Market Brief: What Proxy Voting for Third-Party Tokenized Stocks and ETFs Might Mean for Governance

The SEC describes a tokenized security as a security represented by a crypto asset, with ownership records kept at least partly on crypto networks. It also distinguishes issuer-sponsored tokens from third-party tokenization models.¹ Tokenized ETF products are not all alike. Some may represent regulated ETF shares in token form, while synthetic products may only copy the economics of an ETF and may not provide ownership rights or voting power.^2,3

For third-party tokens, a key governance issue raised is whether a token holder owns the underlying security, or whether they hold a contractual claim whose voting influence depends on platform rules, custody arrangements, and the token issuer’s discretion.⁴ Though token holders may be able to submit voting preferences, that may not necessarily mean they hold direct shareholder voting rights, where instead they may be expressing voting preferences through a contractual/intermediary structure.

In late April, an announcement was made of a technology integration designed to let holders of more than 250 tokenized stocks and ETFs receive issuer materials, review filings, and submit vote preferences through proxy voting infrastructure.⁵ This article examines how proxy voting for third-party tokenized stocks and ETFs could reshape governance. Though it creates new ways for investors to participate in proxy voting, it also raises unresolved governance questions around ownership rights and voting eligibility, transparency, intermediary accountability, and fiduciary responsibility.

Implications for a New Use Case: Tokenized Assets

This recent development introduces a new scenario for proxy plumbing as it relates to tokenized stocks and ETFs. As it stands, proxy voting infrastructure currently has many intermediaries, which often results in less than transparent voting procedures. The introduction of tokenized assets brings about questions of who is eligible to give an instruction, how that instruction is checked, and whether the preference is binding or only advisory.

By way of analogy, fund pass-through voting raises a similar issue. Fund investors may be offered some say over voting, but the asset manager or fund structure often remains the legal route through which votes are cast.⁶

For tokenized ETFs, the issue can be more layered. Registered funds and ETFs usually have boards that oversee proxy-voting policies, often with day-to-day voting delegated to advisers, so token-holder preference tools need to fit within existing fiduciary duties.

Preserving ‘Traditional’ Governance: Participation, Transparency, and Accountability

Large asset managers’ voting-choice programs suggest that some institutional clients want more control over how votes linked to their investments are cast. Investors have long clamored for true vote confirmation on their casted votes, more forgiving deadlines that allow additional time to vote, and for certain market practices that inhibit voting to be reduced (e.g., requiring registration of shares in the beneficial owner name to vote, which effectively blocks those shares from trading).

While some initiatives, like the Shareholder Rights Directive II (SRD II),⁷ were meant to improve that process, they fall short of providing a more systemic approach to transparent and frictionless voting. Tokenized platforms could reduce distribution friction, but they may also create more data, more intermediaries, and more points of failure.⁸

Regulatory expectations for transparency are also rising. SEC changes to Form N-PX are intended to make fund voting records easier to compare, including information on vote categories, shares voted, and shares loaned but not recalled.⁹ A credible tokenized-voting model should explain record dates, eligibility checks, vote weighting, over-vote controls, failed instructions, privacy safeguards, and whether an independent party can review the audit trail.

Viewed another way, tokenized proxy voting could be assessed as a potential response to longstanding weaknesses in the traditional proxy-voting chain. Today, ballots, voting instructions, and tabulation data often pass through a complex sequence of issuers, custodians, brokers, service providers, and other intermediaries. That structure can make ballot delivery and vote confirmation difficult to verify, and it can leave a significant gap between the record date and the meeting date, when a voter may no longer hold the shares connected to the vote. A blockchain-based model could, if designed with appropriate controls, create a more direct and auditable record of entitlement, instruction, and tabulation.

Conclusion: An Expanded Proxy Voting Infrastructure Use Case

Governance risks include mistaken assumptions about shareholder status, cross-border eligibility limits, wallet-control disputes, cyber or smart-contract failures, incomplete disclosure delivery, and conflicts among token issuers, custodians, brokers, and asset managers. For asset owners and managers, the emerging issue to consider is whether token-holder preferences create clearer, more accountable delegation without blurring fiduciary responsibility.

This technological development is likely best understood as an expanded proxy plumbing use case for tokenized markets. The market test will be whether tokenized voting can scale with the same clarity expected in traditional proxy voting: visible rights, reliable communications, auditable instructions, and clear accountability for intermediaries — while reducing intermediary opacity and record-date frictions — as value-added governance benefits.