SEC Clarifies Federal Securities Law Treatment of Tokenized Securities

The staff of the US Securities and Exchange Commission’s (SEC’s) Divisions of Corporation Finance, Investment Management, and Trading and Markets (the Staff) issued a joint statement (the Statement) on January 28, 2026 addressing the application of the federal securities laws to tokenized securities. The Statement is part of the SEC’s broader effort to provide clarity regarding how existing securities law frameworks apply to digital assets and distributed ledger technology (DLT). The Statement does not establish new rules, exemptions, or a bespoke regulatory regime for tokenized securities. Rather, it reiterates a consistent theme reflected across SEC guidance: the technological format in which a security is issued, recorded, or transferred does not alter its legal characterization or the applicability of the federal securities laws.

DEFINITION OF TOKENIZED SECURITY

The Staff defines a tokenized security as a financial instrument that is already a “security” under the federal securities laws and that is formatted as or represented by a crypto asset (e.g., a token), where ownership records are maintained in whole or in part on or through one or more crypto networks.

As described in the Statement, tokenization concerns the format in which a security is issued and the mechanism by which ownership is recorded and transferred, not the creation of a new category of securities. A single class of securities may be issued in multiple formats, including a tokenized format, and an issuer may permit security holders to hold a security in different formats and convert a security from one format to another. Standing alone, the format of issuance or the method of recordkeeping, whether onchain or offchain, does not affect the application of the federal securities laws. However, for issuers subject to the Investment Company Act of 1940 (the 1940 Act), issuing securities in multiple formats, including tokenized formats on different crypto networks, may raise multi-class issues under Section 18 of the 1940 Act.

TOKENIZATION MODELS IDENTIFIED BY THE STAFF

The Statement organizes tokenized securities into two high-level categories: (1) issuer-sponsored tokenized securities and (2) third-party-sponsored tokenized securities.

Within those categories, the Statement describes multiple tokenization models that differ in structure and in the rights or interests afforded to holders. In doing so, the Staff distinguishes among models by reference to who issues the crypto asset (e.g., the token), what legal interest or exposure the crypto asset represents (e.g., a security, a security entitlement, or synthetic exposure), and whether the official records of ownership or entitlement are maintained onchain, offchain, or through a combination of both.[1]

The following chart provides further details on these categories of tokenized securities:

REPRESENTATIVE USE CASES CONTEMPLATED BY THE STATEMENT

Consistent with the structures described in the Statement, representative use cases include the following:

• Issuer-sponsored tokenization of securities, in which the issuer (or its agent) integrates DLT into the master securityholder file so that transfers of the crypto asset result in transfers of the security on the issuer’s onchain ownership records
• Issuer-sponsored token-based transfer mechanisms to effect transfers and other changes to offchain ownership records
• Custodial tokenized security entitlements, in which a third-party custodian issues the token to facilitate the transfer of an underlying security on the custodian’s books, including structures operating within the indirect holding system under Article 8 of the Uniform Commercial Code
• Synthetic tokenized securities, including linked securities and security-based swaps formatted as crypto assets, which provide synthetic exposure to a referenced security or certain referenced events relating to the issuer of a security and, depending on their structure, are subject to applicable eligibility, offering, and trading restrictions under the federal securities laws

TAKEAWAYS

The Statement provides a coherent framework for analyzing tokenized securities within the existing federal securities law architecture. As the Statement emphasizes, the application of “tokenization” to a security does not remove it from the purview of the federal securities laws because securities, whether formatted as or represented by a crypto asset, remain financial instruments that are identified in the enumerated categories of “securities” under Section 2(a)(1) of the Securities Act of 1933 (Securities Act) or Section 3(a)(10) of the Securities Exchange Act of 1934 (Exchange Act). In other words, regardless of whether it is an issuer-sponsored or third-party-sponsored security, the token is merely a method to modernize recordkeeping and transfer mechanics relating to such security (or, in the case of a security entitlement, the underlying security) but is not itself a security.  

While tokenization may have the benefits indicated, the Statement emphasizes that tokenization does not displace longstanding legal principles governing securities issuance, ownership, and trading.

Here are several concluding key takeaways:

• Tokenized securities are subject to the same federal securities laws as traditionally formatted securities
  • For example, every offer and sale of a tokenized security must be registered or exempt, as required by the Securities Act, and a tokenized security is still a security under Section 2(a)(1) of the Securities Act or Section 3(a)(10) of the Exchange Act
• Economic reality governs legal characterization; in determining whether a tokenized instrument constitutes a security, a linked security, or a security-based swap, the Staff emphasizes that economic reality, rather than the label or technological form of the instrument, controls
• Substantially similar rights may result in the same class of securities; where a tokenized security is of substantially similar character to a security issued in traditional format and holders enjoy substantially similar rights and privileges, the tokenized security may be considered part of the same class for certain purposes under the federal securities laws
• Synthetic tokenized securities raise distinct regulatory considerations; linked securities and security-based swaps provide synthetic exposure without conveying ownership rights in the referenced security and, depending on their structure, may be subject to additional offering, eligibility, and trading requirements under the federal securities laws
  • For example, as noted in the Statement, a third party may not offer or sell a crypto asset representing a security-based swap to persons in the US who do not meet the definition of an “eligible contract participant” (as defined in section 1a(18) of the Commodity Exchange Act) unless a registration statement is in effect as to the crypto asset, and the transactions in the crypto asset are effected on a national securities exchange