On December 11, 2025, the staff in the SEC Division of Trading and Markets granted an important no-action letter (NAL) to The Depository Trust Company (DTC).1 It allows DTC to provide certain securities tokenization services (Tokenization Services) for direct DTC participants (Participants). DTC’s plans for the Tokenization Services were foreshadowed in an earlier proposed rule change to the SEC by Nasdaq in September.2 Chairman Paul Atkins has repeatedly expressed his view that tokenization can benefit U.S. securities markets and that it has the potential to modernize market infrastructure. DTC enjoys a natural monopoly position in the U.S. as the only existing central securities depository (CSD), and it is designated systemically important. DTC Participants are primarily intermediaries that are SEC registered broker-dealers or certain U.S. and foreign banking entities.
Why Does This Matter?
When DTC starts offering the Tokenization Services in 2026, it will be the first time in the U.S. that tokenized security entitlements (Tokenized Security Entitlements) held through a CSD will be able to be held by Participants on public and private-permissioned blockchains — whether for themselves or their customers. Participants or customers of Participants (as permitted in arrangements with a Participant) will be able to use private key information to transfer Tokenized Security Entitlements from an on-chain wallet address that has been registered with DTC (Registered Wallet) to any other Registered Wallet address of a Participant.
The NAL relief preferences DTC in the marketplace by giving it significant regulatory advantages to engage in the Tokenization Services without having to conduct them in compliance with existing regulations under the Securities Exchange Act. These include the proposed rule change process that ordinarily subjects proposed changes to public notice and comment. Here, while the NAL is in place, DTC’s changes to the Tokenization Services will not be filed as proposed rule changes with the SEC for public notice and comment.
If other market participants seek to provide similar services in the U.S., it is uncertain whether the SEC or its staff will afford the same or similar relief. If not, the NAL could provide an immense, government-created competitive advantage to DTC over other market participants. It is unclear whether other market participants may attempt to challenge the NAL for this reason.
How Will the Tokenization Services Work?
A Participant wishing to use the Tokenization Services would first register one or more Registered Wallets with DTC on an approved blockchain for the purpose of holding tokens corresponding to Tokenized Security Entitlements. DTC would have a relationship only with the Participant itself in regard to Registered Wallets and the Tokenized Security Entitlements. A Participant with a Registered Wallet will be able to instruct DTC to tokenize the Participant’s security entitlement to “Subject Securities” (see What Securities Will Be Eligible? below) that are credited to the Participant’s regular DTC account. DTC would debit the Subject Securities from the Participant’s account and credit them to a digital omnibus account, an account on DTC’s centralized ledger that reflects the sum of all Tokenized Security Entitlements in all Registered Wallets. DTC would then mint and deliver to the Participant’s specified Registered Wallet tokens representing the Participant’s security entitlement to the Subject Securities. By virtue of this process, the Participant will convert a book-entry entitlement (i.e., a security entitlement recorded via a credit to the Participant’s account) into a Tokenized Security Entitlement (i.e., a security entitlement recorded using tokens on a blockchain). DTC would not give collateral or settlement value to Tokenized Security Entitlements, and the Tokenization Services would not integrate with DTC’s normal delivery-versus-payment processing, including for settlement obligations processed through National Securities Clearing Corporation.
A Participant with Tokenized Security Entitlements could transfer the tokens representing its security entitlements to the Subject Securities directly to the Registered Wallet of another Participant and would not be required to separately instruct DTC to cause the transfer. Any transfer of Tokens from one Registered Wallet to another Registered Wallet would be tracked by and visible to DTC. DTC would use LedgerScan, an off-chain software application of The Depository Trust & Clearing Corporation, to track the movement of the tokens between Registered Wallets by scanning the underlying blockchains. DTC anticipates that Participants and their customers will be able to transfer Tokenized Entitlements at any time (rather than only during DTC’s hours of operation) and that subject to other applicable legal requirements, the Tokenization Services will facilitate transacting on trading venues that support extended hours trading and allow transfers with other tokenized assets on a delivery-versus-payment basis.
Any Participant with a Tokenized Security Entitlement credited to a Registered Wallet may instruct DTC to detokenize by crediting the Subject Securities to its regular DTC account. Upon acceptance of such an instruction, DTC would burn the tokens in the Participant’s Registered Wallet, debit such Subject Securities from the digital omnibus account, and credit such Subject Securities to the Participant’s regular DTC participant account. At that point, the Participant would have a traditional security entitlement to the Subject Securities.
When Does DTC Plan to Launch the Tokenization Services?
The second half of 2026.
Who May Participate?
Almost any Participant may choose to participate in the Tokenization Services. Non-Participants cannot participate directly but may hold Tokenized Security Entitlements in a Registered Wallet and transfer between Registered Wallets if they are customers of a Participant and have established an arrangement with that Participant to do so.
Participants may maintain wallet addresses to hold proprietary positions in Tokenized Security Entitlements or for the benefit of customers. Participants are free to establish arrangements with their customers that would allow the customer to independently transfer Tokenized Security Entitlements between registered wallet addresses of Participants without involvement by any Participant. For example, such a customer could be a customer of a broker-dealer. However, any such arrangements must be established directly between the customer and the Participant. The NAL does not address potential interpretive issues for SEC registered broker-dealers regarding the net capital rule, customer protection rule, and margin requirements.
What Securities Will Be Eligible?
The NAL refers to eligible securities as the “Subject Securities.” The Subject Securities will be any securities in the Russell 1000 Index at the time the Tokenization Services launch (plus any additions to the index thereafter and notwithstanding any subsequent removal from the index); U.S. Treasury securities (i.e., bills, bonds, and notes); and exchange-traded funds that track major indices, such as the S&P 500 index and Nasdaq 100 index.
Is Issuer Consent Required?
No. Consent from a securities issuer is neither required nor contemplated. Any eligible securities (as described above) that are otherwise eligible for services at DTC may be tokenized (or detokenized) through Participant instructions to DTC.
Are the Blockchain Records the Official Records of Ownership?
No. The Tokenized Security Entitlements will not be native tokenized securities that are freely tradeable and transferrable. Instead, DTC’s official records of ownership of Tokenized Security Entitlements will be maintained as off-chain records in LedgerScan. On chain movement of tokens between Registered Wallets will be used to update the LedgerScan records, subject to Conditions Requiring Reversal and DTC’s “root wallet” (discussed immediately below).
Will Transfers On-Chain Be Irreversible?
No. In terms of on-chain activity, DTC would require that each eligible blockchain supports compliance-aware tokenization so that tokens are transferrable only to Registered Wallets and that DTC can take steps to address any erroneous entries, lost tokens, or malfeasance (“Conditions Requiring Reversal”).
DTC would have a “root wallet” on each blockchain with keys that it can use to convert, transfer, mint, or burn any of the Tokens, even without the private key for the Registered Wallet. These keys would allow DTC to act on any Tokens that have been the subject of Conditions Requiring Reversal. This override power would provide Participants with protections similar to those that exist with a centralized ledger. DTC would maintain robust security systems to maintain the storage of its keys. In particular, DTC would store the keys relevant for the Tokenization Services in cold storage except for any such keys that are necessary for daily operations.
What Blockchains and Tokenization Protocols Will Be Used?
It is not yet known. DTC says that it will not prescribe particular blockchains or tokenization protocols. Instead, it will prescribe objective, neutral, and publicly available requirements for both blockchains and tokenization protocols aimed at ensuring that the Tokenized Security Entitlements are transferrable only to Registered Wallets; DTC can take steps to address any Conditions Requiring Reversal; and tokens are maintained on blockchains that are reliable, resilient, secure, subject to robust consensus and governance mechanisms, and where LedgerScan is able to view and record transactions to maintain the necessary tokenization books and records. DTC will use these and other evaluation criteria to make available to Participants a list of public and private distributed ledgers on which a Registered Wallet may be maintained.
What Commercial Law Will Apply?
The commercial law for the planned tokenized holding system is not new. The registered owner for all of the securities will continue to be DTC’s nominee, Cede & Co., just as it is today. Uniform Commercial Code Article 8 will continue to apply, as it does now, and DTC will act as a securities intermediary in respect of the Tokenized Security Entitlements for Participants.
How Long Will the NAL Relief Last?
The NAL relief commences on the date that DTC launches the Tokenization Services. It will automatically terminate three years from that date. That said, DTC clearly states in its incoming letter to the SEC requesting the relief that DTC intends for the Tokenization Services to extend beyond the three-year effectiveness of the NAL and that DTC will take regulatory steps over time, as needed, to continue providing the Tokenization Services.
What Regulations Will Not Apply That Otherwise Would?
The NAL provides unprecedented relief from core regulations that otherwise apply to registered clearing agencies and are designed to promote investor protection through, among other things, a requirement to file proposed rule changes with the SEC (which afford the public the opportunity to comment), systems testing and resumption requirements, default management, consultation of Participants and other stakeholders, and governance controls on the use of core service providers. Specifically, the NAL relief covers requirements under the Securities Exchange Act that are found in Section 19(b) of the Securities Exchange Act and Rule 19b-4 thereunder, Regulation SCI, the requirements in Rules 17Ad-22(e)(1) – (23) and Rules 17Ad-25(i) and (j). These are referred to in the NAL as the “Subject Provisions.”
Can Others Rely on the NAL Relief?
No. While NALs can signal broader policy agendas the SEC wants to promote, the staff issues them based on the particular facts and representations of the applicant, and the relief is available only to the applicant unless the letter expressly states otherwise. This NAL applies only to DTC and does not directly provide relief to any other market participant. As a result, firms seeking to provide the same or similar services that implicate clearing agency status under the Securities Exchange Act and the application or Reg. SCI and the other Subject Provisions cannot directly rely on this NAL. They will need to obtain separate relief or comply with applicable regulatory requirements. Whether the SEC or its staff will extend similar relief to market participants beyond DTC in the future is unknown, which raises potential competitive and market structure considerations.
1 The NAL is available here.
2 Securities Exchange Act Release No. 103989 (September 16, 2025), 90 FR 45426 (September 22, 2025)(Notice of Filing of Proposed Rule Change to Amend the Exchange’s Rules to Enable the Trading of Securities on the Exchange in Tokenized Form), https://www.govinfo.gov/content/pkg/FR-2025-09-22/pdf/2025-18305.pdf.