Citadel Calls for Regulation of Tokenized Equities

Citadel Securities, one of the largest market makers globally, is advocating for the U.S. Securities and Exchange Commission (SEC) to regulate tokenized equities equivalently to traditional ones. This call comes amidst the growing interest from crypto firms in launching tokenized assets. In a recent letter to the SEC's Crypto Task Force, the firm emphasized the importance of adhering to securities regulations and prioritizing market liquidity and investor safety. Citadel stated that while it supports technological innovations that enhance market efficiency, it views the pursuit of regulatory loopholes for 'look-a-like' securities as a misuse of innovation. Tokenized equities, which are digital representations of shares on a blockchain, allow for round-the-clock trading, unlike traditional stocks that have restricted trading hours. Several crypto platforms, including Coinbase and Kraken, are interested in offering tokenized equities, pending SEC approval, thereby potentially competing with established financial brokerages. Citadel voiced concerns over the possibility of tokenized assets draining liquidity from traditional markets and noted worries about investor confusion regarding the issuers of these assets. Republican SEC Commissioner Hester Peirce has clarified that tokenized securities remain classified as securities and must comply with the SEC’s regulations. SEC Chair Paul Atkins indicated during a recent press briefing that the agency is exploring an 'innovation exception' to facilitate new trading methods. TD Cowen’s analyst, Jaret Seiberg, argued that the mechanism for tokenized trading remains uncertain, particularly concerning pricing strategies. He noted that the existing equity trading framework mandates that trades occur at the national best price, a principle that may face challenges when stocks are tokenized. Citadel concluded its letter by urging the SEC to refrain from granting exemptions and instead conduct roundtable discussions and formal rule-making to ensure a thorough evaluation of exemption requests, highlighting the necessity for public engagement and cost-benefit assessments in the process.