Market and Regulatory Risks

The European Securities and Markets Authority (ESMA) has expressed concerns that tokenized stocks could lead to confusion among retail stock investors. According to Natasha Cazenave, Executive Director of ESMA, many fintech companies are now working on creating tokens backed by corporate stocks.

While there are clear advantages to this technology, such as increased transparency and efficiency in trading real-world assets, the ESMA chief warned that these tokens do not directly represent ownership in a company. Instead, they are held by a special-purpose vehicle that represents shares.

A Proper Regulatory Framework

Despite the reservations regarding tokenized stocks, ESMA has stressed its commitment to supporting tokenization technology within a regulated framework. The EU’s recent regulations, such as Markets in Crypto-Assets (MiCA), aim to govern the use of this technology.

Cazenave highlighted that while tokenization can lower costs and improve market efficiency, it must operate under strict regulatory oversight to prevent issues like trading outside traditional markets and potential risks to market integrity.