SEC regulation of tokenized securities: Implications for asset managers and owners

Our research shows that “digital tokenization of real-world assets” — across both public and private markets — currently makes up approximately 2 percent of the average financial institution’s portfolio. Based on our analysis, this figure is expected to grow to 5 percent in the next three years

As the volume of these assets grows, so does the need for a better understanding of the different forms that tokenized securities can take, especially as regulators begin to clarify their own positions on the subject.
 

The SEC clarifies regulatory treatment of tokenized securities

Earlier this year, the United States Securities and Exchange Commission (SEC) issued guidance clarifying how the ownership of securities can be recorded and transferred on a blockchain, rather than by traditional methods. The regulator stated that issuance or recreation of a security on-chain does not affect its status, as far as SEC regulation is concerned. Any asset that meets the SEC definition of security, in terms of “economic substance” and “legal rights,” remains governed by the same laws and regulations whether recorded on-chain or off-chain.

According to the SEC:

“The definitions of security in the Securities Act and the Exchange Act and the case law interpreting the definitions focus on economic substance, so as to ensure that substantively identical instruments and activities are treated similarly.

That a security is recorded using distributed ledger technology rather than a centralized ledger does not affect its substance.

There is therefore no basis for broadly treating tokenized securities and the intermediaries that engage with them differently from traditional securities and their market participants.”

Therefore, registration requirements under the Securities Act of 1933, reporting obligations under the Securities Exchange Act of 1934, applicable market-structure, custody, and anti-fraud rules continue to apply in the same manner as for traditionally issued securities. However, not all tokens representing — or claiming to represent — securities necessarily meet this definition.
 

How the SEC distinguishes between tokenized securities

The SEC subdivided on-chain securities into those created by their issuers, and those created to represent traditional securities that have already been issued, with specific considerations for owners and managers of those assets.

Issuer-sponsored tokenization is where the issuer of a security, such as a fund or corporation, creates the asset either using distributed ledger technology (DLT) to record and transfer ownership or as a secondary, parallel record of the same.

In these cases, legal questions around status and ownership are relatively straightforward. Additional considerations for the issuer are limited to ensuring consistency and accuracy between on- and off-chain registers. Where an investor wants to buy an existing traditional security and own it on-chain, the SEC has identified two different forms of what it designates as “third-party tokenized securities.”

Custodial tokenized securities, where a third-party intermediary holds the underlying security (or a security entitlement) in custody, resemble traditional assets held in traditional custodial arrangements but executed via blockchain, with corresponding legal and regulatory considerations for owners, custodians, and other intermediaries. However, by contrast, synthetic tokenized securities are more like derivatives than actual securities.

Ownership of these tokens is not ownership of the underlying security and can take the form of actual derivatives, such as swaps, created and sold on-chain. In these cases, legislation and regulation applying to those derivatives (such as the Exchange Act) apply to their tokenized versions, just as with securities rules as outlined above.
 

What does this mean for institutional investors?

The SEC’s guidance makes clear that tokenization does not change the fundamental question you should always be asking: What exactly do I own, and what legal rights and claims come with it?

Whether a security is recorded on a blockchain or a traditional ledger, investor protections, disclosure obligations, and enforcement regimes follow the economic substance of the instrument — not the technology. As tokenized exposures grow within portfolios, diligence must extend beyond the label “on-chain.” Investors must understand issuance structures, custody arrangements, and the enforceability of ownership and claims across market-stress scenarios.

Just as importantly, not all tokens are created equal. Issuer-sponsored and custodial tokenized securities may closely mirror traditional securities, while synthetic tokenized securities can introduce fundamentally different risk profiles that resemble derivatives rather than ownership interests.

For asset owners and managers, this distinction has implications for portfolio construction, risk management, regulatory compliance, and fiduciary oversight. Tokenization can deliver efficiency and innovation, but only if investors clearly understand what they are getting, how it is regulated, and where legal and economic risks ultimately reside. This is where institutions with deep market experience, scale, and established trust play a critical role.

As tokenization moves from experimentation to production, investors increasingly need partners that can bridge traditional market infrastructure and emerging on-chain models, while ensuring regulatory alignment, robust governance, and operational resilience. State Street’s long-standing role at the center of global markets positions it to help clients navigate this transition thoughtfully, applying the same rigor around transparency, investor protection, and risk management that underpins traditional asset servicing to the next generation of tokenized investment solutions.