The SEC Releases Security Tokenization Statement
BlockBeats News, July 10th. The U.S. SEC issued a statement on security tokenization, stating that blockchain technology has opened up a new model for issuing and trading securities in a "tokenized" form. Tokenization has the potential to promote capital formation and enhance investors' ability to use their assets as collateral. However, despite the significant potential of blockchain technology, it does not have a "magic" ability to change the nature of the underlying asset. Tokenized securities are still securities. Therefore, market participants trading in such instruments must carefully consider and comply with relevant provisions of federal securities laws.
Sometimes, issuers tokenize their own securities. Investors purchasing such third-party tokenized securities may face some unique risks, such as counterparty risk. The issuer of tokenized securities must also consider disclosure obligations under federal securities laws and may refer to a recent staff statement by the SEC's Division of Corporation Finance.
At the same time, market participants involved in the issuance, purchase, and trading of tokenized securities should also consider the characteristics of these securities and the securities law compliance issues they raise. Although blockchain-based tokenization is an emerging technology, the act of issuing a financial instrument representing securities rights is not novel. Whether issuing such instruments on-chain or off-chain, the applicable legal requirements are the same. Therefore, market participants should engage with the U.S. Securities and Exchange Commission (SEC) and its staff when designing their tokenization product offerings. We are willing to collaborate with market participants to develop reasonable exemptions and drive rule modernization.
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