Investors could misunderstand tokenized stocks, says EU markets watchdog
The European Union’s markets regulator has warned that tokenized stocks — crypto tokens tied to the value of listed shares — could mislead investors because they do not usually provide the same rights as owning the underlying shares.
Natasha Cazenave, executive director at the European Securities and Markets Authority (ESMA), said at a conference in Dubrovnik, Croatia, that while tokenized instruments can deliver continuous access and fractional ownership, many are structured as synthetic claims rather than direct ownership. That structure can create a significant risk of investor misunderstanding unless issuers communicate clearly and safeguards are put in place.
The World Federation of Exchanges recently urged securities regulators worldwide to scrutinize tokenized stocks, arguing these instruments often lack the investor protections that come with the actual assets they track.
ESMA acknowledges the potential of tokenization — representing assets on a blockchain can broaden access, reduce issuance costs and enable faster, more efficient secondary trading. However, Cazenave noted that most tokenization initiatives so far remain small and largely illiquid. Many instruments are issued via private placements and held to maturity, and interoperability between issuance platforms is limited.
ESMA says it wants to continue exploring new technologies but emphasizes that innovation must be developed in a way that safeguards investors and protects financial stability. The regulator pointed to existing EU efforts, including a blockchain pilot that allows firms to test products under limited exemptions and lessons learned from the Markets in Crypto-Assets (MiCA) framework, as a basis for designing appropriate rules.
Recent market activity highlights both interest and controversy. U.S.-based Robinhood launched tokenized stocks for trading in the EU in June and has faced scrutiny from some of the companies represented and from EU member states. Kraken also introduced a tokenized stock offering in June but has not made it available in the U.S. or the EU, while Coinbase has sought regulatory approval for a similar product.
Overall, ESMA’s message is cautious: tokenization could bring real benefits for market efficiency and access, but regulators and market participants must ensure legal clarity, strong consumer protections and transparent communication so investors understand what tokenized stock products actually represent.
