A coalition of the largest stock exchanges globally is calling on regulators to take action against tokenized stocks, cautioning that they present new risks to investors and may jeopardize market integrity. Tokenized equities are blockchain-based tokens that signify ownership in companies. Although they reflect stock prices, investors do not become shareholders and do not receive rights like voting or dividends.
Proponents claim that tokenization has the potential to reduce trading expenses, accelerate settlement processes, and facilitate continuous global trading around the clock. However, conventional exchanges have a different perspective. In a letter addressed to regulators in the U.S., Europe, and around the world, the World Federation of Exchanges (WFE) stated that these products “mimic” equities without providing the same protections or safeguards. The WFE voiced apprehension regarding the swift increase of brokers and crypto platforms promoting tokenized stocks as though they were on par with actual shares.
It cautioned that issuers — the companies whose shares are mirrored — might experience reputational harm if tokenized markets do not succeed. The industry body urged regulators to enforce securities laws on tokenized assets, provide clarity on ownership and custody regulations, and ensure these assets are not promoted as direct alternatives to stocks. The discussion underscores the increasing friction between conventional market frameworks and innovations born from the crypto space. On one side, tokenization offers efficiency, capital flexibility, and the potential for borderless trading.
Conversely, exchanges and regulators are concerned about potential confusion, ambiguous legal areas, and systemic risks. As the boundaries between traditional finance and on-chain markets become less distinct, it is evident that tokenized assets are compelling regulators and established players to determine the extent to which they will allow innovation to transform trading regulations.