Tokenized stocks, a new form of digital assets that mirror the prices of publicly listed companies, have raised concerns among European regulators. Natasha Cazenave, the executive director of the European Securities and Markets Authority (ESMA), warned that many tokenized stock products in the European Union do not provide investors with actual shareholder rights, such as voting or dividends.
She emphasized that the lack of transparency in how these assets are structured could lead retail investors to mistakenly believe they have ownership of company shares when they do not.
Absence of shareholder rights
Unlike traditional stock purchases, tokenized stocks are often issued through special-purpose vehicles or intermediaries, with the tokens simply tracking the underlying stock’s price.
Cazenave highlighted that although tokenization offers benefits like fractional trading and 24/7 market access, the absence of ownership rights poses a “specific risk of investor misunderstanding.”
These concerns come as platforms like Robinhood and Kraken expand their offerings of tokenized stocks in Europe and other regions.
Last week, the World Federation of Exchanges echoed ESMA’s worries, urging regulators to enhance oversight before the sector grows further. The group cautioned that without intervention, tokenized products could expose investors to unforeseen risks and harm market integrity.
Challenges in achieving efficiency gains
Proponents argue that tokenization can modernize finance by reducing costs and expanding access to various assets, including equities, bonds, and real estate.
While acknowledging this potential, Cazenave noted that most current projects are limited in scale, illiquid, and have yet to deliver the efficiency benefits promised by advocates.
For now, European regulators are focused on striking a balance between innovation and investor protection, indicating that tokenized stocks will continue to be closely monitored as the technology evolves.
