Nikolas Sargeant
Ken Griffin's Citadel Securities is pressuring the SEC to enforce identical regulatory standards for tokenized equities and traditional listed stocks, rejecting proposals for preferential treatment of blockchain-based securities. The trading giant's July 21 letter to the SEC's Crypto Task Force emphasizes that technological innovation should not circumvent established investor protections.
Citadel's position centers on preventing what it characterizes as "regulatory arbitrage," where companies exploit blockchain technology to avoid compliance requirements rather than delivering genuine market improvements. The firm argues that tokenized securities must demonstrate real innovation and efficiency benefits instead of simply seeking lighter regulatory oversight.
The letter specifically targets "look-a-like" equity products issued on blockchains as alternatives to traditional securities. Despite their technological foundation, Citadel maintains these products fundamentally qualify as securities under existing definitions and should comply with national market system regulations.
Citadel emphasized that tokenized securities must adhere to core investor protection standards, including best execution requirements, trade transparency mandates, and fair access provisions. The firm advocated for comprehensive rulemaking processes involving all market stakeholders rather than exemptions or regulatory sandboxes.
Market Fragmentation Concerns
Citadel expressed significant concerns about creating parallel markets for tokenized equities, warning that such developments could destabilize broader equity markets through multiple mechanisms. The firm identified liquidity fragmentation as a primary risk, potentially reducing market efficiency and increasing trading costs for all participants.
Additional systemic risks include counterparty complications, confusion surrounding voting rights allocation, and unclear tax treatment frameworks. Citadel specifically highlighted potential disruptions to established ETF markets and IPO processes, suggesting that tokenized alternatives could undermine existing capital formation mechanisms.
The trading firm questioned whether tokenized securities might reduce transparency in shareholder identification and engagement. Particular concerns centered on scenarios where voting rights become detached from ownership incentives, potentially compromising corporate governance standards.
Citadel rejected regulatory sandbox proposals, arguing that many tokenized security initiatives originate from well-funded entities attempting to bypass established safeguards rather than genuinely experimental startups requiring developmental flexibility.
Comprehensive Regulatory Framework
The letter outlined mandatory disclosure requirements that should precede any regulatory accommodations for tokenized securities. Essential disclosures include token issuer identification, attached rights specifications, and price alignment mechanisms with underlying equity instruments.
Citadel urged coordination between the SEC, CFTC, and international regulators to prevent cross-border regulatory arbitrage opportunities. The firm emphasized that any regulatory adjustments must apply universally across markets rather than creating carve-outs for specific players seeking preferential treatment.
Despite advocating for strict regulatory parity, Citadel has indicated openness to cryptocurrency market participation. President Jim Esposito recently acknowledged that crypto has reached "the point of no return" as an institutional asset class, with the firm considering direct crypto trading operations as of June.
However, Citadel's letter signals that market entry will occur only under conditions of regulatory clarity and consistent standards application. The firm's stance reflects broader institutional concerns about maintaining market integrity while accommodating technological innovation in financial services.
