Nasdaq's Token Push Tests SEC's Regulatory Resolve

Nasdaq Inc. (NDAQ.O) has intensified its push for U.S. Securities and Exchange Commission (SEC) approval to tokenize stocks, positioning itself at the forefront of a regulatory and technological shift in equity markets. The exchange submitted a proposal on Sept. 8 to allow trading of digital tokens representing shares of publicly listed companies, a move that could streamline settlement times and expand market access while navigating a complex regulatory landscape. Matt Savarese, Nasdaq's head of digital assets strategy, emphasized the initiative's focus on "responsible innovation" during a CNBC interview, stating the exchange aims to collaborate swiftly with regulators to address public feedback and finalize the application.

The SEC's role remains pivotal, as the agency has faced mounting pressure to adapt its framework for crypto-related innovations. In a Nov. 21 letter, the World Federation of Exchanges (WFE)-a global industry body-urged the SEC to avoid exemptions that could let crypto platforms "bypass" established market safeguards. The WFE, which includes Deutsche Boerse (DB1Gn.DE) among its members, warned that tokenized equities could introduce integrity risks and erode investor protections if not subject to the same rules as traditional trading. This stance reflects a broader tension between crypto-native firms and traditional financial institutions, with the latter increasingly advocating for regulatory parity.

Nasdaq's proposal aligns with its broader efforts to modernize market infrastructure. The exchange recently deepened its partnership with fintech firm Revolut, expanding the use of Nasdaq AxiomSL-a regulatory reporting platform-to consolidate compliance workflows across Europe. Murray Laister, Revolut's head of group regulatory reporting, highlighted the technology's role in enabling scalable growth without compromising agility, a critical factor as the crypto sector expands. Such infrastructure investments underscore Nasdaq's strategy to bridge traditional finance and blockchain, leveraging its historical role as an innovator, including its shift from paper-based to electronic trading.

Industry reactions remain mixed. Proponents argue tokenized stocks could democratize access and enhance liquidity, with Galaxy Digital becoming the first Nasdaq-listed firm to tokenize its equity on the Solana blockchain in September. However, skeptics like Rob Hadick of Dragonfly Capital caution that tokenization on layer-2 networks might divert value from core crypto ecosystems, limiting broader adoption benefits. Savarese countered that the goal is to "bring tokenization into the mainstream" without disrupting existing systems, echoing Nasdaq's past transitions.

The SEC's response will shape the trajectory of tokenized equities. While Savarese expressed optimism about 2025 approval, regulatory scrutiny remains cautious. The WFE's letter and internal SEC reviews highlight concerns about market integrity, particularly as tokenized assets compete directly with traditional exchanges. Deloitte estimates tokenization could cut operational costs by 50% in equity markets, but risks such as cybersecurity threats and insider trading in decentralized environments must be addressed.

As Nasdaq navigates this crossroads, its approach-balancing innovation with compliance-could set a precedent for global markets. The outcome will hinge on whether regulators view tokenization as a complementary evolution or a disruptive force requiring new guardrails.