SEC Staff Unveils a Playbook for Tokenized Securities

On January 28, 2026, staff from the SEC’s Divisions of Corporation Finance, Trading and Markets, and Investment Management (Staff) jointly issued a statement providing further guidance regarding tokenized securities (the Statement). The Statement addresses common tokenized securities questions raised by market participants that seek clarity on how existing federal securities laws apply to various tokenization structures. This Sidley Update summarizes the key questions addressed by the Statement and the SEC Staff’s proposed answers.

What is a “tokenized security”?

The Statement defines a tokenized security as a financial instrument that meets the definition of a “security” under the federal securities laws but that is formatted as, or represented by, a crypto asset, with ownership records maintained in whole or in part on one or more crypto networks. In the Staff’s view, tokenization is a technological process creating a digital representation of a tangible or intangible asset using blockchain/distributed ledger technology.

Does tokenization change how the federal securities laws apply?

In general, the Staff notes that the format of issuance or technology used for recordkeeping, whether onchain or offchain, does not alter the application of the federal securities laws. In other words, tokenization changes the “plumbing,” not the regulatory perimeter. Offers and sales of tokenized securities remain subject to registration requirements (or applicable exemptions), and tokenized stock remains an “equity security” under the Securities Act and Exchange Act.

However, the Staff also emphasizes that various structuring decisions when tokenizing a security could implicate securities laws and regulations. For example, where the rights, obligations, and benefits associated with a tokenized security are materially different from those of the underlying security, the tokenized security could be considered a different class of security of the issuer. Or, if the issuer of a tokenized security is a third party unaffiliated with the underlying issuer, the tokenized security may represent a different type of security (including a security-based swap), and the third party issuer of the tokenized security may be deemed to be an investment company under the Investment Company Act. Additionally, while the Statement assumes in certain situations that the crypto asset created to represent the security is not itself a separate security, the facts and circumstances of a particular arrangement should be evaluated to determine whether this is the case.

What are issuer-sponsored tokenized securities?

The Staff describes issuer-sponsored tokenized securities as structures in which an issuer (or its transfer agent) tokenizes a security either by (a) issuing the security directly in tokenized form, using blockchain as the master securityholder file, or (b) using a token as part of the transfer mechanics for a security issued offchain and maintained in an offchain master securityholder file. In both cases, token transactions are reflected in the issuer’s official ownership records (the master securityholder file), and holders have direct rights against the issuer.

What are third party-sponsored tokenized securities?

Third party-sponsored tokenized securities are created when a third party tokenizes an unaffiliated issuer’s security. Depending on how these types of tokenized securities are structured, they may provide holders with economic exposure to, or a securities entitlement in, a security issued by another person. Because the tokenized security is issued by a party unaffiliated with the underlying issuer, these structures can raise distinct issues under the Securities Act, the Exchange Act, and, in some cases, the Investment Company Act.

Custodial model (tokenized security entitlements). Under the custodial model, a third party tokenizes a security issued by another person. Consistent with relevant commercial law, it does so by creating a security entitlement to securities in tokenized format.¹ Here, the tokenized security entitlement represents an entitlement holder’s indirect interest in the securities held by the third party. In another version of this model, the third party custodian keeps offchain records but uses token transfers and related onchain records to update its offchain records to record the transfer of a security entitlement.

Synthetic model. In this model, a third party issues its own (separate) tokenized security that provides synthetic economic exposure to the value, performance, or other attributes of a referenced security. The Statement identifies two versions — linked securities and security-based swaps.

(1) Linked securities: The return on a linked security is linked to the value of the security it references or events relating to the referenced security, but it is not an obligation of the issuer of the underlying security. A linked security may be a debt security (e.g., a structured note) or an equity security (e.g., exchangeable stock). The token itself representing the linked security functions technologically similarly to issuer-sponsored tokenized securities.

(2) Security-based swaps: Certain linked securities may meet the definition of a “security-based swap” under the Exchange Act. For example, if the token provides on an executory basis for the exchange, on a fixed or contingent basis, of one or more payments based on the value of a security but does not also convey a current or future direct or indirect ownership interest in an asset or liability that incorporates the financial risk transferred, that token may represent a security-based swap. Issuers of tokenized securities will need to carefully evaluate the nature and structure of their tokenized security to consider whether it may be a security-based swap and the scope of applicable regulations, which may include obligations under the Commodity Exchange Act.

Are there other implications of tokenization to consider?

Third party-sponsored tokenized securities may present different risks than issuer-sponsored tokenized securities. In particular, because these crypto assets are issued by a third party, they do not represent ownership of the referenced security and do not provide holders with shareholder rights in the referenced issuer. For tokenized security entitlements, a holder’s rights depend on the third party’s custody and recordkeeping arrangements. For synthetic tokenized securities, a holder’s rights depend on the credit and performance of the third party sponsor rather than those of the referenced issuer. The Staff emphasizes that these risks are not altered merely by the use of blockchain technology.

The Statement recognizes that state laws, such as the Uniform Commercial Code (UCC), also apply to the activities, transactions, and relationships among the parties involved with tokenizing securities. For example, the Statement assumes that transactions in tokenized securities result in the effective transfer of control or ownership of the security or security entitlement under the version of the UCC applicable to such transactions. As with the securities laws, the details of the structuring and transfer mechanics may affect the application of the UCC, including whether the transaction is subject to Article 8 (governing investment securities) or Article 12 (governing controllable electronic records) of the UCC.

What should market participants consider next?

While clear that tokenized securities are securities, market participants should carefully evaluate how a tokenized security is structured. In practice, this includes mapping investor rights, identifying whether the issuer or a third party is the relevant securities issuer, assessing custodial and credit risk, and evaluating potential registration or exemption pathways. The Statement is the latest in a growing body of guidance on the application the securities laws, and more is still expected, including additional clarity on the status of crypto assets offered and sold pursuant to investment contracts, and a potential “innovation exemption” that would allow companies to test novel business models under principles-based safeguards rather than full compliance with existing rules.

Those themes were addressed at a joint SEC-CFTC event to discuss harmonizing oversight of digital asset markets, held the day after the Statement was issued. The agencies will make “Project Crypto” a joint initiative and will sign a memorandum of understanding to formalize their collaboration. At the event, CFTC Chairman Michael Selig announced that CFTC staff are working with their SEC counterparts to consider joint codification of SEC Chairman’s Paul Atkins’ proposed taxonomy for crypto assets. As these harmonization efforts progress, they are likely to affect market participants with obligations under the federal securities laws and the Commodity Exchange Act, including persons offering tokenized swaps and tokenized security-based swaps.

Knowledge Management Lawyer Daniel Engoren contributed to this Sidley Update.

¹ See The Depository Trust Company no-action letter (Dec. 11, 2025), available at https://www.sec.gov/files/tm/no-action/dtc-nal-121125.pdf, and previous Sidley Update, The Depository Trust Company Gets SEC OK to Tokenize Securities and Skip Key Regulations (Dec. 17, 2025), at https://www.sidley.com/en/insights/newsupdates/2025/12/the-depository-trust-company-gets-sec-ok-to-tokenize-securities-and-skip-key-regulations.