representing rights to those securities

Afterward, these tokens can be transferred directly between brokers without each transfer needing to go through DTC’s central ledger. However, all token transfers are monitored and recorded in real-time by DTC’s off-chain system LedgerScan, which constitutes DTC’s official ledger.

Any participant can send a “de-tokenization” instruction to DTC at any time, prompting DTC to burn the tokens and re-credit the securities rights into a traditional account.

The NAL also clarifies technical and risk management limitations: tokens can only be transferred between wallets approved by DTC, meaning DTC retains the power to enforce transfers or destroy tokens in certain circumstances; the token system is rigorously separated from DTC’s central settlement system to ensure risk isolation.

The True Implication of This Document

From a legal perspective, the NAL does not equate to legal authorization or rule modification; it has no general legal effect and merely reflects the SEC staff’s enforcement attitude based on existing facts and assumptions. Under U.S. securities law, there is no explicit prohibition on using blockchain for bookkeeping. The focus of regulation is on ensuring that, after adopting new technology, market structure, custodial responsibilities, risk management, and notification obligations are maintained.

More importantly, when the recipient of the NAL is a systemically important financial institution like DTC, its significato (significance) often exceeds operational details and sends a strong signal.

The conditions for SEC’s exemption are very clear: DTC does not directly issue or trade securities on-chain but uses tokenization to represent its custodial securities rights. These tokens are essentially “rights mappings” or “ledger representations,” aimed at improving backend process efficiency, without changing the legal nature or ownership structure of the securities. The services operate in a controlled environment, permissioned chain, with participants, scope, and technology architecture strictly limited.

This regulatory stance is reasonable. On-chain assets are particularly vulnerable to money laundering and illegal financing; although tokenization technology is innovative, it should not become a tool for crime. Regulators need to recognize the potential of blockchain in securities infrastructure while maintaining the boundaries of existing laws and custodial systems.

Two Parallel Paths for Tokenization

The discussion around U.S. stock tokenization is shifting from “compliance” to “implementation.” Based on current market practices, at least two parallel but logically different paths can be identified:

Official Infrastructure-Driven Path

Led by DTCC and DTC, this path’s main goal is to improve settlement, reconciliation, and asset circulation efficiency, primarily serving institutional and wholesale market participants. In this model, tokenization is almost “invisible”—to retail investors, stocks remain stocks; only the backend systems and technology change.

Front-End Innovation via Trading Platforms

Brokerages and trading platforms like Robinhood and MSX have been exploring crypto-related products, fractional trading of stocks, and extended trading hours in recent years. Once U.S. stock tokenization matures in regulation, these platforms will naturally have an advantage as entry points for users. For them, tokenization does not mean reinventing the business model but expanding the existing investment experience at the technological level—such as near real-time settlement, greater flexibility in asset segmentation, and cross-market product integration.

These explorations often operate at the edge of regulatory boundaries, balancing risk and innovation. Their value lies not in short-term scale but in testing the feasibility of the next-generation securities market—more as a demonstration for regulatory evolution rather than a direct replacement of the current U.S. stock market.

Long-Term Perspective and Future Outlook

From a broader perspective, the core issue that U.S. stock tokenization aims to solve is not turning stocks into “virtual currencies,” but enhancing asset liquidity, reducing operational costs, preparing for future cross-market collaboration, while maintaining legal certainty and system security.

In this process, compliance requirements, technological capabilities, and market structures will continue to dialogue and coexist. The evolution will be gradual rather than radical. It is foreseeable that U.S. stock tokenization will not fundamentally change Wall Street’s operations in the short term, but it has already become an important project on the U.S. financial infrastructure agenda.

The interaction between the SEC and DTCC is more of an institutional “test,” laying the groundwork for broader future exploration. For market participants, this is not the end but a truly noteworthy starting point worth ongoing attention.