The United States Securities and Exchange Commission (SEC) has given the green light to a three-year pilot initiative for the clearinghouse that handles nearly all US stock trades.
In a significant development for the financial markets, the SEC has approved a pilot program that aims to integrate blockchain technology into the traditional financial infrastructure. This initiative will allow the clearinghouse, specifically the Depository Trust Company (DTCC) and its subsidiaries, to record certain securities using selected blockchains. This reveals a remarkable shift, as it’s the first time the core of the American financial system will engage with blockchain-based record-keeping.
In a No-Action Letter released on December 11, the SEC indicated that it would refrain from taking any regulatory actions should the DTCC mint and destroy blockchain-based tokens that correspond to securities held in custody. This pilot program is set to commence in the latter half of 2026, allowing the clearinghouse to manage digital tokens representing traditional securities.
The SEC Gives a DTCC Pilot Initiative the Green Light
The federal agency’s approval is not just a mere nod; it also lifts several traditional regulatory requirements, including those concerning the fundamental reliability and security standards of key market infrastructure and specific clear agency standards. Moreover, it places certain regulatory filings, such as the 19b-4 filings, on hold for this initiative.
In an announcement on social media, DTCC emphatically stated, “By using blockchain technology, DTCC plans to connect traditional finance (TradFi) with decentralized finance (DeFi), promoting a more resilient, inclusive, and efficient global financial system.” This vision highlights the intention to merge modern technological advancements with conventional practices, potentially reshaping the future landscape of finance.
Through this pilot, participants in the program will have the option to convert their conventional book-entry entitlements to blockchain-based tokens. However, for the pilot to function effectively, DTCC will be required to provide quarterly updates, detailing participant counts, the value of tokenized entitlements, blockchain involvement, any transaction outages, and instances where transactions were reversed.
The pilot will explore eligible securities, leveraging assets found in widely recognized index-tracking ETFs, U.S. Treasuries, and within the Russell 1000 index. By incorporating these securities, the pilot aims to gauge the practicality and security of blockchain technology in managing traditional assets.
The DTCC’s Tokenization Service Sparks Discussion
Under this new initiative, when a participant requests tokenization, the DTCC will remove securities from its centralized ledger and transfer them into a newly established digital omnibus account. Simultaneously, a corresponding token will be created in a registered blockchain wallet, effectively placing control in the hands of the participant.
This innovation is expected to minimize the urgency typically associated with the reconciliation process, allowing for entitlement transfers outside normal market hours. Importantly, it preserves the essential security measures required for the integrity of the nation’s financial system.
Furthermore, tokens generated through this process can be stored on approved public or private blockchains that meet the technical requirements set by DTCC. While the operational framework operates under a permissioned model, the blockchain ledgers will remain accessible to authorized parties.
Tokens can only be exchanged between wallets that have been successfully registered with the DTCC, ensuring a layer of security. The DTCC also plans to maintain a “root wallet,” which provides the capability to correct or reverse transactions in cases of errors or discrepancies.
As the initiative progresses, DTCC has indicated that it will disclose a list of supported networks in due course. This approach emphasizes the focus on how DTCC manages custody and control, rather than imposing a specific blockchain architecture. The agency has yet to provide additional details regarding this aspect.
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