SEC Divisions Release Joint Statement on Tokenized Securities

On January 28, the SEC’s Investment Management, Corporation Finance, and Trading and Markets Divisions issued a joint statement confirming that tokenized securities are regulated securities under the federal securities laws. Notably, this means that tokenization does not impact the application of the federal securities laws to such securities even though it may have significant impact on disclosure, custody and trading, among other areas. The SEC’s statement differentiates between issuer-sponsored tokenized securities, in which the issuer of a security is the same one that creates that tokenized version of it, and third-party tokenized securities, in which a separate company creates a token that provides exposure to an underlying security.  For issuer-sponsored tokenized securities, the issuer’s ownership ledger reflects token transfers and investor rights match the traditional security. For third-party tokenized securities, the third-party firm or intermediary platform that issues the token may create a custodial model that holds the actual shares, or create a token that mirrors the price through a synthetic model. Fund directors overseeing funds that may hold tokenized securities may wish to inquire about operational risks associated with blockchain records, custody, and vendors as well as disclosure, transparency and counterparty risks, among others as applicable.

Click here to read the SEC’s Statement on Tokenized Securities.