The SEC clarifies the rules for tokenized securities in the face of the rise of Blockchain

U.S. regulators have provided more clarity on how securities laws apply to blockchain-based financial products. New guidance issued by the Securities and Exchange Commission (SEC) responds to the growing interest in tokenized securities and their gradual integration into existing legal frameworks. While tokenization is now beyond the experimental stage to become part of concrete applications, market players have been calling for more readable rules. This latest declaration therefore aims to reduce regulatory uncertainty, without calling into question the fundamental principles in force.

SEC Confirms Tokenized Securities Remain Subject to Federal Law

On Wednesday, the SEC issued a joint statement through its Division of Corporate Finance, Division of Investment Management, and Division of Trading and Markets. This guidance clarifies how federal securities laws apply when traditional securities are issued or represented using crypto networks.

Officials define a tokenized security as a financial instrument already covered by federal securities law, but formatted or represented as a crypto asset. In these configurations, ownership records are maintained, in whole or in part, on blockchain-based systems.

According to the SEC, companies can integrate distributed ledger technology into their official ownership records without changing the legal status of the security involved. Obligations regarding information disclosure, reporting and investor protection therefore remain unchanged. The format or method of recordkeeping does not alter the enforcement of securities laws, including when blockchain infrastructure is used.

The main regulatory points highlighted in the declaration are as follows:

• Tokenized securities remain securities within the meaning of federal law, regardless of their digital format.
• Registration requirements apply to every offer and sale unless a valid exemption exists.
• Blockchain-based property records are not a substitute for legal compliance obligations.
• Technological choices affect neither the rights of investors nor the responsibilities of issuers.

The guidance also emphasizes that certain structures, including custodial or synthetic arrangements, may not provide holders with a direct ownership interest in the underlying security. In these cases, intermediary risks, such as insolvency, may affect holders of tokenized instruments differently than traditional shareholders.

As an example, regulators cite security-based swaps, which generally do not grant participation rights, voting rights, or access to information associated with the reference asset. The SEC also recalls that the legal treatment is based on the economic reality of the products, and not on their simple name.

Regulators hint at regulated on-chain trading for tokenized stocks

Digital securities company Securitize said on social media that the guidelines support issuer-backed tokenization and on-chain recordkeeping, billed as a modern evolution of financial markets infrastructure. Its representatives believe that clearer rules are essential to enable responsible growth of tokenized markets.

For his part, Paul Grewal, chief legal officer of Coinbase, called the statement a strong signal that tokenized shares could gradually evolve towards regulated trading on blockchain in the United States.

The SEC divisions finally conclude their statement by affirming their willingness to collaborate with issuers, platforms and intermediaries, as activity related to tokenized securities grows. Regulators say they want to continue dialogue with market participants seeking to meet compliance requirements while operating blockchain-based systems.