World Federation of Exchanges Urges SEC to Curb Crypto Exemptions for Tokenized US Stocks

The World Federation of Exchanges (WFE) has called on the U.S. Securities and Exchange Commission (SEC) to avoid granting broad regulatory exemptions that would allow cryptocurrency companies to sell tokenized U.S. stocks without following the same rules as traditional exchanges and broker-dealers. The group warned that allowing tokenized equities to trade under lighter oversight could damage market transparency, weaken investor protections, and disrupt the stability of public capital markets.

According to the WFE, financial innovation should not become a shortcut to avoid legal responsibilities. The organization emphasized that tokenized stocks, which are digital representations of publicly traded shares, should be held to the same standards as regular equities. These standards include market surveillance, investor disclosures, anti-money laundering processes, and strong custody controls. Without those protections, investors may be exposed to higher risks, including fraud, system failures, and unclear ownership rights.

The warning comes as several crypto firms have sought special permission to offer stock-linked tokens without registering as regulated securities platforms. These firms argue that blockchain technology allows for faster settlements and easier cross-border access for investors. However, the WFE countered that while innovation can improve efficiency, it must not undermine existing safeguards that were created to protect market participants from manipulation and abuse.

Tokenized stocks generally work by turning a stock or stock-like asset into a digital token that can be traded on a blockchain network. In some cases, the token may represent an actual share held by a custodian. In other models, the token simply reflects the price movement of a stock without granting ownership rights. This lack of consistency, the WFE argued, can confuse investors who may believe they are purchasing real shares when they are not.

The SEC is reportedly considering a limited innovation exemption framework that could temporarily allow crypto platforms to test new products under regulatory supervision. While the WFE does not oppose innovation-led frameworks in principle, it warned that exemptions must remain narrow, temporary, and carefully monitored. Broad or open-ended relief, it said, could create a separate and weaker market system for the same assets, leading to regulatory gaps and uneven competition.

Market integrity is another key concern. If tokenized stocks trade outside of the main exchanges, price discovery could become fragmented. This means investors might see different prices for the same asset on different platforms, increasing confusion and reducing trust in the market as a whole.

The WFE concluded that digital versions of listed shares should not become a loophole that allows companies to bypass securities laws. Instead, tokenization should be integrated into existing systems in a way that strengthens not weakens financial markets.

FAQs

What are tokenized stocks?

Tokenized stocks are digital tokens that mirror the value of traditional shares. Depending on the structure, they may or may not grant ownership or shareholder rights.

Why is the WFE concerned about crypto firms selling tokenized stocks?

Because without proper oversight, these products could expose investors to financial losses, unclear ownership rights, and inadequate consumer protection.

What is an innovation exemption?

It is a proposed regulatory concept where limited rule relief is granted so companies can test new financial technologies under supervision.

Are tokenized stocks regulated in the U.S.?

Regulation depends on how the product is structured. Many tokenized equities currently operate in gray areas, prompting concerns from regulators and industry groups.