The token is not the share: ESMA expresses its views on legal title gap in tokenised equities

RegCORE Client Alert | EU Digital Single Market

QuickTake

ESMA has moved a question often treated as one of technology or product classification into the fields of property, company and insolvency law. In its second Trends, Risks and Vulnerabilities (TRV) report of 2026, published on 10 September, ESMA reports that available public data indicate that the outstanding value of tokenised equities increased from approximately €0.3 billion at the end of 2024 to approximately €1.9 billion at the end of June 2026—an increase of around 6.5 times. The market remains concentrated in tokenised representations of large US-listed technology companies.European Securities and Markets Authority, ‘TRV Risk Monitor No 2 2026’ (10 September 2026) 47–48 available here.Show Footnote

The more important finding concerns what investors actually acquire. ESMA observes that the market remains dominated by ‘wrapped’ structures in which a token represents a claim on, or economic exposure to, shares held by a trusted party. Native issuance, in which the company issues its own shares directly on distributed ledger technology (DLT), remains rare.

ESMA then states the central legal problem. Where ownership remains recorded off-chain, transferring the token does not transfer legal title to the underlying share. The token changes hands. The share does not.

That distinction affects more than product terminology. It determines who is recognised as shareholder, whether voting and dividend rights are direct or contractual, which assets are protected if a platform or custodian fails, whether the token can be effectively pledged, which law governs competing claims and whether on-chain settlement delivers the security that the investor thought it was acquiring.

A token can therefore be a regulated financial instrument without being the referenced share. One-to-one backing is not necessarily one-to-one title. Self-custody of the token is not necessarily direct ownership of the underlying security. Technological atomicity is not, without an appropriate legal framework, legal finality.

ESMA’s analysis is risk monitoring rather than binding guidance. It does not conclude that wrapped structures are unlawful or that every tokenised equity has the same legal character. Its significance lies in the clarity of the supervisory diagnosis: technological transfer and legal transfer can diverge.

For banks, securities dealers, central securities depositories (CSDs), custodians, trading venues, asset managers, issuers and tokenisation platforms, the immediate task is to identify the legally authoritative record and trace the entitlement chain from the corporate issuer to the investor’s wallet.

The broader policy question matters as much. In our view, the Market Integration and Supervision Package (MISP), the development of the DLT Pilot Regime and the proposed Settlement Finality Regulation (SFR) do not, by themselves, deliver fully integrated tokenised markets unless trading and settlement reforms are connected to the national laws that determine ownership, corporate status, priority and insolvency effectiveness.

ESMA moves legal ownership to the centre of tokenisation

Tokenised equities cover a range of structures and business models. For analytical purposes, tokenised-equity arrangements can be divided into three broad models. The expression may describe a share issued directly through a legally recognised electronic register, an existing share represented or mirrored on a DLT platform, or a separate instrument whose value refers to a share held by somebody else.

Those structures may provide similar economic exposure in ordinary market conditions. They do not necessarily produce the same legal result. ESMA distinguishes between native and wrapped structures. In native issuance, the corporate issuer issues its own shares directly on DLT. Whether the DLT entry creates or transfers the share depends on the applicable company, securities and property law.

In a wrapped structure, an intermediary issues a separate token linked to shares held by it, a custodian or another trusted party. The token holder typically acquires the token and the contractual rights attached to it. The person recorded in the corporate or securities register remains the shareholder.

Wrapped structures are easier to implement because they may not require fundamental changes to issuance practices, shareholder registers or national company law. That ease comes with a legal cost. The DLT ledger may provide an authoritative record of who holds the token without being the authoritative record of who owns the underlying share.

One prominent example is xStocks. Backed Assets (JE) Limited describes each xStock as a bearer debt instrument classified as a tracker certificate and issued by a Jersey special-purpose vehicle. It provides economic exposure to a referenced equity but is not direct ownership of that equity. The issuer states that each xStock is fully collateralised by the corresponding underlying asset held with regulated custodians or brokers.

Kraken’s current disclosure similarly states that holders do not own the underlying shares and have no voting, distribution or liquidation rights against the underlying issuer. The holder owns the xStock instrument itself, for which the blockchain provides the relevant record; the token is the tracker certificate, not the referenced share.

This is not a criticism of reference instruments as such. Depositary receipts, certificates, structured notes and derivatives have long separated economic exposure from direct share ownership. The legal problem arises when the expression ‘tokenised share’ encourages the market to treat economic equivalence as legal identity.

A wrapper may hold one underlying share for every token in circulation. That supports economic tracking and may reduce market risk. It does not necessarily give the token holder a proprietary interest in the share. The answer depends on the legal structure: whether assets are held on trust or under an equivalent segregation regime; whether the holder is an identified beneficiary; whether the arrangement is enforceable against third parties; and how shortfalls, forks, reconciliation breaks and corporate actions are allocated.

Why one-to-one backing is not one-to-one title

The practical holding chain may be longer than the marketing label suggests:

token holder → contractual claim against issuer or platform → custodian or trustee → underlying share → corporate issuer

Each arrow is a legal dependency. Each can be governed by a different law. Each can fail inde-pendently.

The questions firms should now answer

• Legal object: What exactly is acquired: the share, a co-ownership or beneficial interest, a debt security, a derivative, or another contractual claim?
• Authoritative record: Which ledger, securities account or shareholder register determines entitlement, and which record prevails if systems diverge?
• Corporate rights: Who receives dividends, votes, subscription rights, disclosures and communications? Are rights direct or passed through contractually?
• Custody and segregation: Who holds the underlying shares, for whose account, and are they excluded from each intermediary’s insolvency estate?
• Transfer and finality: Does an on-chain transfer convey the relevant legal asset? When is the transfer irrevocable and protected against insolvency?
• Collateral: Does a pledge or title transfer over the token reach only the token or also the underlying share? How are perfection, priority and control established?
• Conflicts and enforcement: Which law governs the token, the account, the underlying share, proprietary effects and attachment by creditors?
• Operational integrity: How are minting, burning, reconciliation, bridge events, key compromise, smart-contract error and ledger forks handled?