Ondo Finance has called on the US Securities and Exchange Commission (SEC) to consider postponing or rejecting Nasdaq’s plan to trade tokenized securities. They argue that this proposal lacks clear transparency and raises concerns that established market players could gain an unfair advantage.

In a letter directed to the SEC on Wednesday, Ondo, which specializes in creating tokenized versions of traditional assets, stated that both regulators and investors are unable to properly assess Nasdaq’s proposal due to insufficient public details on the blockchain settlement processes managed by the Depository Trust Company (DTC), which is the primary custodian for US securities.

While they do support Nasdaq’s initiative towards tokenization, Ondo expressed concerns that references to non-public information imply unequal access, denying other firms a fair chance to respond.

Furthermore, they pointed out that Nasdaq’s new rules cannot be enacted until the DTC finalizes its systems. They suggested there is no disadvantage in delaying approval until further developments are incorporated.

Ondo urged the SEC to emphasize ‘open collaboration and transparent standards’ before making a conclusive decision.

Excerpt of Ondo’s letter to the SEC. Source: Ondo Finance

This letter is a reaction to Nasdaq’s filing on September 8, where the second-largest stock exchange in the world sought regulatory changes to accommodate the trading of tokenized securities. Tokenized shares, which are digital incarnations of traditional stocks kept on a blockchain, are set to be traded alongside their conventional counterparts, with settlements conducted through the DTC’s upcoming platform.

Nasdaq’s proposal was listed in the Federal Register on September 22, initiating a 45-day review period by the SEC, which is expected to extend until early November or beyond if necessary.

The Push for Tokenized Stocks

The ongoing discussions regarding the tokenization of Nasdaq stocks coincide with various platforms that either have recently launched or intend to introduce tokenized versions of US equities.

For instance, Robinhood initiated a layer-2 blockchain on June 30 to facilitate the trading of tokenized US stocks and ETFs for its European clientele, planning to offer over 200 US equities and funds through on-chain tokens.

Similarly, trading platform eToro announced its plans to introduce tokenized stocks as ERC-20 tokens on Ethereum, intending to cover around 100 popular US-listed stocks and ETFs with a trading schedule of 24/5.

Kraken also joined the trend by launching a platform for tokenized securities in September, offering tokenized shares to qualified customers in Europe.

Galaxy Digital highlighted that the relentless push towards tokenization poses a risk to the dominance of the New York Stock Exchange, asserting that this development challenges the liquidity of conventional markets.

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