The SEC has been urged by ESMA, IOSCO, and the World Federation of Exchanges to tighten oversight of tokenized equities. They are warning of investor risks as Wall Street giants eye the growing market.
Global regulators and exchange industry associations are joining forces to curb the growth and adoption of tokenized stocks, arguing that these products do not represent actual equities and expose investors to significant risks.
According to Reuters, a letter has been sent to the US Securities and Exchange Commission’s (SEC) Crypto Task Force by the European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE). The letter urges stricter regulatory oversight of tokenized stocks.
It is argued by the organizations that tokenized stocks “mimic” the equities they are designed to represent but lack the investor protections that are built into traditional markets.
It was told to Reuters by the WFE that “we are alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenized US stocks,” without naming specific firms or platforms. “These products are marketed as stock tokens or equivalent to the stocks when they are not.”
The push carries weight given the influence of the signatories. EMSA is a European Union agency and one of the bloc’s three main financial supervisory authorities.
Tokenized stocks
An international body that sets standards for securities regulation and investor protection across global markets is IOSCO.
WFE, which is headquartered in the UK, is an industry group that is representing exchanges and clearing houses worldwide.
The call for clampdowns comes as tokenized securities are gaining traction on Wall Street and beyond, driven by the promise of greater efficiency, lower costs, and broader market access through blockchain technology.
The value of tokenized assets has already climbed past $26 billion, according to industry data.
Tokenized stocks—digital representations of traditional equities issued on a blockchain—remain a small slice of that market, but their footprint is expected to grow as major platforms like Coinbase, Kraken, and Robinhood move into the space.
Lobby Groups Intensify Efforts to Block Crypto Industry Expansion
This isn’t the first time traditional industry lobbies have joined forces to slow the growth of blockchain innovation. As the GENIUS stablecoin bill was mulled over by US lawmakers, banking groups quietly lobbied to exclude yield-bearing stablecoins, a feature that could have directly competed with their service offerings.
They were ultimately successful, with GENIUS explicitly barring stablecoin issuers from paying interest to holders.
While the passage of GENIUS was widely seen as a win for the stablecoin industry, it also came with a trade-off. “By explicitly prohibiting stablecoin issuers from offering yield, the GENIUS Act actually protects a major advantage of money market funds,” Temujin Louie, CEO of cross-chain interoperability protocol Wanchain .
Still, the SEC appears open to tokenization at the highest levels. In July, SEC Chair Paul Atkins described tokenization as an “innovation” that should be advanced within the US economy.
That same month, it was stressed by SEC Commissioner Hester Peirce that tokenized securities, including tokenized equities, must nonetheless comply with existing securities laws.
