Tokenized stocks have migrated record-keeping onto blockchains, but U.S. securities regulators insist that this technological change does not remove traditional custody and investor-protection obligations. The SEC’s position centers on preserving regulated control over private keys for tokenized securities to sustain compliance with securities laws and mitigate operational, fraud and AML/KYC risks.
Custody rules follow tokenized stocks on-chain
The agency treats tokenized shares as securities based on their economic characteristics, invoking long-standing tests used to classify investments. The Howey Test remains the analytical anchor, and once tokenized stocks meet that standard, custody rules designed to protect customers are triggered. Under Exchange Act Rule 15c3-3, broker-dealers must maintain “physical possession or control” of customer securities, and the SEC interprets this obligation to extend to exclusive control over private keys for on-chain securities so regulated intermediaries can execute transfers, satisfy regulatory directives and preserve clear legal accountability.
Our Division of Trading and Markets issued a staff statement on the custody of crypto asset securities by broker-dealers. https://t.co/5u3mrAGmmu
— U.S. Securities and Exchange Commission (@SECGov) December 17, 2025
Requiring regulated entities to hold private keys carries immediate operational and market consequences. Firms must integrate traditional custody frameworks with blockchain infrastructure, investing in secure key management, redundancy, continuous monitoring and incident-response capabilities for smart-contract or network failures. This higher compliance and technology burden raises the threshold for institutional participation within the U.S. perimeter and exposes decentralized protocols that facilitate trading of tokenized securities to potential treatment as unregistered broker-dealers or exchanges where equivalent controls are absent.
The SEC situates its stance within existing jurisdictional boundaries, with securities under its remit and commodities under the CFTC, placing tokenized stocks firmly in its domain. Through initiatives such as Project Crypto and a dedicated Crypto Task Force, the agency is attempting to translate established investor-protection principles into on-chain markets rather than abandon them. The messaging signals that narrow, tailored adjustments may emerge where legacy rules are impractical, but core safeguards around custody, disclosure and market integrity will remain non-negotiable.
The SEC’s insistence on custody control for tokenized stocks ultimately reframes tokenization as a technological enhancement that must operate inside existing securities safeguards. The immediate implication is higher compliance and infrastructure costs for regulated firms and constrained institutional access until clear, rule-based pathways for tokenized securities are fully articulated.