Citadel Securities has urged the U.S. Securities and Exchange Commission to proceed cautiously with any initiatives that would accelerate the adoption of tokenized securities, warning that a hasty approach could disrupt existing capital markets and marginalize institutional investors.
The market-making giant submitted its recommendations in a formal letter to the SEC’s Crypto Task Force, arguing that any regulatory framework for tokenized securities should be developed through a structured rulemaking process rather than informal guidance or piecemeal exemptions.
The letter comes as SEC Chairman Paul Atkins continues to express openness to reforming traditional securities regulations to accommodate blockchain-based innovations.
Tokenized securities are digital representations of traditional financial instruments, such as stocks or bonds, that can be traded on blockchain networks. These tokens typically do not grant direct ownership of the underlying asset but enable features like fractionalization, instant settlement, and round-the-clock trading.
Advocates argue that the technology can make financial markets more efficient and accessible, particularly for retail investors and global participants.
However, Citadel Securities raised concerns that the emergence of tokenized markets could create fragmented liquidity pools and erode participation in centralized exchanges and public offerings.
The firm emphasized the risk of new, opaque trading venues that could be off-limits to regulated institutional players such as pension funds, insurance companies, and endowments, whose mandates and compliance requirements may prevent them from engaging with blockchain-based platforms.
The firm also cautioned that the growing interest in tokenization from digital asset platforms could lead to a form of regulatory arbitrage, where newer entrants benefit from looser oversight compared to established financial institutions. This, Citadel warned, could ultimately undermine investor protections and distort competitive dynamics in capital markets.
The SEC has not provided a timeline for any decisions on tokenized securities, but the issue has gained traction as part of broader discussions around digital asset regulation. The recent passage of stablecoin legislation has added momentum to these conversations, with lawmakers and regulators now examining the role of blockchain in traditional finance more closely.
Major digital asset platforms, including Coinbase and Robinhood, have publicly supported tokenization as a way to modernize equity markets. By contrast, Citadel’s response signals that some of the largest traditional trading firms remain skeptical, particularly in the absence of clear regulatory guardrails.
As the SEC weighs whether and how to permit tokenized securities under existing law, the divergence in industry perspectives highlights the complexity of integrating blockchain technology into established financial systems without compromising market structure, transparency, or investor access.
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