The exchanges' industry association is joining forces with global regulators to curb the growth and adoption of tokenized stocks, arguing that these products do not represent real stocks and pose significant risks to investors.
According to Reuters, the European Securities and Markets Authority (ESMA), the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges (WFE) have written to the SEC’s cryptocurrency working group urging for stronger regulation of tokenized stocks.
These organizations believe that while tokenized stocks "mimic" the stocks they represent, they lack the investor protections offered by traditional markets.
Given the influence of the signatories, this call is significant. ESMA is an EU institution and one of the three major financial regulatory bodies in the region.
IOSCO is an international organization responsible for setting global regulatory standards for the securities markets.
The WFE, based in the UK, represents exchanges and clearing organizations globally.
As interest in tokenized securities grows on Wall Street and beyond, this call for increased regulation comes. With the efficiency, low costs, and broader market access of blockchain technology, the value of tokenized assets has surpassed $26 billion.
Tokenized stocks are a digital form of traditional shares issued through blockchain. Although their market share is small, it is expected to continue growing with the addition of major platforms like Coinbase, Kraken, and Robinhood.
Lobbying groups are ramping up efforts against the takeover of cryptocurrencies.
This is not the first time traditional industries have come together to block blockchain innovation. When U.S. legislators discussed the GENIUS stablecoin bill, banking groups lobbied vigorously to exclude stablecoins with yield functions.
Although the GENIUS Act is seen as a victory for the stablecoin industry, it also means that stablecoin issuers are prohibited from paying interest, thereby protecting the main advantages of money market funds.
Nevertheless, the SEC seems to support high-level tokenization. In July of this year, SEC Chairman Paul Atkins described tokenization as an "innovation" that should be advanced in the U.S. economy.
In the same month, SEC Commissioner Hester Peirce emphasized that tokenized securities, including tokenized stocks, must comply with existing securities laws.