TheCorporateCounsel.net

MoFo’s Ryan Adams recently shared some thoughts with me on the potential implications of tokenization for corporate insider trading policies:

Something I’ve been thinking about that may be worth mentioning in a blog – there was a recent article in the WSJ and this caught my eye:

Five Things to Know About Tokenized Stocks – WSJ

What are the risks?

Because tokens are often thinly traded during off-hours, they are susceptible to sharp price moves when users buy or sell more than the markets can handle.

Regulators have also warned that such tokenized assets create opportunities for bad actors to engage in insider trading and market manipulation while circumventing oversight. In the U.S. stock market, exchanges use surveillance to identify suspicious activity and the people behind it, while brokerages must know the identity of their customers. But such controls don’t currently exist with tokenized stocks

.As we see the proliferation of various tokenized versions of public company stocks, whether issuer sponsored or not — companies should be considering whether their existing insider trading policy language adequately covers the potential risk of employees trading tokenized versions of company stock.

Said differently, you shouldn’t be able to circumvent insider trading rules by trading in a tokenized version of your company’s stock when you’re prohibited from trading the company stock. This might seem obvious, but as third party tokenized stocks come online this strikes me as a new potential risk that may not be explicitly covered by an existing policy because the token wouldn’t be “company stock.”

– John Jenkins