1: The security is not native to the blockchain (such as an AAPL stock), in which case, everything I said applies. You need to be able to redeem your colored coin for an actual AAPL stock. That will only happen when stock brokers decide to support colored coins, which is way down the road (will happen much later than my use case with Bitstamp and USD).

2: The security is native to the blockchain, let's say someone decided to go public with their company and emit shares on the blockchain, but the challenge is making sure that "colored coin as equity" is recognized by the law (given the amount of regulation around that, it's fair to say it's not).