Wall Street transfer agents lobby SEC, warning that third-party tokens pose risks to market integrity

The group’s request centers on one of the biggest questions facing tokenization: what legal structure should underpin blockchain-based stocks as Wall Street firms and crypto companies race to bring equities onchain.

The letter landed as tokenization has become one of the fastest-growing areas of digital assets that captivated Wall Street’s attention. Asset managers, crypto firms and brokerages are competing to bring stocks, bonds and funds onto blockchain networks, arguing the technology can make securities easier to transfer, settle around the clock and embed into digital financial markets.

In fact, some argue that tokenized assets could become a massive market. Global bank Citi projected that tokenized securities could become a $5.5 trillion market by 2030 in its base case, with tokenized stocks growing to $2.6 trillion.

Transfer agents occupy a critical layer of financial market infrastructure. They maintain companies’ official shareholder records, process ownership transfers and corporate actions and determine who legally owns securities, putting them at the center of how tokenized equities may ultimately function.

As tokenization has evolved, multiple legal structures have emerged.

Under an issuer-sponsored model, a company authorizes tokenized shares and records them in its official shareholder register, giving investors the same legal rights as conventional stock. Third-party models, meanwhile, rely on intermediaries. In custodial structures, a regulated entity holds the underlying shares and issues blockchain-based tokens representing investors’ ownership interests, while synthetic models provide only economic exposure to a stock’s price.

The SEC recognized those distinctions in a January staff statement discussing how tokenized securities could fit within existing securities laws. The statement separated third-party tokenization into two categories: custodial tokenized security entitlements and synthetic products, acknowledging that third-party tokenization can vary in structure and the rights afforded to investors. While the statement does not carry the force of formal Commission guidance, it offers insight into how agency staff are approaching tokenization.

Today, most of the roughly $2 billion market of tokenized stock market follow the third-party synthetic model, led by Ondo Finance and Kraken’s xStocks, and remain generally unavailable to U.S. retail investors. Tokenization firms Figure (FIGR) and Securitize (SECZ), meanwhile, issued their own shares onchain, falling into the issuer-sponsored model. Following the custodial model is Dinari, which was the first to obtain broker-dealer registration in the U.S. for a tokenized equity platform. Earlier this month, Ondo Finance also made a step toward the custodial model via its licensed transfer agent and Broadridge handling proxy voting, regulatory disclosures and shareholder communications.

Against that backdrop, the STA urged the SEC to draw a clear regulatory distinction between issuer-sponsored tokenized securities and third-party stock tokens.

The group argued that tokenized securities should be actual shares authorized by the issuing company and recorded in its official shareholder register, warning that third-party tokens could confuse investors, weaken shareholder rights and expose holders to platform, custody and counterparty risks rather than giving them a direct legal relationship with the issuer.

The letter said any “innovation exemption, pilot program, no-action position, or permanent framework” for tokenized securities should apply only to issuer-sponsored models. It also urged the SEC to require issuer consent before platforms market products as tokenized shares of public companies and to mandate clear disclosures and compliance safeguards for any third-party models it permits.

“Our listed company clients have raised concerns over wrapper-style products, which can look like ownership of a company’s shares while sitting outside the issuer’s own records, governance and communication channels,” said Ann Bowering, CEO of issuer services at Computershare North America. Computershare serves as the transfer agent for more than half of the companies in the S&P 500 index.

“It’s critical that innovation and market integrity move together, with clear distinctions between issuer-sponsored tokenized securities and wrapper products,” Fiona Chalmers, global CEO of issuer services at Computershare. “Tokenization is moving quickly across global markets, and the decisions regulators make now will shape how accessible tokenised shares become for issuers and their shareholders.”

Equiniti, another major transfer agent in the U.S. and UK, echoed that view, arguing that regulators should draw a clear distinction between issuer-authorized tokenized shares and third-party products. Bullish (BLSH), CoinDesk’s owner, announced to acquire Equiniti targeting a close early next year.

“A token that isn’t authorized by the issuer and recorded through its transfer agent isn’t a tokenized share. It is a synthetic instrument that leaves investors exposed and issuers without recourse,” said Dan Kramer, CEO of transfer agent Equiniti. “The SEC needs to draw that line clearly in its framework before the proliferation of third-party tokens makes the problem significantly harder to solve.”

The letter further called for modernizing the Direct Registration System (DRS), arguing that today’s process for moving shares between DTCC’s broker-held accounts and transfer-agent records is too slow for tokenized markets and creates unnecessary friction for issuer-sponsored tokenization. The Depository Trust & Clearing Corporation (DTCC) is the clearing and settlement utility at the heart of U.S. securities markets, processing $4.7 quadrillion securities transactions last year, while its subsidiary, the Depository Trust Company (DTC), provides custody and asset services to over $100 trillion in securities.The STA, in the letter, urged the agency to work with DTCC and transfer agents to streamline those transfers as digital securities move toward broader adoption.

The issue with synthetic stock tokens has gained prominence as brokerages and crypto firms increasingly launch blockchain-based stock products.

Last year, OpenAI publicly distanced itself from Robinhood’s tokenized product tied to the company’s shares, saying it had neither approved the offering nor the tokens represented actual equity in OpenAI. The episode highlighted how tokenized securities can create confusion when the underlying issuer is not involved.

The debate is likely to become more important as major financial institutions and exchanges are planning to expand tokenized securities offerings under clearer regulatory frameworks. Coinbase unveiled plans to introduce onchain shares of U.S. stocks, while Robinhood just expanded its stock token offering to users in 120 countries. Nasdaq was granted SEC approval to test tokenized securities trading and has tapped Kraken to distribute tokenized stocks globally, while the New York Stock Exchange has partnered with Securitize to develop tokenized securities infrastructure.

Meanwhile, the DTCC plans to begin testing its tokenized securities platform in July ahead of a broader rollout in October. The service will allow firms to issue blockchain-based versions of assets already held in custody while preserving the same ownership rights and legal protections as conventional securities.

Joris Delanoue, CEO and co-founder of Fairmint, the first SEC-registered transfer agent operating natively onchain, said blockchains can help modernize transfer agents but cannot replace them altogether.

“The STA letter gets to the heart of what distinguishes real onchain equity from tokenized representations of equity,” he said. “A blockchain isn’t the source of truth; the issuer-authorized shareholder register is.”

What digital ledgers can do is make records programmable, real-time, and globally interoperable, he said, but they have to preserve the legal foundations of capital markets.

Carlos Domingo, CEO of tokenization firm Securitize, a member of STA, argued that the proliferation of synthetic tokens can make markets more fragmented and harder to police.

“That is a real problem for investors, issuers, and market integrity, and it is why regulatory frameworks should clearly distinguish Issuer-Sponsored Tokens from synthetic exposure,” he said. “Synthetic tokens are not a shortcut to market modernization — they are a source of added risk and confusion.

Louis Froelich, a partner at law firm Womble Bond Dickinson and who spent nearly a decade at hedge fund Two Sigma Investments, said regulators should recognize that third-party stock tokens are different products from conventional shares, but not dismiss them outright.

“In some senses, third-party stock tokens are nothing new: regulated markets for options, futures and swaps have long offered price exposure to stocks without ownership,” he told CoinDesk. “The novelty is that blockchain rails allow for efficient, broader distribution.”

Because holders may lack voting rights, dividends and a direct legal claim against the issuing company, Froelich said such tokens could ultimately trade at a discount to the underlying shares. At the same time, he said custodial tokenization models that preserve voting rights and corporate actions may end up looking much closer to traditional securities than synthetic products.

“I’d encourage the Commission not to dismiss third-party stock tokens, but to treat them as what they are — a different class of financial instrument, with clear separation from real stocks.”

Some market participants, however, say the STA’s proposal risks grouping together fundamentally different tokenization models.

“The key is whether the tokens represent true stock ownership or just economic exposure,” Dinari CEO Gabe Otte told CoinDesk.

He said many of the STA’s concerns are valid but apply primarily to synthetic tokenized products. He pointed to the SEC’s January statement, which distinguishes custodial tokenized securities from synthetic structures, arguing that regulated custodial models should be evaluated separately.

“Both issuer-sponsored and custodial models offer true stock ownership and these should be distinguished from synthetic models for the benefit of the end investor,” Otte said.

Alan Konevsky, CEO of digital securities platform tZERO, agreed that issuer-sponsored tokenization offers important advantages by preserving the direct relationship between companies and investors. But he argued the market is likely to support multiple compliant approaches.

“Innovation is accelerating, and we expect multiple compliant, non-misleading, economically and technologically meaningful models to emerge as the market matures,” Konevsky said.

Eli Cohen, chief legal officer at tokenization platform Centrifuge that focuses on bringing funds onchain, said the letter reflects transfer agents’ concerns that issuer-sponsored tokenization could lose ground if third-party models become more widely adopted.

“Here, the STA is protecting its market,” Cohen told CoinDesk. “Transfer agents are paid by issuers, so if non-issuer securities become widely adopted, the existing transfer agent franchises will shrivel up.”

Cohen said the more significant part of the letter is its call for the SEC to modernize the Direct Registration System. “The STA rightly notes that the current system relies entirely on DTC and is far too slow to compete with the synthetics,” he said. “If DTC cannot adapt and develop a faster system soon, there is little chance the existing transfer agent system will be able to maintain their current position and role in the market.”

The SEC has yet to propose formal rules specific to tokenized securities. The agency is expected to introduce its innovation exemption aimed at fostering tokenized securities, but the timeline and scope of that have not been specified.

But as brokerages, crypto firms and Wall Street institutions expand blockchain-based equity offerings, the agency’s approach to issuer-sponsored and third-party models could determine how tokenized stocks develop in the U.S. and what rights investors ultimately receive.