Blockchain Gets The Gate Pass To Enter US Financial Markets
There could be lessons here for India on how new-age financial assets, such as cryptos, might be integrated into current rules and regulations.
The Gist
The SEC is piloting a program allowing select stocks and bonds to trade on blockchain, marking a significant regulatory shift.
- The program lets the Depository Trust and Clearing Corporation test digital tokens representing liquid securities.
- While limited in scope, it could enhance market efficiency and reduce operational complexities.
- This experiment contrasts with crypto platforms aiming for direct tokenized trading, highlighting regulatory preferences for existing frameworks.
US market regulators moved closer last week to allowing the trading of a few stocks, bonds and Treasuries on blockchain platforms.
The Securities and Exchange Commission (SEC) chairman Hester Peirce made it clear that while this programme is a pilot, it could turn out to be an important event in moving markets on blockchain.
The approval allows the Depository Trust and Clearing Corporation, which handles the US market’s clearing and settlement process, to run a test programme in which a few highly liquid stocks, exchange-traded funds and government securities can be represented as digital tokens on approved blockchains.
Let’s understand these tokens and why this move is important.
First, they are not assets like their underlying, though they represent the same legal securities investors already own, with the same rights and protections.
And second, the pilot is limited in scope and time, but it marks the first time the US regulator has formally allowed core market infrastructure to recognise and record securities on a blockchain.
A Practical Test
This regulatory experiment in the US has triggered a wider global debate on how far traditional markets should go in adopting blockchain-based systems.
Supporters see this as a practical move rather than a leap of faith. Blockchain could speed up settlement, reduce back-office complexities and allow assets to trade beyond standard market hours.
For regulators, it’s more about experimenting with the benefits of blockchain without changing how markets fundamentally work.
And this differs from the ambitions of several crypto platforms such as Coinbase, Robinhood and Kraken, which are pushing to offer tokenised versions of popular stocks directly to users.
Their argument, as we wrote a few weeks ago on The Core, is that blockchain-based trading can make markets more accessible and operate around the clock.
These platforms intend to use blockchain itself as the marketplace, where investors from across the world interact directly with tokens outside regulatory oversight.
Global Adoption
The SEC’s stance so far suggests that it is more comfortable allowing tokenisation within existing, regulated market frameworks than endorsing products built on crypto platforms.
That distinction is important because it could also give directions to other regulators around the world.
So far, Indian regulators have taken a conservative view on crypto-linked financial products.
If an Indian resident buys a tokenised version of a US stock on an overseas platform, questions arise immediately: Is it treated as a security, a digital asset, or something else altogether? Who regulates it, and which laws apply if something goes wrong?
Restrictions in India
There is also a capital control at play here. Regulators in India allow only limited overseas investments.
If Indians are allowed to take delivery of tokenised stocks on international platforms, it could complicate monitoring and enforcement, especially when the lines between stocks and crypto assets are not clear.
This partly explains why Indian authorities have preferred to focus on strengthening regulated market infrastructure rather than allowing a parallel system to develop.
That does not mean India could ignore tokenisation altogether. If the US pilot shows that blockchain can improve settlement efficiency and reduce operational risk without weakening investor protection, Indian institutions may eventually explore similar uses.
Any such move, however, is likely to stay within the exchange-depository framework rather than opening the door to crypto-style stock trading.
Risk Factors
While blockchain may change the form in which securities are traded, it does not remove core risks around disclosure and enforcement.
Regulators’ primary concern is that retail investors may struggle to understand what they truly own when assets are tokenised and traded outside familiar systems.
For now, the SEC’s experiment has kick-started a new conversation. It signals openness to innovation, but only within some pre-existing lines.
There could be lessons here for India on how new-age financial assets such as cryptos, might be integrated into current rules and regulations.
In short, blockchain may find a role in market infrastructure over time, but retail-facing tokenised stock trading is unlikely to arrive in India anytime soon.
This series is brought to you in partnership with Algorand.
