The SEC Releases Security Tokenization Statement

July 10th. The U.S. SEC made a statement regarding security tokenization. It was stated that blockchain technology has brought forth a new model for issuing and trading securities in a "tokenized" form. Tokenization holds the potential to facilitate capital formation and enhance investors' ability to use their assets as collateral. Nevertheless, despite the significant potential of blockchain technology, it does not possess a "magical" ability to alter the nature of the underlying asset. Tokenized securities remain securities. Consequently, market participants engaging in the trading of such instruments must carefully consider and comply with the relevant provisions of federal securities laws. On certain occasions, issuers tokenize their own securities. Investors purchasing such third-party tokenized securities may encounter some unique risks, such as counterparty risk. The issuer of tokenized securities must also take into account the disclosure obligations under federal securities laws and may refer to a recent staff statement by the SEC's Division of Corporation Finance. At the same time, market participants involved in the issuance, purchase, and trading of tokenized securities should also give consideration to the characteristics of these securities and the securities law compliance issues they give rise to. Although blockchain-based tokenization is an emerging technology, the act of issuing a financial instrument representing securities rights is not a novel concept. Whether issuing such instruments on-chain or off-chain, the applicable legal requirements remain the same. Therefore, market participants should engage with the U.S. Securities and Exchange Commission (SEC) and its staff when formulating their tokenization product offerings. We are inclined to collaborate with market participants to develop reasonable exemptions and promote the modernization of regulations.