US regulators clarified that tokenized securities will receive the same capital treatment as their traditional counterparts, saying the rules are “technology neutral.” The Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency said they will treat tokenized and non-tokenized securities the same under bank capital requirements.
“The technologies used to issue and transact in a security do not generally impact its capital treatment,” the agencies said, adding that “an eligible tokenized security should be treated in the same manner as the non-tokenized form of the security would be treated under the capital rule.” Under the guidance, financial institutions will not need to over-collateralize when holding tokenized securities on their balance sheets the way they must for unproven or volatile assets.
The agencies said derivatives referencing an “eligible tokenized security” should also be treated, for capital purposes, the same as derivatives referencing the non-tokenized form. They also said tokenized securities can qualify as financial collateral—provided they are liquid and legally owned or controlled by an institution that can sell them under the terms of a collateral agreement. “An eligible tokenized security that satisfies the definition of ‘financial collateral’ would qualify as financial collateral for purposes of the capital rule and may be recognized by the banking organization as a credit risk mitigant if all the other relevant requirements in the capital rule are met,” the guidance states.
Asset tokenization has attracted growing interest from traditional finance firms, including names such as JPMorgan, BlackRock and Franklin Templeton, which have entered the market via investments or infrastructure projects. A major appeal of tokenization is the potential for around-the-clock trading via blockchain, rather than the limited trading windows of traditional markets.
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