Nasdaq Informs U.S. SEC That Accurate Crypto Classification Will Be Crucial for Future Regulation

Nasdaq, the operator of one of the premier U.S. stock exchanges and a crypto index, is advising U.S. regulators to carefully focus on defining digital assets into four distinct categories that will clarify which agency oversees them. This counsel comes from a detailed 23-page letter submitted to the Securities and Exchange Commission’s crypto task force.

“While a stock by any other word would still be a stock, the existing market ecosystem can readily absorb digital assets by establishing the appropriate taxonomy and adjusting specific rules to reflect the novel aspects of digital assets,” the letter stated in response to Commissioner Hester Peirce’s invitation for input on future regulations.

According to Nasdaq, the four categories of digital assets should encompass:

1. **Financial securities** — tokens associated with assets classified as securities under existing definitions, such as stocks, bonds, and exchange-traded funds (ETFs), which Nasdaq believes should be treated similarly to their underlying assets.

2. **Digital asset investment contracts** — tokenized contracts that meet all the criteria of the Securities and Exchange Commission’s clarified interpretation of the Supreme Court’s Howey test.

3. **Digital asset commodities** — assets that fit the U.S. definition of commodities.

4. **Other digital assets** — items that do not fit into the previous categories and should not be subjected to securities or commodities regulations.

The category of securities should fall under the oversight of the SEC, which will collaborate with the Commodity Futures Trading Commission (CFTC) to manage the commodities. These agencies will determine the specific boundaries of their jurisdictions, possibly guided by forthcoming legislation from Congress.

In the letter, signed by John Zecca, Nasdaq’s chief regulatory executive, he emphasized that “digital assets that constitute financial securities must trade as they do today.”

Nasdaq also proposed that the two regulatory bodies consider creating a crossover trading designation for platforms capable of managing digital asset investment contracts, commodities, and other asset types within a single framework.

Additionally, Nasdaq highlighted its credibility in the digital asset space, noting that its trading and clearing services, market and trading surveillance, and central securities depository technology support digital asset platforms across six continents. The company suggested that regulators impose safety measures or additional constraints on firms wishing to manage investor activities comprehensively, a standard practice among existing crypto firms.