TOKENIZATION OF STOCKS: LEGAL, TECHNICAL AND REGULATORY DIMENSIONS OF TRANSITION TO DIGITAL CAPITAL MARKETS
The impact of blockchain technology on financial systems paves the way not only for the emergence of new digital assets, but also for the digital transformation of traditional financial instruments.
A notable example of this transformation is the tokenization of shares, the fundamental instrument of capital markets. Tokenization refers to the process of converting traditional assets into their digital representations using distributed ledger technology (DLT).
This memorandum provides a comprehensive overview of the tokenization of equity securities in terms of the technical process, legal assessment, comparative law and Turkish regulations.
I. WHAT IS TOKENIZATION? APPLICATION TO STOCKS
Tokenization of shares refers to the representation of company ownership interests as digital assets (tokens) through blockchain technology.
These tokens can provide investors with traditional rights such as capital shares, voting rights and dividends. Structurally categorized as "security tokens", these digital assets combine the technological advantages of blockchain while retaining the features of classic stocks.
Here are some of the advantages of tokenized shares:
- Democratization of Investment Access: Tokenization enables investors to acquire stakes with smaller amounts of capital.
- Continuous Trading Opportunities: In contrast to the limited trading hours of traditional exchanges, tokenized shares can be traded 24/7.
- Increased Liquidity: Especially in non-public companies, tokenization increases liquidity by enabling trading on the secondary market.
- Cost Advantage: Costs can be reduced by reducing intermediaries in transactions such as issuance, transfer and custody.
II. TOKENIZATION PROCESS: TECHNICAL PHASES
The tokenization of stocks generally consists of the following technical steps:
- Creating Digital Agency: A traditional stock is defined as a token on a blockchain with a smart contract.
- Defining Smart Contracts: Rules such as voting rights, transfer restrictions, dividend rights are programmed.
- Platform Selection: Technical competence and regulatory compliance of issuance and trading platforms are taken into consideration.
- KYC/AML Compliance Processes: Verification of investors' identities is mandatory.
- Storage and Transfer Infrastructure: Tokens must be stored in digital wallets and transaction security must be ensured.
III. LEGAL NATURE AND COMPLIANCE WITH LEGISLATION
The legal status of tokenized shares varies by country. The generally accepted criteria are as follows:
- Do the tokens entitle you to participate in the company's capital?
- Does it represent a legally valid share certificate?
- Is it compatible with centralized or distributed systems of records?
If the answer to these questions is "yes", tokens are classified as securities and subject to capital market regulations. In this context, the integration of tokenized shares with classical securities law is one of the most critical areas for regulatory clarity.
Of course, this issue will vary depending on whether the shares to be tokenized belong to a public or a closed company and the type of company. In closed companies, shares can be tokenized without special permission by following certain guidelines.
The same is true for cooperatives.
This is much easier for sole proprietorships and limited liability companies.
IV. INTERNATIONAL REGULATIONS AND PRACTICES
- US: The SEC regulates tokenized securities under Reg A+ and Reg D. The tZERO platform is a licensed example.
- Switzerland: The DLT Act of 2021 legally recognizes tokenized financial assets.
- Germany: eWpG and Zukunftsfinanzierungsgesetz allow the digital issuance of shares.
- UK: The FCA's Digital Securities Sandbox initiative is testing new structures but there is no permanent regulation yet.
V. LEGAL FRAMEWORK IN TURKEY
In Turkey, there are explicit provisions in the CMB regarding the tokenization of existing and future shares of publicly traded companies.
According to this
The following sentences have been added to the first paragraph of Article 13 of the Law No. 6362
"Instead of issuing capital market instruments in dematerialized form and monitoring them by CRA pursuant to the provisions of this article, the Board may determine principles regarding the issuance of capital market instruments as crypto assets and their dematerialized monitoring in the electronic environment offered by the crypto asset service providers where they are created and stored.
In the case of issuance of capital market instruments as crypto-assets, the records in the electronic environment where they are created and stored shall be taken as basis for monitoring, asserting and transferring the rights against third parties. The Board may require integration between these electronic records and the CRA system. The procedures and principles regarding the implementation of this paragraph shall be determined by the Board."
Outline of existing legislation:
- Turkish Commercial Code (TCC): Share certificates are issued in physical or dematerialized form. DLT systems are not defined. However, there is no prohibition or restriction. Under the TCC, many companies can tokenize their shares.
- Capital Markets Law (CMB): Securities issues are subject to CMB approval. There is a special regulation on tokens. Public company shares and other securities are expected to be tokenized shortly.
- Central Registry Agency (CRA): Registration is mandatory. Integration with Blockchain is expected to be announced to the public in a short period of time.
- March 13, 2025 KVHS Communiqués: Contains general provisions for crypto asset service providers. It refers to the regulations to be made by the CMB on tokenized shares.
Currently, tokenization practices can only be implemented within the framework of private law relationships and within closed systems addressing a limited circle of investors. Soon, digitalization will make tokenization possible for both equities and other capital market instruments in the capital market.
VI. ADVANTAGES AND RISKS OF TOKENIZATION
|
Benefits |
Risks |
|
Increased liquidity |
Legal uncertainty |
|
Low-cost access |
Cyber security vulnerabilities |
|
Global investment opportunity |
Lack of investor protection |
|
Transparency and traceability |
Incompatible platform risk |
|
Programmable rights |
Storage/transfer security |
VII. CONCLUSION AND EVALUATION
The tokenization of equities is not just a technological development, but a strategic step that enables the restructuring of capital markets.
The evolution of traditional financial systems to digital representations requires a holistic regulatory approach in terms of investor protection, market stability and technological adaptation.
The existing legal infrastructure in Turkey is suitable and compatible with this transformation. Secondary regulations will make share tokenization possible. With the private sector's interest in tokenized shares and the impact of international developments, it is inevitable that specific regulations will be developed in this area in the future. There are no concrete legal obstacles to share tokenization in non-HAAO companies. In this process
- Lawful design of the technologies to be applied,
- Clear definition of investor rights,
- Close monitoring of regulatory developments
is critical for the healthy development of tokenization.