Stock Exchange Group Urges Regulators to Tighten Tokenized Stocks Oversight: Report

World Federation of Exchanges (WFE), a group of stock exchanges, has called global regulators, including the US SEC and the European ESMA, to tighten their oversight on ‘tokenized stocks.’

Per Reuters, the WFE sent a letter to securities watchdogs, raising concerns about the blockchain-based stocks. The letter, sent last Friday, warned that these products “mimic” equities without offering shareholder rights or market trading safeguards.

Tokenized equities represent ownership in a company or asset through digital tokens on a blockchain. However, investors do not become shareholders in the company.

“We are alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenised U.S. stocks,” the WFE wrote to regulators.

The coalition stressed that these products are not equivalent to stock tokens as they are marketed.

Regulators to Apply Securities Rules on Tokenized Stocks: WFE

Furthermore, the UK-based stock exchange association has urged the US SEC, ESMA, and the global securities watchdog IOSCO’s Fintech Task Force to apply securities rules to tokenised assets.

Regulators should also clarify legal frameworks for ownership and custody of these products and prevent them from being marketed as stock equivalents, it added.

WFE warned that such stock issuers could suffer “reputational damage” in case if the tokens fail. The group did not mention which brokers and trading platforms it was referring to.

In June, investment platform Robinhood launched tokenized US stocks and ETFs, following a strong revenue growth and profitability.

Other major players in the industry have also made similar leaps. Centralized exchanges such as Kraken are also offering tokenized U.S.-listed stock trading, while Coinbase intends to tokenize its own $COIN shares.

Tokenized Stocks Remain Securities – SEC

In July, Hester Peirce, a Republican commissioner on the SEC, often referred to as “crypto mom,” said that any new models for trading securities known as “tokenization” still meet the securities regulations.

“As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset,” she said at the time. “Tokenized securities are still securities.”

With the market for tokenized equities experiencing rapid expansion, there is a clear shift in how traditional assets are perceived and utilized within the digital economy.

CoinGecko revealed that the tokenized equities sector of Real World Assets (RWAs) had grown by nearly 300% – an increase of over $8.6 million since the start of 2024 alone.

“Despite this impressive growth and increasing institutional engagement, simply tokenizing an equity — in itself – offers little inherent value beyond a digital representation,” said Kevin Rusher, Co-founder of RAAC.