WFE Urges Stricter Regulation of Tokenized Stocks to Protect Investors

The World Federation of Exchanges (WFE) has called for increased regulatory scrutiny of tokenized stocks, warning that the rapid growth of blockchain-based financial products could pose significant risks to investor protection and market integrity. In a letter addressed to the U.S. SEC’s Crypto Task Force, the European Securities and Markets Authority (ESMA), and IOSCO’s Fintech Task Force, the WFE emphasized the need for stronger oversight to prevent potential misuse of tokenized equities [1][2].

The letter highlighted concerns that tokenized stocks—digital representations of traditional shares issued on public blockchains—are often marketed as near-equivalents to conventional equities, despite lacking the same legal protections or shareholder rights. This, the WFE argued, could mislead investors and create a parallel trading environment outside the purview of regulated exchanges [1][2]. The WFE also warned that issuers of the underlying stocks could suffer reputational damage if tokenized versions fail to deliver on promised returns.

Several platforms have already begun offering tokenized equities, including Robinhood in Europe and Coinbase, which is seeking regulatory approval in the U.S. to expand its product offerings. These firms argue that tokenized stocks can reduce costs, attract new users, and streamline trading processes. However, the WFE cautions that the lack of standardized regulation increases the risk of fraud and market manipulation [1][2].

In June, SEC Commissioner Hester Peirce reiterated that tokenized securities remain subject to existing securities laws, although she acknowledged that the sector is still in its early stages of gaining clarity. Her remarks, while not formal SEC policy, carry significant influence within the regulatory framework. As the crypto market continues to evolve, the WFE is pushing for a proactive regulatory response to ensure compliance with established legal frameworks and to prevent regulatory arbitrage [1].

The WFE’s intervention underscores broader industry concerns about the fragmentation of regulatory approaches across jurisdictions. With real-world assets increasingly being tokenized—including gold, private credit, and public equities—there is growing pressure on regulators to establish a coordinated and consistent approach. The federation’s stance reflects a growing consensus among traditional exchanges that innovation must be balanced with investor protection and market stability [1][2].

The recent volatility in crypto-focused equities, including those of Coinbase and Robinhood, suggests that the market is already reacting to shifting regulatory dynamics. While the decline in these stocks may not be directly linked to the WFE’s letter, it illustrates the broader sensitivity of investors to regulatory developments. The WFE’s call for action is expected to fuel further debate among regulators, exchanges, and market participants about how best to navigate the challenges and opportunities presented by tokenized assets [2].

Source: [1] Why Coinbase and Robinhood Shares Dipped in ... (https://tokenist.com/why-coinbase-and-robinhood-shares-dipped-in-premarket-today/) [2] Stock exchanges urge regulators to crack down on 'tokenised ... (https://www.investing.com/news/stock-market-news/stock-exchanges-urge-regulators-to-crack-down-on-tokenised-stocks-4208194)