Regulation and Innovation: SEC Examines Nasdaq’s Proposal for Tokenized Stocks

Nasdaq Pushes Forward with SEC Approval for Tokenized Stock Trading

Nasdaq is intensifying its pursuit of approval from the U.S. Securities and Exchange Commission (SEC) to introduce a framework for trading tokenized stocks, aiming to lead a significant transformation in the financial markets. The exchange submitted its proposal on September 8, seeking to allow investors to buy and sell digital versions of publicly traded shares on its platform. These tokenized shares would maintain the same CUSIP, trading priority, and economic rights as their traditional counterparts.

Matt Savarese, who heads Nasdaq’s digital assets strategy, stated in a CNBC interview that the company is working rapidly to complete the proposal. However, he noted that the timeline will depend on feedback from the SEC and responses from the public. The goal is to update settlement processes using blockchain technology without requiring major changes to current regulatory systems, aligning with the SEC’s cautious stance on blockchain adoption.

Debate Over Tokenized Equities Intensifies

The initiative has ignited discussion about the potential benefits and risks of tokenized stocks. Nasdaq presents its plan as a responsible, investor-driven innovation that operates within existing SEC guidelines. However, some critics argue that insufficient regulation of tokenized assets could weaken investor protections and disrupt market stability.

The World Federation of Exchanges (WFE), which counts Nasdaq and Cboe among its members, has urged the SEC not to grant sweeping regulatory exemptions for tokenized equities. The WFE pointed to European cases where tokenized shares of major companies traded at prices disconnected from their real value, resulting in a parallel market with uncertain rights and obligations for investors.

Regulatory Discussions and Key Challenges

The SEC’s Investor Advisory Committee is set to play a crucial role in shaping future regulations. On December 4, a panel titled “Tokenization of Equities” will gather experts from Nasdaq, BlackRock, Coinbase, and other organizations to discuss the practical challenges of implementing tokenized stocks. Topics will include how blockchain-based settlement fits within the national best bid and offer (NBBO) system, custody solutions for digital assets, and whether tokenized shares are legally equivalent to traditional securities.

SEC Commissioner Hester Peirce has emphasized that tokenized securities remain fully subject to federal regulations, dismissing the idea that blockchain technology changes the fundamental nature of these assets.

Nasdaq’s Approach: Balancing Innovation and Regulation

Nasdaq’s proposal specifically excludes “wrapper tokens” that simulate stock ownership without providing voting rights or legal claims, a model often seen on offshore exchanges. Instead, Nasdaq envisions a closed system anchored by the Depository Trust Company (DTC), where tokenized shares are settled on a blockchain but remain integrated with established market infrastructure. This hybrid model preserves the existing U.S. market structure under Reg NMS and keeps settlement cycles at T+1. However, the proposal does not address continuous 24/7 trading or interoperability between different blockchains, areas where regulatory challenges are likely to grow.

Industry Response and the Road Ahead

Opinions within the industry are mixed. Companies like Galaxy Digital and Robinhood have already launched tokenized equity products on blockchains such as Solana. Meanwhile, the International Organization of Securities Commissions has raised concerns about risks including counterparty exposure and regulatory loopholes. Nasdaq’s cautious, step-by-step approach is designed to align with SEC priorities and avoid disruptive changes.

As Nasdaq awaits a decision on its proposed rule change, the outcome of the December 4 panel may prove pivotal in determining whether tokenized equities become mainstream in the U.S. or remain limited to specialized, less regulated markets.