Citadel Securities tells SEC to pump the brakes on tokenized stocks

Citadel Securities has officially told the U.S. Securities and Exchange Commission to hit pause on rushing tokenized stocks into the financial system.

In a letter sent Monday to the SEC’s Crypto Task Force, the trading firm warned that moving too quickly could create confusion for investors and tip the scales unfairly in favor of some exchanges and private companies.

The firm said this after SEC Chairman Paul Atkins signaled interest in rewriting existing rules to support crypto-based securities.

According to Bloomberg, Citadel is pushing the SEC to follow a structured rulemaking process before allowing tokenized securities to go live. They’re asking the agency to avoid shortcuts that could open doors to regulatory loopholes.

Citadel made it clear in the letter that tokenized products should win on their actual merit, not because they found a backdoor through unclear rules.

Citadel warns tokenization could undercut IPOs

A tokenized security, by definition, is a crypto-based version of a stock or asset. It represents the asset but doesn’t give direct ownership.

These tokens trade on blockchain networks instead of through traditional brokerages. They can also be broken into small, cheap pieces that anyone can buy, which is one of the reasons digital platforms like Coinbase and Robinhood have been promoting them. But Citadel’s letter argues that without proper rules, letting these products roll out could damage the already fragile IPO market.

The firm said giving private companies another route to raise money could pull even more deals out of the public space. They’re also worried that the shift would send capital into new digital trading pools, locking out pensions, banks, and other large firms that can’t take on crypto exposure due to internal rules or fiduciary policies.

Citadel emphasized that real innovation means offering better tools, not skipping the process. “Tokenized securities must achieve success by delivering real innovation and efficiency to market participants, rather than through self-serving regulatory arbitrage,” the letter said.

Instead of a loose approach, they want the SEC to go through a proper rulemaking process with full transparency and public input. That hasn’t happened yet.

In response, the SEC declined to offer anything new, saying only that the chairman had already made his stance public. But that stance has changed direction from the previous administration.

Paul Atkins has made it known he’s not following the same path as former SEC Chair Gary Gensler, who was often accused of trying to control crypto through enforcement. Atkins is now talking about rolling back many of those rules, including one that allowed brokers to hold crypto on behalf of customers.

SEC considers exemption as stablecoin law gets signed

Last week, Atkins told the press that the SEC is looking into whether it should grant an “innovation exception,” a regulatory workaround that would let firms experiment with tokenized trading while skipping over certain restrictions.

He said SEC staff are “considering what other changes may be appropriate to incentivize tokenization within our regulatory framework,” including options that would “permit novel ways of trading” and allow more targeted exemptions to help build out the necessary infrastructure.

These comments came shortly after the U.S. House passed a major stablecoin bill and Trump signed it into law, which sets clear rules for companies that issue crypto tied to the dollar. Under the bill, firms would be required to hold dollar-for-dollar reserves in short-term government securities or similar low-risk products regulated at the state or federal level.

Meanwhile, Senator Elizabeth Warren said it doesn’t go far enough to protect consumers, despite the fact that it’s being hailed by others as a key milestone. Supporters believe it could bring cheaper and faster payments and add legitimacy to a crypto market expected to grow from $265 billion to over $3 trillion by 2030, based on industry forecasts.