Can on-chain stocks gain SEC approval? Next week's meeting will determine how this trillion-dollar market will transform traditional finance.

Author: Blockchain Knight

On December 4, the SEC Investor Advisory Committee held a special meeting to publicly discuss for the first time the long-avoided question of "how publicly traded stocks on the blockchain should operate".

Architects from Nasdaq, BlackRock, Coinbase, and other institutions gathered to discuss the rules for the issuance, trading, and settlement of equity tokenization, with a core focus on "how to make tokenized stocks and Apple stock follow the same standards within the existing regulatory framework."

The timing of the meeting highlights regulatory pressure, as Nasdaq has submitted a formal proposal to trade tokenized versions of listed stocks alongside traditional stocks on the same trading book, arguing that blockchain settlement need not be separated from the national market system.

The SEC commissioner has previously made it clear that tokenization will not change the nature of assets, and tokenized securities will still be subject to full federal regulations. This meeting focused on the implementation details of this framework, such as ownership, compatibility with the NBBO mechanism, and the feasibility of short selling.

Nasdaq's "system within" approach is the most representative. Tokenized shares share CUSIP codes, execution priorities, and economic rights with traditional shares. The blockchain only replaces the back-end ledger, while front-end regulatory rules remain unchanged. Issuers are still registered under the Securities Act, exchanges operate under the Exchange Act, DTC is responsible for settlement guarantees, and trading still contributes to the best bid-ask-ask (NBBO) in the country.

DTC is building its blockchain infrastructure, and if all goes well, real-time transactions may begin in the third quarter of next year. Under this model, transfer agents maintain the blockchain register according to existing standards, with only the underlying database differing.

The meeting will focus on clarifying a key, often overlooked, distinction between native tokenization and encapsulated tokenization. Native tokenized shares are issued by the issuer and put on-chain, granting holders full voting rights and dividend rights; while encapsulated tokens, commonly found on offshore platforms, only provide economic exposure and lack core shareholder rights.

Nasdaq used the European market as an example to warn of risks, noting that tokens tracking Apple were severely decoupled from the underlying stock price, and investors only realized they were holding synthetic derivatives after the crash.

SIFMA emphasizes that tokenization must retain full legal and beneficial ownership, otherwise it will become a completely different product.

Regulatory friction is clearly stratified. Low-friction scenarios include the model proposed by Nasdaq, where issuers register and list tokenized shares, which are then swapped with traditional shares. Current regulations allow this to be considered a settlement technology innovation. High-friction scenarios include 24/7 trading and trading on non-NMS blockchain venues (which undermine the NBBO mechanism).

The Senate's Responsible Financial Innovation Act has explicitly classified tokenized equity and debt as securities, consolidating the SEC's regulatory power. Attempts to circumvent regulations will face legislative resistance.

This meeting was not about setting rules, but rather about providing the SEC with an assessment framework. The core disagreement remained on whether to integrate blockchain into the existing system or build a new one. It marks the transition of equity tokenization from industry discussion to regulatory review, and the final direction will depend on the balance between technological innovation and existing regulations.