Tokenization, tokenized securities, or digital securities are the future. This much is clear. But questions remain as regulators and industry participants work through the new process of issuing, managing, and trading securities using blockchain technology.
Today, the Securities and Exchange Commission (SEC) issued a statement on tokenized securities to provide additional clarity on the emerging ecosystem.
Co-authored by the Division of Corporate Finance, Division of Investment Management, and the Division of Trading and Markets, the trio expressed their views on taxonomies regarding tokenized securities.
While noting there are various models, the SEC stated that “a tokenized security is 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.”
They stated there are two categories:
- securities tokenized by or on behalf of the issuers of such securities; and
- securities tokenized by third parties unaffiliated with the issuers of such securities.
An issuer tokenized security differs from more traditional offerings in that, instead of maintaining the master securityholder file through conventional off-chain database records, the issuer (or its agent) maintains it on one or more crypto networks, which functionally serve as onchain database records.
Third-party tokenized securities, a sector that is becoming more frequent, may or may not confer upon the holder of the crypto asset any rights as a holder of the underlying security. They are either synthetic tokenized securities or custodial tokenized securities.
The SEC’s statement is more a statement of acknowledgement than a new spin on digital assets. This needed to be said by the SEC.
It is vital that the SEC and industry participants collaborate on the emerging digital security ecosystem. Mistakes may be made, something that makes regulators nervous, but change is hard, and the current Commission is committed to advancing the financial infrastructure for the betterment of issuers, investors, and everyone involved, for both public and private securities.
The tokenized security statement is viewable here.
