Yesterday morning, I wrote that it’s time to start paying attention to tokenization. Yesterday afternoon, the Staff of the Divisions of Corporation Finance, Investment Management, and Trading and Markets published a statement on that very topic, which outlines the different ways that securities can be tokenized and which securities laws apply to each situation. Parts of the statement look remarkably similar to my notes from SRI! Here’s an excerpt:

Tokenized securities generally fall into two categories: (1) securities tokenized by or on behalf of the issuers of such securities; and (2) securities tokenized by third parties unaffiliated with the issuers of such securities. This statement is intended to assist market participants as they seek to comply with the federal securities laws and prepare to submit any necessary registrations, proposals, or requests for appropriate action to the Commission or its staff. We stand ready to engage regarding any questions.

This section describes the distributed ledger concept that I was referring to in yesterday’s blog:

A single class of securities could be issued in multiple formats, including tokenized format. Similarly, an issuer may permit security holders to hold a security in different formats and convert the security from one format to another. The format in which a security is issued or the methods by which holders are recorded (e.g., onchain vs. offchain) does not affect application of the federal securities laws. For example, regardless of its format, the Securities Act requires that every offer and sale of a security must be registered with the Commission unless an exemption from registration is available. Similarly, stock is an “equity security” under the Securities Act and the Exchange Act regardless of its format.

On the other hand, the tokenized security could be of a different class of securities from those issued in traditional format. For example, an issuer could issue one class of common stock in traditional format and issue a separate class of common stock as a tokenized security. However, if the tokenized security is of substantially similar character as the security issued in traditional format and holders of the tokenized security enjoy substantially similar rights and privileges, the tokenized security may be considered of the same class as the security issued in traditional format for certain purposes under the federal securities laws.

In addition to underscoring coming attractions, I appreciate the effort of three divisions working together to issue a joint statement, which helps with seeing the big picture. And speaking of cooperation, SEC Chair Paul Atkins and CFTC Chair Michael Selig are holding a joint event at 2pm ET today to:

[D]iscuss harmonization between the two agencies and their efforts to deliver on President Trump’s promise to make the United States the crypto capital of the world.

The event will be open to the public and webcast live on the SEC’s website.

– Liz Dunshee