ESMA Flags Investor Risks in Tokenized Stocks at EU Pilot

- ESMA highlights risks tied to tokenized stocks at EU conference. - EU pilot programs and regulation initiatives aim to address investor protection gaps. On September 2, 2025, Cointelegraph reported that Natasha Cazenave, Executive Director of the European Securities and Markets Authority (ESMA), raised concerns that tokenized stocks could mislead investors while speaking at a conference in Dubrovnik, Croatia. Cazenave acknowledged that tokenized stocks offer advantages like fractional ownership and continuous access; however, she warned they often do not provide the same rights as direct share ownership. This structural difference can cause “investor misunderstanding,” as many tokenized stocks are structured as synthetic claims rather than actual equity ownership. The report highlighted Cazenave's emphasis on the inadequacy of shareholder rights in tokenized stock structures. Echoing this sentiment, the World Federation of Exchanges has urged securities regulators worldwide to improve their oversight to ensure that investor protections are in place for tokenized financial products. Despite these concerns, Cazenave recognized that tokenization has the potential to lower issuance costs, broaden market access, and enhance efficiency in secondary trading. However, she noted that most tokenization efforts remain small-scale and face liquidity challenges. They are also often issued through private placements and held until maturity. The European Union is actively exploring blockchain technology with a legal pilot program. This program tests tokenized products within a controlled environment and allows companies to operate with certain regulatory exemptions. The EU expects that insights from these initiatives, alongside its Markets in Crypto-Assets (MiCA) regulation, will shape the future regulatory framework for asset tokenization. In the broader market, several firms have launched tokenized stock offerings, but these products have faced scrutiny from regulators. Robinhood introduced its tokenized products in Europe in June. That same month, Kraken launched a similar service, which remains unavailable in the US and the EU. Meanwhile, Coinbase has expressed interest in entering the tokenized stock market and is seeking regulatory approval. As of September 2, 12:00 UTC, Ethereum (ETH) is trading at $1,783, reflecting a 3.6% increase in 24-hour trading volume, according to CoinMarketCap.