Citadel Securities is pressing U.S. regulators to slow down on new rules that would enable widespread trading of tokenized securities, citing concerns about market disruption and investor confusion.
In a letter to the U.S. Securities and Exchange Commission’s Crypto Task Force, the market-making firm argued that allowing these blockchain-based products to advance without a clear regulatory framework could create unfair advantages for cryptocurrency platforms and drain liquidity from traditional equity markets, reported Bloomberg.
Tokenizing securities brings traditional assets onto the blockchain, and this year tokenized stocks have been taking off, with offerings from Backed Finance, Gemini, and Robinhood, among others.
Supporters point out that tokenized securities can not only be traded round-the-clock, fractionalized, and provide faster settlements, they can also be used within the decentralized finance (DeFi) space. Citadel, however, isn’t convinced the benefits outweigh the risks.
“Tokenized securities must achieve success by delivering real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage,” the firm wrote in its letter.
The comments come as SEC Chairman Paul Atkins signals openness to updating securities laws to support financial innovation, including tokenization.
Citadel urged any move in that direction to go through a formal rulemaking process, not piecemeal exceptions or guidance. It flagged potential harm to the initial public offering market, as it would offer private firms another options to raise capital and “siphon liquidity away” from equity markets.
That liquidity could move to “pools that are inaccessible” to institutions including pensions, endowments, banks, and other firms, Citadel added.