Wall Street Transfer Agents Warn SEC: Third-Party Tokens Threaten Market Integrity

The Securities Transfer Association (STA), representing prominent Wall Street transfer agents, has issued a critical warning to the U.S. Securities and Exchange Commission (SEC). In a letter submitted to the SEC on July 1, 2026, the association stated that third-party issued stock tokens created by independent platforms present significant risks to market integrity. The STA called for preferential treatment for company-authorized tokenization models in future regulatory frameworks, placing this issue at the heart of growing discussions around blockchain technology's use in financial markets.

STA members argue that truly tokenized stocks should be formally authorized by the issuing company and recorded in the official shareholder register, rather than being created as “packaged” token products by independent platforms. They highlight that third-party stock tokens could confuse investors regarding their actual rights and expose them to risks related to platform credit, custody, and operations, without establishing a direct legal relationship with the publicly listed company. The association emphasized that such a lack of direct legal relationship creates significant vulnerabilities in terms of investor protection. Therefore, they conveyed that any innovative exemptions, pilot projects, or permanent regulatory frameworks for tokenized securities should prioritize the issuer-supported model.

The U.S. Securities and Exchange Commission (SEC) has been working to clarify its regulatory stance on tokenized securities, issuing guidance in January 2026. This guidance defined tokenized securities as financial instruments that are already “securities” under federal law but are represented as crypto assets with ownership records maintained, in whole or in part, on or through one or more crypto networks. It identified two primary models: issuer-sponsored and third-party sponsored. The SEC consistently emphasizes that tokenization does not alter the applicability of federal securities laws, asserting that regulatory treatment turns on economic substance rather than technological form. Third-party tokenization models include “custodial tokenized securities,” where a third party holds the underlying security in custody and issues a crypto asset representing an entitlement to that security, and “synthetic tokenized securities,” where a third party issues its own instrument tied to the performance of an underlying security. The SEC has specifically cautioned about additional counterparty, operational, and insolvency risks in third-party models, where token holders may only have rights against the intermediary, rather than the underlying issuer.

The global market for tokenized stocks is estimated at approximately $2 billion, currently dominated by third-party models. For instance, platforms like Ondo Finance and Kraken offer such products, while companies like Securitize and Figure adopt issuer-authorized models. This diverse landscape underscores the tension between fostering innovation in tokenization and preserving existing market structures. The Securities Industry and Financial Markets Association (SIFMA) also weighed in on Nasdaq's proposal to allow the trading of tokenized securities, supporting the responsible adoption of distributed ledger technologies within existing regulatory frameworks. Conversely, some market participants, including Coinbase and the Blockchain Association, present a different perspective, arguing against requiring issuer consent for third-party tokenization to promote innovation and competition.

In light of these developments, the STA has urged the SEC to reform the existing Direct Registration System (DRS) and collaborate with the Depository Trust & Clearing Corporation (DTCC) to optimize digital securities infrastructure. The association contends that the current securities custody system is inadequate to meet the real-time transfer and settlement needs of on-chain securities, highlighting the need for modernized frameworks. Analysts and market observers anticipate that the SEC will provide clearer rules and guidance on tokenization in the coming period. This clarity is crucial for both maintaining market integrity and harnessing the efficiency benefits offered by blockchain technology. Integrating new technologies while preserving the depth and liquidity of the market remains a significant balancing act for regulators.