In a November 21 letter posted on the SEC’s website, the World Federation of Exchanges (WFE), whose members include Nasdaq and Deutsche Börse, said regulators should avoid allowing crypto companies to “circumvent the regulatory principles that have protected markets for decades.”
WFE CEO Nandini Sukumar said exempting unregistered crypto companies risks allowing products that look like stocks to be offered without the protections that come with actual stock ownership.
body representing exchange express concern The move comes as the SEC considers whether to issue a form of “innovation exemption” that would allow crypto companies to offer blockchain-based tokens representing exposure to publicly traded stocks, products sold to retail investors in the United States without the platforms registering as broker-dealers.
The proposal is supported by several crypto platforms and is being considered by SEC Chairman Paul Atkins, highlighting the recalibration of the SEC’s approach to digital assets under the Trump administration.
Tokenization debate divides traditional finance and crypto finance
This is not the first time WFE has raised concerns about tokenized stocks. In August, sent a letter to regulators It urged a crackdown on unauthorized platforms offering tokenized stocks in the US, Europe and Asia, warning of investor protection issues and reputational risks for listed companies whose names are used without their consent. It also called on regulators to apply the same rules to tokenized assets that apply to securities.
Despite concerns from authorities, interest in tokenization continues to grow across the financial sector. Major banks, asset managers, and exchanges are beginning to consider blockchain-based payments and assets in the form of tokens as part of their efforts to modernize their financial infrastructure.
The trend has gained further momentum this year, as crypto-native platforms seek direct access to the U.S. stock market, while traditional exchanges experiment with on-chain payment models.
Nasdaq is promoting regulated tokenized securities.
Nasdaq, one of the most prominent members of the WFE, has simultaneously promoted a regulated path towards tokenization. In September, Submitted a formal rule change The proposal would allow exchanges to list and trade stocks in tokenized form, and would assign digital products the same regulatory treatment as traditional stocks, including rights and CUSIP identification.
However, Ondo Finance, a blockchain startup that provides financial market solutions, asked for a delay until Nasdaq provides further details on how transactions in tokenized form will be handled through the Depository Trust Company, which is at the heart of securities settlement in the United States.
Within WFE itself, members are aware of the possibility of tokenization. The letter describes blockchain-based equity products as a “natural evolution of capital markets.”
However, many exchanges argue that innovation must occur within the existing regulatory framework and not through exemptions granted to unlicensed crypto platforms.
James Auliffe, head of WFE’s technology working group, said stock markets are already “very efficient” and proponents of moving transactions to blockchain will need to prove that the benefits outweigh the costs.
High stakes risks for regulators and markets
The SEC’s decision on this issue will shape the future of how stocks are traded and accessed in the United States. Being able to offer tokenized stocks without the oversight of traditional broker-dealers could allow companies outside the traditional financial system to compete directly with exchanges and brokers, which face much more stringent compliance obligations.
Investor advocates worry that retail traders don’t understand the difference between owning a token linked to a stock and owning the actual stock itself. Earlier this year, companies such as OpenAI warned that tokenized versions of their shares circulating on trading apps did not represent actual ownership.
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