SEC Strives to Maintain Integrity While Fostering Innovation Amid Intensifying Tokenized Stocks Discussion

Nasdaq Pushes Forward with Regulated Tokenized Stocks Amid SEC Scrutiny

Nasdaq Inc. is moving ahead with its initiative to offer tokenized stocks within a regulated environment, as the U.S. Securities and Exchange Commission (SEC) faces growing calls to clarify the rules for blockchain-based equity products. As a member of the World Federation of Exchanges (WFE), Nasdaq formally requested a rule change in September to allow the listing of tokenized shares that would carry the same CUSIP identifiers and investor safeguards as conventional stocks. This step is part of a broader push to modernize financial markets, but it has ignited debate over whether such innovation should occur within the current regulatory system or through special exemptions for unregistered crypto platforms, as highlighted by industry observers.

The WFE, which counts major exchanges like Deutsche Boerse and Cboe among its members, has consistently opposed the SEC’s consideration of an “innovation exemption.” Such an exemption would permit unregistered crypto companies to offer tokenized equities without adhering to standard broker-dealer regulations. In a letter sent to the SEC on November 21, the WFE cautioned that these exemptions could give rise to a “shadow equity market,” exposing investors to synthetic tokens that lack essential rights such as voting, dividends, or legal ownership protections. WFE CEO Nandini Sukumar underscored that circumventing established rules could undermine both investor trust and the integrity of the market, especially since some unregulated platforms already trade tokenized U.S. equities at different prices overseas.

Nasdaq’s approach, in contrast, aims to incorporate tokenization into the existing national market system (Regulation NMS). This would ensure that tokenized stocks contribute to the national best bid and offer (NBBO) and remain under surveillance for potential market manipulation. Nasdaq maintains that blockchain should be used to enhance settlement processes, not as a loophole for regulatory avoidance.

Despite these assurances, some critics, including Ondo Finance, have urged the SEC to postpone any decisions until Nasdaq clarifies how tokenized trades would interact with the Depository Trust Company (DTC), the core infrastructure for U.S. securities settlement. Additionally, the head of the WFE’s technology working group pointed out that current equity markets are already highly efficient, and any shift to blockchain-based trading must clearly demonstrate advantages over existing systems.

SEC to Examine Competing Visions for Tokenized Equities

The SEC’s Investor Advisory Committee is set to meet on December 4 to examine these differing perspectives. The panel, which includes representatives from Nasdaq, BlackRock, and Coinbase, will discuss how tokenized stocks might function under current regulations and address technical hurdles such as round-the-clock trading and interoperability across different blockchains. SEC Chair Paul Atkins, a strong advocate for blockchain innovation, has described this debate as crucial for maintaining U.S. leadership in digital finance. However, regulators must tread carefully: while rapid exemptions could accelerate innovation, they might also allow unregistered platforms to divert liquidity from traditional markets, disrupt price discovery, and expose retail investors to complex, less transparent products, according to industry experts.

Potential Impact and Future Outlook

The SEC’s decision will have significant consequences. If tokenized equities receive regulatory approval, they could open the door to fractional ownership and faster settlement times. However, risks remain, including vulnerabilities in smart contracts and the emergence of “wrapped” tokens that imitate stocks without granting real ownership rights. The WFE has called for the SEC to implement narrowly defined, temporary exemptions with robust oversight, while industry organizations emphasize the importance of maintaining legal ownership to protect investors. As the debate continues, the SEC’s ruling will play a pivotal role in determining whether the U.S. leads the way in tokenized finance or faces challenges from fragmented regulation.