Nasdaq (NDAQ) is dropping its plans for a crypto custody service, which was slated to go live in the second quarter of this year, CEO Adena Friedman said in an earnings call on Wednesday.

In September 2022, the operator of the Nasdaq stock exchange had said that it was putting together the infrastructure and regulatory approval needed for a crypto custody service. The firm had applied to the New York Department of Financial Services (NYDFS) for a limited-purpose trust company, which would oversee the custody business.

Now Nasdaq has opted to halt these plans and its effort to pursue the necessary license "considering the shifting business and regulatory environment in the U.S.," Friedman said.

The firm will however aim to continue supporting the digital asset industry in several ways, including partnerships with potential ETF issuers as well as providing technology for crypto custody, she added. (Nasdaq , notably, is the would-be listing exchange partner in BlackRock's spot bitcoin ETF application, whose filing last month lifted the market's spirits.)

Nasdaq's move is a blow to institutional adoption of crypto in the U.S., where regulators appear to be targeting crypto firms and related services, prompting concerns that there will be an exodus of such firms to more hospitable jurisdictions.

For crypto custody in particular, the U.S. Securities and Exchange Commission has set up a high hurdle for publicly traded firms to get involved. In an April 2022 accounting directive, known as Staff Accounting Bulletin No. 121, the SEC staff advised firms holding customers’ digital assets that they’d need to record their obligations as liabilities on the companies’ own balance sheets.

To be clear, this accounting treatment would be in conflict with every other asset that custodians safekeep. For example, State Street has over $40 trillion in customer assets under custody. Imagine them having to put those on their own balance sheet? It makes zero sense.
— Matt Walsh (@MattWalshInBos) July 17, 2023

UPDATE (July 19, 13:25 UTC): Adds detail from Friedman's comments and background information.

UPDATE (July 19, 15:20 UTC): Corrects date in second paragraph; adds detail to fourth paragraph.

UPDATE (July 19, 17:00 UTC): Adds background about SAB-121 and Nasdaq's role in BlackRock ETF proposal.

Nasdaq Custodian Regulation US

Parikshit Mishra

Parikshit Mishra is CoinDesk's Deputy Managing Editor responsible for breaking news coverage. Before joining CoinDesk, he was the European Editor at Acuris (Mergermarket), where he dealt with copies related to private equity and the startup ecosystem. He has also worked as an analyst for CRISIL, covering the European markets and global economies. His most notable tenure was with Reuters, where he worked as a correspondent and an editor for various teams. He does not have any crypto holdings.

Jamie Crawley

Jamie joined CoinDesk as a news reporter in February 2021 after writing widely about crypto and blockchain for two years in other roles. Away from crypto, Jamie runs a lot and loves all things sport. He holds small amounts of BTC, ETH, ADA and LTC.