Securities transfer agents, including Continental Stock Transfer & Trust, are asking the U.S. Securities and Exchange Commission to rein in tokenized stocks and exchange-traded funds. The group says it supports innovation but only when the digital tokens are issued or sponsored by the company behind the underlying security.
Why the push for limits
Transfer agents are the firms that keep official records of who owns a company's shares. They're worried that third-party tokenization — where an outside platform creates digital tokens representing a stock or ETF without the issuer's involvement — could muddy ownership records and confuse investors. The agents argue that such tokens might not carry the same legal protections as traditional shares, and they want the SEC to draw a clear line.
Continental Stock Transfer & Trust, one of the largest transfer agents in the U.S., is leading the charge. The company says it's not against tokenization itself. It just wants the SEC to make sure that only issuer-backed tokens are allowed to trade. That way, the agent says, the system stays transparent and regulators can still track who owns what.
What tokenized stocks and ETFs are
Tokenized stocks are digital representations of traditional shares, often issued on a blockchain. They let investors buy fractions of a stock or ETF without going through a conventional broker. Some are issued directly by the company; others are created by third parties who hold the actual shares and issue tokens against them.
The difference matters. When the issuer itself tokenizes its stock, the company is on the hook for the accuracy of the records. When a third party does it, the link between the token and the underlying share can get murky. Transfer agents say that's where the risk lies — especially if the third party goes under or the tokens are traded on platforms that don't follow securities laws.
What the SEC is being asked to do
The agents want the SEC to issue guidance or a rule that would effectively limit tokenized stocks and ETFs to those that are issuer-sponsored. They're not asking for a ban on the technology. They're asking for a regulatory framework that keeps the traditional safeguards in place while still allowing innovation.
The request comes as the SEC has been wrestling with how to apply existing securities laws to digital assets. The agency has taken enforcement actions against some crypto projects but has not yet set a clear policy on tokenized stocks. The transfer agents' letter is one more voice in that ongoing debate.
The SEC has not publicly responded to the request. It's unclear whether the commission will take up the issue or leave it to the courts to sort out.
