**Tokenized Stocks May Be On-Chain, But the SEC Still Wants the Keys**

The US Securities and Exchange Commission (SEC) has clarified how tokenized equities can exist within traditional market safeguards, but with a crucial caveat: broker-led custody is still favored over crypto-native self-custody.

On Wednesday, the SEC's Trading and Markets Division issued guidance on how broker-dealers can custody tokenized stocks and bonds under existing customer protection rules. This means that blockchain-based crypto asset securities will be slotted into traditional securities safeguards rather than treated as a new category.

The division stated that it would not object to broker-dealers deeming themselves in possession of crypto asset securities, as long as they meet a set of operational, security, and governance conditions. This applies only to crypto securities, including tokenized stocks or bonds.

While the statement is not a rule, it provides clarity on how US regulators expect tokenized securities to fit within traditional market safeguards. The guidance suggests that tokenized securities are not treated as a new asset class with unique rules, but rather as existing broker-dealer frameworks, even if they settle within blockchain networks.

**Custody Rules for Tokenized Securities**

At the core of the statement is Rule 15c3-3, the regulator's consumer protection rule. This requires broker-dealers to maintain control or physical possession of fully paid customer securities.

The division said that crypto asset securities recorded in blockchains may satisfy the "physical possession" requirements under certain circumstances. However, this means that broker-dealers must retain exclusive control over the private keys used to access and transfer the assets.

Clients and third parties, including affiliates, should not have the ability to move the security without the authorization of the broker. This prioritizes customer protection over crypto's permissionless ethos.

**Trading Tokenized Securities Inside Regulated Market Rails**

SEC Commissioner Hester Peirce highlighted the trading-side challenges that remain for crypto asset securities in a separate statement issued on the same day.

Pierce raised questions focusing on national securities exchanges and alternative trading systems that facilitate trading crypto asset securities, including pairs where one asset is a security and the other is not.

The questions reflect growing pressure to settle blockchain-based assets with market-structure rules originally designed for traditional equities. Pierce's request raises whether existing frameworks and related disclosures and reporting requirements impose costs that outweigh their benefits when applied to crypto trading platforms.

**Industry Reaction**

Crypto platforms and trading institutions have increasingly begun to tokenize securities. On Nov. 30, Nasdaq's head of digital assets strategy, Matt Savarese, said the exchange plans to move fast on tokenized stocks.

Nasdaq plans to work with the SEC as quickly as possible to make the feature available in the trading platform. On Tuesday, Securitize announced that it plans to launch compliant, on-chain trading for tokenized stocks.

The company said that it will be presented in a swap-style interface familiar to decentralized finance (DeFi) users. On Thursday, crypto exchange Coinbase launched a stock trading feature as part of its push to become an "everything exchange."