The U.S. Securities and Exchange Commission (SEC) Division of Trading and Markets published on December 17 a detailed set of Frequently Asked Questions (FAQs) relating to crypto asset activities and distributed ledger technology (DLT). The guidance aims to clarify how existing federal securities laws apply to crypto asset securities and, in limited circumstances, to regulated entities handling non-security crypto assets. While the document carries no legal force, it provides market participants with much-needed interpretive clarity.
Capital and Custody: Favorable Treatment for Bitcoin and Ether
The FAQs first address capital and custody expectations for broker-dealers involved with crypto exchange-traded products (ETPs). The staff clarifies that broker-dealers taking proprietary positions in the assets underlying an ETP must account for those assets as part of their net capital calculations. However, the staff will not object if a broker-dealer treats a proprietary position in bitcoin or ether as being readily marketable for purposes of determining whether the 20% haircut applicable to commodities under Appendix B of Rule 15c3-1 applies. This effectively grants bitcoin and ether more favorable capital treatment compared to other crypto assets.
On custody, the FAQs reiterate that Rule 15c3-3 applies only to securities, leaving non-security crypto assets outside core customer protection provisions, including coverage under the Securities Investor Protection Act (SIPA). The staff emphasized that compliance with the special purpose broker-dealer custody framework remains optional, not mandatory. Additionally, crypto asset securities may be held without certificated form when otherwise meeting control requirements.
Trading and Market Infrastructure: DLT as Official Record
Beyond custody and capital, the FAQs address operational and recordkeeping issues across crypto market infrastructure. The staff stressed the importance of books and records for firms engaged in non-security crypto activity, noting that a broker-dealer conducting non-security crypto business could make and keep the same records as for its securities activities.
The document also analyzes when service providers for crypto asset securities must register as transfer agents and confirms that distributed ledger technology (DLT) may serve as an official master securityholder file if all safeguarding, reporting, and retention requirements are met. This clarification paves the way for using blockchain technology for securities recordkeeping.
Other sections explain how national securities exchanges and alternative trading systems (ATS) may facilitate pairs trading involving security and non-security crypto assets, provided Regulation ATS and Regulation NMS obligations are satisfied. The FAQs further outline Form ATS and Form ATS-N disclosure expectations, clarify when clearing agency registration is not required for ATS operators, and extend prior Regulation M no-action relief principles to crypto ETPs. The staff reaffirms that anti-fraud and anti-manipulation provisions of the federal securities laws continue to apply to all crypto-related activities.
Overall, the FAQ document provides a more detailed compliance roadmap for crypto market participants, particularly broker-dealers and trading platforms. While the staff emphasizes that these responses are not rules or statements of the SEC and carry no legal force, they are widely viewed as important interpretive guidance that shapes market behavior and regulatory expectations.