Ken Griffin’s Citadel calls for equal treatment of tokenized equities by SEC

Citadel Securities, the trading giant founded by billionaire Ken Griffin, is urging the US Securities and Exchange Commission (SEC) to treat tokenized equities the same way as traditional stocks. The firm submitted a formal letter to the SEC’s Crypto Task Force on July 21, addressing the growing trend of tokenized shares and stressing the importance of applying the same standards that govern conventional equities.

In the letter, Citadel argued that these “look-a-like” equities, which are issued on blockchain networks as alternatives to listed securities, must comply with the same investor protections as any traditional asset. It called for a transparent and deliberate rulemaking process, involving all stakeholders in the process, including exchanges, issuers, and institutional investors.

Innovation should not come at the cost of investor protection

While Citadel acknowledged the importance of innovation in the crypto space, it drew a sharp line between technological progress and regulatory arbitrage. The firm made it clear that it supports the innovation of market infrastructure but believes tokenized equities should not bypass investor safeguards for the sake of regulatory flexibility.

Tokenized securities must succeed by providing real innovation and efficiency for market participants, not by exploiting loopholes or bypassing regulations, Citadel wrote in its letter to the SEC.

Risks of shadow markets and liquidity fragmentation

The letter raised concerns about the potential consequences of creating parallel markets for tokenized equities. Citadel argued that this could lead to liquidity fragmentation, where trading volumes become dispersed across both traditional and blockchain-based markets, creating inefficiencies.

The firm pointed out that this could also create counterparty risks and uncertainty surrounding crucial factors like voting rights and tax treatment. Citadel also warned that the proliferation of tokenized shares could cause disruptions in the ETF market and the IPO pipeline, potentially undermining shareholder transparency and engagement.

Cross-Border crypto loopholes and SEC collaboration

Citadel also urged the SEC to take a global approach when considering regulatory relief for tokenized securities. It stressed the importance of collaborating with the Commodity Futures Trading Commission (CFTC) and foreign regulators to close potential cross-border regulatory loopholes.

While Citadel remains open to crypto market participation, it expects consistent regulatory standards to be upheld. The firm emphasized that any regulatory changes regarding blockchain-based assets must apply uniformly across the market and not selectively for certain players seeking lightened oversight.

Citadel’s stance on crypto as an asset class

This letter comes amid growing speculation that Citadel Securities might soon enter the crypto trading space. In June, Citadel President Jim Esposito noted that crypto has now reached a point where institutional investors are taking it seriously. Despite the firm’s growing interest in the crypto sector, Citadel made it clear that its commitment to the space hinges on consistent regulatory oversight for the entire market.