Regulators Circle Tokenized Equities Amid Fears Over Investor Rights and Market Risks

The digital token boom has sparked a serious pushback from the world’s major financial exchanges. Tokenized stocks—digital assets designed to mirror real company shares—lack a critical feature that distinguishes genuine ownership: they fail at conferring the actual legal rights and protections that come with traditional shareholding.

On August 22, the World Federation of Exchanges (WFE) formally alerted key global regulators including the U.S. Securities and Exchange Commission, the European Securities and Markets Authority, and the International Organization of Securities Commissions’ Fintech Task Force about this growing problem. According to Reuters’ review of the letter, the WFE flagged that these tokens function as counterfeit replicas of listed equities rather than legitimate securities.

The Core Problem: Synthetic Exposure Without Real Ownership

Unlike conventional stock purchases, investors who buy tokenized equities receive only “synthetic exposure” to the underlying asset—a term highlighted in recent Financial Times analysis. Token holders miss out on voting rights, shareholder protections under securities law, and the other legal scaffolding that traditionally shields equity investors. Some corporations have already complained that their shares are being duplicated and sold without authorization, raising both legal and reputational risks.

The WFE’s concern centers on a fundamental deception: these instruments present themselves as share equivalents while systematically stripping away the rights conferring legitimate ownership status. If such products fail or face regulatory action, both investors and issuing companies face significant exposure.

Market Players Push Ahead Despite Uncertainty

Despite regulatory hesitation, some platforms are moving forward. Robinhood has already rolled out tokenized equity offerings to European markets this year, while Coinbase is actively pursuing U.S. regulatory approval for similar products. Proponents argue the approach could reduce trading friction and enable 24/7 market access.

However, regulators have made clear that securities regulations remain applicable regardless of blockchain technology’s involvement. The tension between innovation and investor protection continues to define this emerging market segment.