WFE Warns Tokenized Stocks Threaten Market Integrity and Investor Rights

The World Federation of Exchanges (WFE), representing global stock exchanges, has issued a strong warning against the rise of tokenized stocks, labeling them as "mimics" that threaten investor protection and market integrity. The WFE argues that these blockchain-based tokens, often marketed as digital representations of traditional equities, lack the legal frameworks, shareholder rights, and regulatory safeguards that have long governed stock ownership [1]. These tokens are being offered on unregulated platforms, creating what the WFE describes as a "blatant attempt to circumvent regulation" [2].

The concerns raised by the WFE stem from the growing number of platforms offering tokenized stock products. Robinhood recently introduced tokenized stocks for its European users to gain access to U.S. equities, while Backed Finance, in collaboration with Kraken and Jupiter, has launched its xStocks product. Coinbase is also reportedly in the process of listing similar offerings [3]. The WFE warns that these products operate outside of established market infrastructures, leading to "fragmented liquidity" and the potential diversion of order flow from regulated exchanges [4]. This, according to WFE CEO Nandini Sukumar, could ultimately harm retail investors who are led to believe they enjoy the same rights as traditional shareholders, when in reality, they hold none [5].

The WFE has called on regulators to enforce the same level of oversight on tokenized stocks as they apply to traditional securities, emphasizing that innovation should not come at the expense of market stability or investor protection. Sukumar stated that regulatory arbitrage—where firms exploit legal gray areas to avoid compliance—is a growing risk that must be addressed [6]. The WFE’s stance reflects a broader resistance from traditional financial institutions, many of which see tokenized stocks as a direct challenge to their dominance.

This is not the first time traditional finance (TradFi) players have pushed back against crypto innovations. Recently, a U.S. banking coalition, including the American Bankers Association and the Bank Policy Institute, called for amendments to the GENIUS Act to close loopholes allowing interest to be paid on stablecoins [7]. According to Alexander Grieve, VP of government affairs at Paradigm, these efforts highlight how TradFi firms are seeking to protect their market positions against emerging digital financial models [8].

Proponents of tokenized stocks argue that they bring benefits such as faster settlement, lower costs, and round-the-clock trading. However, the WFE and other regulators stress that these advantages should not justify the absence of legal protections or transparency. The ongoing debate underscores a larger tension between innovation and regulation in the financial sector, as crypto platforms continue to challenge the status quo [9].

Source:

[1] https://ambcrypto.com/why-wfe-called-tokenized-stocks-mimics-that-risk-market-integrity/

[4] https://www.ainvest.com/news/global-regulators-warn-tokenized-stocks-risks-2508/

[5] https://www.pymnts.com/cryptocurrency/2025/stock-exchange-group-wants-tokenized-stocks-crackdown/

[7] https://www.binance.com/en/square/post/08-26-2025-global-regulators-urged-to-address-risks-of-unregulated-crypto-platforms-28834525014298

[9] https://scanx.trade/stock-market-news/global/global-stock-exchanges-urge-regulators-to-address-risks-of-tokenized-stocks/17682236