Investors could misunderstand tokenized stocks: EU markets watchdog

ESMA’s Natasha Cazenave says tokenized stocks could lead to “investor misunderstanding,” but the regulator is still keen to support the technology.

Crypto tokens tied to the value of stocks could mislead investors as they don’t usually give holders the same rights as a direct shareholder, says the European Union’s markets regulator.

Several companies have tokenized stocks and derivatives that are backed by the shares they represent held in a special purpose company, European Securities and Markets Authority (ESMA) executive director Natasha Cazenave said at a conference in Dubrovnik, Croatia, on Monday.

“These tokenized instruments can provide always-on access and fractionalisation but typically do not confer shareholder rights,” she said. 

“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.”

The World Federation of Exchanges late last month urged global securities regulators, including ESMA, to crack down on tokenized stocks, arguing they lack investor protections built into the actual asset they track.