Tokenised Securities
Tokenised securities are shares, bonds, fund units and other financial instruments issued or recorded as tokens on a distributed ledger, so that ownership passes by a transfer on the ledger rather than by an entry at a central securities depository. Tokenising changes the format of the instrument, not its legal nature: it is still a security.
- Also known as
- Tokenized securities, Security tokens, Digital securities, DLT securities
- Used at
- bond issuance by development banks and corporates, tokenised money-market and Treasury funds used for on-chain cash management and collateral, private-company share registers, and pilots by exchanges and central securities depositories
- Binding
- securities law applies whatever the format — the US SEC's staff said so in a statement of 28 January 2026; in the EU a token that qualifies as a financial instrument sits under MiFID II, and the DLT Pilot Regime, applying since 23 March 2023, lets authorised venues trade and settle such instruments on a ledger
- Typical limits
- the EU pilot admits shares of issuers below €500 million market capitalisation, bonds below €1 billion of issuance and UCITS funds below €500 million of assets; the UK's Digital Securities Sandbox, run by the Bank of England and the FCA, is due to run until 8 January 2029
- Typical structures
- issuer-sponsored, where the ledger is or feeds the register of holders; third-party custodial, where a token represents a security held by a custodian; third-party synthetic, where the token is the third party's own instrument tracking someone else's security
- Landmarks
- the European Investment Bank's €100m two-year digital bond on Ethereum (April 2021); BlackRock's BUIDL fund, holding Treasury bills and repo, launched on Ethereum in March 2024
- Parties
- the issuer, the tokenisation platform, the custodian and registrar, the DLT market infrastructure, the provider of the cash leg, and investors onboarded to hold the token
How tokenised securities work in practice
The first question is which record is authoritative. In the strongest model the issuer's register of holders is the ledger, or is updated from it automatically, so a transfer of the token is a transfer of the security. In weaker models the token is a receipt: a custodian holds the security, and the holder's rights run against the custodian or a wrapper issuer rather than the company. The SEC staff drew the same line in January 2026 and noted that holders of third-party tokens take on that third party's risks, including its bankruptcy.
Settlement is the practical gain. A tokenised bond can settle delivery against payment in minutes — if a cash token exists on the same ledger. That is why issuers pair tokens with stablecoins, tokenised deposits or, in the EIB's 2021 bond, a central bank digital currency trial run with the Banque de France. Without an on-chain cash leg the security moves instantly and the money still takes a day.
Compliance is written into the token: transfer restrictions, whitelists of verified holders, the power to freeze or reissue. Most issuance so far is permissioned, with investors onboarded through KYC before they can hold anything.
For an acquirer of a tokenisation platform, the questions are which licences it holds (investment firm, CSD, a pilot-regime permission, a sandbox place), whether its tokens are issuer-sponsored or wrappers, and how much of its volume is secondary trading rather than issuance.
Example
A mid-sized European logistics group issues a €50m three-year bond through a DLT trading and settlement system authorised under the EU pilot regime. Investors are onboarded in advance; the bond is issued as 500 tokens of €100,000 and settles against tokenised deposits on the same ledger in under an hour instead of two business days. Issuance costs fall from about 0.45% of principal to 0.30%: registrar, paying-agent and clearing fees shrink, legal fees do not. Coupons go automatically to whichever wallets hold the tokens on the record date. The weakness shows later: in the first year 38 tokens change hands, all between original investors, and a fund wanting €5m of the bond finds no seller. Tokenisation cut the cost of issue and did nothing for liquidity.
Common mistakes
- Treating the token as the security when its terms make it a claim on a custodian or wrapper issuer. - Expecting tokenisation alone to create liquidity; a thin market on a ledger is still thin. - Settling the security on-chain while the cash leg still runs through correspondent banks, keeping the settlement risk. - Assuming a blockchain format puts an instrument outside securities law, prospectus rules or transfer restrictions. - Choosing a public chain without deciding how lost keys, errors and court orders will be handled. - In diligence, counting tokens minted rather than assets held, holders onboarded and trades settled.