The SEC’s “Statement on Tokenized Securities” does not establish new law, but it does provide greater clarity on the application of existing federal securities laws to crypto assets. Most importantly, it reaffirms that the application of federal securities laws to tokenized securities depends not on the use of blockchains or crypto assets, but on the economic and legal substance of the rights conferred.
Categories of Tokenized Securities
As detailed by the SEC, a tokenized security is a financial instrument enumerated in the definition of “security” under the federal securities laws that is formatted as, or represented by, a crypto asset, with ownership records maintained on a crypto network, such as a blockchain or similar distributed ledger technology (DLT). While there are a variety of models used to tokenize securities, and they vary in terms of structure and the rights afforded to holders, tokenized securities generally fall into two categories:
Securities tokenized by or on behalf of the issuers of such securities; and
Securities tokenized by third parties unaffiliated with the issuers of such securities.
Issuer-Sponsored Tokenized Securities
In issuer-sponsored models, the issuer itself (or an affiliated party) tokenizes its securities. These structures may include:
On-chain systems where the blockchain serves as the official record of ownership; or
Hybrid systems where tokens interact with a traditional, off-chain master securityholder file.
These tokens represent the security itself. Accordingly, issuers must comply with applicable Securities Act and Exchange Act requirements, including registration (or exemption), disclosure, reporting, and transfer agent obligations.
Third-party Sponsored Tokenized Securities
In third-party models, an unaffiliated entity tokenizes an existing security or provides tokenized exposure to it. Common structures include:
Custodial models: A third party issues a crypto asset representing an entitlement to an underlying security that the third party holds in custody. The crypto asset evidences the holder’s indirect interest in the underlying security. Transfers are recorded on the third party’s recordkeeping systems, which may be on-chain or off-chain; and
Synthetic or derivative models: A third party issues a crypto asset that provides synthetic exposure to a referenced security, but does not confer rights in the underlying security. These may take the form of linked securities or security-based swaps that are formatted as crypto assets.
Depending on the structure and rights conveyed, these tokens may be treated as securities, security-based swaps, or other regulated financial instruments. Additional regulatory regimes may apply to custodians, broker-dealers, or swap counterparties involved in these arrangements.
Regulatory Implications
The SEC’s latest guidance reinforces that market participants involved in the issuance, trading, custody, or settlement of tokenized securities must assess whether they are required to register or comply with applicable regulatory regimes, including those governing broker-dealers, exchanges, clearing agencies, transfer agents, and investment advisers. Additionally, investor protection provisions—including registration requirements and anti-fraud rules—apply to tokenized securities transactions fully.
By reiterating that tokenized securities fall squarely within existing investor protection frameworks, the SEC underscores that:
Registration and full disclosure are generally required unless a specific exemption applies.
Anti-fraud provisions (e.g., Sections 10(b) of the Securities Exchange Act of 1934 and 17(a) of the Securities Act of 1933) continue to apply; and
Market intermediaries, including broker-dealers, clearing agencies, custodians, and exchanges, must maintain compliance with relevant regulations regardless of whether ownership is recorded on-chain or off-chain.
How We Can Help
The SEC guidance reaffirms the agency’s consistent regulatory stance that tokenization does not alter the application of federal securities laws. While blockchain technology may offer operational efficiencies, market participants must structure tokenized securities offerings within existing legal and regulatory frameworks. Accordingly, clients exploring tokenization initiatives should engage legal counsel early to evaluate regulatory implications, operational design, and compliance strategies.
Scarinci Hollenbeck represents issuers, intermediaries, in-house counsel, and market participants navigating this emerging area. Our experienced securities attorneys provide comprehensive guidance that allows our clients to capitalize on new opportunities while limiting legal risks.
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