HSBC Flags Rising Regulatory Storm Over Blockchain U.S. Equities
- Big traditional finance companies like Citadel are telling the SEC to treat decentralized finance (DeFi) platforms that trade tokenized U.S. stocks the same way they treat regular stock exchanges. They don’t want any special breaks that could make investors less safe.
- HSBC analysts think that the SEC won’t let lightly regulated on-chain stock markets do well in the U.S. Instead, they think there will be a push toward fully controlled blockchains.
- Citadel warns of a “shadow market” risk, while crypto companies like Coinbase say that rules should be made that fit DeFi’s unique setup without forcing old models on new tech.
In the world of finance, there is a new battle going on. Tokenized U.S. stocks, which turn ownership of shares into digital tokens on blockchains, are at the center of a growing regulatory storm. The fight has gotten a lot worse very quickly, according to a new report from HSBC, a large international bank. This has put DeFi in the spotlight. It’s not just talk; it’s about who will be in charge of trading in the future.
On December 9, 2025, HSBC analysts Daragh Maher and Nishu Singla wrote about how the fight over how to regulate these digital stock versions has gotten worse recently. They believe that the main goal is DeFi, which is trading on the blockchain without any middlemen. They wrote, “The SEC is unlikely to allow a U.S.-facing, on-chain equities market with lighter protections than traditional exchanges” Banks like HSBC are pushing their own tokenization services right now, but they want strict rules to make sure things are fair.
HSBC has worked here. Last month, they said they would start giving customers in the U.S. and UAE tokenized deposits in early 2026. They believe that tokenization can speed up the movement of assets and lower costs, but only if the rules stay in place without any gaps.
What is the cause? On or around December 4, 2025, Citadel Securities sent a 13-page letter to the SEC. Citadel, a big name in market making, said that many DeFi protocols act like exchanges and should be registered as such. They said that too many exemptions could make the market into two parts: one that is regulated and one that is not. This could cause “regulatory arbitrage,” which is when businesses break the rules to get ahead.
Citadel didn’t hold back. They said that exemptions could create a “shadow market” where investors don’t have as many protections, such as fair access and clear pricing. They said that under current laws, even developers of smart contracts and validators of blockchains could be seen as middlemen. Crypto leaders are responding to this letter by saying that it doesn’t understand how decentralized DeFi is
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Just so you know, Citadel trades a lot of U.S. stocks every day. What do they believe? It’s great to think of new things, but they have to follow the rules that keep regular people safe.
At a recent meeting of the SEC Investor Advisory Committee, there was a clear split. Paul Atkins, the head of the SEC, said that new ideas need to have “compliant pathways” in order to keep jobs and growth in the U.S. But Commissioner Caroline Crenshaw warned of risks, like the hidden dangers of tokenized stocks.
Scott Bauguess from Coinbase wanted rules that were tailored to each situation in the crypto world. “You can’t regulate a DEX like a broker” he said, adding that DeFi’s lack of central control makes old rules useless. This is like other problems: TradFi wants strict rules, but crypto wants to be free.
HSBC says that the SEC might want to try a “sandbox” for tokenized platforms that are focused on the U.S. This would be a small place to test things out. There will be more and more pressure to use permissioned blockchains, which limit who can get to them.
Note: This news was written by our editor, rewritten with the help of AI, and reviewed by our editor to ensure its accuracy and compliance with our standards.
