The Nasdaq x Seturion Alliance: A conversation with Roland Chai [EN]

00:00:00: whether it's in the US or Europe, every single one of our customers or participants who are either broker dealers or making markets.

00:00:08: Or creating ETFs or institutional asset managers have full-scale prioritised plans for tokenising assets and collateral?

00:00:19: And that's across the piece!

00:00:20: We're seeing obviously here whether it's in Germany or France, or Sweden.

00:00:28: It is no longer a conceptual thing – how do we move into adoption?

00:00:34: Welcome to Inside Digital Assets!

00:00:36: The podcast about the future of capital markets.

00:00:39: Tokenisation digital assets and the technologies that power them.

00:00:55: Hi

00:00:56: Lydia, great to be here.

00:00:57: Thanks for having me on board.

00:00:59: Roland you are the President of European Market Services at Nasdaq and also the Global Head of Digital Asset Initiatives at NasDAQ so obviously knowing a bit about the partnership we have working very closely together.

00:01:12: So what do want to do today is getting to know you but also get to know what NASDAQ is doing with regards digital assets.

00:01:20: Let me start first though with looking a bit how you ended up in the role that you are at now.

00:01:26: How did you get to this Nasdaq position?

00:01:28: What did he do before?

00:01:30: Yeah, so I've been at NasdaQ six years Been looking after European markets since late-twenty three and Before that i was responsible for all commercial software business on market technology.

00:01:48: And so that's trading, clearing and risk management and CSD software that we supply to about a hundred thirty global marketplace around the world.

00:02:00: before there was chief risk officer Nasdaq.

00:02:04: So I've been in the technical technologies, software development space for a very long time.

00:02:10: before that at LCH and Hong Kong Exchange and ASX.

00:02:16: Before then And i think In my market technology days we started and brought up first sort of tokenization platform to market and developed what's now.

00:02:28: our Eclipse digital product worked with the Chilean central bank and also DCV, which is a Chilean CST to tokenize Chilean government bonds.

00:02:43: And so that platform was a native DLT platform we built.

00:02:48: and that platform works both within the CST technology or by itself.

00:03:02: bond products now tokenised on that platform.

00:03:07: And we brought that over and also, we started doing carbon credits on it.

00:03:12: so there's been a while working through post-trade and also tokenisation as the industry adopts it then I think really accelerated in last twelve months as the US market started becoming quite more involved and we saw much different approaches from the U.S regulator, so a number of tokenization digital asset initiatives arose.

00:03:45: So I think from an ASAC perspective it was very much... We see that tokenisation has huge impact on the post trade space, collateral balance sheet securities.

00:04:01: We don't necessarily see it's going to change the trading universe and how we trade.

00:04:07: I think essentially their power of programmable distributed ledger assets and smart contracts lies in the end-to-end value chain an asset workflowed and asset servicing.

00:04:19: so iIthink from an aspect point sort of expertise in the post trade and asset lifecycle is quite important to be able to develop a platform, bring that platform to bear.

00:04:32: So it was in that context I was given responsibility at the beginning this year for an artificial asset approach.

00:04:41: In this regard, we announced recently a partnership that NASDAQ is connecting its trading values to Ceturion.

00:04:47: You also have other initiatives in the US as we talk about today where you're partnering for example with Kraken.

00:04:53: so let us deep dive into those different initiatives and maybe start on the Ceturia side.

00:04:58: what made you decide of connecting Ceturnian and partnering up our site?

00:05:04: Yeah, look I think when we first had discussions with yourselves and um i think We've had a good partnership in the past It was very much.

00:05:15: We were excited about The platform that you have come to this tour and platform also open architecture And philosophy behind it.

00:05:29: from our perspective there is being able to take a small part of what we're doing and use, apply that to both Bursa's markets but also Nasdaqs' markets in Europe.

00:05:45: And being able leverage the work had been done already by yourselves on the platform and really stand up product-up and accelerate it.

00:05:59: the asset classes that we're both strong in, and also liquidity that we have to stand up.

00:06:05: a product relatively easy.

00:06:06: And I think the second part was...I think we had very strong alignment in philosophy and opportunity for digital assets of importance so far into our ecosystems not just in disruptive manner but the ability the opportunities for our institutional customers to develop, distribute and manage more product efficiently.

00:06:37: I think that was a key alignment.

00:06:40: And then thirdly it's speed at which both of us are moving towards the priority we place in terms adopting this technology and also enhancing benefits.

00:06:54: I totally

00:06:57: agree, and also this aligned mindset that we have then results in the products on how you're building it.

00:07:04: So what you were mentioning as well having to trading keeping as is doesn't need to go under blockchain but really focus on the post-trade infrastructure.

00:07:12: And there...I think where we all share alignment Is looking at European capital markets which are heavily fragmented today.

00:07:21: That's one of our main pain points exchange groups are actually suffering from.

00:07:28: Can you elaborate a bit on how do think that such an open industry solution we're looking to build is going help solve this fragmentation across Europe?

00:07:38: Yes, absolutely and I think it's the very strong reason.

00:07:45: if you look at European competitiveness and custodian assets across multiple jurisdictions, issuing the product to cross multiple jurisdictions.

00:07:57: The fragmentation that's there right now and the silos are within the jurisdiction make it costly on a relative basis quite expensive for offshore investors or European investors to invest in different EU markets.

00:08:16: And it becomes a very time consuming and expensive process, what that means for the end investor whether they're institutional retail is European product become comparatively much more expensive because of individual rules there.

00:08:37: I think what digital does is give the opportunity to really cut through that and let's us rethink how we create that framework in a resilient, safe manner within regulated markets with regulated supervision.

00:08:54: And where the guardrails.

00:08:56: so though but really allows us to think about, let's not have domestic the concept of domestic custody.

00:09:03: But I have digital custody within an EU framework and i think that is a very powerful proposition.

00:09:11: And as an example we have three domestic markets Denmark Finland with Sweden.

00:09:18: We have different CST in each market for a structured product issue or two Issue across all those three markets.

00:09:26: even though the trading and listing is harmonized, their issuance has to be done three times separately in relatively small markets.

00:09:35: So the barriers entry are quite high because of individual nature of this issuing into each market.

00:09:44: I think that's where being able look at digital tokenization as a European platform and being able to issue once is incredibly powerful.

00:09:56: And you already mentioned it a bit when looking at the asset classes Me personally, I believe it's going to be a shift for all asset classes moving on tokenized rails.

00:10:06: We share that opinion.

00:10:07: however we need to start somewhere right?

00:10:09: We cannot start with the entire industry at once.

00:10:12: so we really purposely decided to focus as first step in the asset class of Structure Product where Börse Stuttgart Group and Nostalk are very large players.

00:10:25: Why do you think that this specific asset class on your side is a very good asset class to start such as?

00:10:30: Yeah, so going back what I said before.

00:10:32: I think the inefficiencies in terms of issuance and each market are very high.

00:10:38: So therefore what we found us with most of our structured product issue was a willingness to take down the cost, the high costs of issuance and access to each domestic market.

00:10:52: So you have high-cost inefficient processes.

00:10:58: so.

00:10:58: therefore in relatively ring fenced environment because normally structured products are derivative warrants and derivative listed derivative products and a number of market makers, and the number retail brokers or distribution points.

00:11:16: So it's not like equities where you have all of sudden maybe twenty participants in your stock is quite ring-fenced ecosystem with high set up costs.

00:11:28: so I think there are lot economies that scale to be gained on digital.

00:11:34: That why its good asset class start because there's several low-hanging fruits and relatively quick realizable benefits for issuers, investors alike.

00:11:46: Now looking at the US where it is a bit of different landscape also in terms of asset classes can we talk about projects that you have?

00:11:54: You announced partnership with Kraken.

00:11:56: Can you elaborate a bit on what your planning in this partnership?

00:11:59: Yeah, so I think we announced two things and they're related.

00:12:04: One is NASDAQ issuer based token framework.

00:12:08: So essentially We are developing an equities Token that will be launched next year And essentially That would been issuer approved token Essentially the token fungible with the underlying security and will have the same Q-SIP or in Europe is ISIN that's used, same QCIP as the underline.

00:12:34: And we'll have the Same rights As the underlying Security and effectively if you hold a token You are holding The underlying Securities so they're too interchangeable.

00:12:44: now it's part of That security and that token lives within a regulated framework in the US that's called REGNMS.

00:12:53: That is what the Framework for Regulated Equities is, and so it will live within that framework.

00:13:01: Investors can hold that through wallets via broker-dealer which are all in the regulated market traded on regulated exchanges.

00:13:11: The partnership with Kraken is really an important thing.

00:13:15: as we move forward to digital at France, there are a lot of innovations on digital native markets and from the world of crypto.

00:13:25: And that technology and those services have been working for very long time in the Digital Native Markets.

00:13:33: We fundamentally believe, and so does Kraken is over time we need to bring infrastructure and connectivity together rather than having different pools or fragmented liquidity sitting in parallel tracks, right?

00:13:48: So I think for us bringing the two worlds together and connecting it.

00:13:54: And bring a lot of good stuff that we have in capital markets... In U.S.

00:13:58: Capital Markets We Have The Deepest Liquidity & We Have Very Resilient & High Integrity & Transparent Markets With Incredible Price Discovery.

00:14:11: being able to connect with Kraken, some of the permissionless world and being able transfer a token from one to another means that customers can take advantage of deep liquidity, transparency in government.

00:14:24: What is your main

00:14:29: difference between US market and European market?

00:14:35: Yeah, I

00:14:38: think there's a number of tokenisation models that are coming out.

00:14:43: And with the SECs approach under the new chair of the SEC Bulllackens it is very forward-looking approach and they've been on record to talk about rather than enforcement which was an approach from previous administrations allow innovation exemptions and using no action letters which they've done quite a number including approving DTCC's tokenisation letter as well as ours, our filings.

00:15:18: They have been very progressive in allowing different market models to come up.

00:15:24: so I think I think that journey along with the Genius Act which was passed and at the moment, The Clarity Act.

00:15:33: Which is going through the process.

00:15:35: it's very forward-looking And in a way...I think prior to that two years ago Europe relatively compared to US was ahead With the MICA and also the DLT PIRATE regime And now I think the U.S is exploring how to scale and set up those markets quickly, in a way it's sort of... It is a lesson for Europe as well about How do we move forwards from MICA and the DLT pilot regime?

00:16:13: To allow scaled adoption an institutional adoption of that and to a large extent it's not just the listed markets.

00:16:21: It is also OTC markets, collateral balance sheet payments.

00:16:26: so there are widespread industry move across this from not just exchanges on market infrastructure but in digital markets as well as institutional assets.

00:16:38: owners and banks who want to unlock balance sheets and be able to use that, also explore the incredible flexibility of programmable assets.

00:16:55: And develop products and services for their customers quicker than

00:16:58: cheaper.".

00:17:00: Now obviously other players are working on such infrastructures as well.

00:17:03: so for example a New York Stock Exchange announced some new venues for stocks in ETFs or tokenized form.

00:17:10: do you think we running a bit arrays and are running into the danger that everyone is building again new silos instead of having an interoperable infrastructure across different jurisdictions?

00:17:23: Well, I think what's very important Is that the principles upon which different smart contracts and tokens Are created allow for fungibility.

00:17:36: So a fungible to an inter-operability.

00:17:38: so fungibilty in respect to, for example our token being exchangeable for the underlying security and then interoperability.

00:17:47: And the fact that you can store the token into wallets In a custody place move it Into A Place Of Custody Like A CSD And Move It Across Networks.

00:17:58: So I think That Is Incredibly Important.

00:18:01: i Think The Industry Understand That People Don't Want To Create Infrastructure For by chain, and so you don't want to have many different wallets.

00:18:12: You wanna have one wallet that can hold many different tokens that you could move onto multiple chains.

00:18:19: So what I think?

00:18:21: the industry...I think everyone in this industry understands that there's considerable efforts on DTCC, Euroclayer and Clearstream to look at standardization, and also we're working with them about how to ensure that when we stand up our structured product token.

00:18:40: That it's built alongside standards not just but ensure that those securities can be interchangeable and custodies in different places, But also on different networks.

00:18:56: So for example it's EVM compliant or Canton compliant Or fixed compliance.

00:19:03: so I think standards are extremely important.

00:19:06: And if you look at the open source nature of blockchain and the history of blockchain, I think the most successful part is where people have moved towards standardisation.

00:19:19: Now when we hear critics... And i usually don't share that critic but what we often hear is it takes a very long time until tokenization has its breakthrough.

00:19:30: We personally believe technology's in existence since now roughly ten years.

00:19:34: so you are changing financial infrastructure.

00:19:36: So does really take some.

00:19:38: But nevertheless, I'm feeling that there are now really increased partnerships also from large institutions coming out.

00:19:45: Do you believe we're a bit at some sort of tipping point currently with respect to tokenised assets?

00:19:50: Yeah look i think to your point.

00:19:54: crypto and DLT has been around for over ten years.

00:19:58: We all remember in the twenty-tenths a crypto was even before that.

00:20:08: So I think it has taken time.

00:20:11: through there, what is shifted?

00:20:14: where as the last five years have probably been POC's experimentation you are seeing widespread mass adoption and scaling, moving from POCs to implementation.

00:20:29: And also as we are doing in taking one asset class and then really saying how can we scale this?

00:20:36: I think that's not just an isolated example but that is across all of our customer base as financial asset institutional managers, asset managers whether it's the US or Europe every single one of our customers or participants who are either broker dealers, making markets, creating ETFs and institutional asset managers have full scale prioritised plans for tokenising assets in collateral.

00:21:12: That's across the piece.

00:21:13: we're seeing that obviously here whether it's in Germany or France, or Sweden.

00:21:21: It is no longer a conceptual thing.

00:21:23: and now how do we move into adoption?

00:21:26: And I think as you said there has always been fear of how to adopt this technology but from that point people were still trading voice-broken and physical training.

00:21:47: And so these kind of things happen, they happened because you move forward and you disrupt.

00:21:54: the adoption comes but I think there is a widespread recognition across financial markets in capital markets that tokenization was here to stay.

00:22:05: digital assets are an incredible opportunity.

00:22:08: working out rules regulations around.

00:22:12: it is going to take time but I think that will be driven by experimentation and also scaling those products.

00:22:20: And i think organizations like yourself, we know how to operate very safe resilient markets for our customers.

00:22:29: We've been doing this for years.

00:22:30: This is another technology which can apply all the DNA.

00:22:37: put, explore that opportunity to do that.

00:22:40: So I think that's where the adoption comes through.

00:22:45: Now looking at the companies being listed as the Nasdaq venues now when we talk about equity so maybe rather than you into the US market Do you see by twenty thirty?

00:22:56: That most of them will be on tokenized rails or with projects be it through digital twin structures or natively, but do you believe that we can trade tokenized assets and own those stocks listed on your exchanges by Dan?

00:23:11: By twenty-thirty.

00:23:12: Yeah look I don't... We think over the next three to five years You will see significant scaling of that.

00:23:21: now who knows what how much in each asset class would beyond?

00:23:27: But i think if securities, fixed income equities and you look at funds tokenized bank deposits stable coins.

00:23:38: I think a lot of that is accelerating And i wouldn't put it exact time frame but i would see over the next three to five years significant proportion Of those markets being traded held dealt with in a tokenised format.

00:24:01: It may fully be in a hybrid state for five to ten years, where you still do it the traditional way or what you can do at the tokenised way

00:24:09: and takes patience going forward.

00:24:12: now towards the end of our conversation two last questions one on rather what we are still lacking.

00:24:21: So, what do you believe?

00:24:22: Do we really need to have the technology pulled through and that we benefit from all those efficiency gains that we have when on tokenized

00:24:29: trails?".

00:24:30: Yeah so look number one- We need a regulatory regime and also an ability The technology and the frameworks that we have, they give participants the same comfort as they do with traditional assets.

00:24:48: And I think a lot of work that were doing themselves Lydia is really talking to central banks, the regulators domestic regulators European regulators about how we can do that in a safe and resilient fashion.

00:25:02: It's not a matter of if it is really a matter, but we need the legislative and regulatory frameworks to keep up with as we've seen is detrimental to actual scaling and actually adopting this in a widespread fashion.

00:25:28: And then, I think really what we need is also education and understanding amongst the investment community and institutional markets about how... What's right way to tokenize?

00:25:42: How do we get benefits?

00:25:51: of those things happening around it.

00:25:54: Now there is some legislation and domestic legislation that needs, different European countries have accelerated that especially in the concept of securities and digital securities and their validity and also their status bankruptcy legislation and ability to pledge or seize assets.

00:26:18: I think there, it is still very jurisdiction based in Europe.

00:26:23: So I think the legal and legislative framework also needs to change quite a bit.

00:26:30: Yeah so as a last question you have been pushing those digital asset topics within a large organization?

00:26:37: And the listeners are working partly for large organizations that might be interested for institutional players.

00:26:49: How can you push topics like that, which are very innovative and require a lot of stakeholder management?

00:26:55: What advice do we have?

00:26:56: Like how should they start on what side of

00:26:58: things?".

00:26:59: Yeah I think that's a very good question!

00:27:01: Number one is education and understanding the frameworks that are out there um and also what the FSAs and the regulators allow so understand allows and also reaching out, I mean industry associations educating themselves around what your peers are doing the research.

00:27:28: There's quite a lot of body work right now talking to us or ourselves about what support that is there.

00:27:39: But essentially, it is really understanding okay?

00:27:43: What is allowable within your jurisdiction.

00:27:46: so there's a legal compliance aspect to it but then also the technology platform side of it and also at the business side of It.

00:27:55: Okay!

00:27:58: What business are you in?

00:28:00: where can digital assets and programmable assets be able to help unlock reduce friction, lower costs create efficiency increase distribution and also be able to customize and produce more products that you can deliver to the investor or open up new markets.

00:28:21: New investor basis like retail.

00:28:23: so I think there's a business side to understand how digital assets can help you deliver on your business either in terms of capital efficiency operational efficiency and new products, then there's a legal technology side.

00:28:39: It is really understanding that capability and going out talking to the market in your peers about it.

00:28:47: Amazing!

00:28:48: Thank you very much, Roland.

00:28:49: That was very insightful.

00:28:50: It has always been a pleasure talking with you on those topics.

00:28:53: I am looking forward to continuing our alliance between Zetourian and Nastar.

00:28:58: So thank-you for being here.

00:29:02: Thank you very much Leah.

00:29:03: It's been fantastic, no it has been great to have

00:29:08: this time.