TLDR
- WFE says tokenized stocks mislead investors by lacking shareholder rights.
- Regulators are urged to apply securities laws to digital stock tokens.
- Coinbase and Robinhood plan to expand tokenized equity offerings.
- Some firms deny involvement in tokens tied to their private shares.
Regulators around the world are facing pressure from major stock exchanges to take action against tokenized stock offerings by companies like Coinbase and Robinhood. The exchanges say that tokenized stocks, although marketed as a modern way to invest, fail to provide investors with the same protections and rights that traditional shares do. The pushback marks growing concern in the financial industry over how digital assets are being introduced to public markets.
Exchanges Warn of Investor Confusion and Market Risks
The World Federation of Exchanges (WFE) sent a formal letter to key regulators, including the U.S. Securities and Exchange Commission (SEC), the European Securities and Markets Authority (ESMA), and IOSCO’s Fintech Task Force. The group warned that tokenized stocks can mislead investors by mimicking the look and feel of real shares without offering the same rights or legal protections.
The WFE, which represents more than 250 exchanges and clearing houses, stated that many retail investors may wrongly assume they hold actual ownership in a company when buying tokenized shares. These digital tokens are often not backed by real shares and may not offer voting rights or legal claims to dividends. This has created concern about potential misunderstandings in a fast-growing market.
The association also said traditional issuers have raised concerns that their brand reputation could be harmed if tokenized products linked to their stock fail or behave unpredictably. These products are typically offered by third parties without the knowledge or approval of the companies involved.
Tokenized Stocks Gain Popularity Despite Regulatory Gaps
Tokenized equities are blockchain-based tokens meant to reflect the value of a company’s stock. Unlike regular shares, they are often traded on crypto platforms and allow trading outside regular market hours. Robinhood has already launched tokenized stock offerings in parts of Europe and plans to expand further. Coinbase is reportedly seeking approval from the SEC to introduce similar products in the U.S.
Proponents of tokenized stocks argue that they can reduce trading costs and settlement times. Some believe tokenization may also open up investment opportunities to new groups of investors. However, these offerings often operate in legal gray areas and lack clear regulatory oversight.
The WFE says this lack of regulation could lead to serious consequences for both investors and the broader financial system. The group also warned that if these products collapse, it could damage trust in regulated markets.
Regulators Face Pressure to Strengthen Rules and Enforcement
The WFE has asked global regulators to apply existing securities laws to tokenized stock products. The group also urged authorities to prevent misleading promotions and require that tokenized stocks clearly explain what rights they do and do not offer. “Investors need to know what they are buying,” said WFE CEO Nandini Sukumar, according to Reuters.
While the SEC and IOSCO have not yet commented on the letter, the SEC has previously stated that tokenized stocks must still follow U.S. securities laws. In July, an SEC commissioner warned that bypassing these rules by using new technology does not change the legal requirements for securities.
In a recent case, Robinhood offered tokenized shares of private companies like OpenAI without company involvement. OpenAI responded by saying it did not authorize or support such offerings. This has raised further concerns about how these products are marketed and who is responsible for their accuracy.
As tokenized stocks grow in popularity, global exchanges are pushing to make sure innovation does not come at the cost of investor protection.
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