(Bloomberg) — Citadel Securities wants the US Securities and Exchange Commission to proceed more slowly on allowing “tokenized” securities to take off.
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SEC Chairman Paul Atkins has spoken recently about streamlining traditional securities rules to help companies offer tokenized securities. The result could be investor confusion and an uneven playing field for exchanges and publicly traded companies, Citadel Securities said in a comment letter sent Monday to the SEC’s Crypto Task Force.
A tokenized security is a digital representation of a security — but not direct title to the asset itself — that can be traded on a blockchain network, rather than in a brokerage account. By cutting stocks or other assets into smaller pieces, they can be more affordable to own.
Formal Process
In theory almost anyone could tokenize shares, but there’s greatest interest in doing so from issuers directly or from digital asset platforms, who would then offer them to investors.
“Tokenized securities must achieve success by delivering real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage,” the market-making firm said in its letter.
Instead, the SEC should move forward on tokenization through a formal rule-making process, Citadel Securities said. The SEC declined to comment, “beyond what the chairman had said publicly on this topic,” a spokesperson said via email.
Proponents of tokenizing popular stocks say putting those assets on a blockchain would allow for round-the-clock trading, instant settlement, enhanced liquidity and the purchase of fractional shares of nearly any tokenized stock.
Citadel Securities said the SEC should carefully consider how such a move might deflate an already sluggish market for initial public offerings by giving privately held companies another alternative to raise capital.
The development, which has support from digital asset exchanges like Coinbase Global Inc. and Robinhood Markets Inc., could “siphon liquidity away” from equity markets, “creating new liquidity pools that are inaccessible” to institutional players like pensions, endowments, banks and other firms whose risk management policies or fiduciary obligations prevent them from joining the fray, the market maker said.
Atkins has spoken broadly about his support for innovation in financial markets, including through the burgeoning digital assets industry, which notched its first major regulatory win last week with the enactment of landmark stablecoin legislation. Stablecoins are digital assets tied to US dollars or other low-volatility assets and are intended to be used to facilitate payments.
