As blockchain and similar technologies see increasing interest throughout the global financial system, Nasdaq is taking an important step to support the evolution of the markets.
Recognizing the potential to deliver benefits to issuers, investors, and economies globally, Nasdaq announced today that it has submitted a filing to the U.S. Securities and Exchange Commission (SEC) to facilitate the trading of tokenized securities on its markets.
Specifically, Nasdaq has proposed the ability for member firms and investors to tokenize the equity securities and exchange traded products (ETPs) that they trade on the Nasdaq Stock Market, with the goal of advancing financial innovation while maintaining stability, fairness, and investor protections.
Nasdaq’s tokenization proposal seeks to draw upon the lessons and insights gained from decades of experience in both traditional finance and digital assets.
Chuck Mack, Senior Vice President of North American Markets for Nasdaq, sat down with the Nasdaq Newsroom to discuss this new proposal and the potential of blockchain-based securities.
Q&A with Chuck Mack, Nasdaq’s Senior Vice President of North American Markets:
Nasdaq Newsroom: Simply put, what is Nasdaq looking to accomplish with this new SEC filing?
Chuck Mack: Nasdaq’s proposed rule changes would enable member firms and investors to trade tokenized versions of equity securities and exchange traded products (ETPs) on our markets. Our goal is to integrate digital assets into Nasdaq’s current infrastructure and systems, which will advance financial innovation while maintaining stability, fairness, and investor protection.
Specifically, the filing provides a simple and clear approach to enable trading of tokenized securities under the existing regulatory frameworks, utilizing the Depository Trust Corporation (DTC) to clear and settle trades in token form.
Here’s how it would work: A security may be traded on Nasdaq in either traditional form or tokenized form.
- The traditional form is a digital representation of ownership and rights, but without utilizing distributed ledger or blockchain technology
- The tokenized form is a digital representation of ownership and rights, utilizing distributed ledger or blockchain technology
Upon entry of the order, a participant can select to clear and settle in regular or tokenized form, and the exchange will communicate the participant’s instruction to the DTC. All shares will be traded on Nasdaq with the same order entry and execution rules, has the same identification number (CUSIP) as, and gives its holder the same rights and benefits as a traditional share.
Nasdaq Newsroom: Backing up for a second, what exactly are tokenized securities?
Chuck Mack: There are two components here: token and security.
In this context, a token is any digital representation of an asset that is created and recorded on a blockchain—the data storage method first popularized by bitcoin. This could include a coin like bitcoin itself, it could include a dollar-pegged token such as the stablecoin Tether (USDT), or it could be a blockchain-based representation of ownership or rights in any other form.
A security, meanwhile, is a tradable financial asset representing ownership or credit to a corporation—think a share of stock or a bond.
Therefore, tokenized securities are representations of these traditional financial tools that have been recorded on a blockchain or other distributed ledger technology.
From our perspective, it’s important to emphasize that while tokenized securities are technologically distinct from those traded today on Nasdaq’s market, under our proposal they still represent the same store of value as their traditional counterparts.
After all, we’re already living in a digital world. Stocks and other securities today are represented and recorded through digital means, so tokenization is just a different method of digitally representing an asset.
Nasdaq Newsroom: What are the key details of Nasdaq’s proposal that average investors should know?
Chuck Mack: Fundamentally, we’re proposing that we use the current infrastructure of U.S. markets to enable tokenized security trading.
There’s a lot of demand across the globe for Nasdaq-traded securities, and there’s this tokenization technology that has emerging interest. What we are proposing is to integrate the ability for market participants to have this tokenized digital representation of a security using the system they already know and trust.
The proposed rule changes would allow investors a choice: to select whether they want a traded equity or ETP to be represented in a tokenized form or a traditional digital form. If they select the tokenized method, then DTC will do the backend work of clearing and settling the trade, recording that asset as a blockchain-based token.
It’s important to note this trading would still take place under the SEC’s existing federal regulations ensuring fair and orderly trading.
That’s a key point we make in our filing: the U.S. has existing rules that don’t preclude different types of representation of a security. If you’re trading a stock and we’re having DTC tokenize it after the trade, then nothing is different from the perspective of how the market functions, how you trade, how you get your best execution, or how you buy or sell on your trading platform.
Importantly, both the traditional and tokenized types of shares would have the same value, the same rights and benefits, and the same market identification number.
At Nasdaq, we see the tokenization of securities as not only something that can be built within the existing frameworks and guidelines of the market, but also something that should be. That’s why this proposal is an important way to bring tokenization to the market: it will allow this new technology to evolve and be embraced, but it also ensures that the investor protections we have built up over multiple decades will stay intact.
Nasdaq Newsroom: Why is Nasdaq interested in tokenized securities in the first place?
Chuck Mack: In some respects, this is about responding to demand: many in the market, including Nasdaq, see tokenization as having potential to benefit investors, issuers, and the economy more broadly.
Blockchain technology can provide a number of potential efficiencies, including faster settlements, improved audit trails, and a more streamlined flow from order to trade to settlement. Additionally, once an equity asset is on a blockchain, it has the potential to be used in new ways.
All of this potential means there’s excitement around this technology, and we’re hearing from the market that there is demand for a way to trade tokenized securities. We want to be a part of the solution, helping markets evolve to continue to meet investor needs and making sure it’s done right.
Past market failures teach us that it is imperative to ensure governance, resilience, and investor protection are embedded from the outset.
Nasdaq is committed to being the trusted fabric of the global financial system, and doing so means changing with the markets and embracing new technologies in investor-first ways that foster capital formation. Ultimately what that means is that it comes down to choice. If investors and market participants express demand for a particular approach, and we can implement it in a way that preserves market integrity, then we want to give them that choice.
Nasdaq Newsroom: Why did Nasdaq propose this particular model for bringing tokenized securities trading to the market?
Chuck Mack: We want to make the process of trading tokenized securities straightforward and transparent for investors, while also drawing on the benefits of the current resilient and trusted equities trading ecosystem. The proposed rule change is designed to enable innovation within the current market infrastructure and structure, bringing new capabilities to investors while reinforcing the standards that make U.S. markets work, in particular:
- Scale & Complexity: U.S. equity markets are the deepest, most liquid in the world, processing billion of transactions daily. Any new system must operate at that scale
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- Investor Protection: U.S. equity markets have safeguards and oversight in place to maintain responsibility and accountability of firms involved in the transaction lifecycle, thereby ensuring shareholders’ rights, dividends and proxy voting.
Our proposal also explicitly looks to maintain tokenized security trading under the umbrella of existing systems to ensure price discovery, disclosure, and best execution. The goal is to ensure that these principles remain in place as the market evolves and modernizes.
Another motivation for evolving the current system is that we want to prevent a fractured market of different versions of the same assets across multiple blockchains, simultaneously offering tokenized securities trading but not working well together—especially if the rules do not apply equally. If that happens, transparency could be diminished, liquidity could be fragmented, and price dislocation would be likely.
Capital formation with investor protection is paramount to having a well-functioning market, which is essential to keeping the economy humming—at Nasdaq, we always say this comes down to liquidity, transparency, and integrity. We want to ensure we’re protecting those pillars as the market evolves and that’s what we set out to do with our filing.
Nasdaq Newsroom: Nasdaq recently announced changes to its Listings Standards, and there have been subsequent news reports regarding governance of crypto treasury companies. How does that relate to today’s announcement?
Chuck Mack: Each of these issues are separate from each other. First, we recently announced further enhancements to Nasdaq’s listings standards to address key liquidity and trading concerns of companies in today’s market environment. These enhancements are targeted primarily at certain microcap companies that exhibit lower liquidity profiles.
Second, we are aware of recent media reports regarding crypto treasury companies. Nasdaq has not implemented any changes or new rules regarding these companies. As with any market developments, Nasdaq consistently provides guidance to our listed companies on the applicability of our existing listing rules including shareholder approval rules applicable to any issuance of securities by listed companies.
And third, today’s announcement represents a separate filing to the U.S. Securities and Exchange Commission to facilitate the trading of tokenized securities on its markets.
While each of these issues is separate, there is a common thread that guides Nasdaq’s actions across the capital markets and that is towards our objectives of optimizing capital formation while protecting investors and ensuring market integrity.
Nasdaq Newsroom: So, what comes next for tokenized securities?
Chuck Mack: Our filing with the SEC will be published for comment and we are looking forward to hearing different perspectives in response. In fact, part of the reason for our filing is to foster debate in a very transparent way.
In parallel, our team at Nasdaq will be working closely with clients and stakeholders to explain our thinking and gather feedback on how best to move the industry forward.
Looking globally, it’s clear that the adoption of tokenization will be a broad conversation requiring coordination across the industry. Market infrastructure providers, regulators, issuers, asset managers, and financial technology firms will all have a role to play.
We welcome those discussions because this is ultimately about Nasdaq’s core purpose of advancing economic progress for all.
Economies thrive on innovation and participation, and those forces require market structures that reduce friction and align incentives. Our tokenization proposal represents a step forward in the evolution of the global financial markets.
