The University of New Hampshire Law Review


Chen Wang


Securities offered under exemptions such as Regulation Crowdfunding, Regulation A, and Rule 506 without registering with the Securities and Exchange Commission (SEC) are classified as exempt securities. These securities typically lack liquidity in the secondary market. However, the growing popularity of blockchain technology and smart contracts has made token offerings increasingly prevalent. Fintech firms like tZERO and Securitize provide services to tokenize securities that have already been offered, while numerous crypto trading platforms facilitate the trading of digital tokens. In theory, tokenizing exempt securities and making the resulting tokens available for resale on digital token trading platforms could grant these securities access to the massive crypto market and enhance their liquidity. This article examines the multifaceted dimensions of such a market, employing a combination of real-world examples and rigorous investigation to illustrate the transformative potential of blockchain technology in revolutionizing the trading and management of exempt securities. The article begins with a systematic exploration of the technological feasibility of establishing a secondary market for tokenized exempt securities, delving into the intricacies of blockchain technology, digital tokens, token offerings, and smart contracts. By drawing upon real-world examples, the article demonstrates the potential of these emerging technologies to empower investors in exempt securities. Subsequently, the focus shifts to the complex regulatory landscape surrounding token offerings, dissecting key developments and concerns related to securities laws. By examining crucial events such as the Hinman speech, the Framework for “Investment Contract” Analysis of Digital Assets, and Coinbase’s petition to the SEC for a new regulatory framework, the article offers a panoramic view of the challenges and opportunities that the secondary market for tokenized exempt securities faces. The article then proposes a structure for a secondary market for tokenized exempt securities, revisits the voluntary disclosure nature of token offerings, and engages in discussions of the SEC’s application of federal securities laws to digital tokens. It posits that tokens resulting from the tokenization of exempt securities are merely digital representations of these securities and should not be treated as independent securities. The article proceeds to synthesize various threads of discussion to focus on reinforcing and refining existing regulations pertaining to the secondary market for tokenized exempt securities. It suggests enhancements to the disclosure regime, such as the introduction of white papers emphasizing technical details and regularly updated warning boxes and indicating a disclosure-focused approach to regulating offerings of tokenized exempt securities. Moreover, the article examines current regulatory and market practices of digital token trading platforms and investigates the roles of the SEC and the CFTC in regulating tokenized assets. In conclusion, this article’s comprehensive discussion on the regulatory landscape for tokenized exempt securities serves to elucidate the challenges and opportunities that lie ahead in this rapidly evolving domain.

Repository Citation

Chen Wang, Trading Securities as Digital Tokens: is a Secondary Market Practicable for Tokenized Exempt Securities?, 22 U.N.H. L. Rev. 39 (2023).