Fidelity Investments said in a comment letter to SEC Crypto Task Force that the regulator should issue guidance to support the trading of tokenized securities on an ATS:

“The SEC should provide brightline standards that permit ATSs to facilitate secondary market trading in tokenized securities created by third parties. This clarity is critical because the regulatory status of a tokenized instrument depends on its economic realities, key facts that may not be fully knowable to a broker‑dealer.

As described in the Statement on Tokenized Securities issued by the Divisions of Corporation Finance, Investment Management, and Trading and Markets, tokenization models vary significantly in structure and in the rights afforded to holders.8 In some models, the crypto asset represents a holder’s indirect interest in the underlying security through a securities entitlement, while in others the crypto asset may constitute a securities‑based swap, which may be offered only to eligible contract participants.9 Whether an instrument is a securities‑based swap is a complicated analysis given the breadth of the definition of “swap,” and is an analysis grounded in the instrument’s economic realities rather than its label. Accordingly, to facilitate secondary market trading in tokenized securities, ATSs must be able to rely on the status ascribed to the asset so they can support trading without the risk of impermissibly offering a securities‑based swap to a non‑eligible contract participant.10 Similarly, an ATS must be able to trade a tokenized security based on the status ascribed to it to avoid the risk of impermissibly offering an unregistered security in violation of Section 5 of the Securities Act of 1933.11

The SEC also should confirm when the status of a tokenized security issued to represent an underlying security12 has the same status as the underlying security. For example, a tokenized security issued to represent an NMS security13 should be treated as an NMS security. If a tokenized security and an NMS security are seen by market makers as equivalents, market efficiencies could mitigate potential market fragmentation between the traditional and on-chain markets.”

Read the whole letter here 

Source: Fidelity