The U.S. Securities and Exchange Commission has issued a no action letter that effectively clears the path for a pilot program allowing the tokenization of traditional securities within the existing market structure. The letter was granted to the Depository Trust Company, a core component of U.S. financial market infrastructure, in connection with its blockchain based securities tokenization initiative. The program allows eligible investors to convert certain securities entitlements held at DTC into tokenized representations that can be stored and transferred using approved blockchains and registered digital wallets. By providing no action relief, the SEC signaled it would not pursue enforcement under specific clearing agency and market infrastructure rules, provided the program operates as described. The move represents one of the most concrete regulatory acknowledgements to date that tokenization can coexist with established securities law frameworks when structured within regulated institutions.
Under the pilot framework, participants register with DTC on an approved blockchain and obtain a registered wallet capable of holding tokenized securities entitlements. When an investor opts in, DTC debits the corresponding securities from the participant’s account and mints a token reflecting the entitlement, which is delivered to the registered wallet. These tokens can then be transferred peer to peer among other approved participants without requiring direct instructions to DTC for each movement. Behind the scenes, DTC operates off chain monitoring software that scans blockchain activity and records token movements in its official books and records, ensuring continuity with existing custody and recordkeeping obligations. Participants also retain the ability to reverse the process through de tokenization, burning the token and restoring the holding as a traditional book entry. This hybrid structure is designed to capture blockchain benefits such as continuous settlement, cross border mobility, and programmability, while preserving centralized oversight and investor protections.
The SEC’s letter places clear boundaries around the relief, limiting it to a three year period following the launch of the program’s initial production phase. This time bound structure reflects the pilot nature of the initiative and gives regulators flexibility to reassess risks, governance, and operational resilience before extending or formalizing approval. The SEC cited detailed representations from DTC covering technological transparency, system resilience, disclosures, security eligibility, and contingency planning as the basis for granting the relief. While narrow in scope, the decision carries broader implications for the financial system. By allowing a central securities depository to tokenize assets without rewriting core securities law, the pilot establishes a regulatory template that other market infrastructure providers may seek to follow. If successful, it could accelerate the gradual migration of securities settlement and custody onto blockchain rails, reshaping post trade processes while keeping them anchored to regulated institutions.
