Breaking: Securities Transfer Groups Push US SEC to Limit Tokenized Stock & ETFs

Traditional securities transfer agents and associations are urging the U.S. Securities and Exchange Commission (SEC) to limit tokenized stocks and ETFs. The groups support innovation in the securities markets, but only for issuer-sponsored tokenized stocks and ETFs.

Transfer Agents Support Only Issuer-Sponsored Tokenized Stocks and ETFs

Continental Stock Transfer & Trust Company (CSTT), one of the largest registered transfer agents, expressed support for developing tokenized securities regulations, according to a letter to the SEC’s Crypto Task Force.

Continental Stock Transfer agreed with the Securities Transfer Association (STA) that issuer-sponsored tokenized securities and unaffiliated third-party or synthetic tokens need further clarity. The groups are pushing back against broader permissions for third-party or synthetic tokenized versions of securities.

The STA’s letter argued that only issuer-sponsored tokenized stocks and ETFs are actual securities issued with the issuer’s consent. In contrast, third-party tokens do not establish a legal relationship between the token holder and the issuer.

“We support innovation in the securities markets, but believe any tokenization framework must preserve investor protection, issuer authorization, accurate shareholder records, transfer controls, and market integrity,” said CSTT.

To understand where and how these digital representations of traditional assets can be traded legally, investors can compare the best platforms to trade tokenized stocks before opening accounts.

Risks Posed by Third-Party Tokenized Securities

Continental Stock Transfer & Trust Company warns that third-party tokens could lead to investor confusion, inadequate disclosures, impaired issuer governance and corporate actions, and loss of reliable shareholder information for issuers.

Meanwhile, STA raised risks including insider trading, market abuse, sanctions compliance, reputational harm, and transfer controls issues.

The transfer groups claim that the SEC needs to work on modernizing the registration statement to prioritize issuer-sponsored tokenized stocks and ETFs. CSTT also urged SEC to limit third-party stocks and ETFs from innovation exemption relief unless safeguards are imposed.

Notably, crypto firms such as Coinbase, Kraken and Binance have expanded services to offer stocks, ETFs, and derivatives trading. Tokenization of traditional financial instruments is witnessing growing demand amid regulations.

Meanwhile, DTCC pilot to tokenized Microsoft and Circle shares, Invesco QQQ Trust, State Street SPDR S&P 500 ETF, and BlackRock’s iShares 0-3 month Treasury Bond ETF.