Every few years, the capital markets are declared to be on the brink of disruption. And every few years, something interesting happens instead.
The Securities and Exchange Commission’s (SEC) recent release regarding the New York Stock Exchange’s (NYSE) proposed rule change (Release No. 34-105260) to permit the trading of tokenized securities is the latest example. It has all the language of innovation, including blockchain, tokenization, and digital representation, but the structure tells a different story.
Under the proposal, tokenized securities must look exactly like their traditional counterparts in every way that matters. They must have the same CUSIP, the same economic and voting rights, the same trading priority, and the same clearing and settlement through the Depository Trust Company (DTC). It is a different wrapper within the same system.
If that sounds familiar, it should.
The U.S. securities markets have been through this kind of transformation multiple times before, and the pattern is remarkably consistent.
When Congress enacted the Securities Exchange Act of 1934, it did not create innovation. It created trust. Section 3(a)(10) defined securities broadly enough to endure changes in form, and Section 11A, added in 1975, laid the groundwork for a national market system that could evolve technologically without fragmenting structurally.
The 1975 amendment is worth focusing on. It was a direct response to what was then called the paperwork crisis, when physical stock certificates were moving so slowly through the system that trades could not settle on time. The solution was not to abandon the system. Rather, it was to modernize it. The SEC was directed to facilitate a unified, efficient market structure, which ultimately led to centralized clearing, the expansion of DTC, and the foundation for everything we now take for granted.
Fast forward a few decades, and the markets faced another transformational moment: decimalization. Prior to 2001, stocks traded in fractions such as eighths and sixteenths. Moving to decimals narrowed spreads, increased competition, and improved transparency. It also caused significant disruption to market makers …
Full story available on Benzinga.com
