SEC Commissioner: Tokenized Securities Are Essentially Securities, Issuers Must Comply with Disclosure Obligations Under Securities Laws

In a recent announcement, SEC Commissioner Hester Peirce stated that tokenized securities are essentially securities, and therefore market participants trading in such instruments must fully consider and strictly adhere to federal securities laws.

Tokenizing securities may be carried out by issuers themselves, such as industrial or investment companies tokenizing their shares, or by third-party custodians issuing tokens linked to the securities they hold, or tokenizing the 'securities rights' that investors have in the custodian. Purchasers of such third-party tokens may face unique counterparty risks and other specific risks.

Issuers of tokenized securities must fulfill the disclosure obligations stipulated by federal securities laws. Market participants should carefully assess the legal attributes of these securities and their corresponding regulatory requirements when distributing, purchasing, and trading tokenized securities.

When designing tokenized product schemes, market participants are advised to proactively communicate with the SEC and its staff. If there is a genuine need to adjust current rules due to technological characteristics or if regulatory requirements have become outdated, the SEC is willing to collaborate with the industry to develop reasonable exemptions and promote an up-to-date regulatory framework.

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