In brief
- The No-Action Letter permits DTCC to mint and burn tokenized entitlements on approved blockchains without triggering certain clearing-agency or systems-compliance rules.
- Participants may shift eligible securities, including Russell 1000 stocks, Treasurys and major index ETFs, into blockchain-based wallets under a permissioned structure.
- DTCC must file detailed quarterly reports on usage, technology choices and any instances requiring transaction reversals as part of the pilot’s oversight conditions.
The SEC has given the clearinghouse that handles nearly all U.S. stock trades approval to test a three-year pilot that records certain securities on select blockchains, marking the first time the backbone of the American market has been allowed to run a blockchain-based recordkeeping system.
In a No-Action Letter issued Thursday, the SEC said it would not pursue enforcement if the Depository Trust Company, DTCC’s clearing subsidiary, mints and burns blockchain-based tokens that represent security entitlements already held in its custody.
In other words, the SEC will allow the clearinghouse to create and retire blockchain tokens that mirror the securities it already holds via the pilot, beginning sometime in the second half of next year.
The relief waives several requirements that would typically apply, including a key SEC rule governing the reliability and security of core market infrastructure, 19b-4 filings, and specific clearing-agency standards.
“By leveraging blockchain, DTCC aims to bridge TradFi and DeFi, advancing a more resilient, inclusive, and efficient global financial system,” DTCC said in a statement on X.
Under the program, DTCC participants may elect to convert their book-entry entitlements into blockchain-based “tokenized entitlements.”
The DTCC must report quarterly on the number of participants, the value of tokenized entitlements, the blockchains used or rejected, outage information, the number of registered wallets, and any instances where the firm exercised its reversal authority.
Eligible securities for the pilot include constituents of the Russell 1000, U.S. Treasurys, and major index-tracking ETFs.
How it works
When a participant requests tokenization, DTCC debits the securities from its centralized ledger and credits them to a new digital omnibus account. It then mints a corresponding token into a registered blockchain wallet controlled by the participant.
The tokenization service could reduce reconciliation requirements and enable entitlement transfers outside standard market hours, while maintaining the safeguards required for the country’s securities plumbing, it said.
The tokens can reside on approved public or private blockchains, provided the networks meet DTCC’s technology standards.
While the ledgers may be open, the system operates within a permissioned framework. Tokens can move only between wallets “registered” with DTCC, and the firm retains a “root wallet” that allows it to reverse or correct transactions in cases of error or misconduct.
The DTCC said it will publish a list of supported networks at a later date, indicating that the regulatory environment applies to DTCC’s custody and control processes rather than prescribing a specific type of blockchain architecture.
DTCC representatives did not immediately respond to a request for comment on that point.
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