SEC Issues Definitive Guidance on Tokenized Securities, Splitting the Landscape into Two Core Models
Washington, D.C., Jan. 28, 2024 – The U.S. Securities and Exchange Commission (SEC) released a comprehensive statement on Thursday that clarifies how existing federal securities laws apply to tokenized securities. Drafted jointly by the Division of Corporation Finance, the Division of Investment Management and the Division of Trading and Markets, the guidance delineates two primary frameworks for tokenized assets: an issuer‑sponsored model and a third‑party‑sponsored model (which includes custodial and synthetic structures).
The agency’s aim is to give issuers, platforms, and investors a clearer regulatory roadmap while reaffirming that the underlying legal obligations of securities remain unchanged, regardless of the digital format in which they are presented.
1. Issuer‑Sponsored Tokenized Securities
Under the issuer‑sponsored approach, the entity that originally issues the security (or a designated agent) incorporates distributed‑ledger technology (DLT) into its own systems. When a token representing the security moves on a blockchain, the transfer is mirrored in the issuer’s master security‑holder register, ensuring that on‑chain activity reflects off‑chain ownership records.
Key characteristics:
| Feature | Description |
|---|---|
| Legal Definition | The token must satisfy the traditional definition of a “security.” |
| Integration | The issuer’s internal ledger ties directly to the blockchain token, enabling one‑to‑one mapping of ownership changes. |
| Parity with Traditional Shares | Tokens can be treated as the same class of security as their paper or electronic counterparts if the rights (voting, dividends, etc.) are substantially identical. |
| Hybrid Options | In limited cases, issuers may issue a token that does not directly update the master register but can still facilitate off‑chain ownership transfers, provided the mechanism is disclosed and compliant. |
The SEC notes that this model permits issuers to offer securities in multiple formats—both conventional and tokenized—without creating a separate regulatory regime for the digital version.
2. Third‑Party‑Sponsored Tokenized Securities
The second model applies when an entity that has no direct relationship with the original issuer creates a token that represents another party’s security. The SEC separates this category into custodial and synthetic tokenized securities.
a. Custodial Tokenized Securities
A custodial token is issued by a third‑party custodian that holds the underlying security on behalf of token holders. Ownership records may be maintained either on‑chain (transparent, immutable) or off‑chain (traditional custodial ledger). The token essentially serves as a claim on the underlying asset held by the custodian.
b. Synthetic Tokenized Securities
Synthetic structures provide economic exposure to a security without granting the holder any of the issuer‑derived rights. They include:
- Linked securities – tokens that are contractually tied to the performance of an underlying security.
- Security‑based swaps – derivatives issued as crypto assets that replicate the payoff of a security.
Because synthetic tokens do not convey ownership rights, their distribution is subject to the same restrictions that apply to traditional derivatives. They may only be offered to eligible contract participants unless they are registered with the SEC and listed on a national securities exchange.
3. Regulatory Implications and Compliance
The SEC’s guidance emphasizes that the classification or format of a token does not alter its status under federal securities law. Consequently, tokenized securities—whether issuer‑sponsored or third‑party‑sponsored—must still satisfy:
- Registration (or reliance on an exemption) for public offerings.
- Disclosure obligations, including prospectus delivery and ongoing reporting.
- Anti‑fraud provisions and other investor‑protection rules.
The commission also signaled its readiness to engage with market participants, offering a point of contact for entities seeking clarification or assistance with filing obligations.
4. Analyst Perspective
| Consideration | Impact |
|---|---|
| Clarity for Issuers | The issuer‑sponsored model provides a clear path for companies seeking to digitize existing securities without creating a parallel regulatory regime. |
| Opportunities for Platform Providers | Custodial and synthetic token structures open a niche for fintech firms that can legally bridge traditional securities and blockchain environments, provided they adhere to registration and participant eligibility rules. |
| Investor Protection | By treating tokenized securities the same as their conventional counterparts, the SEC preserves established investor safeguards while accommodating innovation. |
| Regulatory Consistency | The guidance aligns tokenized assets with existing securities law, reducing uncertainty for both domestic and cross‑border offerings. |
| Future Outlook | As the market matures, further SEC rulings may address nuanced issues such as cross‑chain interoperability, decentralized governance of token issuers, and the treatment of non‑fungible token (NFT)‑based securities. |
5. Key Takeaways
- Two Distinct Models – Tokenized securities are now formally categorized as either issuer‑sponsored or third‑party‑sponsored (custodial or synthetic).
- Legal Parity – The digital form does not exempt tokens from registration, disclosure, or anti‑fraud requirements.
- Compliance Pathways – Issuers can integrate DLT directly into their existing record‑keeping, while third parties must ensure proper custodial or derivative compliance.
- SEC Engagement – The agency invites stakeholders to seek guidance, signaling a collaborative regulatory approach.
- Market Implications – The clarification is expected to accelerate institutional participation in tokenized securities, fostering greater liquidity and innovation in the broader capital markets.
The SEC’s statement represents a decisive step toward harmonizing blockchain technology with the United States’ securities framework, providing the market with a clearer set of rules while preserving the regulatory safeguards that have long underpinned investor confidence.
Source: https://cryptopotato.com/sec-sets-clear-rules-for-tokenized-securities-splitting-them-into-two-key-categories/
