On March 19, 2026, Skadden hosted “Tokenized Securities: Untangling Legal and Regulatory Knots,” a webinar featuring partners Michelle Gasaway, Kevin Hardy and Daniel Michael, as well as counsel Aaron Washington, who discussed pressing legal issues in the rapidly evolving tokenized securities landscape. Below is a summary of the key themes and practical takeaways discussed.
The Promise Is Real, but So Are the Challenges
Tokenization offers genuine benefits for securities markets, including near-costless payment distribution, round-the-clock trading, instantaneous settlement, transparent ownership records, fractionalization and the creation of entirely new product structures. However, nearly every one of these benefits maps to a corresponding regulatory challenge. The existing federal securities framework was built around intermediaries, centralized oversight and identity verification, principles that do not disappear because the underlying technology has changed. The core task for market participants is managing this tension so that the benefits of tokenization are preserved throughout the life of a project.
The SEC Is Engaged, but Its Flexibility Has Limits
The SEC has demonstrated a genuine willingness to engage on tokenized securities, including product and service proposals and providing feedback to market participants. However, its openness operates within the boundaries of fundamental investor-protection principles, particularly around identity verification, and the agency faces significant bandwidth constraints. In our experience, the projects gaining the most traction are those that anticipate regulatory issues on the front end and propose solutions rather than iterating through multiple comment rounds. There are meaningful first-mover advantages for those who approach the process strategically.
Public Offerings and the Investment Company Act
The U.S. retail market represents the largest opportunity, but registered public offerings require navigating multiple layers of regulation simultaneously. Tokenized funds must engage with the SEC’s Division of Investment Management in addition to Trading & Markets and Corporate Finance. Importantly, even structures that do not consider themselves traditional funds must be attentive to the Investment Company Act: If a tokenized product wraps a third-party security, it may inadvertently meet the statutory definition of an investment company, requiring registration or reliance on an exemption.
Private Offerings Offer Speed but Impose Constraints
Private placements under Regulation D, Regulation S and other exemptions allow issuers to move more quickly, but each exemption carries restrictions on investor type, marketing, holding periods, and transferability that must be embedded into the token or enforced through intermediaries. For Regulation S offerings in particular, care is needed to establish that the offering genuinely occurs offshore and to manage flow-back risk. These restrictions can be difficult to reconcile with the permissionless trading that tokenization is designed to enable.
The Security-Based Swap Regime Is a Significant Trip Wire
Any tokenized product that provides economic exposure to a security without conveying actual ownership raises the risk of being classified as a security-based swap. The SEC has zealously enforced this regime, and it is difficult to structure around. Security-based swaps can only be sold to eligible contract participants, and reporting requirements are extensive. Any project that decouples economic exposure from ownership should evaluate this risk carefully at the outset.
State Law Cannot Be Overlooked
Issuers must consider both state corporate law, including whether their state of formation permits maintaining stockholder records on a blockchain, and state “blue sky” securities laws. Securities not listed on a national stock exchange are not federally covered and may require registration in every state in which they are offered. Tokenized securities traded peer-to-peer outside of traditional exchanges could reintroduce the burden of state-by-state registration.
Secondary Market Considerations
Intermediaries facilitating secondary transactions in tokenized securities are generally subject to the same registration and compliance obligations as those dealing in traditional securities, including broker-dealer, exchange or ATS, and transfer agent registration. Best execution obligations present a particular challenge given the current fragmentation and limited price transparency of tokenized securities markets, and the SEC will need to provide further guidance on how Regulation NMS, Regulation SHO and other trading rules apply in decentralized environments.
KYC/AML Compliance Requires Creative Solutions
Blockchain technology reveals where a token is but not who holds it, creating tension with KYC/AML obligations under the Bank Secrecy Act, as well as issuer obligations for state recordkeeping and IRS reporting. Emerging solutions, such as the ERC-3643 token standard, embed KYC/AML requirements directly in the token so that transfers cannot execute unless the recipient has completed the required verification.
Custody, Clearing and Settlement Infrastructure Is Advancing
The SEC has issued guidance on broker-dealer custody of cryptoassets under the customer protection rule. A major milestone is the SEC’s no-action letter to DTC, authorizing a three-year pilot for tokenizing security entitlements to Russell 1000 stocks, U.S. Treasuries and major-index ETFs. NASDAQ has announced plans to offer tokenized securities trading using DTC’s post-trade solutions. These developments are building the institutional infrastructure needed for broader adoption.
UCC Article 8 and Transfer Agent Rules Require Attention
When custodians hold tokenized securities, UCC Article 8 protections, particularly the insulation of custodied securities from a custodian’s bankruptcy estate, must be considered. Nontraditional custodians may need to affirmatively opt into Article 8, and Article 8’s requirement of actual transfer instructions creates complications for peer-to-peer chains where intermediate holders are not registered owners.
Transfer agents for listed or Form 10-registered securities must maintain the physical address and name of each holder; a wallet address alone is insufficient. Issuers exploring peer-to-peer trading must determine how to bridge this gap — whether by acting as their own transfer agent, engaging a traditional transfer agent with an on-chain intermediary or using an emerging on-chain transfer agent.
The Bottom Line: Integrate Regulatory Planning From the Start
If there is a single takeaway, it is that technology, economics and regulatory considerations must be developed together from the outset, not sequentially. Projects that attempt to retrofit regulatory compliance after the technology and economics are set frequently encounter avoidable obstacles. Meaningful parts of the path have already been mapped through prior SEC engagement, and experienced counsel can save significant time by applying those lessons. We encourage you to reach out to our team with any questions.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.
For further information, please contact:
P. Michelle Gasaway, Partner, Skadden
michelle.gasaway@skadden.com
