U.S. SEC statement: Tokenized securities are still securities.

Source: Hester M. Peirce, Commissioner of the U.S. SEC; Translated by AIMan@Golden Finance

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

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

Sometimes, issuers will tokenize their own securities. For example, an operating company or an investment firm may tokenize its shares. Alternatively, a non-affiliated third party that custodians securities issued by other entities may issue new tokenized securities linked to the securities it holds, or tokenize the "security interests" held by the custodian on behalf of investors. Buyers of these third-party tokens may face unique risks, such as counterparty risk.

Distributors of tokenized securities must consider their disclosure obligations under federal securities laws and may wish to refer to the recent employee statement from the company's finance department on this topic. (See previous report by Golden Finance: Securities issuance and registration of crypto assets)

Market participants involved in the distribution, purchase, and trading of tokenized securities should also consider the nature of these securities and their impact on securities law. For example, depending on the specific facts and circumstances, a token may be a "security receipt," which is itself a type of 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 security may be classified as "security-based swaps," which retail investors cannot trade over-the-counter. While blockchain-based tokenization is a new phenomenon, the process of issuing instruments representing securities is not. The on-chain and off-chain versions of these instruments are subject to the same legal requirements.

Market participants should consider meeting with the committee and its staff when building their tokenized products. When the uniqueness of a technology necessitates modifying existing rules, or when regulatory requirements are outdated or unnecessary, we are always ready to collaborate with market participants to develop appropriate exemption provisions and modernize the rules.