Tokenized Stocks Trigger SEC Debate Over Ownership Rights

Continental Stock Transfer says blockchain innovation should preserve shareholder rights while warning that unauthorized tokenized securities could create investor and market risks.

As tokenized securities move closer to mainstream adoption, a new debate is emerging over who should be allowed to tokenize public company shares.

Continental Stock Transfer & Trust Company (CSTT) has urged the U.S. Securities and Exchange Commission (SEC) to establish separate regulatory treatment for issuer-authorized tokenized securities and tokenized products created by third parties without a company's approval.

In a letter submitted to the SEC's Crypto Task Force, the registered transfer agent backed recommendations from the Securities Transfer Association (STA), arguing that future tokenization rules should prioritize investor protection, shareholder rights and corporate governance alongside innovation.

Issuer Authorization Becomes the Key Distinction

According to CSTT, tokenized securities issued or approved by the underlying company should be treated differently from blockchain-based products that merely reference publicly traded shares.

Issuer-backed tokens allow transfer agents to maintain official shareholder records while preserving existing ownership controls, voting rights, dividend payments and other corporate actions.

By contrast, third-party tokenized stocks may simply mirror the price of a listed security or represent an indirect claim on shares held elsewhere without establishing a direct legal relationship between investors and the issuing company.

"We support innovation in the securities markets, but believe any tokenization framework must preserve investor protection, issuer authorization, accurate shareholder records, transfer controls, and market integrity," CSTT said in its submission.

Protecting Shareholder Rights

The transfer agent warned that investors could mistakenly assume third-party tokenized shares provide the same legal protections as traditional equity ownership.

Without issuer involvement, token holders may face uncertainty regarding voting rights, dividend distributions, custody arrangements and claims during insolvency.

CSTT also argued that unauthorized tokenization could undermine companies' ability to maintain accurate shareholder registers, potentially disrupting corporate actions including stock splits, tender offers, proxy voting and dividend payments.

The Securities Transfer Association raised additional concerns surrounding insider trading, sanctions compliance, transfer restrictions and market manipulation, while also warning that companies could face reputational risks if their shares are tokenized without their knowledge or approval.

The SEC's Position Is Already Taking Shape

The recommendations align with comments previously made by SEC Commissioner Hester Peirce, who has consistently argued that blockchain technology does not alter the legal nature of securities.

In 2025, Peirce emphasized that tokenized securities remain securities under U.S. law and distinguished between issuer-backed tokenization and products created independently by third parties.

Her comments have increasingly shaped industry expectations as the SEC develops a regulatory framework for blockchain-based capital markets.

Institutional Tokenization Continues to Accelerate

The debate comes as both crypto-native firms and traditional financial institutions accelerate tokenized securities initiatives.

Crypto platforms including Coinbase, Kraken and Binance have introduced tokenized stock offerings in various jurisdictions, while traditional market infrastructure providers are pursuing issuer-backed models designed to operate within existing securities regulations.

Earlier this year, the New York Stock Exchange partnered with Securitize to develop regulated infrastructure for tokenized securities, with Securitize acting as a digital transfer agent for participating issuers.

Similarly, the Depository Trust & Clearing Corporation (DTCC) recently completed a large-scale demonstration showing how tokenized equities, ETFs and Treasuries could operate within existing post-trade infrastructure using regulated market participants.

The Future of Tokenization May Depend on Issuer Approval

As regulators refine the rules governing digital securities, the industry's focus is shifting beyond tokenization itself toward the legal framework supporting ownership.

Rather than debating whether securities should move on-chain, policymakers are increasingly examining who has the authority to tokenize them and how investor protections can be preserved throughout the process.

If adopted, the SEC's eventual framework could formalize a distinction between issuer-authorized digital securities and third-party tokenized products—an approach that would reinforce regulated tokenization while limiting models that operate without corporate approval.