Blockchain technology has enabled novel models for distributing and trading securities in a “tokenized” format. This development may facilitate capital formation and enhance investors’ ability to use their assets as collateral. However, market participants must consider the federal securities laws when transacting in these instruments.
Tokenization involves issuers creating tokens that represent ownership interests in securities. These tokens can be created by companies themselves or by third parties holding existing securities. For example, a company may issue tokens representing its own shares, while a custodian might create tokens tied to the securities it holds.
Distributors of tokenized securities must ensure they comply with federal securities laws and disclose relevant information. The Securities and Exchange Commission (SEC) has issued guidance on this topic, including a recent staff statement that market participants should refer to.
When creating tokenization product offerings, market participants should consider meeting with the SEC’s staff to discuss unique aspects of the technology and any necessary changes to existing rules. The SEC is willing to work with market participants to craft exemptions and modernize rules as needed.
Source: https://www.sec.gov/newsroom/speeches-statements/peirce-statement-tokenized-securities-070925