Navigating the Regulatory Landscape: Key Takeaways from Nasdaq's Digital Assets Comment Letter to the SEC

As digital assets increasingly intersect with traditional financial markets, the regulatory landscape demands greater clarity. Nasdaq recently submitted a comment letter to the Securities and Exchange Commission (SEC) addressing digital asset classification at a pivotal moment for market structure development.

"The core question here is how to foster innovation in the digital asset space while ensuring that investors receive the safeguards they have come to expect when trading stocks and other assets. They understand the process, and they understand the rules of the road," explains John Zecca, Nasdaq's Executive Vice President and Global Chief Legal, Risk, and Regulatory Officer.

Here are five key takeaways from Nasdaq's perspective with insights from John Zecca:

1. Precise Classification Is Critical

Nasdaq's letter emphasizes that clear asset classification forms the foundation of effective regulation. How an asset is categorized directly impacts its regulatory treatment, trading mechanisms, and market structure.

"The industry has to some degree been stifled by lack of clarity in regulation," notes Zecca.

The letter states that a precise, well-articulated taxonomy is essential to provide market participants with necessary clarity that would protect investors but still foster innovation. Without it, innovators face compliance uncertainty, and investors lack the confidence to participate fully.

2. Not All Digital Assets Are Securities

One of Nasdaq's central arguments is that the digital asset ecosystem is diverse, with many tokens representing securities, commodities, and other non-regulated assets.  Nasdaq also recognizes that some of these assets are novel and defy easy classification.

Nasdaq proposes a "safe harbor" approach where assets with uncertain classification could trade under regulatory oversight while their categorization is determined. These assets would fall under a "Temporarily Unclassified Digital Assets" classification. Zecca explains the benefit as "a category where we don't know yet exactly what it's going to be classified as, but we're going to allow it to trade for some period of time with oversight."

3. Classification Should Focus on Asset Function, Not Technology

Nasdaq recommends that regulators focus on the economic reality and function of digital assets rather than the underlying technology. This technology-neutral approach ensures consistent treatment regardless of whether an asset exists on a blockchain or in traditional format.

"A stock by any other name is still a stock," Zecca emphasizes. "Investors have clear expectations that certain assets like stocks, ETFs, and options are going to be regulated under existing securities laws." These laws have served investors well for decades and should continue to apply regardless of tokenization.

The essence of Nasdaq’s position is to focus on what an asset does, not how it does it. This principle could help create regulatory consistency while allowing technological innovation to flourish.

4. Digital Assets Should Be Able to Trade Together in a New Type of Market

Existing market structure rules weren't designed with digital assets in mind. Nasdaq advocates for collaboration between the SEC and CFTC to create a coherent framework that acknowledges blockchain-based assets' unique characteristics while maintaining investor protection.

At the center of Nasdaq's proposal is a new classification called an "ATS-D" (Alternative Trading System for Digital Assets) that would provide more flexibility while reducing market fragmentation.

"Let's create a new class of trading platform," Zecca explains. "Let those entities trade all of these assets except for those structured as traditional securities, like stocks, options, and ETFs. For everything else, try to have it so that the same platform can trade all of the assets because that reduces the friction for investors."

5. Regulatory Collaboration Is Essential

Nasdaq advocates for a collaborative approach between regulatory bodies themselves. The exchange believes that joint action between the SEC and CFTC would be needed to effectuate seamless trading of different categories of digital assets together on the same trading platforms, and subject to similar rules, even though some of these assets would be subject to SEC jurisdiction and others would be subject to CFTC jurisdiction.  Given that these regulators have not always seen eye-to-eye in the past as to the boundaries of their respective jurisdictions, coordination would be a tall but essential task.

Looking Forward

Nasdaq's engagement with the SEC's classification efforts signals the growing mainstream recognition of digital assets' importance to future financial markets.

For investors, the outcome of this regulatory process will determine which digital assets may be available on mainstream platforms, how they're traded, and what protections apply. Clearer categorization could potentially reduce regulatory uncertainty that has historically contributed to market volatility.

Looking ahead, Nasdaq will continue to engage in the conversation, including participating in the SEC's upcoming digital assets roundtable on May 12.  For Nasdaq, it is an important next step in a continued dialogue between traditional finance and emerging digital asset ecosystems.

As regulations develop, investors should stay informed about how classification decisions might impact their digital asset holdings and the broader market structure in which they trade.

Read the Full Comment Letter from Nasdaq.