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Recently, the Asia Securities Industry and Financial Markets Association (ASIFMA) released a report outlining a path to the introduction of tokenized securities into the mainstream financial world. The paper further calls for the regulatory oversight needed to safely deploy such products.

It has been reported by Bloomberg that the publication from ASIFMA is authored by such notable financial entities as Citigroup Inc., Nomura Holdings Inc., Standard Chartered Plc and PriceWaterhouseCoopers. In it, a general framework is laid out which details the key issues that would need to be addressed in order to bring tokenized securities to mainstream investors.

This new class of security would act as a digital extension of existing assets such as stocks or bonds. The goal would be to bring these legacy products into the 21st century using blockchain. As is stated in the report:

The link between traditional financial products/instruments and blockchain technology offers stakeholders the reliability of a regulated instrument, combined with the benefits afforded by a blockchain. Because they are generally regulated as securities, they have the opportunity to bring more trust and support to the digital asset marketplace.

tokenized securities

tokenized securities

Blockchain-Based Benefits for Tokenized Securities

The benefits of using a distributed ledger to exchange these assets include speed, smart contracts, and a 24-hour marketplace. Nonetheless, the regulations concerning such markets are not yet written, an issue which is also addressed in the paper.

In general, the authors assert that a tokenized product should be regulated in the same fashion as the underlying asset. They do allow, however, that this may not always be feasible:

From a regulatory perspective, the general view is that the status of an asset should arguably not be affected by the mere fact that it is tokenized, save that it may add complexity that is relevant to things like disclosure and investor eligibility. If the underlying asset is regulated, the tokenized representation of that asset should be regulated as well. However, the nature and structure of the blockchain ecosystem may impact the extent to which regulations are applicable.

Tokenized Securities

Tokenized Securities

Regulatory Action is Key

The rest of the report details a variety of regulatory concerns as well as possible solutions. Topics include token rights, taxation, exchange licensing, AML considerations and much more. Given the recent regulatory concerns surrounding both the Libra and Stablecoins, there is clearly still a lot of work that needs to be done before traditional financial products can begin to be tokenized. Still, the fact that such big names are now taking the prospect so seriously is highly optimistic.

The regulatory issues alone demand that it will still take some time before company stocks are being sold on the blockchain. Nonetheless, it is unlikely we will see a reversal in sentiment at this point. Eventually, the new laws will be written and a new class of financial tool will be available for institutions and retail investors alike.


Images courtesy of Shutterstock, Twitter.


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