The World Federation of Exchanges (WFE), representing over 250 exchanges including NYSE, Nasdaq, London Stock Exchange, Deutsche Börse, and Hong Kong Exchanges, has sent a formal letter to major financial regulators calling for stricter oversight of tokenized equities. The letter, sent on Friday to the U.S. SEC's Crypto Task Force, European Securities and Markets Authority (ESMA), and IOSCO's Fintech Task Force, expresses alarm at the proliferation of brokers and crypto platforms offering these products.
Tokenized equities are digital tokens that mirror shares of listed companies but do not confer shareholder rights such as voting or dividends. The WFE warned that these products "are marketed as stock tokens or the equivalent to stocks when they are not," posing risks to investors and potentially damaging confidence in traditional markets. The group urged regulators to enforce securities laws, establish clear ownership and custody frameworks, and prevent tokens from being promoted as equal to listed shares.
The controversy around tokenized stocks first emerged in 2020-2021 when platforms like Binance, FTX, and Bittrex offered tokens mirroring Tesla, Apple and other U.S. equities. Following FTX's collapse in late 2022, several early offerings were wound down. Despite this, interest in the sector continues to grow, with Robinhood launching tokenized equities for EU customers in June and Coinbase seeking SEC approval to launch tokenized stock trading.
Advocates argue that tokenized stocks can settle instantly on-chain and trade 24/7, contrasting with the traditional T+2 settlement cycle in U.S. equities. However, critics warn that without proper safeguards, they could create investor confusion and undermine trust in regulated equity markets.