Nasdaq's initiative to introduce tokenized stocks encounters regulatory resistance from the WFE

Nasdaq Accelerates Push for Tokenized Stocks Amid Regulatory Debate

Nasdaq Inc. is intensifying its efforts to introduce tokenized stocks, with Matt Savarese, the company’s head of digital assets strategy, highlighting a strong focus on working alongside regulators to gain necessary approvals. On September 8, Nasdaq submitted a proposal to the U.S. Securities and Exchange Commission (SEC), aiming to allow investors to trade digital versions of publicly traded shares while remaining compliant with current regulations.

This move reflects a broader shift within the financial industry, as more institutions turn to blockchain technology to update and streamline equity trading. However, this innovation faces skepticism from established market organizations such as the World Federation of Exchanges (WFE). The WFE has expressed concerns that granting widespread exemptions for tokenized assets could weaken investor protections and disrupt the regulatory balance.

In a letter sent to the SEC’s Crypto Task Force on November 21, the WFE warned against creating loopholes that would let crypto trading platforms sidestep rules related to exchanges, clearing, and investor safeguards. The WFE, which counts major exchanges like Nasdaq and Deutsche Boerse among its members, argued that tokenized stocks—crypto tokens linked to real-world equities—could give certain platforms an unfair regulatory edge, potentially distorting market dynamics. For example, synthetic stock tokens traded in foreign markets have sometimes shown inconsistent pricing, raising questions about price reliability and investor recourse.

This debate highlights a growing divide in the financial sector. While some see tokenization as a natural step forward for capital markets, others worry it could undermine the effectiveness and stability of traditional systems.

Nasdaq’s Collaborative Approach

Nasdaq is taking a cooperative and compliance-driven route. The exchange has strengthened its partnership with fintech company Revolut to boost its regulatory technology capabilities, utilizing Nasdaq AxiomSL to unify reporting systems across Europe. This strategy demonstrates Nasdaq’s commitment to balancing technological advancement with strong regulatory oversight, especially as the SEC reviews its tokenized stock proposal.

Savarese emphasized that Nasdaq’s intention is not to disrupt the existing system, but rather to responsibly integrate tokenization in line with SEC requirements. The SEC, under Chairman Paul Atkins, has shown a willingness to encourage innovation through its “Innovation Exemption” policy, which seeks to expedite the approval of blockchain-based financial products while developing comprehensive digital asset regulations.

Ongoing Debate and Future Outlook

Despite these initiatives, the issue remains contentious. Detractors warn that tokenized stocks could introduce new risks, such as vulnerabilities in smart contracts and increased exposure to cyberattacks. Supporters, on the other hand, point to advantages like round-the-clock trading and the ability to own fractional shares, according to industry experts.

The SEC’s ultimate decision will likely depend on how well these risks and benefits are balanced. Possible outcomes range from limited, temporary exemptions to more sweeping regulatory changes. For now, Nasdaq and other major exchanges continue to advocate for fair competition, insisting that both tokenized and traditional markets should operate under the same regulatory standards. The SEC’s ruling could significantly influence how investors interact with financial markets, shaping the future of market structure, investor protection, and capital formation.