Global Stock Exchange Body Urges Crackdown on Tokenized Stocks

The World Federation of Exchanges (WFE), which represents the world’s largest stock exchanges and clearing houses, has urged regulators to tighten oversight of tokenized stocks, warning that these blockchain-based assets pose risks to investors and could undermine market integrity.

Tokenized equities are digital tokens issued on a blockchain that represent shares in listed companies. While they mimic the value of stocks, investors holding these tokens do not gain shareholder rights in the underlying companies.

Platforms such as Coinbase (NASDAQ: COIN) and Robinhood (NASDAQ: HOOD) have been at the forefront of exploring tokenized equities, promoting them as a way to reduce trading costs, enable faster settlement, and allow 24/7 trading.

WFE’s Warning to Regulators

In a letter sent last Friday to the U.S. Securities and Exchange Commission (SEC), the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions (IOSCO), the WFE cautioned against the growing number of brokers and crypto platforms offering tokenized U.S. stocks.

“We are alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenized U.S. stocks,” the WFE said in its letter, seen by Reuters. “These products are marketed as stock tokens or the equivalent to stocks when they are not.”

The WFE declined to name specific platforms but emphasized that issuers of traditional equities could face reputational damage if tokenized versions collapse.

Call for Clearer Rules

The association said regulators should:

• Apply existing securities laws to tokenized assets
• Define clear legal ownership and custody frameworks
• Prevent tokenized equities from being marketed as equivalent to stocks

WFE CEO Nandini Sukumar told Reuters that the group’s position reflects widespread concerns within the financial sector, noting that some listed companies have already expressed unease to their respective exchanges.

Regulatory and Market Response

The SEC has previously clarified that tokenized securities remain subject to U.S. securities regulations. Meanwhile, platforms are pressing forward:

• Robinhood launched tokenized equities for EU customers in June and announced plans to offer tokens representing shares in privately-held companies such as OpenAI. OpenAI responded that it does not endorse or participate in such offerings.
• Coinbase is reportedly seeking SEC approval to launch tokenized equities for its customers.

While supporters argue that blockchain-based equities could revolutionize global markets, regulators and exchanges remain cautious, stressing that investor protections and market stability must come first.