Nasdaq, Stuttgart Stock Exchange and Others Urge EU to Lift or Raise Tokenisation Cap

In recent weeks, a coalition of major market participants—including Nasdaq, the Stuttgart Stock Exchange (Börse Stuttgart), and a number of other influential financial institutions—has formally appealed to the European Union to either remove the existing ceiling on tokenisation projects or, at the very least, raise it to a level that reflects the rapid growth and evolving nature of digital asset markets. This request stems from a growing consensus among industry leaders that the current limit, which was introduced as a precautionary measure during the early experimental phase of tokenisation, now acts as a bottleneck that hampers innovation, reduces competitiveness, and fails to accommodate the scale of several already‑running European initiatives. ### Background to the Tokenisation Cap Tokenisation, the process of converting real‑world assets—such as equities, bonds, real estate, or even commodities—into digital tokens on a blockchain or distributed ledger, has been championed as a way to increase market efficiency, improve liquidity, and lower transaction costs.

The European Commission, together with the European Securities and Markets Authority (ESMA), introduced a provisional cap on the total value of assets that could be tokenised under the pilot programmes that were launched in 2022. The intention behind the cap was to allow regulators to monitor the technology’s impact on market stability while protecting investors from unforeseen risks. Initially, the cap was seen as a sensible safeguard. However, as the pilot projects progressed, many participants discovered that the ceiling was set far below the actual demand for tokenised securities.

Several projects that had already secured substantial backing from institutional investors quickly approached, and in some cases exceeded, the permitted limit. The coalition’s statement highlights that these projects are not speculative experiments; they represent genuine market activity with real capital, professional investors, and a clear path to broader adoption. ### Why the Current Limit Is Considered Too Low 1.

**Real‑World Project Scale**: Some European tokenisation pilots involve assets worth hundreds of millions of euros. For example, a joint venture between a German bank and a fintech firm aims to tokenise a portfolio of mid‑cap equities valued at roughly €300 million. Under the existing cap, only a fraction of this portfolio could be issued as tokens, forcing the participants to either truncate the offering or abandon the initiative altogether. 2.

**Competitive Disadvantage**: Outside the EU, jurisdictions such as the United States, Singapore, and Switzerland have adopted more flexible regulatory frameworks that either lack a hard cap or set considerably higher thresholds. This creates a competitive imbalance, as firms looking to innovate in tokenisation may relocate their projects to more permissive environments, potentially depriving the EU of cutting‑edge financial technology development and associated tax revenues. 3.

**Investor Demand**: Institutional investors—including pension funds, insurance companies, and asset managers—have expressed strong interest in tokenised products because of their promise of fractional ownership, faster settlement, and enhanced transparency. The cap limits the amount of capital that can flow into these products, thereby stifling the very demand that regulators hoped to nurture. 4.

**Regulatory Learning Curve**: The original rationale for the cap was to give supervisors time to understand the operational and systemic risks of tokenisation. After two years of data collection, market participants argue that regulators now possess sufficient insight to manage these risks through existing supervisory tools (such as AML/KYC checks, market‑making obligations, and reporting requirements) without needing a strict monetary ceiling. ### The Coalition’s Specific Requests The coalition’s letter to the European Commission outlines two possible pathways: - **Complete Removal of the Cap**: By eliminating the ceiling altogether, the EU would signal confidence in its regulatory environment and align itself with global best practices.

This approach would grant market participants the flexibility to scale their tokenisation projects in line with investor appetite and market conditions. - **Significant Increase of the Cap**: If removal is deemed too abrupt, the coalition suggests raising the cap to a level that accommodates the largest current projects—potentially setting the new limit at €1 billion or more.

This figure is derived from an aggregation of the projected values of active pilots across the continent. In both scenarios, the coalition emphasizes the need for clear, predictable regulatory guidance that outlines the compliance obligations for tokenised securities, thereby reducing legal uncertainty for issuers and investors alike. ### Potential Benefits of Lifting or Raising the Cap 1.

**Enhanced Liquidity**: Larger tokenised offerings can attract a broader pool of investors, including retail participants who can purchase fractional shares. This increased participation can improve secondary‑market liquidity, making it easier for investors to buy and sell tokens without significant price impact. 2. **Innovation Ecosystem Growth**: A higher or absent cap would encourage fintech startups, traditional banks, and asset managers to develop new token‑based products, such as tokenised corporate bonds, real‑estate funds, or even intellectual‑property rights.

This diversification can spur job creation and position the EU as a leader in digital finance. 3. **Cross‑Border Harmonisation**: Aligning the EU’s tokenisation framework with other major jurisdictions can facilitate cross‑border offerings, allowing European issuers to tap into global investor bases while maintaining compliance with EU standards.

4. **Regulatory Insight**: Allowing larger volumes of tokenised assets to operate under supervision provides regulators with richer data on market dynamics, risk patterns, and operational challenges, which can inform future policy refinements.

### Addressing Potential Risks The coalition does not ignore the concerns that motivated the original cap. It acknowledges that larger tokenised markets could introduce systemic risk if not properly overseen. To mitigate these risks, the coalition proposes a set of complementary measures: - **Robust Disclosure Requirements**: Issuers should provide detailed prospectuses, including information on the underlying assets, token‑structure, and rights attached to each token. - **Enhanced Market Surveillance**: ESMA and national regulators could employ real‑time monitoring tools to detect market abuse, price manipulation, or liquidity shortfalls.

- **Clear Custody Standards**: Establishing stringent standards for custodians of digital assets would protect token holders from operational failures or cyber‑theft. - **Investor Protection Mechanisms**: Introducing safeguards such as suitability assessments for retail investors and clear recourse mechanisms in case of token failure.

By coupling a higher cap with these protective measures, the coalition argues that the EU can enjoy the upside of tokenisation while keeping systemic risk in check. ### Conclusion The appeal from Nasdaq, Börse Stuttgart, and their partners reflects a pivotal moment for the European tokenisation landscape. The existing cap, once a prudent precaution, now appears to be an impediment to the sector’s maturation and its ability to compete on a global stage.

Whether the EU chooses to abolish the limit entirely or to raise it substantially, the decision will send a powerful signal about the bloc’s commitment to fostering digital‑asset innovation. A thoughtful, balanced approach—one that lifts restrictive ceilings while reinforcing regulatory safeguards—could unlock significant economic value, attract new investment, and cement Europe’s reputation as a forward‑looking hub for tokenised finance.