Nasdaq Files With SEC to Allow Trading of Tokenized Stocks

Nasdaq has asked the U.S. Securities and Exchange Commission for a rule change that would allow the stock exchange to record stocks in tokenized form, according to a filing Monday, as momentum for tokenizing assets grows.

The exchange, which lists Apple, Google, Amazon, Meta, and other tech giants, would give customers the option of trading securities via traditional digital representation of ownership with or without blockchain backing.

"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 said 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 proposal adds to the fervor for tokenization among both traditional finance and digital asset-focused firms. In June, Robinhood rolled out 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 announced its own tokenization plans through a partnership with Backed, using the Solana blockchain. The offering would cover 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 said in its filing, adding: "The existing regulatory structure mandated by Congress applies to tokenized securities, regardless of whether such securities have certain unique properties (like the ability to be settled on a blockchain), much like it did when the SEC allowed securities to be decimalized and electronified and when exchange traded funds and other novel securities were approved decades ago."

"The exchange believes the markets can use tokenization while continuing to provide the benefits and protections of the national market system," it added.

Crypto exchanges Binance and now-defunct FTX dabbled in tokenized stock trading during the pandemic-era crypto boom, but the umbrella term faded into obscurity amid regulatory heat until BlackRock CEO Larry Fink touted tokenization as “the next generation for markets” in 2022.

In its second quarter conference call in July, Robinhood CEO Vlad Tenev referenced tokenization nearly a dozen times. Tenev described tokenization as “the biggest innovation in capital markets in over a decade,” during the call.