- Stock exchanges warn tokenized equities could mislead investors and damage trust.
- WFE urges regulators to enforce stricter rules on tokenized stocks.
- Robinhood, Coinbase push ahead with tokenized equities despite regulatory concerns.
Global stock exchanges are calling for immediate regulatory action against tokenized equities, warning that they pose a significant risk to investor protection and market trust.
In a formal letter, the World Federation of Exchanges (WFE) urged the U.S. Securities and Exchange Commission (SEC), the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions (IOSCO) to intervene and address the growing concerns around these digital products.
The WFE cited that tokenized stocks are not equivalent to traditional stocks, despite being marketed as such, and do not offer the same rights and protections as real stocks. Such digital tokens, which brokers and crypto platforms are increasingly offering, do not entitle the holder to any real ownership of companies.
The Federation cautioned that such misrepresentation may mislead investors, thus exposing them to many risks.
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Also, the WFE noted the risks of reputational harm to a firm if tokenized shares malfunction or deceive investors. Nevertheless, platforms like Robinhood and Coinbase are still entering the tokenized equities market.
Robinhood already allows its European users to trade tokenized stocks, and it is planning to provide tokenized shares of private companies, such as OpenAI.
Regulators Face Pressure to Set Clear Rules on Tokenized Stocks
The call for clearer regulatory frameworks comes as tokenized assets surpass a $26 billion market cap, with tokenized stocks making up a portion of that total. The WFE is pressuring regulators to enforce the current securities laws more stringently, enact ownership and custody requirements, and limit marketing arrangements that misrepresent tokenized equities as the same as conventional stocks.
Despite the potential advantages of tokenized assets, such as reduced trading fees and faster settlement, regulators are wary of whether they are governed by the current securities laws. Robinhood and Coinbase are continuing with their tokenized equity offerings, which indicate that the digital assets market will expand despite the regulatory uncertainty.
The WFE’s appeal for action reflects the growing concern that more explicit rules are urgently needed to protect investors and maintain trust in financial markets.
