- Crypto tokens linked to stocks may not offer investors the same rights as holding real shares, warns the EU regulator.
- Tokenized stocks often lack shareholder rights and may confuse investors, according to ESMA executive director Natasha Cazenave.
- Most tokenized stock initiatives in Europe remain small, with limited liquidity and use.
- ESMA supports exploring new technologies but emphasizes the need for strong safeguards and a suitable legal framework.
- Companies like Robinhood and Coinbase have launched or sought approval for tokenized stock trading products in Europe, drawing regulatory attention.
The European Union’s markets watchdog said on Monday that crypto tokens tied to the value of stocks could mislead investors because these products often don’t grant the same rights as owning traditional shares. The European Securities and Markets Authority (ESMA) issued the warning during a digital finance conference in Dubrovnik, Croatia.
Natasha Cazenave, ESMA executive director, told the event that several companies have begun offering tokenized stocks and derivatives, which use blockchain technology to represent shares digitally. She noted these assets can be backed by actual shares held by special purpose companies.
Cazenave explained that while these tokenized assets provide benefits, such as continuous access and fractional ownership, they typically do not give holders control or voting rights in the underlying companies. She stated, “These tokenized instruments can provide always-on access and fractionalisation but typically do not confer shareholder rights.” She also warned, “If structured as synthetic claims rather than direct ownership, this can create a specific risk of investor misunderstanding and underlines the need for clear communication and safeguards.” Her full keynote speech is available through the ESMA website.
Recent calls from the World Federation of Exchanges have urged regulators like ESMA to tighten oversight of tokenized stocks, arguing these digital tokens do not provide the same investor protections as real shares.
Cazenave said the EU has supported tokenization pilot projects since 2019, including those from the bloc’s investment bank and Germany’s finance ministry. These demonstrations showed that blockchain-based tokenization could expand access, reduce issuance costs, and make trading faster. However, she noted that most projects remain limited in size and liquidity, and that there are few connections between different issuance platforms.
ESMA plans to keep exploring new technologies but stressed the importance of investor protection. It has opened a blockchain technology pilot that allows companies to trial tokenized products with some regulatory exemptions. Lessons from this pilot and the EU’s Markets in Crypto-Assets (MiCA) Regulation will shape regulation of tokenized assets.
In June, Robinhood Markets launched tokenized stock trading for European customers. At the same time, Kraken introduced a similar offering, but not in the United States or the EU. Meanwhile, Coinbase Global has applied for approval to begin its own tokenized stock service.
For more details on recent developments, the Association for Financial Markets in Europe shared photos and additional context from the Dubrovnik conference on social media.
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