SEC gives guidance on issuer vs third-party tokenized securities

The United States Securities and Exchange Commission has released new guidance on tokenized securities, categorizing assets into two categories to provide more clarity for companies entering the space.

The SEC’s statement on tokenized securities, released on Wednesday, defines the assets as issuer- or third-party-sponsored tokenized securities. 

“Tokenized securities generally fall into two categories: (1) securities tokenized by or on behalf of the issuers of such securities; and (2) securities tokenized by third parties unaffiliated with the issuers of such securities,” the regulator stated. 

Issuer-sponsored tokenized securities enable companies to tokenize their own securities in two ways: by integrating blockchain directly into their ownership records or issuing crypto assets that trigger off-chain ownership record updates on a separate ledger.

The legal treatment and registration requirements, and other securities laws, still apply regardless of whether a security is tokenized or traditional, it said.

“The format in which a security is issued or the methods by which holders are recorded (onchain vs. offchain) does not affect application of the federal securities laws.”

Third-party issuance is custodial or synthetic 

Unaffiliated third parties can also tokenize securities through custodial or synthetic models, the SEC stated. 

The custodial model involves creating tokenized security entitlements where the crypto asset represents an indirect ownership interest in underlying securities held in custody. 

The synthetic model involves issuing new securities that provide exposure to underlying securities without actual ownership. Rights to the asset, or “linked security,” could be in the form of structured notes, exchangeable stock, or security-based swaps. 

In essence, the SEC is clarifying that blockchain is merely a record-keeping technology; companies can use it, but securities laws still apply.

Related: New SEC submissions press on self-custody and DeFi regulation

“We welcome the SEC’s thoughtful statement on tokenized securities, recognizing native, issuer-supported tokenization and onchain recordkeeping as a modern extension of securities infrastructure,” said tokenization platform Securitize in a post to X on Wednesday.

“Clear frameworks like this are key to responsibly scaling tokenization.”

SEC favors broker over crypto-native custody 

The financial regulator cautioned that holders of third-party sponsored tokenized securities “may be exposed to risks with respect to the third party, such as bankruptcy.”

The SEC outlined in December how tokenized securities can exist within US market safeguards, favoring broker-led custody over crypto-native self-custody.

It also gave the nod for the Depository Trust and Clearing Corporation to move some stocks, bonds, and US Treasuries onchain. 

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