Tokenized equities mimic stocks without any of the rights or safeguards of real stocks, the World Federation of Exchanges claims.
Summary
- World Federation of Exchanges warned major global regulators about tokenized stocks
- Tokenized equities, WFE claims, offer lower protections than actual stocks
- Expanding asset tokenization could confuse investors into buying riskier asset
Global stock exchanges are urging top regulators to crack down on tokenized stocks. The World Federation of Exchanges sent a letter to major regulators warning them about the new risks these tokens create for investors, according to Reuters.
WFE sent a letter to three major regulators on Friday, claiming that these blockchain tokens mimic securities without providing the same protections and rights. The agency is concerned that if these tokens fail, exchanges could suffer reputational damage, and it called on regulators to address the issue.
“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 letter wrote. “These products are marketed as stock tokens or the equivalent to stocks when they are not.”
The Securities and Exchange Commission’s Crypto Task Force, the European Securities and Markets Authority, and the global securities watchdog IOSCO’s Fintech Task Force were the agencies that received the letter.
Robinhood, Kraken push into tokenized securities
Tokenized shares represent ownership of underlying shares, but lack some of the inherent shareholder rights. This includes voting rights, dividends, and custody protections. In many cases, traders cannot redeem their shares and can only sell them back on the issuing platform.
Robinhood, Coinbase, Kraken, Gemini, nd eToro are among the companies that offer similar products. However, these platforms try to make it clear that tokenized stocks are not equivalent to the underlying assets. Typically, these assets have a different ticker from the stock, for instance, COINx for tokenized Coinbase stock on Kraken. Moreover, Kraken explains that owning this instrument does not confer shareholder rights.