Citadel Securities, founded by billionaire Ken Griffin, has made a compelling case to the US Securities and Exchange Commission (SEC) regarding the regulation of tokenized equities. In a letter submitted to the SEC’s Crypto Task Force on July 21, the firm emphasized the importance of holding tokenized equities to the same standards as traditional listed stocks.
The company stressed the need for innovation in market infrastructure but warned against granting broad exemptions for digital assets that resemble equity securities. Citadel highlighted the difference between true technological progress and regulatory arbitrage, stating that tokenized securities must deliver real innovation and efficiency to market participants rather than exploit regulatory loopholes.
Tokenized equities, which are issued on blockchains as alternatives to listed securities, have been gaining momentum in the market. However, Citadel argued that these “look-a-like” products still fall under the definition of securities and should comply with the same rules that govern the national market system.
The firm urged the SEC to ensure that core investor protections, such as best execution standards, trade transparency, and fair access provisions, are not exempted for tokenized equities. Citadel emphasized the importance of a transparent and deliberative rulemaking process that involves all market participants, including exchanges, issuers, institutional investors, and retail investors.
Citadel also cautioned against creating shadow markets for tokenized equities, as it could risk fragmenting liquidity and destabilizing the broader equities market. The firm raised concerns about potential issues such as liquidity fragmentation, counterparty risk, and confusion over voting rights and tax treatment.
In addition, Citadel warned against cross-border crypto loopholes and called for key disclosures to be mandatory before any regulatory relief is granted. The firm emphasized the need for collaboration between the SEC, the Commodity Futures Trading Commission (CFTC), and foreign regulators to prevent regulatory arbitrage.
While Citadel is considering entering the crypto trading space, the firm stressed the importance of upholding regulatory standards. It emphasized that any regulatory adjustments for blockchain-based assets should be applied uniformly across the market, rather than creating exemptions for certain players seeking lighter oversight.
Overall, Citadel’s letter to the SEC underscores the importance of maintaining regulatory integrity in the evolving landscape of tokenized equities. By advocating for consistent standards and transparency, the firm aims to ensure a level playing field for all market participants.