The U.S. financial market infrastructure provider, The Depository Trust Company (DTC), is making a significant stride towards modernizing securities processing. The Securities and Exchange Commission (SEC) has granted DTC informal, conditional approval to pilot a tokenization service for certain assets it currently holds in custody. This marks a cautious but pivotal step in digitizing traditional financial markets, with an anticipated rollout in the second half of 2026.
The SEC's Measured Approval
The SEC's decision comes in the form of a "no-action" letter, signaling that staff would not recommend enforcement action against DTC for operating a "Preliminary Base Version" of its DTCC Tokenization Services. This approval is time-limited, comes with stringent conditions, and necessitates ongoing reporting, clearly framing it as a controlled experiment rather than a full regulatory endorsement. Crucially, the underlying securities will remain on DTC’s existing custody rails, and the tokenization service is designed as an alternative method to record a participant's "security entitlement," leaving the fundamental legal framework for indirectly held securities unchanged.
Operational Framework and Initial Safeguards
The proposed service allows DTC participants to opt in, where DTC would debit their eligible book-entry entitlement, credit a "Digital Omnibus Account," and then mint and deliver a token to the participant's registered blockchain wallet. Transfers of these tokens will be strictly limited to other registered wallets, with DTC maintaining full visibility into all movements. To ensure stability and security, the initial phase includes significant guardrails: eligible "Subject Securities" are restricted to highly liquid assets like Russell 1000 constituents, U.S. Treasury bills, and select index ETFs. Furthermore, tokenized entitlements will initially carry no collateral or settlement value, and DTC will implement robust risk controls, including OFAC compliance screening for wallets and requiring protocols that enforce distribution control and transaction reversibility. DTC is also committed to providing quarterly reports to SEC staff, detailing critical metrics and operational transparency.
Charting the Future of Digital Market Infrastructure
This conditional green light is positioned by DTC as a foundational step in a longer journey toward digitized market infrastructure. While the initial phase is highly constrained, it lays the groundwork for exploring benefits such as enhanced collateral mobility, 24/7 market access, and the advent of programmable assets. Any future expansion beyond the preliminary parameters, including broader security eligibility or assigning collateral value to tokenized entitlements, would necessitate further engagement and approval from SEC staff. This measured approach underscores a shared commitment to innovation within the financial landscape, balanced with essential regulatory oversight and risk mitigation.
