On May 27, 2026, the U.S. Securities and Exchange Commission (the “SEC”) issued an exemptive order granting Paxos Securities Settlement Company, LLC (“PSSC”) temporary registration as a clearing agency under Section 17A of the Securities Exchange Act of 1934 (the “Order”). The Order permits PSSC to offer a central securities depository and securities settlement system through a blockchain-enabled settlement system operating on a private, permissioned ledger for a limited category of securities while receiving temporary exemptive relief from certain statutory requirements for a period not exceeding 18 months.
The Order represents another step by the SEC toward facilitating the modernization of capital market infrastructure via distributed ledger technology. At the same time, the relief is narrowly tailored and subject to important limitations. Notably, the SEC has effectively provided temporary approval of a new settlement rail while preserving the existing issuance and custody framework. The Order allows for the introduction of a new settlement stack while remaining interoperable with the Depository Trust Company (“DTC”).
PSSC applied for clearing agency registration in July 2025. Following the notice and comment period, SEC instituted proceedings, and posted amendments to the application, the SEC approved PSSC’s application and granted temporary registration. The SEC also provided limited exemptive relief from Sections 17A(b)(3)(A) and (F) of the Exchange Act as part of the temporary registration framework.
PSSC is authorized to provide clearance and settlement services as a central securities depository and securities settlement system for specified eligible securities. Specifically, the Order authorizes PSSC to:
The Order contemplates a controlled operational environment in which the SEC can evaluate the firm’s model and compliance framework before determining whether broader or permanent relief is appropriate.
The Order grants temporary exemptive relief from Exchange Act Sections 17A(b)(3)(A) and (F), provisions relating to organizational capacity and the safeguarding of securities and funds. The SEC concluded that temporary registration is appropriate while it evaluates PSSC’s operational experience in a live environment.
The Order does not approve PSSC to provide full clearing agency services or act broadly as a tokenized securities settlement platform. If PSSC decides to provide additional clearing agency services, perform other clearing functions, settle different categories of securities, or materially expand its operational model, it would need to amend its Form CA-1 application and seek review and approval from the SEC.
Traditional Model | PSSC Model |
DTC records beneficial ownership changes | PSSC records ownership changes on its ledger |
Settlement occurs through traditional depository processes | Settlement occurs on Paxos’s permissioned distributed ledger technology (“DLT”) |
DTC maintains custody of the securities | DTC still maintains custody of the securities underlying the ledger entitlements |
This approach is meant to allow a DLT-based settlement layer to integrate into the existing post-trade ecosystem.
The SEC’s approval is limited to “Eligible Securities.” Since the definition of Eligible Security is tied to DTC’s existing book-entry services, the Order does not create a framework for the settlement of all tokenized securities or digital assets. Rather, PSSC’s approved model remains tethered to the existing DTC clearance and settlement infrastructure and currently only applies to securities that qualify for DTC eligibility and custody services.
An “Eligible Security” is a security that PSSC affirmatively accepts for settlement services, based on factors such as participant demand, issuer information availability, and reliable pricing information; and is accepted by DTC as an Eligible Security and receives DTC book-entry services. If DTC later removes a security’s eligibility, it automatically ceases to be an Eligible Security at PSSC.
In addition, PSSC participants may only settle with counterparties that the PSSC participants have pre-approved. Any trade submitted to PSSC that does not involve an established preapproved counterparty is rejected. Furthermore, unlike a traditional central counterparty-based settlement, participants bear direct bilateral credit exposure only to their approved counterparties—PSSC does not interpose itself as a central counterparty and extends no intraday or overnight credit. In other words, it does not act as the seller to every buyer and a buyer to every seller. It does not interpose itself in between all transactions to mitigate counterparty risk. In the PSSC system, there is full counterparty settlement risk.
The Order demonstrates the SEC’s willingness to permit innovative settlement infrastructure within the existing regulatory framework rather than requiring a wholly separate regime for blockchain-based settlement systems. The Commission expressly approved a model designed to leverage distributed ledger technology while remaining subject to existing clearing agency regulation.
The Order provides a potential roadmap for future market participants seeking to use blockchain-based distributed-ledger systems to improve settlement efficiency, reduce operational friction, and modernize post-trade processing. Although the Order is entity-specific, it offers insights into the types of governance, risk management, and operational controls that the SEC expects to see from next-generation settlement platforms.
Of note, because the approval was issued pursuant to an exemptive order, it applies only to PSSC. Other market participants cannot rely on the Order as precedent establishing a general exemption or regulatory safe harbor for blockchain-based settlement systems. Any other applicant would need to pursue its own regulatory approvals.
The approval is confined to the activities described in PSSC’s application. The SEC specifically notes that if PSSC later seeks to perform additional clearing agency functions or settle other categories of securities, it would need to amend its application and potentially submit additional rule filings.
PSSC remains subject to the Exchange Act and clearing agency regulatory framework. The SEC’s approval does not eliminate ongoing obligations relating to governance, operational resilience, safeguarding of securities and funds, risk management, and compliance.
Market participants involved in the facilitation of tokenized securities trading, alternative settlement systems, digital asset infrastructure, and post-trade technology should closely monitor PSSC’s implementation during the temporary registration period. The SEC’s experience supervising the platform may influence future policy decisions regarding distributed ledger-based clearing and settlement models.
The SEC’s approach remains incremental, highly conditioned, and appears to be focused on supervised pilot-type implementations that do not disrupt the current system.
The Order marks a meaningful development in the modernization of U.S. securities settlement infrastructure and provides a potential blueprint for regulated use of distributed ledger technology in post-trade markets. However, the relief is intentionally narrow: it is temporary, entity-specific, and limited to the activities described in PSSC’s application. Accordingly, the Order is best viewed as a carefully controlled incremental step rather than a wholesale shift.