SEC Divisions Issue Guidance on Tokenized Securities
Commentary by Gage Raju-Salicki
The SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets ("the Divisions") issued guidance on the application of federal securities laws to tokenized securities.
In the joint statement, the Divisions outlined taxonomies for issuer-sponsored and third party-sponsored models to assist market participants with compliance, registration, and distinguishing between different tokenization structures. The Divisions provided guidance on:
- Tokenized Securities Definitions: The Divisions defined a tokenized security as a financial instrument enumerated under the definition of a "security" "that is formatted as or represented by a crypto asset," with ownership records maintained wholly or partially on a crypto network. The Divisions categorized these into two primary groups: securities tokenized by the issuer and securities tokenized by unaffiliated third parties.
- Issuer-Sponsored Models: The Divisions explained that issuers may integrate Distributed Ledger Technology to maintain the "master securityholder file" onchain. Alternatively, issuers may issue securities offchain while using crypto assets indirectly to notify the agent to record transfers. The Divisions emphasized that the format (onchain vs. offchain) "does not affect application of the federal securities laws," meaning registration requirements remain applicable. Further, tokenized securities may be considered the same class as traditional securities if they possess "substantially similar" characteristics and rights.
- Third Party Models: The Divisions addressed scenarios where unaffiliated parties tokenize an issuer's security. They noted that rights associated with these crypto assets may differ materially from the "underlying security" and may expose holders to additional risks, such as the bankruptcy of the third party. These generally fall into custodial or synthetic models which are distinguished as follows:
- Custodial Tokenized Securities: Where a third party creates a "security entitlement that is formatted as a crypto asset" representing an indirect interest in an underlying security held in custody.
- Synthetic Tokenized Securities: Where a third party issue a "linked security" (e.g., a structured note) or a "security-based swap" providing "synthetic exposure" to a referenced asset without conveying ownership rights.
- Security-Based Swaps: The Divisions highlighted that if a crypto asset provides synthetic exposure—such as payments based on the value of a security without conveying an ownership interest—it may constitute a security-based swap. The regulators reiterated that such assets generally cannot be sold to non-eligible contract participants unless the transaction is registered under the Securities Act and effected on a national securities exchange.
The Divisions stated that the assessment of whether a financial instrument is a security-based swap or a linked security depends on specific exclusions from the definition of "swap," and that the "economic reality of the instrument rather than the name given to the instrument" determines its regulatory treatment.
Commentary
Noteworthy here is the parallelism (and distinction) between the SEC and CFTC guidance on these topics—though perhaps "interrelationship" is more apt. The SEC's January 2026 joint staff statement and the CFTC's December 2025 guidance represent similar but functionally distinct regulatory approaches to tokenization. While the SEC's statement addresses the fundamental question of what constitutes a tokenized security — it confirmed that the format of a security (whether recorded on-chain or off-chain) does not alter its legal classification under federal securities laws — the CFTC's guidance focused on how tokenized assets can serve as margin collateral in regulated derivatives markets. The SEC framework establishes taxonomies for issuer-sponsored and third-party tokenized securities, whereas the CFTC guidance defines eligible collateral requirements, emphasizing that tokenized assets retain their margin eligibility so long as they satisfy applicable regulatory requirements for liquidity, established haircuts, and value stability during financial stress.
For firms operating across both securities and derivatives markets, these parallel frameworks create overlapping compliance considerations. A firm holding tokenized Treasury securities, for example, must consider the SEC framework when issuing or transferring those securities, but must apply the CFTC framework when pledging those same tokens as collateral for swap positions. Both agencies share a coordinated, technology-neutral philosophy: tokenization changes the form of assets, but not their underlying legal character. The practical result is that market participants engaged in both securities and derivatives activities will need to navigate both regulatory regimes simultaneously, particularly where synthetic tokenized securities - such as security-based swaps formatted as crypto assets - may implicate overlapping SEC and CFTC jurisdiction.