U.S. Policy Tensions Over Tokenized Equities Skyrocket, Warns HSBC
Regulatory friction around digital stocks just hit the boiling point.
The Regulatory Squeeze
Forget subtle shifts—the battle lines over putting traditional equities on-chain have been drawn in fire. Recent weeks saw tensions not just rise, but explode. The core conflict? Defining what a tokenized share actually is and who gets to control the ledger. Is it a security, a digital asset, or something entirely new that existing rulebooks can't handle? Regulators are scrambling to apply old frameworks to a technology built to bypass them.
The Institutional Stakes
This isn't niche crypto chatter. When a global banking giant like HSBC calls out 'sharply escalated' tensions, Wall Street listens. The push for tokenization promises 24/7 trading, instant settlement, and fractional ownership of blue-chip stocks—a direct threat to the slow, expensive plumbing of traditional finance. Of course, the old guard prefers their monopolies tidy and their settlement times nicely padded with fees.
What's Next for Digital Assets?
The outcome of this clash will dictate whether tokenization remains a back-office experiment or becomes a mainstream force. Clarity could unleash a wave of institutional capital. Continued ambiguity? It just kicks the can down the road while decentralized platforms keep building. One thing's certain: the fight over the future of ownership is no longer theoretical—it's here, and it's messy. After all, nothing unites regulators faster than a new asset class that might actually make the system more efficient—can't have that cutting into the rent-seeking, can we?
Citadel Securities says many DeFi protocols meet exchange standards
HSBC revealed on Monday that the recent meeting of the Securities and Exchange Commission’s (SEC) Investor Advisory Committee showed divisions on how a potential market for tokenized U.S. equities should be regulated. According to the bank, several TradFi representatives at the meeting argued that the commission should apply the existing exchange obligations to decentralized trading protocols. In contrast, some crypto executives called for frameworks that specifically target DeFi infrastructure.
Citadel Securities, a market-making giant, recently submitted a 13-page letter to the SEC, arguing that many DeFi trading protocols meet the statutory definition of an exchange and should therefore be regulated as such. According to Citadel, granting broad exemptions to DeFi platforms may enable regulatory arbitrage and create a parallel market for tokenized stocks that lacks the investor protections present in TradFi.
Scott Bauguess, Vice President for Global Regulatory Policy at Coinbase, told the committee that decentralized exchange models function differently from centralized exchanges and should not be treated as traditional exchanges. According to Bauguess, the new market structures require modernized rules that reflect decentralization, open-source infrastructure, and automated liquidity systems.
SEC Chair Paul Atkins reiterated that tokenization is part of the agency’s broader effort to modernize the U.S. capital markets. Atkins emphasized that any pathway must consider regulatory compliance. SEC Commissioner Caroline Crenshaw, on the other hand, raised concerns over the risks associated with tokenized equities, including market integrity, custody, and investor protections.
HSBC plans to expand its Tokenized Deposit Service to the U.S. and the UAE
HSBC has added its tokenized portfolio across several markets and recently launched its Tokenized Deposit Service, a blockchain-based system that enables corporate clients to MOVE funds across borders quickly. The service is already live in the UK, Singapore, Hong Kong, and Luxembourg. The bank plans to extend the service to the U.S. and UAE during the first half of 2026.
Daragh Maher and Nishu Singla, HSBC’s analysts, revealed that while the regulators have shown openness to innovation, the SEC is unlikely to allow a domestic on-chain equities market to operate under lighter standards than the traditional exchanges. According to HSBC’s analysts, the SEC may consider a controlled-environment model that allows for limited experimentation under predefined rules to test tokenized equities and determine if they can operate within the U.S. regulatory landscape.
According to HSBC analysts, regulatory pressure across the U.S. may ultimately force tokenized equities systems to be built on fully permissioned and regulated blockchains. They noted that such environments WOULD allow regulators to maintain oversight of identifiable teams and U.S.-facing market activities without putting investors at unregulated protocol risks.
The SEC is expected to issue its decision in the coming months, which may define how and whether on-chain markets for U.S. stocks will develop within the country’s existing securities framework. HSBC noted that despite the differences, the most consistent theme across TradFi leaders, DeFi advocates, and U.S. regulators is that tokenization is expected to grow significantly from its current base.
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