Citadel Urges SEC to Slow Tokenized Stocks Rollout

Citadel Securities has formally requested the U.S. Securities and Exchange Commission (SEC) to slow down the implementation of tokenized stocks into the financial system. In a letter sent to the SEC’s Crypto Task Force, the trading firm expressed concerns that hastening the process could lead to investor confusion and unfair advantages for certain exchanges and private companies.

This move comes after SEC Chairman Paul Atkins indicated an interest in revising existing rules to support crypto-based securities. Citadel is advocating for a structured rulemaking process, urging the SEC to avoid shortcuts that could create regulatory loopholes. The firm emphasized that tokenized products should succeed based on their actual merits, not through regulatory arbitrage.

A tokenized security is a crypto-based version of a stock or asset, representing the asset without conferring direct ownership. These tokens are traded on blockchain networks rather than through traditional brokerages and can be divided into small, affordable pieces, making them accessible to a broader audience. However, Citadel’s letter argues that without proper regulations, the rollout of these products could harm the already fragile Initial Public Offering (IPO) market.

The firm is concerned that providing private companies with another avenue to raise funds could further reduce the number of deals in the public space. Additionally, the shift could direct capital into new digital trading pools, potentially excluding pensions, banks, and other large firms that cannot take on crypto exposure due to internal rules or fiduciary policies. Citadel stressed that true innovation involves offering better tools, not bypassing the regulatory process.

Citadel is pushing for a transparent rulemaking process with full public input, which has not yet occurred. In response, the SEC declined to provide new information, stating that the chairman’s stance is already public. However, Atkins’ approach differs from that of former SEC Chair Gary Gensler, who was often criticized for attempting to control crypto through enforcement. Atkins is now considering rolling back many of those rules, including one that allowed brokers to hold crypto on behalf of customers.

Last week, Atkins mentioned that the SEC is exploring an “innovation exception,” a regulatory workaround that would allow firms to experiment with tokenized trading while bypassing certain restrictions. He also hinted at other changes to incentivize tokenization within the regulatory framework, including options that would permit novel trading methods and more targeted exemptions to build the necessary infrastructure. These comments followed the U.S. House’s passage of a major stablecoin bill, which sets clear rules for companies issuing crypto tied to the dollar. The bill requires firms to hold dollar-for-dollar reserves in short-term government securities or similar low-risk products regulated at the state or federal level.

Senator Elizabeth Warren criticized the bill, stating it does not adequately protect consumers. Despite this, supporters view it as a significant milestone that could bring cheaper and faster payments, adding legitimacy to a crypto market expected to grow from $265 billion to over $3 trillion by 2030, according to industry forecasts.