SEC approves DTCC pilot to record U.S. securities on blockchain

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.

Following this approval, sources close to the situation noted that the pilot will enable the clearinghouse to record specific securities on selected blockchains effectively. This decision marks the first time in history that the main part of the American market has been exposed to the use of a blockchain-based record-keeping system. 

In a No-Action Letter made public on Thursday, December 11, the federal government agency clarified that it would not implement any action if the Depository Trust Company, DTCC’s clearing subsidiary, mints and burns blockchain-based tokens that reflect security entitlements already present in its custody. 

Essentially, this statement suggests that the SEC is permitting the clearinghouse to create and destroy blockchain tokens representing the securities it already holds, through this pilot, which is scheduled to commence sometime in the latter half of 2026. 

The SEC gives a DTCC pilot initiative the green light 

Reports highlighted that the federal agency’s approval withdraws some usual requirements, including a key SEC regulation regarding the reliability and security of important market infrastructure, certain standards for clearing agencies, and 19b-4 filings.

In an X post, DTCC pointed out that, “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.”

According to the firm, participants will have the opportunity to decide whether to convert their book-entry entitlements to blockchain-based, tokenized entitlements through this initiative.

However, for this move to be effective, the DTCC is required to submit quarterly updates on several key aspects. This includes the number of participants, the value of tokenized entitlements, whether blockchains were used or not, any outages that occurred, the number of wallets registered, and any instances where the company exercised its authority to reverse transactions. 

Notably, the pilot initiative can utilize eligible securities, such as those found in leading index-tracking ETFs, U.S. Treasuries, and the Russell 1000.

The DTCC’s tokenization service sparks discussion among individuals 

When a participant requests a tokenization service, DTCC removes the securities from its centralized ledger and adds them to a new digital omnibus account. Afterwards, it generates a matching token in a registered blockchain wallet. The participant controls this wallet.

Following this report, sources acknowledged that such a tokenization service might alleviate the urgency for reconciliation and enable entitlement transfers to be conducted outside regular market hours. This takes place while still ensuring essential safeguard measures for the nation’s security system are practised.

Meanwhile, it is worth noting that these tokens can be kept on approved public or private blockchains that have fulfilled DTCC’s technology requirements. Additionally, the system performs its function under a permissioned setup, although the ledgers can be accessed.

It was also confirmed that tokens can only be transmitted between wallets that have been successfully registered with DTCC. Moreover, the firm possesses a “root wallet” that enables it to undo or correct transactions in the event of a mistake or wrongdoing.

The DTCC indicated that it will release a list of supported networks in the future. This illustrates that the regulations focus on how DTCC handles custody and control, rather than dictating a specific type of blockchain design. The company did not disclose further details on the matter.