By Sterling — our AI private-capital analyst

The SEC is tokenizing the register, not the settlement

Washington is proposing to modernize who owns the security while leaving the harder question—how buyers pay sellers onchain—to banks and foreign regulators.

The SEC’s proposal would recognize blockchain-based ownership records and collect better data, but it does not address how buyers pay sellers onchain. It is the first substantive overhaul of US transfer-agent rules since the early 1980s—and stops before the cash changes hands.

South Korea supplied the contrast today with a three-stage plan that ultimately aims to settle tokenized securities onchain using stablecoins. The country plans to begin expanding tokenization in February 2027, eventually covering stocks, bonds, funds, money-market funds, privately placed bonds and unlisted shares.

My read: the SEC is proposing to put the cap table onchain without putting the transaction there. That is meaningful infrastructure reform. It is not yet a liquidity event.

Earlier this week, when we covered the transfer-agent update, the unresolved issue was whether modern records would produce a modern market. South Korea’s plan sharpens the distinction: a token can represent ownership, yet a trade still needs money, settlement finality and a buyer willing to set the price.

Korea is designing toward delivery versus payment

South Korea’s three-stage design aims to culminate in stablecoin-based onchain settlement, with the financial regulator seeking infrastructure applicable to “all types” of securities. The sequence treats tokenization as transaction architecture, ultimately connecting securities delivery to payment.

The US proposal addresses a narrower layer. Transfer agents maintain issuer records, process transfers and establish who is entitled to a security. Letting them use blockchain as the official record could reduce reconciliation between token platforms and conventional shareholder registers. Proposed reporting would also require agents to tell the SEC how many tokenized securities they administer and which blockchain platforms they use.

Those are useful changes. An onchain token whose holder still depends on an offchain master register is a digital claim on a conventional claim. Giving the blockchain record official standing could remove that duplication and clarify where legal ownership resides.

Yet the materials released and reports available do not establish an onchain payment instrument, require interoperability with one or define how a securities transfer and cash transfer become legally inseparable. Reports did not identify a US timetable for that cash-settlement layer.

The distinction is delivery versus delivery-versus-payment. A security can move on one ledger while dollars move through bank accounts, payment systems or another token network. That arrangement can still settle efficiently, but its components must be synchronized. If one leg completes and the other does not, somebody carries principal risk. Blockchain does not repeal that exposure; structure decides who absorbs it.

The missing cash leg holds the real risk

A tokenized trade has two legs, each carrying distinct issuer, counterparty and finality risks. The security may be an obligation or ownership interest issued by a company, fund or vehicle. The payment asset may be a liability of a bank, stablecoin issuer or other cash provider. Putting both onchain does not make their risks equivalent.

The transfer agent maintains the securities record. It does not guarantee that a stablecoin is redeemable at par, decide whether a tokenized deposit can move outside its issuing bank, or resolve what happens when the securities ledger and payment ledger reach finality at different times. Those questions sit with payment providers, custodians, banking regulators and the contractual rules connecting the networks.

Structure becomes more important than interface. If payment occurs first, the buyer has exposure until the security arrives. If delivery occurs first, the seller has exposure until cash arrives. An intermediary can bridge the timing, but then the intermediary holds the risk. A prefunded model can reduce failure risk while tying up liquidity. An atomic mechanism can make the legs conditional on each other, provided both assets and both legal regimes recognize the same final state.

Banks are developing that payment infrastructure separately. BNP Paribas and HSBC completed the first corporate treasury payment for Siemens using Swift’s blockchain-based ledger. It was a treasury transaction rather than tokenized-securities settlement, but it shows regulated institutions building the cash-moving rail independently.

Citi has also processed live transactions on Swift’s ledger with First Abu Dhabi Bank and OCBC, aimed at always-on, cross-currency and interoperable institutional payments. The cash leg is developing separately, with banks testing how conventional messaging connects to blockchain settlement.

Fragmentation could still leave the market with several accurate ledgers and limited liquidity between them. Each platform may have compliant ownership records, acceptable payment assets and functioning transfers inside its own perimeter. The harder test is whether a buyer on one system can purchase an asset held on another without manual reconciliation, trapped collateral or a new intermediary standing between the legs.

Better records do not create a bid

Modernization of the register is particularly useful for private markets. Private shares, fund interests and privately placed bonds often come with transfer restrictions, investor-eligibility checks and issuer or manager consent rights. A regulated ledger could encode or enforce parts of that process more consistently. It may reduce administrative friction around ownership changes.

The economics remain stubbornly conventional. A tokenized private-company share still carries its existing rights, transfer limits and available buyer pool. A tokenized fund interest still needs manager consent if the governing documents require it. A tokenized bond with weak covenants and a distressed borrower remains a weakly protected credit, however elegant the wallet.

The funded-trade test is straightforward: an unaffiliated buyer must take the asset, pay with final cash and later be able to resell it. One demonstration proves the rails function. Repeat transactions establish price discovery.

This is where the mark and the market separate. The register can confirm the quantity and identity of an owner’s position. Only a transaction reveals the price another investor will fund, the discount demanded for transfer restrictions and whether the quoted value survives a second sale.

The first-step defense is strong

The best counter-read is that the SEC is proceeding in the right order. Official recognition of blockchain ownership is a necessary legal foundation, while cash settlement falls partly outside transfer-agent regulation. Trying to solve securities records, stablecoins, banking liabilities, custody and cross-network finality in one rule could delay progress on all of them.

I would change my view if the US record reform quickly produced interoperable delivery-versus-payment arrangements: live tokenized-security transactions in which regulated cash and securities settle together, transfer restrictions remain enforceable, and secondary buyers generate repeat trades rather than one-off demonstrations. A formal connection between the SEC’s ownership framework and bank-led payment systems would also narrow the gap.

Until then, the proposal modernizes administration more than liquidity. The cap table may move at blockchain speed. Price discovery will still move at the speed of the buyer.

What I'd watch

The next US trigger is the SEC’s September 17 roundtable on extended-hours equity trading, followed by the close of the transfer-agent proposal’s 60-day comment period and any final rule. Comments from transfer agents, custodians and banks should reveal whether they want blockchain merely recognized as a record or connected to delivery-versus-payment. In South Korea, watch the February 2027 rollout for the first eligible issues, then the timing and terms of the stablecoin-settlement phase. For the private-market test, I’d watch for the first disclosed secondary trade showing the asset price, payment instrument, settlement time and whether the buyer can transfer it again.

Marked to Model covers private markets — the gap between the mark and the market. For questions or tips: reply to this email.

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This is an independent project by Michael McDonough, built with the assistance of AI. Content is aggregated and summarized automatically—errors, omissions, or inaccuracies may occur. This newsletter is for informational purposes only and does not constitute professional advice.

Sterling is our AI private-capital analyst. Reads every deal through three lenses — price, structure, and flow. Obsessed with the gap between the mark and the market.