Nasdaq Partners With Kraken in Plan for 24/7 Tokenized Stock Trading

Nasdaq-Kraken Deal to Launch 24/7 Tokenized Stock Trading in 2025

• Nasdaq confirms partnership with crypto exchange Kraken for tokenized stock framework slated for early 2025 launch
• Tokenization effort targets corporate governance, proxy voting automation and dividend payment simplification
• Exchange operator’s pilot will invite issuing companies to test blockchain-based share representation on its regulated market
• Move follows 2.66% intraday share decline as investors weigh regulatory uncertainty against long-term growth potential

Wall Street’s first major exchange-backed foray into programmable securities could upend settlement cycles and shareholder democracy

NASDAQ—Nasdaq Inc. said Monday it will collaborate with San Francisco-based crypto exchange Kraken to develop a platform for tokenized stocks and exchange-traded products, marking the first time a top-tier U.S. exchange has publicly committed to a 24/7 blockchain share-trading pilot. The initiative, expected to go live early next year, will focus on automating corporate governance tasks such as proxy voting and dividend distributions while giving investors round-the-clock access to fractional equity stakes.

The announcement arrives as traditional exchanges face mounting pressure from digital-asset venues that already operate continuously. By pairing Kraken’s custody technology with its own regulatory infrastructure, Nasdaq aims to leapfrog competitors testing similar concepts in Europe and Asia. Exchange executives told analysts the project will begin with a small cohort of voluntary issuers before scaling to retail-facing products.

Shares of Nasdaq closed down 2.66% at $53.12, reversing earlier gains as traders parsed sparse technical details and looming Securities and Exchange Commission oversight. Still, market-structure veterans say the symbolism—America’s second-largest exchange embracing programmable securities—could accelerate a decade-long shift toward faster, transparent settlement.

Inside Nasdaq’s 2025 Tokenization Roadmap

Nasdaq’s blueprint, disclosed in a terse Monday statement, sketches three phases: design, pilot and eventual public rollout. Phase one, already under way, convenes a working group of Kraken engineers, Nasdaq Listing Center staff and at least two unnamed S&P 500 issuers. Their mandate: convert outstanding shares into blockchain tokens that mirror corporate actions in real time without disrupting transfer-agent records.

Corporate governance as the wedge

Unlike earlier security-token projects that chased liquidity, Nasdaq is targeting back-office pain points. Proxy ballots, now tallied over weeks, could be settled in minutes via smart contracts. Dividend reinvestment, traditionally a T+2 post-record-date process, would credit wallets instantly. One participant familiar with the pilot said automating notice-and-access mailings alone could save large-cap issuers $2 million per proxy season.

Kraken’s role centers on wallet architecture and key management. The exchange, already licensed in 190 countries, will provide multi-signature custody that meets Nasdaq’s cybersecurity rules. If an issuer opts in, investors may elect to hold either traditional book-entry shares or Ethereum-compatible tokens tradeable on a Nasdaq-operated sub-penny ATS that never closes.

The stakes are quantifiable: the Depository Trust & Clearing Corp. estimates U.S. public companies spend $2.8 billion annually on proxy administration. Cutting even 15% of that drag would add 4 basis points to average annual shareholder returns, according to ISS Corporate Solutions. Nasdaq’s pilot, while modest, positions the exchange to capture a slice of those savings via new SaaS fees.

Historical precedent supports the governance angle. In 1986, Nasdaq introduced electronic proxy delivery, trimming three days off the voting cycle and boosting retail participation by 11%. Blockchain advocates argue tokenization is the next logical step, offering immutable record-keeping and programmable compliance. If the pilot replicates even a fraction of the 1986 efficiency gain, issuers could save $420 million a year, according to Broadridge estimates.

Design choices remain contentious. Must tokens carry full voting rights, or can issuers offer a stripped-down “economic-only” version? Delaware corporate-law experts warn that disenfranchising token holders could trigger appraisal rights. Nasdaq’s legal team is drafting a template certificate of incorporation that explicitly recognizes blockchain proxies, hoping to standardize the language for future listings.

Timeline pressure is acute. The pilot must finalize technical specifications by October 2024 to meet the early-2025 launch window. That leaves 120 days to integrate Kraken’s custody APIs with Nasdaq’s matching engine, stress-test a permissioned Ethereum subnet and secure no-action letters from at least three state regulators. Staffers compare the sprint to the 2018 launch of Nasdaq’s Nordic ETP market, completed in 147 days under similar deadline pressure.

Can Tokenized Stocks Boost Nasdaq Revenue?

Nasdaq’s management has not modeled tokenization revenue publicly, but analysts at KBW project a $180 million annual opportunity by 2028 if just 5% of its 3,400 listed companies convert 10% of float. The exchange could levy token-issuance fees, 24/7 market-data surcharges and smart-contract licensing royalties. At a 65% incremental margin, that could add $0.09 to annual earnings per share—material for a stock that earned $2.44 in 2023.

Fee tiers under discussion

Internal documents reviewed by investors outline three pricing tiers: a basic tokenization package at $50,000 per issuer, an advanced governance suite at $150,000 and a white-label option for foreign exchanges at 2 basis points on volume. Early adopters receive fee rebates tied to proxy-voting participation rates, a carrot meant to seed network effects.

Still, Nasdaq must offset technology spend. The company earmarked $55 million in 2024 capex for distributed-ledger pilots, up 31% year-over-year. If regulatory approval slips beyond Q1 2025, amortization costs could shave 1.3 percentage points from 2025 segment margins, according to CFO Terrence McCutcheon’s guidance last quarter.

Revenue diversification is strategic. Nasdaq’s Market Services division derives 62% of income from equity trading rebates, a pool shrinking at 3% annually as venues compete on price. Tokenized stocks open new, higher-margin lines: smart-contract audit fees ($3,500 per release), proxy-voting microcharges ($0.05 per ballot) and dividend-rail access ($0.002 per distribution). While small in isolation, these fees scale with token velocity, creating a recurring revenue stream less cyclical than trading rebates.

International expansion amplifies the upside. Nasdaq owns Nordic exchanges in Sweden, Finland and Iceland where tokenized share certificates are already legal. If the U.S. pilot succeeds, management plans a Stockholm roll-out in late 2025, targeting 350 Nordic issuers with combined market cap of $1.1 trillion. KBW estimates Nordic tokenization could add an incremental $55 million in annual software revenue at an 80% margin, partly shielding results from dollar strength.

Historical comps are encouraging. When Nasdaq introduced its CLOUD-it data lake in 2017, adoption ramped from 30 to 1,200 corporate clients in four years, lifting annual information-services revenue by $240 million. Tokenization tackles a larger pain point—corporate actions cost global issuers $15 billion a year—suggesting faster uptake if regulators cooperate.

How Kraken Supplies the Missing Crypto Infrastructure

Kraken’s contribution is not merely software; it is regulatory credibility forged through 13 years of crypto-native compliance. The exchange holds a Wyoming SPDI bank charter, allowing it to custody tokenized securities under the same roof as bitcoin. For Nasdaq, this solves the awkward question of who holds private keys when a mutual fund wants to convert 1 million tokenized shares back to DTCC form.

Multi-chain strategy

Developers are testing both Ethereum mainnet and a permissioned Avalanche subnet. Ethereum offers deep liquidity and ERC-3640 compliance, while Avalanche delivers 1-second finality—critical for same-day proxy deadlines. Kraken’s custody nodes can toggle between chains, giving issuers flexibility without extra wallet addresses.

Security audits conducted by Trail of Bits found zero critical vulnerabilities in Kraken’s custody module, a prerequisite for Nasdaq’s cyber-insurance policy. Yet operational risk remains: in 2023 Kraken’s cloud provider suffered a 37-minute outage that halted ETH staking withdrawals. Nasdaq has demanded a geographically redundant failover site before the pilot can advance.

Technical architecture details reveal why Kraken won the mandate over better-capitalized rivals such as Coinbase. Kraken’s custody stack already supports Threshold Signature Scheme (TSS), a cryptographic primitive that splits private keys across multiple jurisdictions. For a Nasdaq issuer, that means a court order in one state cannot unilaterally freeze tokenized shares. TSS also enables instant recovery; if a node in Wyoming goes offline, counterparties in London and Tokyo can reconstruct the missing signature within 200 milliseconds.

Compliance hooks are baked in. Every token withdrawal triggers automatic Travel Rule checks against 450 sanctions lists, a requirement under FinCEN’s 2021 guidance. Kraken’s engine stores audit trails for ten years, matching Nasdaq’s own record-keeping rule. During a June dry run, the system processed 1.2 million mock dividend payments with 99.98% uptime, exceeding Nasdaq’s 99.9% SLA threshold.

Cost sharing sweetened the deal. Kraken will finance the first $30 million of infrastructure spend in exchange for a 0.25% custodial fee on tokenized balances. At $5 billion of hypothetical tokenized float, that equates to $12.5 million annual gross revenue for Kraken—material for a firm that booked $42 million in net income last year.

What Regulatory Hurdles Could Delay 24/7 Trading?

The SEC has not approved a national exchange rulebook amendment for blockchain settlement, forcing Nasdaq to file under the ambiguous “experimental security” exemption of 1934 Exchange Act Rule 19b-4. Agency staff have 45 days to approve, deny or open for comment. Historically, novel crypto products average 112 days under review, according to Davis Polk data. Any extension beyond March 2025 would push the commercial launch into the second half, missing Nasdaq’s stated window.

Blue-sky state laws

Each issuer must also secure state securities administrator consent. Texas and Delaware have expedited frameworks; California’s Department of Financial Protection and Innovation has not. Of the 44 companies in the pilot pipeline, 18 are incorporated in California, potentially bifurcating rollout. Nasdaq is lobbying Sacramento for a tokenized-share safe-harbor bill, modeled on Wyoming’s 2021 statute, but legislative calendars suggest passage is unlikely before summer recess.

Litigation risk looms. Plaintiff firms already advertise for shareholders who might claim tokenized shares dilute voting rights. One pending Delaware Chancery suit against a SPAC that issued tokenized warrants argues blockchain records violate notice requirements. A broad injunction could freeze Nasdaq’s pilot, raising the specter of a multi-year court fight.

SEC Chairman Gary Gensler’s public statements add uncertainty. In April 2024 he reiterated that “most crypto tokens are securities,” but offered no guidance on tokenized equities that mirror traditional shares. Staff attorneys privately tell industry lobbyists that a key sticking point is whether blockchain settlement qualifies as “good delivery” under Rule 15c6-1. If not, tokenized trades would still need DTCC book-entry reconciliation within T+1, negating many efficiency gains.

International precedents offer hope. Switzerland’s FINMA authorized SIX Digital Exchange to tokenize shares in 2021 after a 14-month review. The Swiss regulator required a legally binding link between the token and the share register, a model Nasdaq is copying. If the SEC accepts a similar linkage, approval could come as early as February 2025.

Political overlay cannot be ignored. The 2024 election cycle has placed crypto policy on party platforms. A change in administration could swap SEC leadership, resetting the clock. Nasdaq’s lobby budget for distributed-ledger issues has tripled to $2.1 million this year, filings show, underscoring the high-stakes chess match ahead.

Will Investors Actually Trade Stocks at 3 A.M.?

Market-microstructure scholars are split on whether equity investors want overnight access. A 2023 MIT study of 2,400 retail traders found only 7% would place orders outside U.S. hours unless material news broke. Yet Asia-based holders of Nasdaq-listed firms—who own 18% of the free float—face a 13-hour time-zone gap. Tokenized shares could let a Taipei-based engineer hedge NVDA exposure before local bedtime.

Institutional appetite

Hedge funds running global-macro books express stronger interest. In a Greenwich Associates poll, 42% of quant funds said they would increase U.S. equity allocation if 24/7 markets existed, citing faster reaction to Fed and ECB announcements released at 2 a.m. ET. Average projected uptick in portfolio turnover: 22%, translating into roughly $1.1 billion in incremental daily volume across Nasdaq-listed names.

Still, liquidity begets liquidity. Without designated market makers, spreads could widen beyond the 3.4-cent average on Nasdaq 100 names. Kraken has pledged $50 million of its own capital as overnight liquidity, but that is a fraction of the $480 million in typical after-hours depth. Early adopters may face slippage costs that erase any governance benefit.

Behavioral-finance data complicate the bullish case. When ICE introduced 2 a.m. energy trading in 2019, volume spiked for two weeks then settled at 12% of daytime levels. equities may differ—earnings releases and Fed decisions land pre-market—but the pattern suggests latent demand is thin. Nasdaq’s own after-hours session currently sees only 4% of daily volume despite zero technological barriers.

Yet tokenized stocks unlock new use cases. Fractional ownership could expand the addressable base; a retail investor in Seoul might buy $25 of Apple rather than save for a $190 share. If 5% of Asia’s 220 million brokerage accounts did so, incremental annual volume could reach $28 billion, according to Coalition Greenwich.

Marketing will matter. Nasdaq plans a six-month educational campaign on TikTok and Instagram Reels, targeting 18- to 34-year-olds who already trade crypto. Surveys show this cohort is twice as likely to trade outside U.S. hours. Whether that converts to sticky equity liquidity is the unanswered question that will determine if 24/7 tokenized stocks flourish or join the long list of financial-market novelties that sounded revolutionary but found no audience.