SEC Warns Tokenized Securities Must Comply With Federal Laws

The U.S. Securities and Exchange Commission (SEC) has recently issued a statement on security tokenization, highlighting the potential of blockchain technology in transforming the issuance and trading of securities. The SEC acknowledges that tokenization could facilitate capital formation and enhance investors' ability to use assets as collateral. However, the SEC has made it clear that tokenization does not possess "magic" powers and cannot alter the fundamental nature of the asset. Tokenized securities remain securities, and market participants must adhere to the relevant provisions of federal securities laws when dealing with these instruments.

The SEC's statement underscores that tokenized securities come with unique risks, such as counterparty risk, which investors must be aware of. Issuers of tokenized securities are obligated to fulfill information disclosure requirements under the federal securities law framework. Market participants involved in the issuance, purchase, and trading of tokenized securities must also consider the legal and compliance issues that may arise. The SEC emphasizes that while blockchain-based tokenization is an emerging technology, the act of issuing financial instruments representing securities rights is not new, and the legal requirements applicable to such instruments remain the same, regardless of whether they are issued on-chain or off-chain.

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