Tokenized securities are demonstrating genuine investor demand for around-the-clock trading and fractional ownership, but the infrastructure needed to provide adequate liquidity, price stability and investor protections has yet to catch up, according to a new report from the International Monetary Fund.

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The IMF also found in its October Global Financial Stability Report that tokenized stock trading is beginning to play a role in price discovery, with price movements occurring outside conventional trading hours subsequently reflected in traditional equity markets. The findings raise questions about how securities regulators should oversee markets that operate beyond the established boundaries of conventional exchanges.

The findings appear in Chapter 3 of the report, “Scaling Tokenization: New Efficiencies, New Vulnerabilities,” which examined the opportunities and vulnerabilities associated with tokenization, the process of representing financial assets on blockchain networks.

Researchers examined five major tokenized equity products across 11 trading venues, finding that more than half of transactions occurred outside regular stock market hours in the United States. Approximately 80% of trades involved less than one share, suggesting that investors were using tokenization to gain access to markets at times and in quantities that conventional trading arrangements may not accommodate.

However, the study also found that tokenized stocks exhibited approximately 1.5 times the volatility of their conventional counterparts, while liquidity was particularly thin on decentralized exchanges.

The findings suggest that expanding market access does not necessarily improve market quality.

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