Nasdaq and R3 seek digital asset projects

Nasdaq Market Technology is working with distributed-ledger vendor R3 to develop client businesses involving tokenization, says Johan Toll, Nasdaq’s Stockholm-based vice president and head of digital assets.

“Digitalization involves putting assets on a channel network using concepts of distributed-ledger technology,” Toll said.

Toll’s business unit is focused on how to issue digital assets, and list them on private, permissioned blockchains, in a regulated fashion.

Nasdaq Market Technologies services not just Nasdaq Stock Exchange but also 150 other exchanges and trading venues. It is competing with other exchanges, notably Deutsche Börse, which has introduced DLT solutions for collateral management in securities lending; Börse Stuttgart’s digital-asset exchange, BSDEX; and expanding DLT projects at ASX, HKEX and other venues. LSE has lent its matching engine to digital exchange AAX, while pure startups like BC Group are launching licensed crypto exchanges.

Toll says the “low-hanging fruit” is to be found among bilateral over-the-counter markets where trades are still conducted by phone – as is the case in many parts of the fixed income, foreign exchange and commodities world, as well as in private markets.

Secondly Nasdaq MT is looking at how industries in the capital markets and beyond can tokenize assets, from loyalty points at airlines to containership space and commercial real estate.

Amit Ghosh, R3’s head of Asia Pacific in Singapore, says the relationship began when Nasdaq itself piloted R3’s Corda DLT in a proof of concept. The two have also contributed to the digital exchange built by Switzerland’s SIX Group. Now Nasdaq has integrated Corda’s architecture into its SaaS marketplace platform.

“Nasdaq is itself a vendor,” Ghosh said. “They’ve been experimenting with blockchain for years.”

He says stock exchanges and OTC actors are moving to enterprise blockchain both for efficiency gains and to create new markets. DLT can eliminate many of the workflows in post-trade settlement and reconciliation. But it can also create competition, as a number of new digital exchanges emerge.

“Stock exchanges are looking at the crypto world and want to make sure they don’t get disrupted,” Ghosh said. “They’re seeing volumes go to digital asset exchanges, where the trend is democratization. Private markets are being opened to smaller investors, and more firms are working to fractionalize assets.”

Toll says Nasdaq MT is now integrating Corda smart contracts into its services around digital asset issuance, custody, delivery-versus-payment, and investment funds services.

“Then we can add a matching engine on top, including those geared to the new world of trading 24/7, 365 days a year,” Toll said.

Virginie Barbot, head of Nasdaq Market Technology for Singapore and Southeast Asia, says exchanges also see regulators are taking steps to ensure retail investors and businesses are protected in the digital-asset space. The new crop of virtual banks are also potential players.

She says 2021 should see market operators such as stock exchanges come out with digital-asset capabilities.

“The proofs of concept have been completed, so the question is what else can be done before we can start going into production,” she said. 

For Nasdaq MT, this year’s activity involves putting more of its services in the cloud. Information services, analytics, indexes, and market tech services are already there; but listing services and corporate services are works in progress.