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

A key trade group representing transfer agents, the Securities Transfer Association (STA), has urged the U.S. Securities and Exchange Commission (SEC) to prioritize issuer-sponsored tokenized securities over third-party stock tokens as the agency develops rules for blockchain-based equities. The STA’s letter emphasizes that true tokenized shares must be authorized by the issuing company and recorded in official shareholder registers to ensure investor rights and market integrity. They warn that third-party tokens—whether synthetic or custodial—introduce credit, custody, and operational risks because they do not establish a direct legal relationship between investors and issuers.

This debate arises amid rapid growth in the tokenized securities market, which Citi projects could reach $5.5 trillion by 2030, including $2.6 trillion in tokenized stocks. The STA’s stance reflects concerns from major transfer agents such as Computershare and Equiniti, which highlight that third-party token products—sometimes described as “wrapper” instruments—risk confusing investors and undermining issuer governance. The STA also advocates modernizing systems like the Direct Registration System to support faster, more efficient transfers suitable for tokenized equities on blockchain networks.

Currently, most tokenized stock products—estimated at about $2 billion in market value—follow third-party synthetic models offered by firms like Ondo Finance and Kraken’s xStocks, which typically do not provide U.S. retail investors with direct equity ownership. Issuer-sponsored models, such as those used by Figure and Securitize, issue tokenized shares directly onchain with full shareholder rights. The SEC has already acknowledged distinctions among issuer-backed, custodial, and synthetic token structures in recent staff guidance, but the STA calls for clear regulatory differentiation and insists that any innovation exemptions or pilot programs should apply only to issuer-sponsored tokens.

Industry experts note that tokenization could modernize capital markets by improving settlement speed and accessibility, but caution that a blockchain alone cannot replace the legal framework maintained by traditional transfer agents. While some legal professionals advocate recognizing third-party token tokens as distinct financial instruments with economic exposure but limited rights, the consensus from transfer agents and issuer service providers is that protecting direct shareholder relationships is essential to maintaining market integrity. As large institutions and exchanges expand their tokenized offerings, the SEC’s upcoming regulatory framework decisions will play a crucial role in shaping the future landscape of onchain equity securities.