Exchange industry organizations and international regulators are collaborating to limit the expansion and acceptance of tokenized equities, contending that these offerings do not represent genuine shares and pose considerable risks to investors.
As reported by Reuters, the European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE) have addressed a letter to the US Securities and Exchange Commission’s (SEC) Crypto Task Force, advocating for more stringent regulatory scrutiny of tokenized equities.
The entities assert that tokenized stocks “simulate” the shares they aim to replicate but lack the investor protections inherent in conventional markets.
“We are concerned about the multitude of brokers and crypto-trading platforms providing or planning to provide so-called tokenized US stocks,” the WFE informed Reuters, refraining from specifying particular firms or platforms. “These offerings are promoted as stock tokens or comparable to the stocks when they are not.”
This initiative carries significant weight considering the stature of the signatories. ESMA is an agency of the European Union and one of the three primary financial oversight authorities within the bloc.
IOSCO is a global organization that establishes standards for securities regulation and investor protection across international markets.
The WFE, based in the UK, represents exchanges and clearing houses on a global scale.
The call for restrictions comes as tokenized securities gain momentum on Wall Street and further afield, propelled by the potential for increased efficiency, reduced costs, and wider market access through blockchain technology.
The total value of tokenized assets has already surpassed $26 billion, according to industry statistics.
Tokenized equities — digital representations of conventional shares issued on a blockchain — currently constitute a minor segment of that market, but their impact is predicted to expand as major platforms such as Coinbase, Kraken, and Robinhood enter the market.
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This isn’t the initial occasion that traditional industry groups have united to hinder the advancement of blockchain innovation. As US legislators considered the GENIUS stablecoin legislation, banking coalitions surreptitiously lobbied to exclude yield-generating stablecoins — a feature that could have directly contended with their service offerings.
They ultimately succeeded, with GENIUS explicitly prohibiting stablecoin issuers from providing interest to holders.
While the enactment of GENIUS was broadly regarded as a victory for the stablecoin sector, it also came with a compromise. “By explicitly preventing stablecoin issuers from offering yield, the GENIUS Act essentially safeguards a key advantage of money market funds,” stated Temujin Louie, CEO of crosschain interoperability protocol Wanchain, to Cointelegraph.
Nevertheless, the SEC appears receptive to tokenization at the highest levels. In July, SEC Chair Paul Atkins characterized tokenization as an “innovation” that should be fostered within the US economy.
That same month, SEC Commissioner Hester Peirce emphasized that tokenized securities, including tokenized equities, must still adhere to existing securities regulations.
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