Update (Aug. 27 at 14:10 UTC): This article has been updated to state that the letter was sent to IOSCO and ESMA.
Exchange industry associations have asked global regulators to curb the growth and adoption of tokenized stocks, arguing that these products do not represent actual equities and expose investors to significant risks.
Reuters reported on Monday that the World Federation of Exchanges (WFE) sent a letter to the US Securities and Exchange Commission (SEC), the European Securities and Markets Authority (ESMA) and the International Organization of Securities Commissions (IOSCO), urging stricter regulatory oversight of tokenized stocks.
The organization argued that tokenized stocks “mimic” the equities they are designed to represent but lack the investor protections built into traditional markets.
“We are alarmed at the plethora of brokers and crypto-trading platforms offering or intending to offer so-called tokenized US stocks,” the WFE told Reuters, without naming specific firms or platforms. “These products are marketed as stock tokens or equivalent to the stocks when they are not.”
WFE, headquartered in the UK, is an industry group representing exchanges and clearing houses worldwide.
The call for clampdowns comes as tokenized securities gain 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 such as Coinbase, Kraken and Robinhood move into the space.
Related: The future of crypto in the Asia-Middle East corridor lies in permissioned scale
Lobby groups ramp up efforts to block crypto takeover
This isn’t the first time traditional industry lobbies have joined forces to slow the growth of blockchain innovation. As US lawmakers mulled over the GENIUS stablecoin bill, 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 crosschain interoperability protocol Wanchain, told Cointelegraph.
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, SEC Commissioner Hester Peirce stressed that tokenized securities, including tokenized equities, must nonetheless comply with existing securities laws.
Related: VC Roundup: Bitcoin DeFi surges, but tokenization and stablecoins gain steam