Q&A: How Tokenization Can Modernize Capital Markets

Last month, Nasdaq Executive Vice President and Global Chief Legal, Risk and Regulatory Officer John Zecca testified before the House Financial Services Committee on the modernization of U.S. capital markets through tokenization.

The hearing came shortly after the SEC approved Nasdaq's proposal to enable securities to trade on its exchange in tokenized form — a first for a major U.S. exchange — and followed Nasdaq's announcement of a new equity token design that puts public companies at the center of the process.

After the hearing, Zecca spoke with the Nasdaq Newsroom about his testimony and the future of tokenized securities.

What is tokenization, and why does it matter for capital markets?

John Zecca: Tokenization means representing a security on a blockchain — a distributed digital ledger — rather than in the conventional electronic book-entry systems that have been the standard since paper certificates gave way to electronic records decades ago. It's important to understand that this is a change in how ownership is recorded, not what is owned. A tokenized share should carry with it the same ownership interest, economic rights, and legal obligations as a traditional share, and that’s one of our guiding principles as we build this capability.

As for why investors and issuers might be interested in tokenized securities, it has the potential – if done appropriately – to reduce friction and lower costs while also preserving the investor protections and deep liquidity that make U.S. markets the envy of the world. For issues, for example, it could modernize the corporate actions processing systems that collectively have a structural cost of over $58 billion across the industry.

For an everyday investor holding shares of a public company, what would actually be different if those shares were tokenized?

John Zecca: While there are many approaches to tokenization, we believe that care should be taken to ensure the same ownership interest, the same economic rights, and the same legal protections. What changes is the underlying delivery mechanism, and over time, that shift has the potential to make the experience of being a shareholder meaningfully better.

Today, investors often don’t see the complexity that sits behind their brokerage account, but they bear its costs. When an investor votes a proxy, participates in a corporate action, or waits for a trade to settle, there are dozens of manual handoffs and data reconciliations occurring across issuers, intermediaries, and market infrastructure providers.

Those touchpoints add up. Corporate actions processing alone carries a structural cost of more than $58 billion across the industry, driven largely by fragmented systems, manual workflows, and duplicative recordkeeping. Tokenization has the potential to streamline these processes by creating a more direct, automated, and auditable connection between issuers and investors, reducing delays, lowering operational risk, and ultimately cutting costs that flow through to the broader economy.

The goal is a simpler, more responsive experience — without asking anyone to give up the protections they rely on today.

The SEC recently approved Nasdaq's proposal to allow securities to trade in tokenized form. What does that actually mean in practice?

John Zecca: The approval allows high-volume securities already listed on Nasdaq to be traded and settled in either their current electronic form or in tokenized form, while remaining fully subject to existing securities laws and exchange rules. When trading on Nasdaq, tokenized and non-tokenized shares of the same company will share the same CUSIP, convey the same material rights, and trade within the same market system.

We built tokenization into the regulated framework that investors and issuers already rely on, with trading rules, market surveillance, and investor protections. It’s just with new technology underlying how ownership is recorded and transferred.

Some members of the Committee raised concerns about liquidity fragmentation. What is that risk, and how does Nasdaq's approach address it?

John Zecca: It's one of the most important questions in this space, and the concern is legitimate. U.S. equity markets have the deepest, most resilient liquidity in the world. That depth is the product of consolidated trading, strong price discovery, and a market structure that brings buyers and sellers together in a single, transparent system. When the same security trades across disconnected venues with different rules and protections, price discovery weakens, costs rise, and investor confidence can suffer.

Congress and the SEC will need to be vigilant to ensure that regulation of tokenized securities follows the same tried and true regulatory treatment stock trading gets in our current system.

That's precisely why Nasdaq's approach is designed the way it is. Tokenized and non-tokenized shares of the same company should be fungible. We are not creating a parallel market. We are extending the existing one. The risk of fragmentation is real, and it's a risk we've deliberately engineered against.

How should investors think about the difference between Nasdaq's tokenized equities and the synthetic tokenized instruments available on offshore platforms?

John Zecca: Many of the tokenized instruments available offshore provide economic exposure to a stock without actually conveying shareholder rights. Holders often cannot vote, are not shareholders in any legal or governance sense, and operate with far weaker custody and investor protections.

Nasdaq's equity token is designed to be the rights-bearing format: genuine ownership, voting rights, corporate action participation, and full legal shareholder status.

What is Nasdaq's view on the regulatory framework needed to support responsible tokenization?

John Zecca: Our north star is straightforward: a security remains a security, regardless of the technology used to represent it. Regulatory treatment should be based on the rights a security conveys, not the technology underlying it. That principle protects investors, prevents regulatory arbitrage, and ensures that clever product design can't be used to create instruments that approximate securities while evading the rules that apply to them.

We believe the SEC's approval of our tokenization filing is an important proof of concept. It demonstrates that meaningful innovation can happen within the existing U.S. regulatory framework, through normal notice-and-comment rulemaking, without exemptions or special treatment. That's the model we think the industry should follow.