Stock Exchanges Call for Crackdown on Tokenised Stocks: Legal Insight

Introduction

In late August 2025, a coalition of the world’s leading stock exchanges – including the New York Stock Exchange (NYSE), London Stock Exchange (LSE), and Hong Kong Exchanges and Clearing (HKEX) – through the World Federation of Exchanges (WFE), issued a statement suggesting that regulators should consider regulatory action to address the risks associated with tokenised stocks. These blockchain-based instruments mirror traditional equities but lack essential legal rights and investor protections. This development represents the latest chapter in the ongoing tensions between traditional finance and cryptocurrency innovation.

What Are Tokenised Stocks?

Tokenised stocks are digital assets on blockchains intended to mirror the value of equities. Yet, they are not actual shares – they neither convey voting rights, dividend entitlements, nor the full scope of legal protection that real shareholders enjoy. As such, they more resemble derivatives or futures contracts rather than true securities.

Major platforms are pushing them: Robinhood launched over 200 tokenised U.S. stocks and ETFs for its European users in June 2025 – including tokens tied to private companies like OpenAI and SpaceX. Coinbase has applied to the SEC for permission to offer tokenised equities to U.S. customers.

Key Concerns from Exchanges

The WFE informed regulators – including the U.S. SEC Crypto Task Force, ESMA (EU), and IOSCO’s Fintech Task Force – that they are “alarmed by the proliferation” of tokenised U.S. stock offerings, which are being marketed as equivalent to actual shares, even though they are not.

These tokens pose multiple risks:

• Investor Protection: Tokenised stocks issued without institutional or regulated backing often leave holders with limited legal recourse in cases of fraud or failure. However, those structured under licensed custodians or within regulated jurisdictions may offer certain safeguards.
• Market Integrity: These instruments could undermine trust in markets by blurring lines between regulated equities and speculative crypto instruments.
• Issuer Reputational Risk: Companies whose stocks are mimicked by tokens may suffer reputational harm if the tokens collapse or misbehave.
• Lack of Oversight: Trading platforms offering tokenised equities may not adhere to required custody or disclosure standards.

Regulatory and Industry Dynamics

Regulators appear cautious. SEC officials remind that tokenised securities must comply with existing securities law. However, regulatory responses remain pending.

On the industry side, some crypto advocates argue tokenisation fosters innovation through efficiency, fractional access, and extended trading hours. Indeed, proponents highlight benefits like lower costs, faster settlement, and 24/7 trading.

The debate is emblematic of the broader tension between TradFi and Crypto, with significant implications for the $62 trillion global equity market (World Federation of Exchanges, 2024). Crypto platforms press for modernization, while traditional finance entities advocate for regulatory parity to preserve investor safeguards and market stability.

Real-World Risks: Pricing Volatility

The practical dangers of tokenised stocks surfaced in a notable case: Token versions of Amazon stock traded at levels over 300% higher than the actual share price on some crypto platforms – due to low liquidity and thin trading volume. This illustrates the kind of price distortions and investor harm that occur when markets lack sufficient depth and oversight.

Legal Considerations for Practitioners

For legal professionals in fintech and securities law, these developments highlight several critical issues:

1. Classification & Compliance
   Tokenised equities may legally qualify as securities and must comply with registration, disclosure, and brokerage licensing rules.
2. Custody & Ownership
   Clear frameworks are needed for custody rights. Clients require clarity around settlement, voting rights, dividends, and enforceability.
3. Distribution & Marketing Claims
   Marketing materials must avoid implying equivalence to stock ownership if such rights are not conferred – false representations can lead to liability.
4. Platform Liability
   Exchanges and platforms offering these tokens may be held accountable for misrepresentation or inadequate safeguards.
5. Jurisdictional Fragmentation
   Global regulatory treatment varies – tokenisation may fall under MiCA in the EU, while the U.S. has evolving case-law and no crypto-specific securities regime yet.
6. Developing Standards
   Industry participants like Securitize have engaged regulators to define compliant models for digital security issuance and trading, indicating a path toward legitimizing tokenisation within regulated markets.

Conclusion

The WFE’s August 2025 letter serves as a clear warning: tokenised stocks, left unchecked, threaten both investors and market integrity. While blockchain-based trading innovation is enticing, tokenised equities must not escape the legal, supervisory, and ethical frameworks that govern traditional securities. Regulators, issuers, and legal practitioners must collaborate to ensure tokenisation evolves within safe, transparent, and fair boundaries – otherwise, what’s pitched as progress could become market peril.

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