Wall Street Firms Warn SEC Against Third-Party Tokens in Financial Markets

The Securities Transfer Association (STA) is urging the U.S. Securities and Exchange Commission to prioritize company-approved tokenized securities as regulators develop rules for blockchain-based versions of traditional assets.

As Wall Street and crypto companies compete to move stocks and other financial products onto blockchain networks, the debate over the correct legal structure for tokenized securities has reached U.S. regulators.

The STA, which represents transfer agents and includes major financial institutions among its members, submitted a letter calling on the SEC to distinguish between issuer-backed tokenized shares and tokens created by third-party platforms.

The group argued that blockchain-based stocks should represent actual securities approved by the issuing company and recorded in official shareholder registries, rather than digital tokens issued by unrelated intermediaries.

According to the STA, the difference is critical. Issuer-sponsored tokens represent genuine ownership in a company, while third-party tokenized stocks may expose investors to additional risks, including custody issues, platform failures, counterparty exposure, and operational challenges.

The organization said issuer-backed tokenization could provide significant advantages for companies, investors, and U.S. capital markets, but only if regulators establish the correct framework from the beginning.

The discussion highlights a major question surrounding the future of tokenized finance: whether blockchain-based stocks should maintain a direct legal connection to the issuing company or rely on intermediaries that create digital representations of ownership.

Tokenization has quickly become one of the fastest-growing segments of the digital asset industry, attracting interest from asset managers, brokerages, and crypto companies. Supporters argue blockchain technology can make securities easier to transfer, enable faster settlement, and allow financial assets to operate continuously in digital markets.

Some analysts believe tokenized securities could become a multitrillion-dollar industry. Citigroup has estimated that tokenized securities could reach $5.5 trillion by 2030 under its base-case scenario, with tokenized equities potentially growing to $2.6 trillion.

Different Tokenization Approaches

Transfer agents play a major role in traditional markets by maintaining official shareholder records, processing ownership changes, handling corporate actions, and determining legal ownership of securities.

As tokenization develops, several different models have emerged.

Under an issuer-sponsored approach, companies directly authorize tokenized shares and record them in their official shareholder systems. Investors receive ownership rights similar to traditional stockholders.

Third-party models operate differently. Some rely on custodians that hold the underlying shares and issue blockchain tokens representing ownership interests, while others create synthetic products that simply track a stock’s price without providing direct ownership.

The SEC previously acknowledged these differences in a January staff statement discussing how tokenized securities could fit within existing securities laws. The agency separated third-party tokenization into custodial tokenized securities and synthetic products, recognizing that different structures provide different levels of investor rights.

Currently, much of the approximately $2 billion tokenized stock market is based on third-party synthetic models, including offerings from platforms such as Ondo Finance and Kraken’s xStocks. These products are generally not available to U.S. retail investors.

Meanwhile, companies including Figure and Securitize have issued their own shares directly on blockchain networks using issuer-sponsored structures.

Other firms are pursuing custodial approaches. Dinari became the first U.S. tokenized equity platform to receive broker-dealer registration, while Ondo has moved toward a custodial model through its licensed transfer agent and partnership with Broadridge Financial Solutions for shareholder services.

STA Pushes for Issuer-Controlled Tokenization

The STA wants regulators to create a clear distinction between issuer-sponsored tokenized securities and third-party stock tokens.

The group argued that tokenized shares should be genuine securities authorized by the issuing company and entered into official shareholder records. It warned that third-party tokens could create confusion for investors, weaken shareholder protections, and increase exposure to intermediary risks.

The organization urged the SEC to limit future tokenization exemptions, pilot programs, or regulatory frameworks to issuer-backed models. It also recommended requiring company approval before platforms market products as tokenized shares and called for stronger disclosure requirements for permitted third-party structures.

Computershare, one of the largest transfer agents in the world, supported the STA’s position. Executives argued that innovation must develop alongside market protections and that regulators should clearly separate issuer-authorized tokenized securities from products that merely replicate stock exposure.

Equiniti also backed the approach, saying that tokens not authorized by issuers and recorded through transfer agents should not be considered true tokenized shares but rather synthetic financial instruments.

The STA additionally called for modernization of the Direct Registration System (DRS), arguing that current processes for transferring securities between broker-held accounts and transfer-agent records are too slow for blockchain-based markets.

The Depository Trust & Clearing Corporation (DTCC), which plays a central role in U.S. securities settlement, processed trillions of dollars in transactions last year. The STA urged regulators to work with DTCC and transfer agents to improve digital settlement infrastructure.

Growing Debate Around Tokenized Stocks

Concerns over synthetic stock tokens have increased as more companies launch blockchain-based equity products.

A previous controversy involving OpenAI and a tokenized product linked to its shares highlighted the risks of creating digital representations without direct involvement from the underlying company.

The issue is expected to become more important as major financial firms expand tokenization efforts. Coinbase has announced plans for on-chain U.S. stock trading, while Robinhood has expanded stock token offerings internationally.

Nasdaq received SEC approval to explore tokenized securities trading and partnered with Kraken for global distribution, while New York Stock Exchange teamed up with Securitize to develop tokenized market infrastructure.

The DTCC is also preparing to test its own tokenized securities platform, which aims to preserve traditional ownership rights while adding blockchain-based functionality.

Debate Over the Best Path Forward

Some industry participants believe blockchain can modernize transfer agents but cannot replace the legal foundation of shareholder ownership.

Joris Delanoue, CEO of Fairmint, said blockchain networks should improve recordkeeping and accessibility but should not replace issuer-authorized shareholder registries as the source of legal ownership.

Securitize CEO Carlos Domingo argued that synthetic tokens could create additional market fragmentation and investor confusion, making it important for regulators to separate true ownership models from products that only provide price exposure.

However, not everyone agrees with the STA’s approach.

Gabe Otte, CEO of Dinari, said many of the concerns raised by transfer agents mainly apply to synthetic token models rather than regulated custodial structures. He argued that both issuer-sponsored and custodial approaches can provide real ownership and should be treated differently from synthetic products.

Alan Konevsky, CEO of tZERO, said issuer-backed tokenization offers important benefits but believes multiple compliant models will likely develop as the market matures.

Eli Cohen, chief legal officer at Centrifuge, suggested the STA’s proposal also reflects concerns from traditional transfer agents about protecting their existing role in financial markets.

He argued that while the group’s concerns are valid, the bigger challenge is modernizing outdated systems so traditional infrastructure can compete with faster blockchain-based alternatives.

The SEC has not yet introduced formal rules specifically governing tokenized securities. The agency is expected to develop an innovation framework, but details on timing and scope remain unclear.

As financial institutions, brokerages, and crypto companies continue expanding tokenized asset offerings, the SEC’s decisions on issuer-backed and third-party models will likely shape the future of blockchain-based equities and determine what rights investors ultimately receive.

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