Global Stock Exchanges Urge Crackdown on "Mimicked" Tokenized Equities

London, UK – The World Federation of Exchanges (WFE), representing major stock exchanges globally, has called for urgent regulatory action against tokenized stocks, warning that these blockchain-based products imitate traditional equities without offering comparable investor rights or safeguards. The WFE's concerns, highlighted in a tweet by Cointelegraph, underscore a growing tension between traditional financial markets and the burgeoning digital asset space.

"🚨 NEW: The World Federation of Exchanges has urged regulators to crack down on tokenized stocks, warning they mimic equities without offering the same rights or safeguards."

The WFE has sent formal letters to key regulatory bodies, including the U.S. Securities and Exchange Commission’s (SEC) Crypto Task Force, the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions’ (IOSCO) Fintech Task Force. The organization expressed alarm over the proliferation of platforms offering these products, which are often marketed as equivalent to stocks but lack fundamental protections such as voting rights, dividends, or clear legal recourse in case of platform insolvency.

Tokenized stocks are digital representations of traditional shares issued on a blockchain, aiming to offer benefits like fractional ownership, reduced trading costs, and faster settlement. However, the WFE argues that these products introduce risks such as liquidity fragmentation and regulatory arbitrage, pulling trading away from regulated exchanges. Nandini Sukumar, CEO of the WFE, stated that these "mimicked products do not meet the high standards which investors are used to."

Major crypto platforms and brokers, including Robinhood and Coinbase, have been active in the nascent tokenized equities sector. Robinhood launched tokenized equities for its EU customers, while Coinbase is seeking SEC permission to offer similar products in the U.S. This expansion has intensified calls for regulators to apply existing securities laws to tokenized assets and clarify legal frameworks for ownership and custody.

Regulators worldwide are grappling with how to oversee this evolving market. SEC Commissioner Hester Peirce has reiterated that tokenized securities remain subject to existing securities laws, emphasizing that blockchain technology does not alter the fundamental nature of a security. The debate highlights the challenge of balancing financial innovation with robust investor protection and market integrity, pushing for a "same risk, same regulation" approach to digital assets.