• Ondo Finance wants more details before Nasdaq can move forward with tokenized stock trading.
• Nasdaq’s plan may give big firms an edge due to access to private settlement information.
• Tokenized stocks gain traction as firms like Robinhood and eToro launch blockchain trading options.

Ondo Finance has raised concerns about Nasdaq’s plan to introduce tokenized stocks and exchange-traded funds. The blockchain-based asset manager submitted a formal letter to the Securities and Exchange Commission (SEC) requesting more details. 

The letter highlights issues around transparency and settlement processes. Nasdaq’s proposal includes using the Depository Trust Company (DTC) to settle tokenized securities. However, Ondo argues the proposal lacks public information, making a fair evaluation difficult.

The startup is urging the SEC to delay or reject the plan until more technical details are shared. Nasdaq filed for the rule change on September 8. The filing seeks approval to allow tokenized shares to trade alongside traditional stocks. These would be settled through DTC’s new system designed for blockchain-based assets. The SEC’s initial 45-day review period started on September 22.

Concerns Over Market Access and Fairness

Ondo Finance warned that Nasdaq’s proposal may favor established players with access to non-public information. The startup says this could prevent fair competition. They believe smaller firms might not get equal opportunity to provide input. 

Ondo emphasized that DTC’s settlement system is still under development. The letter argued that the rule should not take effect until all system features are made public.

Better Markets, a nonprofit that critiques financial risks, also raised concerns. The organization questioned whether tokenized assets are necessary for investors. It also cautioned against regulatory loopholes that would lead to weak investor protection. SEC has taken an interest in tokenization, though there is still controversy on how to oversee it. 

Industry Moves Toward Tokenization

Several major platforms are pushing forward with tokenized assets. In May, Robinhood announced plans to launch a blockchain service allowing European users to trade tokenized US stocks and ETFs. The platform plans to offer over 200 tokenized equities and funds. 

eToro has announced similar plans. It will roll out tokenized versions of 100 popular US stocks and ETFs using Ethereum’s ERC-20 token standard. Kraken also joined the trend by adding tokenized stocks to Ethereum and expanding access to over 60 assets, including Apple and Tesla.

In September, Ondo Finance launched Ondo Global Markets, offering global access to 100+ tokenized US stocks and ETFs on the Ethereum blockchain. Tokenized shares represent digital versions of traditional stocks stored on a blockchain. These assets aim to enable faster settlements and 24/5 trading. Their merging into conventional finance systems is however being questioned.

Potential Impact on Traditional Markets

As tokenization gains traction, industry observers are watching its broader impact. Galaxy Digital has warned that this shift could reduce the New York Stock Exchange’s dominance. The firm pointed out that liquidity and trust in traditional markets may face challenges. 

Although some regulators and companies are in favor of the innovation, more transparency is still being called for. Nasdaq has made no additional public statement regarding it.