- Tokenized shares must meet existing investor protection criteria.
- The risk of fragmenting the market and compromising major investor protection comes with digital share exemptions.
- The fundamental trading standards should be the same in a tokenized and conventional equity.
Citadel Securities, the largest market maker founded by Ken Griffin, is urging the U.S. Securities and Exchange Commission to enforce a tight control of tokenized equities. The company that has formed the global market structure sent a comprehensive letter to the SEC Crypto Task Force. The key message: unless tokenization becomes an actual innovation and efficiency, it should not receive lax regulation.
Instead of relying on regulatory arbitrage, the petition argues that tokenized securities should benefit market participants through genuine innovation and efficiency.
Citadel cautions against blanket exceptions to which some groups are demanding to apply to so-called look-alike digital assets. The long-established bulwarks should not be bypassed when it comes to digital forms of U.S. shares, which are marketed as alternatives to listed ones.
Citadel Promotes Parity in New Markets While Upholding Old Regulators
The company underlines that there may be some adjustments to the existing regulations that are necessary only to a small extent in relation to a few things that are peculiar to blockchain. Citadel states that large-scale regulatory exemptions will damage investor confidence and market integrity.
Citadel states categorically that regulators should treat its tokenized U.S. equities the same as traditional equity securities. Regulators must continue to enforce key investor protections such as best execution, trade transparency, and fair access. The danger, as Citadel sees it, is that speedy tokenization will cause liquidity to break up and give rise to untransparent trading platforms, particularly those not accessible to institutional buyers such as pensions and banks.
Citadel also points at the possibility of investor misunderstandings regarding rights, voting arrangements, and taxation relating to tokenized shares. They warn that new products may break ETF and IPO markets by siphoning liquidity out of the centralized public markets, affecting capital raising and transparency.
Regulatory actions, Citadel demands, must be subject to a rulemaking process, including public input and a cost-benefit analysis, rather than ad hoc sandboxes or ad hoc guidance.
Tokenization Risks Divide Capital and Open Doors to Arbitrage
The letter issued by Citadel directly refers to the danger of rushed regulation of tokenized securities. When there are no robust rules, the firm cautions, the liquidity might head into the unexplored pools, marginalizing core investors and spreading price discovery. Various rights, fee arrangements, or lack of transparency between tokenized and ordinary shares may pose a threat to the wider U.S. market.
The company emphasizes that merely transferring financial products to blockchain does not justify the lessened supervision. According to Citadel, innovation should not be at the cost of stability and transparency. Tokenization competitors often praise characteristics like 24/7 trading, instant settlement, and fractional ownership, but they should never use these features as loopholes to avoid the most important norms.
