The letter, viewed by Reuters, was sent to the Cryptocurrency Task Force of the U.S. Securities and Exchange Commission, the European Securities and Markets Authority, and the Financial Technology Task Force of the IOSCO. The WFE stated that tokenized shares mimic traditional shares but do not offer the same rights or protections. It argued that investors might mistakenly believe they are shareholders when they are not.
Tokenized shares are blockchain-based tokens designed to represent ownership of shares in companies. They have gained traction as brokers and cryptocurrency platforms attempt to merge digital assets with traditional finance. Robinhood and Coinbase are among the companies exploring tokenized shares to expand their offerings to customers. Kraken has also ventured into this sector, recently expanding its offering of tokenized U.S. shares xStocks to Binance Chain.
Advocates claim that the products can reduce trading costs, streamline settlement, and allow for round-the-clock trading. However, the WFE warned that the risks outweigh the benefits if tokenized shares are traded without safeguards. The industry group indicated that issuers of traditional shares could suffer reputational damage if tokenized products linked to their shares collapse. It also noted that many brokers promote tokenized shares as if they were equivalent to traditional shares, which is not true.
The association urged regulators to apply existing securities rules to tokenized products, strengthen ownership and custody frameworks, and avoid misleading advertising. WFE CEO Nandini Sukumar told Reuters that some issuers had expressed their concerns directly to the exchanges, highlighting the extent of the discomfort in the financial sector.
The SEC and IOSCO did not immediately comment, while ESMA declined to respond. In July, an SEC commissioner emphasized that tokenized shares must still comply with U.S. securities law. This stance reflects the concerns currently raised by major exchanges around the world.
In recent months, Robinhood launched tokenized shares in Europe and announced plans to offer tokens representing shares of private companies like OpenAI. OpenAI stated it does not endorse or participate in the offering. Coinbase also sought SEC approval to launch tokenized shares for U.S. customers.
The debate highlights a growing struggle between innovation and regulation. Tokenization is a positive advancement, but regulators and exchange platforms must make it clear that investor protection is a priority.
