Nasdaq Proposes Rule Change for Tokenized Stocks
Nasdaq has requested a rule amendment from the U.S. Securities and Exchange Commission that would permit the stock exchange to register stocks in a tokenized format, as detailed in a filing on Monday. This move comes as there is an increasing trend toward the tokenization of assets.
The exchange, known for listing companies like Apple, Google, Amazon, Meta, and other tech leaders, plans to offer clients the option to trade securities through a traditional digital representation of ownership, either with or without blockchain support.
“A participant that wishes for its order to clear and settle in tokenized form shall notate its preference upon entry of the order in the system by selecting a flag that the exchange designates for this purpose, in accordance with the exchange’s procedures,” Nasdaq stated in its filing. “When a participant enters an order with the tokenization flag selected, the exchange will communicate the participant’s clearance and settlement instruction to The Depository Trust Company.”
Nasdaq’s initiative contributes to the growing enthusiasm for tokenization among both traditional finance and digital asset-centric companies. In June, Robinhood introduced trading for European users of U.S.-listed stocks and exchange-traded funds as tokens on Arbitrum, the Ethereum layer-2 scaling network.
In May, crypto exchange Kraken revealed its own tokenization strategy through a partnership with Backed, utilizing the Solana blockchain. This offering is expected to encompass more than 50 U.S.-listed stocks and exchange-traded funds.
“Over time, U.S. equity markets have thrived while absorbing successive waves of technological innovations,” Nasdaq noted in its filing, adding: “The existing regulatory structure mandated by Congress applies to tokenized securities, regardless of whether such securities possess certain unique characteristics (like the ability to be settled on a blockchain), much like it did when the SEC permitted securities to be decimalized and electronified and when exchange-traded funds and other novel securities were authorized decades ago.”
“The exchange believes the markets can use tokenization while continuing to provide the benefits and protections of the national market system,” it further emphasized.
Crypto exchanges Binance and the now-defunct FTX explored tokenized stock trading during the crypto boom of the pandemic, but the concept waned in visibility amid regulatory scrutiny until BlackRock CEO Larry Fink referred to tokenization as “the next generation for markets” in 2022.
In its second-quarter conference call in July, Robinhood CEO Vlad Tenev mentioned tokenization close to a dozen times, referring to it as “the biggest innovation in capital markets in over a decade” during the discussion.
