SEC Guidance on Tokenization

Who may be interested: Registered Investment Companies; Directors of Registered Investment Companies; Investment Advisers; Broker-Dealers; Lenders; Private Funds; Wealth Managers; and Public Companies.  

Quick Take: The SEC’s Statement on Tokenization makes clear that tokenization may be a change in securities ownership and trading technology, but all tokenized securities remain fully subject to existing federal securities laws and regulations. 

On January 28, 2026, the SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets issued the Statement on Tokenized Securities (the “Statement”) where a non-binding position was taken on how federal securities laws apply to tokenized securities.

The Statement noted that tokenized securities are financial instruments, as enumerated in the definition of “security”¹ under the federal securities laws, that are formatted as or represented by a crypto asset² where the record of ownership is maintained in whole or in part on or through one or more crypto networks.³

Tokenized securities generally fall into two categories: issuer‑sponsored and third‑party‑sponsored.

Issuer‑Sponsored Tokenized Securities

Issuers may tokenize securities, thereby issuing crypto assets that represent such securities, by integrating distributed ledger technology into the systems used to record the ownership of securities. When a tokenized security is transferred, the transaction is recorded and stored on the crypto network(s) used by the issuer. This results in the creation of an on-chain record database. Key points:

• Tokenization⁴ does not change the application of securities laws: offering registration requirements, registration exemptions, and current definitions still apply.
• A single class of securities may exist in multiple formats (traditional and tokenized), and holders may convert between formats.
• If a security recorded in a traditional format is also tokenized and both formats offer similar rights, they may be treated as the same class under the Exchange Act.⁵ In short, the token is not necessarily a separate security from the off-chain security.
• Issuers are not constrained to one singular model of tokenizing its securities. Issuers may issue a separate on-chain crypto asset used only to notify the issuer of a transfer that needs to be recorded in its official off-chain master record.
• If a registered investment company issues its shares in multiple formats (including tokenized format) or across different crypto networks, it may raise “multi-class” concerns under Section 18 of the Investment Company Act of 1940.

Third‑Party‑Sponsored Tokenized Securities

Unaffiliated third parties may also tokenize existing securities. The resulting crypto assets may or may not represent ownership in the underlying security and may expose holders to additional risks, such as the third party’s insolvency.

Third‑party models fall into two main types:

1. Custodial Tokenized Securities:

A third party may create a tokenized security entitlement⁶ representing an indirect ownership interest in an underlying security held in custody. Under this system, the custodian can integrate DLT into its records systems in order to record the entitlement holders of any relevant security in an on-chain format. Subsequently, any on-chain transfer would be reflected in the third party’s on‑chain records. However, similar to the Issuer-Sponsored Tokenized Securities Section above, the third party may also implement a hybrid on-chain and off-chain record system.

2. Synthetic Tokenized Securities:

These crypto assets do not represent ownership of the underlying security. They include:

• Linked securities: In this instance, the issuer of the token is issuing its own tokenized security that is linked to a referenced security (“Linked Security”) to provide synthetic exposure to such referenced security. However, the holder of such Linked Security does not possess any rights or benefits from the issuer of the referenced security. The return on the Linked Security is pegged to the referenced security’s value or events relating to the referenced security. A Linked Security may be a debt security (i.e., a structured note) or an equity security (i.e., exchangeable stock).
• Security‑based swaps⁷: A third party may also issue a security-based swap agreement formatted as a crypto asset. The swap provides exposure to a security, a loan, or an issuer‑related event, without granting voting or ownership rights. The staff noted:

“The third party may not offer or sell the crypto asset representing the security-based swap to persons who are not eligible contract participants unless a Securities Act registration statement is in effect as to the crypto asset, and the transactions in the crypto asset are effected on a national securities exchange.”

• Depending on the facts and circumstances, a third party sponsoring synthetic tokenized securities (Linked Securities or tokenized security-based swaps) may be deemed an investment company under the Investment Company Act.

Whether a token is a Linked Security or a security‑based swap turns on its economic substance and whether any statutory swap exclusion applies, not on its label. If a statutory swap exclusion applies, the instrument will not be treated as a swap, and therefore not as a security‑based swap. For example, instruments excluded from the definition of “swap” (such as certain notes, bonds, evidence of indebtedness, options, puts, calls, and straddles) would not be security‑based swaps.

Security-based swaps and Linked Securities are economically similar, although certain additional or different provisions apply to the regulation of security-based swaps under the federal securities laws, including with respect to transactions with persons who are not eligible contract participants.⁸

The Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Statement on Tokenized Securities is available here.

¹ “Security” is defined in Section 2(a)(1) of the Securities Act of 1933 (the “Securities Act”), Section 3(a)(10) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Section 2(a)(36) of the Investment Company Act of 1940 (the “Investment Company Act”).

² The Statement defines “crypto asset” as any digital representation of value that is recorded on a cryptographically secured distributed ledger.

³ The Statement defines “crypto network” as a blockchain or similar distributed ledger technology (“DLT”) network.

⁴ Tokenization is the process of creating a digital representation of a tangible or intangible asset using DLT.

⁵ See, e.g., Sections 12(g)(5) and 15(d)(1) of the Exchange Act.

⁶ The Statement assumes that the tokenized entitlement is not itself a security and merely represents an indirect interest in the underlying security.

⁷ Whether a tokenized instrument qualifies as a security‑based swap depends on economic reality and whether it falls under exclusions in the definition of “swap.” See Section 1a(47)(A) and (B) of the Commodity Exchange Act (the “CEA”). If the tokenized swap meets one of the three prongs of definition (e.g., it is based on (1) a narrow-based index, (2) a single security or loan, or (3) a financial event affecting a single issuer or a narrow-based index) it will be considered a security-based swap.

⁸ The term “eligible contract participant” is defined in Section 1a(19) of the CEA. In 2012, the Commission and the Commodity Futures Trading Commission, in consultation with the Board of Governors of the Federal Reserve System, jointly further defined the term “eligible contract participant.” See Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant,” Release No. 34-66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012).