Tokenized Equities In The Crosshairs Of Global Stock Exchanges: What Happened?

The World Federation of Exchanges (WFE), which represents leading global stock exchanges and clearing houses, has urged regulators to tighten oversight of tokenized equities, warning that the blockchain-based products could mislead investors and undermine market integrity.

In a letter sent last Friday to the SEC’s Crypto Task Force, the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions' (IOSCO) Fintech Task Force, the WFE said tokenized equities are being marketed in ways that resemble traditional shares but lack shareholder rights or trading safeguards, according to Reuters.

Tokenized equities are digital tokens issued on blockchains that represent exposure to a company's stock but do not grant actual ownership or voting rights.

Despite claims of cheaper transactions, faster settlement, and 24/7 accessibility, the WFE said the products risk confusing investors.

"We are alarmed at the number of brokers and trading platforms offering or planning to offer tokenized U.S. stocks," the WFE wrote, adding that the tokens are often presented as equivalent to traditional shares when they are not.

The federation declined to identify specific firms.

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The WFE also cautioned that issuers of the underlying stocks could face reputational harm if tokenized versions failed.

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CEO Nandini Sukumar told Reuters that exchanges and some listed companies had expressed concerns about the risks.

The group called on regulators to ensure securities laws apply to tokenized assets, establish clearer frameworks for custody and ownership, and prevent them from being marketed as identical to equities.

The SEC and IOSCO did not respond to Reuters' requests for comment, while ESMA declined to comment. A U.S. SEC commissioner stated in July that tokenized securities must comply with existing rules.

Robinhood HOOD launched tokenized equity products in Europe in June and said it planned to expand into tokens representing shares of private firms, including OpenAI.

OpenAI said it was not involved in, nor did it endorse, the offering.

Coinbase COIN is also seeking approval from the SEC to roll out tokenized equities in the U.S., Reuters previously reported.

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