Global Stock Exchanges Call for Regulatory Action on Tokenized Stocks
Amid increasing concerns about the risks posed by tokenized stocks, a coalition representing the world’s foremost stock exchanges is pushing for regulatory bodies to take firm action. These digital assets, which mimic traditional securities, have sparked worries about potential threats to investor safety and market stability.
WFE Advocates for Regulatory Intervention
In a recent communication unveiled by Reuters, the World Federation of Exchanges (WFE) underscored that tokenized equities—intended to symbolize corporate shares—do not confer genuine shareholder rights. Proponents of these digital currencies argue that they offer advantages such as reduced trading costs, faster settlement times, and uninterrupted trading capabilities. However, the WFE cautions that these assets are often “misleadingly marketed” as comparable to conventional stocks, while lacking equivalent investor rights and protections.
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The WFE’s letter, directed at the Securities and Exchange Commission (SEC), the European Securities and Markets Authority (ESMA), and the International Organization of Securities Commissions (IOSCO), expressed concerns about the rapid spread of brokers and crypto platforms offering these products. The letter emphasized, “These products are marketed as stock tokens or the equivalent to stocks when they are not,” warning of potential severe consequences for issuers if these tokens fail.
Banking Associations Versus Crypto Advocates
Nandini Sukumar, CEO of the World Federation of Exchanges, highlighted that share issuers are worried about the possible reputational harm if tokenized versions of their shares decline in the market. The WFE is urging regulators to enforce existing securities regulations on tokenized assets, clarify ownership and custody laws, and prevent these tokens from being presented as direct replacements for traditional stocks.
In contrast, Robinhood has recently rolled out tokenized equities for European consumers, with plans to expand into private company shares, including those of OpenAI. However, OpenAI has distanced itself from this venture, clarifying that it does not endorse these tokens.
Coinbase is considering introducing tokenized equities to its platform and is seeking approval from the SEC. However, the evolving regulatory landscape in the U.S., influenced by former President Donald Trump’s pro-crypto stance, has also intensified scrutiny of other market sectors.
The recent introduction of the GENIUS Act, which aims to regulate stablecoins, has caused friction between traditional banking associations and cryptocurrency advocacy groups. According to a report by Bitcoinist earlier this month, the GENIUS Act has sparked alarm among banking representatives nationwide, who warn that the legislation may expose the financial system to new risks.
In response, groups like the Blockchain Association and the Crypto Council have expressed their opposition to the proposed amendments, advocating for regulations that foster innovation rather than hinder the expansion of digital assets. The path forward for pro-crypto organizations in addressing the WFE’s allegations about tokenized stocks remains uncertain. The regulatory response to the WFE’s warnings and the pushback from crypto advocates will be crucial in shaping the future landscape of market regulation.
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