SEC Issues Guidance on Tokenized Securities Regulation

The SEC’s joint statement from its Divisions of Corporation Finance, Investment Management, and Trading and Markets provides a crucial taxonomy for tokenized securities, which it defines as financial instruments meeting the legal definition of a “security” but formatted as crypto assets with ownership records maintained on a blockchain. The guidance establishes two primary classifications. The first is issuer-sponsored tokenization, where the security is created by or on behalf of the issuer itself. This can occur through two mechanisms: companies may integrate blockchain technology directly into their official ownership recordkeeping systems, or they may issue crypto assets that automatically trigger corresponding updates to separate off-chain ownership ledgers when tokens are transferred.

The second classification is third-party tokenization, conducted by unaffiliated entities without issuer involvement. The SEC explained these operate through custodial or synthetic structures. Custodial models create tokenized entitlements representing indirect ownership interests in underlying securities held by a custodian. Synthetic approaches involve issuing entirely new securities—such as structured notes, exchangeable stock, or security-based swaps—that provide economic exposure to an underlying asset without conveying actual legal ownership. This distinction is critical for investors to understand the nature of their holdings and the associated risks.

A cornerstone of the SEC’s guidance is the explicit affirmation that blockchain represents merely a recordkeeping technology, not a basis for exemption from securities regulation. “The format in which a security is issued or the methods by which holders are recorded (onchain vs offchain) does not affect application of the federal securities laws,” the agency stated. This means all offers and sales of tokenized securities must be registered under the Securities Act unless a specific exemption applies, and issuers remain bound by all disclosure obligations and other provisions of federal law.

The framework provides operational flexibility by permitting issuers to offer identical securities in multiple formats simultaneously. Under these rules, a company could distribute traditional paper or electronic shares to some investors while providing tokenized shares to others, all representing the same underlying security with identical legal characteristics. However, the SEC issued a specific warning regarding third-party sponsored tokenized securities, highlighting that holders are exposed to additional risks, particularly bankruptcy concerns related to the third-party tokenization provider.

This guidance is part of a broader initiative by current SEC leadership, under Chair Mark Atkins, to establish clear regulatory boundaries for digital assets. In November, Atkins announced the agency would develop a “token taxonomy” to distinguish between categories of digital asset securities. The latest statement follows a December outline from the SEC detailing how tokenized securities can operate within existing U.S. market protections, where the agency expressed a preference for broker-led custody arrangements over crypto-native self-custody solutions.

The move signals institutional acceptance of distributed ledger technology for traditional finance, a trend underscored by the SEC’s December authorisation for the Depository Trust and Clearing Corporation (DTCC) to migrate certain stocks, bonds, and U.S. Treasury securities onto blockchain infrastructure. Industry participants like tokenisation platform Securitize welcomed the clarity. The firm described the guidance on social media platform X as recognition that “native, issuer-supported tokenization and onchain recordkeeping” represent “a modern extension of securities infrastructure.”