The U.S. Securities and Exchange Commission's staff released a statement to sharpen how market participants should view tokenized securities under federal securities laws. Issued by the Division of Corporation Finance, the Division of Investment Management, and the Division of Trading and Markets, the document frames tokenization primarily as a change in format and recordkeeping — not a change in legal status.
What Counts as a Tokenized Security
The staff defines a tokenized security as “a financial instrument enumerated in the definition of ‘security’ under the federal securities laws that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.” Two categories are distinguished: (1) securities tokenized by or on behalf of the issuer, and (2) securities tokenized by unaffiliated third parties. The staff is explicit: “The format in which a security is issued or the methods by which holders are recorded (e.g., onchain vs. offchain) does not affect application of the federal securities laws.”
Issuer-Led Tokenization: Operational Shift, Same Obligations
For issuer-sponsored tokenized securities, the staff describes a model where the issuer integrates distributed ledger technology into the “master securityholder file.” A transfer of the crypto asset on the network triggers a corresponding transfer on the master file. The “only difference” is whether that master file sits on a conventional offchain database or on one or more crypto networks. In practice, issuer systems will remain hybrid, linking onchain wallet data with offchain identity records. A single class of securities could be issued in both tokenized and non-tokenized formats, and holders may convert between them. However, if the tokenized version is of “substantially similar character” and grants “substantially similar rights and privileges,” it may be deemed the same class for certain purposes under federal securities law.
Third-Party Tokenization: Custodial vs. Synthetic, Risk Profiles Diverge
The staff devotes significant attention to third-party sponsored tokenized securities. Token holders may not receive any rights as direct holders of the underlying security and may be exposed to risks tied to the intermediary, including bankruptcy. Two observed models are custodial tokenized securities (the third party issues a crypto asset representing the underlying security, which is held in custody) and synthetic tokenized securities (the third party issues its own security providing synthetic exposure, often described as a tokenized linked security or a tokenized security-based swap). The staff warns that a security-based swap may not be offered to non-eligible contract participants unless registered under the Securities Act and traded on a national securities exchange. For platforms eyeing tokenized stock proxies, this line underscores how quickly a token can morph into a regulated derivative with strict distribution constraints.