Leading global financial regulators are coming together to advocate for tighter controls over tokenized stocks, warning of risks to investors.
Joint Statement from Regulators
The European Securities and Markets Authority (ESMA), International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE) have collectively sent a letter to the US Securities and Exchange Commission’s (SEC) Crypto Task Force. The letter emphasizes the need for stronger regulatory scrutiny of tokenized equities.
Risks of Tokenized Stocks
The regulators highlight that tokenized stocks are designed to replicate traditional equities but often lack the investor protections inherent in classical stock markets. WFE expressed concern regarding the proliferation of brokers and crypto platforms offering or planning to offer tokenized US stocks, cautioning that such products are marketed as equivalent to real stocks but do not provide the same protections.
Future of Tokenization
This move occurs against the backdrop of rapid growth in the tokenization market, which has surpassed a $26 billion valuation, driven by blockchain technology’s promise of greater efficiency and accessibility. Tokenized stocks, digital representations of traditional shares recorded on a blockchain, currently form a modest segment of this market. However, their prominence is expected to surge, particularly with major exchanges like Coinbase, Kraken, and Robinhood entering this space.
Despite resistance, the SEC has shown openness towards blockchain innovations. SEC Chair Paul Atkins has termed tokenization an economic innovation worth fostering, although Commissioner Hester Peirce emphasizes that compliance with existing securities laws remains essential.
