The SEC’s “Statement on Tokenized Securities” does not establish new law, but it does provide greater clarity on the application of existing federal securities laws to crypto assets. Most importantly, it reaffirms that the application of federal securities laws to tokenized securities depends not on the use of blockchains or crypto assets, but on the economic and legal substance of the rights conferred.
Categories of Tokenized Securities
As detailed by the SEC, 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, with ownership records maintained on a crypto network, such as a blockchain or similar distributed ledger technology (DLT). While there are a variety of models used to tokenize securities, and they vary in terms of structure and the rights afforded to holders, tokenized securities generally fall into 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.
Issuer-Sponsored Tokenized Securities
In issuer-sponsored models, the issuer itself (or an affiliated party) tokenizes its securities. These structures may include:
On-chain systems where the blockchain serves as the official record of ownership; or
Hybrid systems where tokens interact with a traditional, off-chain master securityholder file.
These tokens represent the security itself. Accordingly, issuers must comply with applicable Securities Act and Exchange Act requirements, including registration (or exemption), disclosure, reporting, and transfer agent obligations.
Third-party Sponsored Tokenized Securities
In third-party models, an unaffiliated entity tokenizes an existing security or provides tokenized exposure to it. Common structures include:
Custodial models: A third party issues a crypto asset representing an entitlement to an underlying security that the third party holds in custody. The crypto asset evidences the holder’s indirect interest in the underlying security. Transfers are recorded on the third party’s recordkeeping systems, which may be on-chain or off-chain; and
Synthetic or derivative models: A third party issues a crypto asset that provides synthetic exposure to a referenced security, but does not confer rights in the underlying security. These may take the form of linked securities or security-based swaps that are formatted as crypto assets.
Depending on the structure and rights conveyed, these tokens may be treated as securities, security-based swaps, or other regulated financial instruments. Additional regulatory regimes may apply to custodians, broker-dealers, or swap counterparties involved in these arrangements.
Regulatory Implications
The SEC’s latest guidance reinforces that market participants involved in the issuance, trading, custody, or settlement of tokenized securities must assess whether they are required to register or comply with applicable regulatory regimes, including those governing broker-dealers, exchanges, clearing agencies, transfer agents, and investment advisers. Additionally, investor protection provisions—including registration requirements and anti-fraud rules—apply to tokenized securities transactions fully.
By reiterating that tokenized securities fall squarely within existing investor protection frameworks, the SEC underscores that:
Registration and full disclosure are generally required unless a specific exemption applies.
Anti-fraud provisions (e.g., Sections 10(b) of the Securities Exchange Act of 1934 and 17(a) of the Securities Act of 1933) continue to apply; and
Market intermediaries, including broker-dealers, clearing agencies, custodians, and exchanges, must maintain compliance with relevant regulations regardless of whether ownership is recorded on-chain or off-chain.
How We Can Help
The SEC guidance reaffirms the agency’s consistent regulatory stance that tokenization does not alter the application of federal securities laws. While blockchain technology may offer operational efficiencies, market participants must structure tokenized securities offerings within existing legal and regulatory frameworks. Accordingly, clients exploring tokenization initiatives should engage legal counsel early to evaluate regulatory implications, operational design, and compliance strategies.
Scarinci Hollenbeck represents issuers, intermediaries, in-house counsel, and market participants navigating this emerging area. Our experienced securities attorneys provide comprehensive guidance that allows our clients to capitalize on new opportunities while limiting legal risks.
You Just Received a Federal Grand Jury Subpoena in New Jersey: Now What?
Receiving a federal grand jury subpoena is not something most businesses or individuals anticipate. While it can be concerning, a federal grand jury subpoena does not necessarily mean that you are being accused of wrongdoing. It does, however, mean that a federal criminal investigation is underway and that federal prosecutors believe you may possess information […]
Why Every Business Should Conduct an Annual Insurance Coverage Review
Most New Jersey business owners purchase insurance policies, file them away, and assume they are protected if a claim arises. Without a regular insurance coverage review, many companies discover gaps only after a lawsuit, cyberattack, property loss, or other significant event occurs. An annual insurance coverage review can help businesses identify potential risks, ensure their […]
Demand Letters & Cease and Desist Letters: When to Send One (and When Not To)
Businesses and individuals often encounter situations where another party breaches a contract, fails to pay a debt, or continues harmful conduct. In many such disputes, a precisely drafted demand letter or cease-and-desist letter serves as a powerful legal tool. It can frequently resolve the dispute and avoid litigation. While demand or cease-and-desist letters can resolve […]
Key provisions in your contracts, including those relating to indemnification, insurance, and defense, are essential to contract risk management. While sometimes considered “boilerplate,” these provisions play a pivotal role when determining which party is responsible for certain costs and liabilities. They must always be negotiated and drafted carefully. Indemnification Clauses Businesses should never overlook the […]
Portability of estate and gift tax enables a surviving spouse to inherit any unused portion of their deceased spouse’s federal estate and gift tax exemption. So, if one spouse doesn’t utilize their full exemption, the surviving spouse can effectively double their exemption amount with regard to estate tax liability. For married couples, portability offers a […]
Pet Trusts in New Jersey and New York: A Practical Estate Planning Tool
For many of us, pets are more than companions—they are members of the family. Yet they are often overlooked or inadequately provided for when it comes to estate planning. A pet trust offers a legally enforceable way to ensure that your animal continues to receive proper care if you become incapacitated or pass away. As […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
