The letter comes as SEC Chairman Paul Atkins continues to express openness to reforming traditional securities regulations to accommodate blockchain-based innovations.
Tokenized securities are digital representations of traditional financial instruments, such as stocks or bonds, that can be traded on blockchain networks. These tokens typically do not grant direct ownership of the underlying asset but enable features like fractionalization, instant settlement, and round-the-clock trading.
Advocates argue that the technology can make financial markets more efficient and accessible, particularly for retail investors and global participants.
However, Citadel Securities raised concerns that the emergence of tokenized markets could create fragmented liquidity pools and erode participation in centralized exchanges and public offerings.
The firm emphasized the risk of new, opaque trading venues that could be off-limits to regulated institutional players such as pension funds, insurance companies, and endowments, whose mandates and compliance requirements may prevent them from engaging with blockchain-based platforms.
The firm also cautioned that the growing interest in tokenization from digital asset platforms could lead to a form of regulatory arbitrage, where newer entrants benefit from looser oversight compared to established financial institutions. This, Citadel warned, could ultimately undermine investor protections and distort competitive dynamics in capital markets.
As the SEC weighs whether and how to permit tokenized securities under existing law, the divergence in industry perspectives highlights the complexity of integrating blockchain technology into established financial systems without compromising market structure, transparency, or investor access.
