Tokenized stocks, a new breed of digital assets mirroring the prices of listed companies, could give investors a false sense of ownership and undermine market confidence, according to a top European regulator.

Natasha Cazenave, executive director of the European Securities and Markets Authority (ESMA), cautioned that many tokenized stock products being marketed in the European Union fail to grant actual shareholder rights, such as voting or dividends.

She said that the lack of clarity in how these assets are presented could lead retail investors to believe they hold company shares when, in reality, they do not.

Shareholder rights absent

Unlike traditional equity purchases, tokenized stocks are often issued through special-purpose vehicles or intermediaries, and the tokens merely track the underlying stock’s price.

Cazenave stressed that while tokenization promises features like fractional trading and round-the-clock market access, the absence of ownership rights poses a “specific risk of investor misunderstanding.”

Her remarks come as platforms including Robinhood and Kraken expand tokenized stock offerings in Europe and other regions.