Global Exchanges Urge Stricter Oversight of Tokenized Stocks Over Investor Risks

A growing coalition of global stock exchanges and market infrastructure organizations has called on the U.S. Securities and Exchange Commission (SEC) to impose stricter oversight on tokenized stocks, warning that the products pose significant risks to investor protection and market integrity [1]. The World Federation of Exchanges (WFE), representing major exchanges and clearinghouses worldwide, emphasized in a recent letter that the proliferation of tokenized equities could mislead investors and undermine trust in traditional financial markets [2]. These digital assets, which are blockchain-based representations of listed shares, do not confer ownership rights, voting powers, or the legal protections associated with traditional equity ownership [3].

The WFE expressed concern that tokenized stocks are often marketed as equivalent to real stocks, despite lacking the core attributes of traditional equities [4]. The organization urged regulators to apply existing securities laws to tokenized assets, clarify custody frameworks, and prohibit the mischaracterization of these products as true stock equivalents. The call for stricter regulation comes as several major cryptocurrency platforms, including Robinhood and Coinbase, are expanding into the tokenized equities space [5]. Although no specific platforms were named in the letter, the WFE highlighted that the absence of clear regulatory boundaries creates opportunities for abuse and misinformation [6].

The letter was sent to multiple regulatory bodies, including the SEC’s Crypto Task Force, the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions’ (IOSCO) Fintech Task Force. These regulators have echoed the WFE’s concerns, arguing that coordinated action is essential to prevent risks and protect global investors from custody issues or fraudulent activity [7]. The WFE also pointed out the reputational risks that traditional stock issuers could face if tokenized versions of their shares fail or collapse.

In response to these concerns, the WFE has recommended that global regulators act urgently to establish clear legal frameworks for tokenized assets. This call for regulatory clarity has also drawn attention from other market participants. Kraken, one of the largest crypto exchanges, recently met with the SEC’s crypto task force to discuss tokenization [8]. The meeting occurred amid a broader wave of regulatory scrutiny over the growing tokenized equities market.

While proponents of tokenized stocks argue that they can reduce trading costs, speed up settlement, and enable round-the-clock trading, critics and regulators have raised serious concerns about investor protection and market integrity. SEC Commissioner Hester Peirce has previously stated that tokenized securities remain subject to existing legal frameworks, emphasizing that digitization does not eliminate legal obligations [9]. The WFE’s intervention reflects a broader international effort to bring clarity and oversight to a rapidly evolving financial technology space. As the market for tokenized equities continues to expand, regulators are being urged to act proactively to prevent systemic risks and ensure that investors are not misled [10].

Source:

[1] https://www.xt.com/en/blog/post/stock-exchange-group-urges-regulators-to-tighten-tokenized-stocks-oversight-report

[2] https://www.proactiveinvestors.com/companies/news/1077264/stock-exchanges-call-for-stricter-regulation-of-tokenized-stocks-1077264.html

[8] https://cointelegraph.com/news/crypto-exchange-kraken-met-with-sec-crypto-task-force-discuss-tokenization

[10] https://cryptoslate.com/tokenized-equities-could-reach-1-3-trillion-but-regulators-see-a-ticking-bomb/