The World Federation of Exchanges (WFE) has urged securities regulators to tackle the rising trend of tokenised stocks, as these blockchain-based tokens pose new risks for investors and threaten market integrity, as per a letter obtained by Reuters.
Tokenised equities are tokens on the blockchain that represent company shares but do not confer shareholder status to investors in the actual company.
Crypto platforms like Coinbase and broker Robinhood are exploring this emerging market, which could transform the securities investing landscape.
Advocates claim that tokenised equities can lower trading costs, expedite settlements, and enable 24/7 trading.
In a letter sent last Friday to the SEC’s Crypto Task Force, the ESMA, and IOSCO’s Fintech Task Force, the WFE expressed concerns that these tokens “imitate” equities without offering the same rights or security measures. The letter was sent to key regulatory bodies in the U.S. and Europe.
“We’re worried about the numerous brokers and crypto-trading platforms planning to offer or already offering so-called tokenised U.S. stocks,” stated the WFE, a UK-based exchange association, in the Reuters-sighted letter.
“These products are being marketed as stock tokens or stock equivalents, which they are not.”
The WFE did not disclose the specific brokers and platforms it mentioned.
Companies whose stocks are being replicated could face reputational harm if the tokens fail, the WFE noted.
WFE CEO Nandini Sukumar told Reuters that the position reflects the concerns of market infrastructures and the larger financial sector, with some share issuers raising issues with their exchanges.
The WFE urged regulators to enforce securities laws on tokenised assets, define ownership and custody legalities, and prevent them from being marketed as stock equivalents.
The SEC, ESMA, and IOSCO have yet to comment on the matter.
An SEC commissioner stated in July that tokenised securities must comply with existing securities regulations.
In June, Robinhood launched tokenised equities for EU customers, with plans to offer tokens for privately-held companies like OpenAI.
OpenAI stated it does not support the tokens and is not involved in the offering.
Coinbase seeks SEC approval to provide tokenised equities to its customers, Reuters reported in June.
Robinhood and Coinbase have not responded to requests for comment.
