US SEC statement: Tokenized securities are still securities

Source: Hester M. Peirce, U.S. SEC Commissioner; Compiled by: AIMan@黄金财经

Blockchain technology has opened up a whole new model for issuing and trading securities in a "tokenized" form. Tokenization can facilitate capital formation and enhance investors' ability to use their assets as collateral. Attracted by these possibilities, new entrants and many traditional companies are embracing on-chain products.

Although blockchain technology is powerful, it does not have the magical ability to change the nature of the underlying assets. Tokenized securities are still securities. Therefore, market participants must consider and comply with federal securities laws when trading these instruments.

Sometimes, issuers tokenize their own securities. For example, an operating company or investment company can tokenize its shares. Alternatively, unaffiliated third parties that hold securities issued by other entities may issue new tokenized securities tied to the securities they hold, or tokenize the “security interests” held by investors held by the custodian. Purchasers of these third-party tokens may face unique risks, such as counterparty risk. Distributors of tokenized securities must consider their disclosure obligations under the federal securities laws and may wish to refer to the recent staff statement of the Department of Corporation Finance on this topic. (See previous Golden Finance report: Securities issuance and registration of crypto assets) Market participants who distribute, purchase and trade tokenized securities should also consider the nature of these securities and their impact on securities laws. For example, depending on the specific facts and circumstances, a token may be a “security receipt”, which is itself a security but is different from the underlying security held by the token distributor. Alternatively, tokens that do not provide holders with legal and beneficial ownership of the underlying securities may be “security-based swaps” that retail investors cannot trade over-the-counter. While blockchain-based tokenization is new, the process of issuing instruments that represent securities is not. The same legal requirements apply to both on-chain and off-chain versions of these instruments.

Market participants should consider meeting with the Commission and its staff as they build their tokenized offerings. When the unique aspects of a technology warrant a change to an existing rule, or when a regulatory requirement is outdated or unnecessary, we stand ready to work with market participants to develop appropriate exemptions and modernize the rules.