Exchanges Call on SEC: Deny Exemptions to Maintain Fairness in the Market

WFE Urges SEC to Maintain Strict Oversight on Tokenized Stock Platforms

The World Federation of Exchanges (WFE), which counts over 70 major exchanges such as the New York Stock Exchange and CME Group among its members, has cautioned the U.S. Securities and Exchange Commission (SEC) against granting sweeping regulatory exemptions to crypto platforms that offer tokenized stocks. The WFE contends that relaxing these rules could weaken investor protections and undermine the stability of financial markets by letting unregulated players sidestep established safeguards. In a letter addressed to the SEC's Crypto Task Force, the federation expressed concern that tokenized stocks—digital representations of traditional equities—are often promoted as equivalent to actual shares, despite lacking comparable legal rights and regulatory oversight, as highlighted by LookOnChain data.

Tokenized stocks, which use blockchain technology to mirror the value of publicly traded company shares, have become increasingly popular due to their promise of round-the-clock trading and quicker settlement times. Nevertheless, the WFE warns that these digital assets frequently do not provide essential investor rights, such as access to dividends, voting privileges, or robust custody arrangements. "These imitation products fall short of the high standards investors expect," said WFE CEO Nandini Sukumar in a letter dated August 26 to the SEC. The federation stressed that regulatory exemptions should only be considered if they foster fair competition and serve the public interest, in line with the WFE’s principles.

The SEC is currently considering a regulatory sandbox that would allow crypto companies to experiment with tokenized stocks under temporary exemptions, a strategy supported by SEC Chair Paul Atkins as a way to encourage innovation while retaining regulatory oversight. However, the WFE warns that this approach could create opportunities for regulatory arbitrage, enabling crypto platforms to operate under less stringent rules than traditional exchanges. "Both traditional exchanges and crypto platforms should compete under equal conditions," stated James Auliffe, who leads the WFE’s Technology Working Group.

This debate comes as tokenized assets experience rapid expansion, with their global market value recently surpassing $2 billion. Critics, including securities law specialist Tim Fries, caution that without robust regulations, tokenized stocks could leave investors vulnerable to fraud, flaws in smart contracts, and limited avenues for resolving disputes. The WFE’s concerns are echoed by global organizations such as the International Organization of Securities Commissions (IOSCO), which warned in November 2025 that tokenization can heighten risks related to data reliability and asset custody.

The SEC’s ongoing discussions are part of a larger international trend to find the right balance between fostering innovation and ensuring effective oversight. While regions like the European Union, Hong Kong, and Singapore have introduced comprehensive digital asset regulations, the U.S. continues to rely on case-by-case exemptions. The WFE is calling for a harmonized global regulatory framework, urging the SEC to require clear disclosures, enforce redemption rights, and ensure that tokenized products specify whether they represent actual ownership or synthetic exposure, in accordance with the federation’s recommendations.

As the SEC deliberates its next steps, the outcome could mark a turning point for capital markets. Supporters of tokenization believe it can broaden access and lower transaction costs, but emphasize that these benefits should not come at the expense of established investor protections. With growing consensus among major financial institutions and regulators against unregulated experimentation, the future of tokenized stocks may depend on carefully monitored pilot programs that integrate blockchain technology while preserving market confidence.