SEC Sets Clear Rules for Securities Signals, Divides Them into Two Main Categories

The SEC divides tokenized securities into issuer-sponsored and third-party models. Describes compliance requirements under federal securities laws.

The US Securities and Exchange Commission (SEC) has issued new guidance to clarify how federal securities laws apply to tokenized securities.

Released jointly by the Division of Corporation Finance, the Division of Investment Management, and the Division of Trading and Markets on January 28, the statement divides tokenized securities into two main types: issuer-backed and third-party.

Provider-Backed Token Securities

According to the SEC, a tokenized security is a financial instrument that meets the legal definition of a “security.” It is represented or formatted as a crypto asset, while ownership records are stored in one or more crypto networks.

In the issuer-sponsored model, the issuer or its agent integrates distributed ledger technology (DLT) into its systems, so that the transfer of crypto assets on the network coincides with the transfer of the official file of the security holder.

Issuers may offer securities in multiple formats, and a tokenized security may be considered the same class as its traditional counterpart if the rights and privileges are “substantially similar”. In some cases, issuers may issue a crypto asset that is not directly linked to the security manager’s file but can be used to make a transfer of ownership recorded off-chain, as defined by the securities agency.

Third-Party Release: Retention or Aggregation

The second category involves third-party sponsored token securities, where entities unrelated to the issuer tokenize the securities of another party. This can take the form of tokenized securities or tokenized securities. Token-backed securities occur when a third party issues a crypto asset that represents an ownership interest in another company’s security. The ownership records of these crypto assets can be maintained on-chain or off-chain by a third party.

On the other hand, synthetic tokenized securities include linked securities and security-based swaps, which provide exposure to the underlying security but do not provide rights from the original issuer. Securities-based swaps issued as crypto-assets can only be offered to eligible contract participants unless they are registered with the SEC and traded on a national securities exchange.

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The guidance also states that the classification and format of tokenized securities does not change their treatment under federal securities laws, and the SEC remains available to engage with market participants seeking clarification or preparation for filing. This statement aims to help companies and investors navigate the legal landscape of tokenized securities while complying with existing registration and disclosure requirements.