SEC faces pressure to restrict third-party tokenized stocks

Two securities transfer groups have urged the SEC to prioritize issuer-backed tokenized stocks and ETFs while limiting unaffiliated versions that may not provide shareholders with direct ownership rights.

Continental Stock Transfer & Trust Company outlined its position in a letter to the SEC’s Crypto Task Force, supporting rules for tokenized securities while calling for tougher treatment of products created without an issuer’s approval.

The registered transfer agent backed a similar proposal from the Securities Transfer Association, an industry group representing companies that maintain shareholder records and process ownership changes. Both groups asked the SEC to draw a clear line between securities tokenized by an issuer and tokens created by an unrelated platform.

Under their proposed distinction, an issuer-sponsored token represents a security that the company has authorized for blockchain-based issuance or trading. The transfer agent can therefore record its holder as a shareholder and apply the same ownership controls used for conventional securities.

An unaffiliated token may instead track a stock’s price or represent an indirect interest in shares held by another party. According to the STA, those arrangements do not necessarily create a legal relationship between the token buyer and the company whose stock provides the reference value.

“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,” CSTT wrote in its letter.

Issuer-backed tokens preserve shareholder rights

CSTT warned that investors could mistake third-party tokens for direct shares even when the products provide different legal and economic rights. According to the firm, unclear ownership structures may also leave buyers without adequate disclosures about custody, voting rights, dividends or claims during insolvency.

For public companies, CSTT argued that unaffiliated products could disrupt shareholder records and make it difficult to identify the owners of an issuer’s securities. Missing or unreliable information could then affect voting, dividend payments, tender offers, stock splits and other corporate actions.

The STA identified additional concerns involving insider trading, market manipulation, sanctions screening and transfer restrictions. Its letter also cited possible reputational damage when a company’s shares are used in a tokenized product without its knowledge or consent.

Based on those risks, CSTT asked the SEC to modernize registration documents in a way that gives priority to tokenization programs approved by issuers. The company also opposed granting unaffiliated stock and ETF tokens relief through an innovation exemption unless the SEC first imposes investor safeguards.

The distinction echoes an earlier warning from SEC Commissioner Hester Peirce, who stated in July 2025 that blockchain technology does not alter the legal nature of an investment product.

“As powerful as blockchain technology is, it does not have magical abilities to transform the nature of the underlying asset. Tokenized securities are still securities,” Peirce wrote in a statement reported by Reuters.

Peirce also distinguished between securities tokenized by issuers and products created by unrelated third parties. According to the commissioner, investors in third-party versions may face risks that do not exist when they purchase shares directly from an issuer or through conventional market infrastructure.

Regulated platforms are advancing tokenized trading

Demand for blockchain-based access to traditional assets has continued as crypto exchanges add stocks, ETFs and derivatives to their product lines. Coinbase, Kraken and Binance have each announced services connecting digital-asset users with traditional market products, although their structures and availability differ by jurisdiction.

Traditional market operators are pursuing tokenization through regulated infrastructure as well. In March, the New York Stock Exchange announced a partnership with Securitize to develop a platform for tokenized securities, with Securitize serving as a digital transfer agent for participating corporate and ETF issuers.

Under that arrangement, NYSE and Securitize plan to establish operating and regulatory standards for digital transfer agents. NYSE President Lynn Martin said that new tokenization systems must retain the trust, transparency and investor protections expected in established capital markets.

The SEC had also approved a Nasdaq proposal allowing certain stocks to trade and settle in tokenized form. That model keeps the tokenized shares within an exchange system governed by existing securities rules.

Depository Trust & Clearing Corporation has separately tested tokenization using assets linked to Microsoft, Circle, the Invesco QQQ Trust, State Street’s SPDR S&P 500 ETF and BlackRock’s iShares 0–3 Month Treasury Bond ETF. The trial includes stocks, index funds and short-term government debt products.

Unlike synthetic tokens produced without issuer involvement, these regulated projects use transfer agents, exchanges or established clearing infrastructure to maintain ownership records. CSTT and the STA have asked the SEC to preserve that connection as the agency develops rules governing tokenized stocks and ETFs.