EU Markets Watchdog Warns Tokenized Stocks Could Mislead Investors

The European Securities and Markets Authority (ESMA) has raised significant concerns about tokenized stocks, warning that these blockchain-based assets often mislead investors by not conferring traditional shareholder rights such as voting or dividend entitlements. ESMA's executive director, Natasha Cazenave, emphasized that while tokenized stocks provide benefits like 24/7 trading access and fractional ownership, the lack of genuine shareholder rights creates risks of investor misunderstanding and confusion. This issue is compounded by the fact that these tokenized instruments are often issued via private placements and remain largely illiquid. The World Federation of Exchanges has supported calls for stricter regulatory oversight to protect investors and maintain market integrity. Despite these concerns, proponents argue that tokenization can broaden access, lower costs, and increase trading efficiency if developed with appropriate legal frameworks and safeguards. Ongoing pilots and initiatives in the EU aim to explore the technology’s potential while emphasizing transparency and investor protection.