SEC staff draws a bright line for tokenized securities and synthetic stock tokens

Tokenized stocks keep showing up in demos and pilot programs, but US regulators have been clear about one thing for years: the technology wrapper does not rewrite the rulebook. A new staff statement from three SEC divisions tries to make that message more usable for issuers, brokers, and crypto platforms that want to build around onchain records.

In its Statement on Tokenized Securities, the Divisions of Corporation Finance, Investment Management, and Trading and Markets define a tokenized security as an instrument that already fits the federal definition of a security, but is formatted as or represented by a crypto asset, with ownership records maintained in whole or in part on a crypto network. The staff note is not a rule and has no legal force, but it is meant to map common structures to existing obligations. 

The SEC staff breaks the market into two high-level categories.

1. First are issuer-sponsored tokenized securities. In the cleanest version, the issuer integrates distributed ledger technology into its master securityholder file so that a transfer onchain updates the official ownership record. The staff says issuers can also run hybrid systems where onchain activity helps trigger updates to offchain records. Either way, the offer and sale rules still apply, and a security can be issued in multiple formats without changing how the laws treat it.
2. Second are third-party tokenization models, which the statement splits into custodial and synthetic products. Custodial tokenized securities look like tokenized security entitlements: the underlying stock or bond is held in custody, and the token represents an indirect ownership interest recorded by the third party.

Synthetic tokenized securities are where the staff turns more cautionary. A third party can issue a linked security or a tokenized security-based swap that tracks a referenced stock, but those instruments are the third partys own securities. They typically do not convey voting, information, or other shareholder rights, and they can expose holders to risks tied to the issuer of the token itself, including bankruptcy. The staff also notes additional limits for tokenized security-based swaps, including restrictions on sales to non-eligible contract participants absent registration and exchange trading.

For firms pitching tokenized equities to US investors, the statement reads like a reminder that distribution and market structure questions, not just blockchain engineering, will determine what is actually allowed to ship.