The World Federation of Exchanges (WFE) has issued a warning about tokenized stocks, calling for urgent regulatory actions amid a growing push by crypto platforms.
Issues with Tokenized Stocks
The WFE, representing the world's largest exchanges, expressed concerns in a letter to the SEC, ESMA, and IOSCO. Major crypto platforms like Robinhood and Coinbase are deepening their offerings, including tokenized stocks. Proponents claim these tokens facilitate trading and reduce costs; however, the WFE emphasizes serious risks associated with potential reputational damage for issuers.
Concerns Over Market Integrity
The WFE highlighted that these products mislead investors by being marketed as equivalents to 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 letter stated. The issues focus on a lack of clarity regarding ownership rights and custody responsibilities.
Regulatory Reaction and Future Outlook
Regulators have begun issuing warnings. According to recent statements from SEC Commissioner Hester Peirce, tokenized securities are subject to regulations. Following Robinhood's integration of tokens in its European launch, companies have raised concerns. Regulators in the US and Europe now face the challenge of balancing safety and innovation.
Tokenized stocks could usher in innovation in trading; however, urgent regulatory work is needed to ensure investor protection and market integrity.
