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The world’s major stock exchanges are sounding the alarm on tokenized stocks, warning regulators that blockchain-based tokens representing company shares create new risks for investors and could undermine market integrity—putting pressure on Coinbase (NASDAQ:COIN) and Robinhood (NASDAQ:HOOD) as they push deeper into this emerging sector.
The World Federation of Exchanges, representing the globe’s biggest trading venues, sent a stern letter to three major regulatory bodies on Aug. 25 according to Reuters. The industry group argued that tokenized equities “mimic” traditional stocks without providing the same investor protections or trading safeguards.
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“We are alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenised U.S. stocks,” the WFE said in its letter to the Securities and Exchange Commission’s Crypto Task Force, the European Securities and Markets Authority, and global securities watchdog IOSCO’s Fintech Task Force.
The exchanges’ concern centers on a fundamental disconnect: while tokenized stocks represent ownership of securities, investors don’t actually become shareholders in the underlying company. This creates a gray area that the WFE believes could mislead investors who think they’re buying traditional equities.
Tokenized equities are blockchain-based tokens designed to track the price movements of real stocks. Proponents argue they offer significant advantages: lower trading costs, faster settlement times, and the ability to trade around the clock rather than during traditional market hours.
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But the stock exchange industry sees these benefits as a threat to their business model and investor safety. WFE CEO Nandini Sukumar told Reuters the concerns reflect worries across the broader financial sector, with some companies whose stocks are being “mimicked” expressing unease about potential reputational damage if the tokens fail.
The exchanges want regulators to apply traditional securities rules to tokenized assets, clarify legal frameworks for ownership and custody, and prevent platforms from marketing tokens as equivalent to actual stocks.
