The U.S. Securities and Exchange Commission on May 28, 2026, granted Paxos Securities Settlement Company (PSSC) temporary registration as a clearing agency under Section 17A of the Securities Exchange Act of 1934. The order makes PSSC the eighth registered clearing agency and central securities d...
"Our clearing agency registration is the result of seven years of work with the SEC, beginning with our No-Action Letter in 2019 and the settlement pilot we operated with some of the world's largest and most sophisticated financial institutions." — Charles Cascarilla, CEO and Co-Founder, Paxos
The U.S. Securities and Exchange Commission on May 28, 2026, granted Paxos Securities Settlement Company (PSSC) temporary registration as a clearing agency under Section 17A of the Securities Exchange Act of 1934. The order makes PSSC the eighth registered clearing agency and central securities depository (CSD) in the United States — and the first blockchain-native firm to hold that designation.
The registration permits PSSC to operate a blockchain-enabled settlement system on a private, permissioned ledger for a limited category of DTC-eligible securities. The temporary period runs 18 months. During that window, the SEC will evaluate PSSC's live operational performance before deciding on permanent registration. The approval follows seven years of regulatory engagement, beginning with a 2019 No-Action Letter and a February 2020 pilot that cleared and settled U.S. equities daily for institutions including Bank of America, ABN Amro, Nomura's Instinet, and Societe Generale.
The significance extends beyond a single company. The financial services industry spends an estimated $133 billion annually on post-trade clearing and settlement, according to Talos. The shift from T+1 to same-day or near-instant settlement has the potential to unlock billions in trapped collateral — capital currently immobilized in risk buffers during the settlement window. PSSC's approval opens a regulated pathway for that structural change.
The SEC order is a temporary exemptive order, not a permanent registration. According to analysis by Morrison Foerster, the order grants PSSC temporary exemptive relief from Exchange Act Sections 17A(b)(3)(A) and (F) — provisions relating to organizational capacity and safeguarding of securities and funds. The SEC justified the exemptions as appropriate "while it evaluates PSSC's operational experience in a live environment."
The registration is valid for a period not exceeding 18 months. Any expansion of PSSC's operations — additional clearing functions, different security categories, or material operational changes — requires amending the Form CA-1 application and obtaining separate SEC approval.
PSSC's eligible securities are defined by a critical constraint: a security must be accepted by DTC (the Depository Trust Company, a subsidiary of DTCC) as an eligible security and receive DTC book-entry services. If DTC removes a security's eligibility, it automatically ceases to qualify at PSSC. This means the order does not create a framework for settlement of all tokenized securities or digital assets. PSSC's approved model remains structurally tethered to the existing DTC clearance and settlement infrastructure.
PSSC is also not a central counterparty (CCP). Unlike DTCC's National Securities Clearing Corporation (NSCC), PSSC does not interpose itself between buyer and seller to absorb counterparty risk. Participants bear direct bilateral credit exposure to approved counterparties. PSSC extends no intraday or overnight credit.
Prior to this registration, Paxos converted in December 2025 from a New York Department of Financial Services limited purpose trust charter to a national trust charter under Office of the Comptroller of the Currency (OCC) oversight. PSSC is also supervised by FIN-FSA in Europe and MAS in Singapore.
PSSC operates a bilateral delivery-versus-payment (DvP) settlement model on a private, permissioned ledger — the Paxos Ledger.
The mechanics:
Settlement requires pre-approved counterparties. Trades without established approval are rejected. Bilateral netting is supported during the temporary period; multilateral netting is planned for a future phase.
According to Ledger Insights, the earliest PSSC could begin live operations under the new registration is March 2027. DTCC, by comparison, plans limited production trades on its own tokenization service in July 2026, ahead of a broader October 2026 launch.
The economic case for blockchain-based clearing rests on three vectors: capital efficiency, operational cost reduction, and risk compression.
Capital Efficiency: The U.S. equity market transitioned to T+1 settlement in May 2024, compressing daily margin requirements by approximately $4 billion, according to DTCC data. But capital still sits in clearing accounts to cover potential settlement failures during the remaining 24-hour window. Same-day or near-instant settlement releases this trapped collateral, allowing institutions to redeploy it immediately. For broker-dealers managing large institutional order flows, the improvement to Return on Equity (ROE) is material.
Operational Costs: The securities industry spends an estimated $133 billion annually on post-trade clearing and settlement, according to Talos head of legal Andrew Murphy. A 2014 Oliver Wyman report estimated $80 billion in annual post-trade costs — the increase reflects market growth and inflation. Blockchain-based settlement eliminates multiple reconciliation steps, reduces fail-to-deliver penalties, and compresses the intermediary chain from custody banks, transfer agents, and clearinghouses into a single ledger.
Risk Compression: Traditional T+1 settlement creates a 24-hour window of counterparty exposure. Each day of settlement delay adds systemic risk — particularly during market dislocations. In the absence of a CCP intermediary, PSSC's bilateral model shifts that risk profile: counterparty exposure exists, but the settlement window approaches zero.
The question is whether the cost savings are large enough to justify switching from DTCC infrastructure that processes $3.8 quadrillion in securities annually. For Paxos, the answer depends on attracting sufficient volume from broker-dealers who see a direct economic benefit in lower margin requirements and faster capital turnover.
DTCC is not standing still. On May 27, 2026 — one day before the Paxos approval — DTC announced a partnership with the Stellar Development Foundation to tokenize DTC-custodied assets on the Stellar public blockchain. The initial scope covers Russell 1000 index ETFs, U.S. Treasuries, bonds, and other liquid securities. DTCC plans limited production trades in July 2026, with a broader service launch in October 2026 and full availability on Stellar in H1 2027.
The DTCC-Stellar initiative follows a December 2025 SEC No-Action Letter permitting DTC to launch a tokenization service for traditional financial assets. This multi-chain strategy allows tokenized assets to move across different blockchain networks rather than remaining tied to a single platform.
Separately, DTCC has been collaborating with Fnality since 2023 on DLT-based models for atomic, real-time DvP settlement. Fnality's tokenized payment rail provides the cash leg, while DTCC's Digital Launchpad provides the securities leg. The collaboration expanded into DTCC's broader Digital Launchpad initiative, which aims to serve as a multi-chain orchestration layer.
The competitive dynamic creates a two-track market:
Neither approach has yet demonstrated sustained institutional volume at scale under the new frameworks. The next 18 months — the duration of PSSC's temporary registration — will serve as the critical test period.
Paxos has raised over $500 million from investors and operates across multiple business lines. Its stablecoin infrastructure powers PayPal USD (PYUSD), Global Dollar (USDG), Pax Gold (PAXG), and Pax Dollar (USDP). Key institutional relationships include PayPal, Interactive Brokers, Mastercard, and Mercado Libre.
The prior settlement pilot under the 2019 No-Action Letter involved ABN Amro, Bank of America, Nomura's Instinet, and Societe Generale. These institutions participated in daily clearing and settlement of U.S. equities on blockchain from February 2020 onward.
Paxos holds regulatory licenses in three jurisdictions: OCC national trust charter (U.S.), FIN-FSA supervision (Europe), and MAS oversight (Singapore). This multi-jurisdictional footprint positions the company for cross-border settlement use cases, though the current SEC registration applies only to U.S. equities.
Several structural constraints limit the near-term impact of the PSSC approval:
DTC Dependency: PSSC's eligible securities are defined by DTC's book-entry services. The system does not enable settlement of natively tokenized securities or digital assets outside DTC's existing framework. This is a blockchain wrapper on top of legacy infrastructure, not a replacement for it.
No CCP Function: The absence of central counterparty guarantee means participants accept bilateral credit risk. For smaller broker-dealers or those with weaker credit profiles, this may be a barrier to adoption. DTCC's NSCC guarantee remains a structural advantage for broad market participation.
18-Month Window: The temporary nature of the registration creates regulatory uncertainty. If the SEC does not grant permanent registration, institutional participants face migration risk. This may slow adoption during the evaluation period.
Volume Chicken-and-Egg: Paxos needs institutional volume to demonstrate viability. Institutions need certainty of permanent registration before committing meaningful flow. The 18-month window compresses both timelines.
March 2027 Start: According to Ledger Insights, the earliest live operations begin in March 2027, giving DTCC a potential 5-8 month head start on its own tokenization service.
The Paxos clearing agency registration is a regulatory milestone, not a market transformation — at least not yet. The approval validates seven years of engagement with the SEC and establishes the legal framework for blockchain-based equity settlement in the United States. But the temporary nature of the registration, the dependency on DTC infrastructure, and the absence of CCP guarantees constrain the near-term competitive threat to DTCC.
The more consequential development may be the competitive response the approval has triggered. DTCC's rapid moves — the Stellar partnership, the Digital Launchpad, the Fnality collaboration — suggest the incumbent recognizes that post-trade infrastructure is entering a period of structural change. Whether that change comes from Paxos, from DTCC's own blockchain initiatives, or from some combination of both, the economic logic of faster, cheaper settlement is difficult to argue against.
The industry's $133 billion annual post-trade bill is the gravitational force pulling all parties toward the same destination: a world where settlement happens in seconds, not hours. Paxos now has a regulated seat at that table. What it does with the next 18 months will determine whether it earns a permanent one.