By Andrew Welsch

Is tokenization of stocks a solution in search of a problem? Is it "fundamentally worse" than existing offerings? Charles Schwab CEO Rick Wurster and Interactive Brokers CEO Milan Galik criticized stock tokenization last week as rivals and crypto companies rush to embrace it.

Tokenization, a way of digitizing stocks and turning them into something akin to cryptocurrencies, has become a hot topic on Wall Street, offering investors the promise of an easier way to trade public companies, as well as perhaps tokenized shares of private companies and other private assets, around the clock.

Several companies have recently launched tokenized stocks for customers, including cryptocurrency company Kraken, and Robinhood. Last month Robinhood launched tokens based on more than 200 U.S. stock and exchange-traded funds for European customers.

Robinhood's tokens trade on blockchain technology rather than a traditional exchange, and customers will receive dividend payments directly in their app, according to the company. Robinhood says its blockchain "will be optimized for tokenized real-world assets and built to support 24/7 trading, seamless bridging, and self-custody."

But while tokenization is generating enthusiasm in some corners of the financial services industry, it is being met with caution in others.

Wurster and Galik, who lead two of the nation's largest brokerage firms, were asked by analysts about tokenization during their respective companies' earnings calls last week.

Without mentioning competitors, Schwab's Wurster expressed skepticism that tokenization of public equities meets a true customer need. He noted that round-the-clock stock trading already exists, yet many customers don't use it. "We see less than 1% of the trades on our platform being done outside of market hours," Wurster said. "So, I'm not sure that's a huge leap forward for investors."

Market concerns. There are also concerns about market liquidity and transparency with regard to tokenization, Wurster said. Traditional stock markets are safe, transparent, and liquid, meaning that when you want to buy or sell shares of a company you can find willing buyers and sellers. "I think tokenizing public equities -- at the moment, I'm not sure you have access to all of those things," he said. "You don't have to publish where trades are being executed, like we do. You don't have to have know-your-client and anti-money-laundering rules that prevent nefarious actors from money laundering."

Wurster says that if the industry moves toward tokenization, it needs to be in a "thoughtful" way.

Interactive Brokers' Galik was more direct in his critique, comparing Robinhood's new token offering with his company's overnight trading hours. "What they put online in the form of tokens on U.S. stocks is a fundamentally worse product than what our European clients had access to for years," he said.

"Our clients have access to more than 10,000 real U.S. shares and ETFs 24 hours a day, five days a week. In contrast, the stock tokens that Robinhood made available to their European clients are a derivative on 200 or so symbols, which means that the client doesn't have ownership interest in the stock, instead he or she has an OTC contract against Robinhood Europe. The customer cannot transfer the position to another broker if he wanted to. He would have to sell the position and transfer the cash."

A representative for Robinhood said in a statement: "We believe crypto has the power to become the underlying technology for the global financial system and we're building toward that long-term vision through innovations like stock tokens, available to our European customers." The company made its name with a commission free trading app, but has expanded into other areas of finance, including crypto and wealth management. In addition to tokenization for European customers, Robinhood offers U.S. customers the ability to trade select stocks and ETFs outside of normal market hours.

Speaking broadly about tokenization, Galik expressed concerns about investors being able to buy and sell tokens at the best available price if those tokens only trade on a limited number of platforms. A Wall Street Journal article on July 15 said that prices of some digital tokens that track public stocks have deviated as much as 300% from the actual share price.

Even as some industry players rush to launch stock tokens, legacy financial services companies such as Schwab and stock exchange Nasdaq are working to expand traditional trading hours for U.S. and international investors who want easier access to U.S. markets. On Monday, Schwab said it is expanding overnight trading for retail clients, adding hundreds of U.S. securities.

It's hard to see tokenized stocks competing with ever-expanding overnight trading options for actual shares of public companies. Where tokenization may have a bigger impact is with regard to private assets. Robinhood CEO Vlad Tenev has talked up the opportunity for retail investors to buy stakes in private companies via tokenization. So have other Wall Street luminaries, such as BlackRock CEO Larry Fink.

As Bloomberg columnist Matt Levine recently noted, tokenized shares of private companies may be seen as a way of circumventing disclosure rules normally required of public companies. "Instead of regulators imposing disclosure and trading rules to make crypto more like the stock market, the financial industry seems to be finding a way to get rid of disclosure and trading rules in the stock market, to make the stock market more like crypto," Levine said.

Write to Andrew Welsch at andrew.welsch@barrons.com

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July 21, 2025 17:01 ET (21:01 GMT)

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