The Staff statement provides a technology-neutral framework for understanding securities tokenization models and emphasizes the consistent application of the securities laws to such models.

By Jenny Cieplak, Paul M. Dudek, Zachary Fallon, Stephen P. Wink, Naim Culhaci, and Deric Behar

Link to Key Points: Key Points:

  • The Staff acknowledges both issuer- and third-party-sponsored tokenization models but highlights potential risks that can affect the latter.
  • Regardless of whether distributed ledger technology is used or not, the format used to record ownership of securities and/or securities entitlements does not alter the applicability of federal securities laws.
  • The economic reality of a security-related token, rather than any label it carries, determines its classification and eligibility for statutory exclusions.

Link to Introduction Introduction

On January 28, 2026, the Securities and Exchange Commission (Commission or SEC) Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets (collectively, the Staff) issued a statement1 (the Tokenization Statement) setting forth a basic taxonomy of tokenized2 securities. The Tokenization Statement elaborates on the “Token Taxonomy” set forth by SEC Chair Paul S. Atkins in a November 2025 speech, and reiterates the principle he expressed that “[s]ecurities, however represented, remain securities… [and] economic reality trumps labels.” It also echoes the position originally articulated by Commissioner Hester M. Peirce in July 2025 that tokenization of securities does not alter the general applicability of the securities laws.3

According to the Staff, securities can either be tokenized by or on behalf of the issuers of such securities or by third parties unaffiliated with the issuers of such securities using either a custodial or synthetic model. Each model “var[ies] in terms of structure and the rights afforded to holders.”4

Link to Securities Tokenized by the Issuer Securities Tokenized by the Issuer

A security may be issued at the outset in the form of a tokenized cryptoasset by recording ownership of the security in the issuer’s books and records or in the master securityholder file maintained by the issuer’s transfer agent using distributed ledger technology (DLT) as the method of record maintenance. A single class of securities can be issued in multiple formats, including tokenized securities, and issuers may permit holders to convert between formats. An issuer could also issue separate tokenized and non-tokenized securities, but such securities could be considered part of the same class if they share substantially similar characteristics, rights, and privileges.

Finally, the SEC notes that an issuer or its transfer agent could maintain official records off-chain but issue a digital asset to effect transactions in the security on the master securityholder file, as contemplated by recent updates to the Uniform Commercial Code (see this Latham-authored article). The method of recording ownership — conventional off-chain database versus on-chain distributed ledger — does not alter the applicability of federal securities laws, and all transactions in securities, regardless of record maintenance format, must comply with the SEC’s registration requirements or utilize an available exemption.

Link to Securities Tokenized by Third Parties Securities Tokenized by Third Parties

Third-party-tokenized securities refer to securities that are tokenized by entities unaffiliated with the original issuer, and the Staff highlights several general risks involved in third-party-tokenized securities:

  • Tokenization models differ, potentially leading to variations in the rights, obligations, and benefits of the cryptoasset compared to the underlying security.
  • The token may not represent an ownership interest or contractual obligation of the issuer, possibly not conferring any rights to the holder of the underlying security.
  • Holders of the token may face risks related to the third party (such as bankruptcy), which do not necessarily affect holders of the underlying security.

The Staff describes two distinct models of third-party tokenization:

  • Custodial Tokenized Securities, whereby a third party creates a cryptoasset representing the holder’s interest in the underlying security. This is the standard indirect holding model, where the actual securities are immobilized or held by a custodian, and the holders have a “security entitlement” in the underlying security, whether direct or indirect through multiple layers of custodians. The cryptoasset is not a separate security but rather serves as evidence of the holder’s rights in the underlying security being held in custody. In such a model, the official record of security entitlements may or may not be recorded on-chain. Similar to issuer-tokenized securities, it is possible for the official records to be maintained off-chain and for the movement of a token to simply represent an instruction to record a transfer on the official record.
  • Synthetic Tokenized Securities, whereby a third party issues a cryptoasset representing its own security that provides synthetic exposure to the underlying security. This could include a token linked to another security (such as a structured note or exchangeable stock), where the synthetic exposure does not represent “an obligation of the issuer of the referenced security, and confers no rights or benefits from the issuer of the referenced security.” It could also include tokenized security-based swaps, which are derivative instruments that also do not grant equity, voting, or other rights typically associated with holding the actual security but are subject to specific regulatory requirements, including limitations on who can transact in them (generally limited to “eligible contract participants” unless certain conditions are met) and the need for registration under certain conditions.
    According to the Staff, the third party issuing the tokens in such synthetic models may be deemed to be an investment company under the Investment Company Act, depending on the specific facts and circumstances.

As with securities tokenized by the issuer, regardless of whether or not DLT is used by third-party entities for security tokenization, the federal securities laws still apply. The Staff also noted that “the economic reality of the instrument rather than the name given to the instrument determines whether” a third-party tokenized security (such as a tokenized security-based swap) qualifies for any applicable statutory exclusions.

Link to Conclusion Conclusion

The Tokenization Statement follows the Staff’s December 2025 no-action letter stating that it would not recommend enforcement against the Depository Trust Company (DTC) under the applicable securities laws if DTC operates a tailored, three-year pilot to tokenize securities entitlements on supported blockchains (see this Latham blog post). It also follows the Commodity Futures Trading Commission (CFTC) Letter No. 25-39 — by the agency’s Market Participants Division, Division of Market Oversight, and Division of Clearing and Risk issued December 8, 2025 — addressing the CFTC divisions’ views on certain regulatory issues related to the use of tokenized assets as collateral in futures and swaps transactions. In that guidance, the CFTC divisions similarly noted, “The use of DLT to tokenize an asset need not change the fundamental characteristics of that asset.”

The Tokenization Statement “is intended to assist market participants as they seek to comply with the federal securities laws and prepare to submit any necessary registrations, proposals, or requests for appropriate action to the Commission or its staff.” In the wake of the Tokenization Statement, the DTC no-action letter, and similar guidance at the CFTC, we expect to see an acceleration of existing TradFi and crypto intermediaries seeking SEC relief to adapt market infrastructure to tokenized formats. By confirming that tokenized securities remain securities regardless of format, the Staff has cleared a key source of regulatory uncertainty.

Follow this and other critical developments on Latham’s US Crypto Policy Tracker.