SIFMA Issues White Paper on Digital Security Tokens

New York, NY, November 23, 2020 – SIFMA today issued a whitepaper titled “Security Tokens: Current Regulatory and Operational Considerations for Broker-Dealers and a Look Towards the Future.” The paper, which was co-authored by SIFMA and PricewaterhouseCoopers LLP, provides a foundational understanding of how distributed ledger technology (DLT) and digital assets such as security tokens interplay with the current securities market. It also describes the key operational challenges faced by U.S. broker-dealers hoping to adopt this technology and recommends where regulatory clarity would be helpful in addressing these challenges. SIFMA developed the whitepaper in collaboration with its member working groups, and determined and identified the activities, requirements, and considerations for market participants engaging in operationalizing security tokens.

“The capital markets are always innovating as technologies develop and the structure of the markets evolves accordingly.  Security tokens and related DLT are a prime example of emerging technologies which may have the ability to offer new and cost-efficient methods of capital formation,” said Kenneth E. Bentsen, Jr., president and CEO of SIFMA.  “We hope this whitepaper assists market participants in understanding the potential impacts of security tokens on existing securities regulatory and operational frameworks in the United States.”

Security tokens are securities issued solely on DLT that satisfy the applicable regulatory definition of a security or financial instrument under local law and/or a token that represents on DLT underlying securities/financial instruments issued on a different platform, where such representation itself satisfies the definition of a security/financial instrument under local law.

The whitepaper, which focuses only on security tokens, covers each phase of a securities life cycle applicable to a security token including defining a security; issuance, trading, clearing and settlement and custody and consumer protection, and impact on retail investors. SIFMA is supportive of continued innovation in these assets and their underlying technology, and the paper explores how the further development of these assets can potentially offer a range of benefits to market participants, which may include cost savings in settlements, increased speed of issuance and settlements, increased transparency, achieving data immutability, streamlined record keeping and data reconciliation, and the ability to program assets (i.e. smart contracts).  The whitepaper also noted the importance of maintaining the industry’s robust controls and protections as the infrastructure for these assets is developed.

While SIFMA highlights a number of issues across the lifecycle of a security to consider, the whitepaper focuses on three key questions which need to be addressed by stakeholders and regulators for the market to fully develop:

  • Is DLT sufficiently robust to act as the registrar or to satisfy industry participants’ books and records requirements;
  • Can a broker-dealer meet possession or control requirements (i.e., SEC Rule 15c3-3, “Customer Protection – Reserves and Custody of Securities”) when using DLT based systems; and
  • Whether certain parties involved in the clearing and settlement of a transaction require registration as a clearing agency.

As the industry moves forward with the broader adoption of these assets and their supporting technology, SIFMA believes further dialogue between industry participants and regulators will help support the further growth of the markets for the security tokens and the adoption of the technology that supports them.


SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit

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