TLDR:
- Format does not alter securities law application; tokenized assets face same registration requirements.
- Issuers can maintain master securityholder files onchain or use crypto assets as transfer notification tools.
- Third-party custodial models create security entitlements while synthetic models provide exposure only.
- Security-based swaps require registration and exchange execution for sales to non-eligible participants.
The Securities and Exchange Commission’s divisions have issued a comprehensive statement clarifying how federal securities laws apply to tokenized securities.
The Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets outline two primary categories: issuer-sponsored and third party-sponsored tokenized securities.
This framework addresses the growing need for regulatory clarity as blockchain technology becomes more prevalent in capital markets. The statement emphasizes that format does not alter securities law application.
Issuer-Sponsored Models Define Direct Tokenization Approaches
Issuers can tokenize securities by formatting them as crypto assets while maintaining master securityholder files on blockchain networks.
The integration of distributed ledger technology allows onchain transfers to reflect ownership changes in the official records. This approach differs from traditional securities only in recordkeeping methods, not legal status.
The same class of securities may exist in multiple formats simultaneously. Holders can convert between tokenized and traditional formats based on their preferences.
Securities Act registration requirements remain unchanged regardless of whether securities use onchain or offchain recordkeeping systems.
Another model separates the crypto asset from the master securityholder file entirely. The issuer maintains ownership records offchain while using crypto assets as transfer notification mechanisms.
Security holders receive crypto assets that trigger ownership updates rather than directly representing the securities themselves.
These arrangements allow transfers to occur through blockchain transactions that prompt issuers to update official records.
The crypto asset serves as a signaling device rather than the actual security representation. Offchain databases remain the authoritative source for ownership information in this structure.
Third-Party Tokenization Creates Additional Asset Categories
Custodial tokenized securities represent one third-party approach where crypto assets evidence ownership interests in underlying securities held in custody.
These tokenized security entitlements function similarly to traditional custody arrangements but use blockchain technology for record maintenance. The underlying securities remain separate from the crypto asset representation.
Transfer of these crypto assets triggers updates to entitlement holder records maintained by the custodian. Some implementations integrate blockchain directly into recordkeeping systems while others use onchain transfers to update offchain records. Both approaches create indirect ownership structures through security entitlements.
Synthetic tokenized securities provide exposure without conveying actual ownership rights in referenced securities. Linked securities and security-based swaps fall into this category. These instruments are obligations of the third party rather than the underlying security issuer.
Security-based swaps face additional restrictions under federal law. Sales to non-eligible contract participants require effective registration statements and execution on national securities exchanges.
The classification depends on whether the instrument meets swap definition requirements and satisfies one of three specified prongs related to security indices, individual securities, or issuer-specific events. Economic reality rather than naming conventions determines proper classification.
