The U.S. Securities and Exchange Commission (SEC) has issued new guidelines to clarify the applicability of federal securities laws to tokenized securities. This guidance, released on January 28, categorizes tokenized securities into two primary types: issuer-sponsored and third-party-sponsored.

Issuer-Sponsored Tokenized Securities

The SEC defines a tokenized security as a financial instrument that qualifies as a ‘security’ and exists as a crypto asset, with ownership records stored on one or more blockchain networks. In the issuer-sponsored model, the issuer or their representative utilizes distributed ledger technology (DLT) to ensure that transfers on the blockchain correspond with the official securityholder registry.

Issuers have the potential to offer securities in various formats, where the tokenized version could be treated as the same class as its traditional form, provided their rights and privileges are ‘substantially’ similar. There are instances where a crypto asset could be issued that doesn’t integrate seamlessly with the securityholder file but allows off-chain ownership transfer, as explained by the SEC.

Third-Party Issuance: Custodial Or Synthetic

The second category comprises third-party-sponsored tokenized securities, where unaffiliated entities tokenize securities owned by another party. These can take the shape of either custodial tokenized securities, where a third party issues a crypto asset denoting ownership interest in another company’s security, or synthetic tokenized securities, which include linked securities and security-based swaps that do not bestow rights from the original issuer. Security-based swaps may only be offered to eligible contract participants unless registered with the SEC and traded on a national securities exchange.

The SEC emphasizes that the classification and format of tokenized securities do not modify their treatment under federal securities laws, and they are open to assisting market participants with clarifications or filings. This statement aims to assist companies and investors in navigating the regulatory landscape of tokenized securities while adhering to registration and disclosure obligations.