In an interview on CNBC’s Squawk Box Wednesday, Friedman said, “Certainly, Nasdaq would consider becoming a crypto exchange over time… certainly Nasdaq would consider becoming [a regulated platform for cryptocurrency trading].”
Friedman was more cautious about Initial Coin Offerings (ICOs), saying, “ICOs… really do need to be regulated. I do believe the SEC is right that those are securities offerings and need to be regulated as such.”
The debate regarding which digital assets constitute securities and which constitute commodities is central to the problem of how to regulate these financial instruments. The question of whether a given digital asset is a security or a commodity is the most important factor in determining which U.S. regulatory body should oversee the market activity surrounding that asset. If the asset is a commodity, it falls under the jurisdiction of the Commodity Futures Trading Commission (CFTC). If, however, the asset is deemed a security, it falls under the jurisdiction of the Securities and Exchange Commission (SEC).
Classifying a digital asset as a security imposes much more stringent regulation upon it than classifying it as a commodity. For that reason, exchanges such as Coinbase are unwilling to support the trading of a given digital asset until they are absolutely certain that it does not qualify as a security.
Mike Lempres, the Chief Legal and Risk Officer of Coinbase, stated in a congressional hearing, “At Coinbase… a key factor in our framework analysis is a determination that the potential new asset is not a security under U.S. law. The absence of regulatory clarity has slowed our willingness and ability to list new assets… because we seek to comply with all applicable laws and regulations, we simply cannot take the risk that a token is later found to be a security.” This is not the only instance of Nasdaq showing a crypto-friendly attitude. The Winklevoss brothers’ Gemini exchange announced Wednesday that NASDAQ’s SMARTS Market Surveillance technology will be implemented on their exchange to monitor trading activity.
In a blog post, Cameron Winklevoss wrote, “Our market surveillance team looks forward to using Nasdaq’s Alerts Development Environment and Alerts Management System to become a market leader in custom surveillance rule creation and alerting for the crypto-asset market. We believe that it is this advanced functionality combined with Nasdaq’s proven, rule-based approach to traditional financial market surveillance that will allow for the most thorough monitoring of the evolving crypto-asset marketplace, today and into the future.”
Surprisingly, given the highly reactive nature of digital asset markets, Friedman’s positive remarks did not trigger any price movements. Regardless, her comments bode well for the future of virtual assets and suggest that integration of these assets with traditional financial markets might be closer than it once appeared.