The Securities and Exchange Commission has issued a statement and request for comment regarding the custody of digital asset securities by broker-dealers. The Commission states that this consultation is in order to encourage innovation around the application of Securities Exchange Act Rule 15c3-3 to digital asset securities.
The statement indicates that the SEC, for a period of five years, a broker-dealer operating under the circumstances set forth in the statement will not be subject to a Commission enforcement action on the basis that the broker-dealer deems itself to have obtained and maintained physical possession or control of customer fully paid and excess margin digital asset securities for the purposes of paragraph (b)(1) of Rule 15c3-3.
According to the SEC, these circumstances include that the broker-dealer limits its business to digital asset securities, establishes and implements policies and procedures reasonably designed to mitigate the risks associated with conducting a business in digital asset securities, and provides customers with certain disclosures regarding the risks of engaging in transactions involving digital asset securities.
The Commission is requesting comments to provide additional insight into the evolving standards and best practices with respect to the custody of digital asset securities. The SEC states that this feedback may serve to inform any potential future Commission action in this sector.
The Commission statement and request for comment are published on the Commission’s website and will become effective 60 days after publication in the Federal Register.
The specific questions by the SEC include:
- What are industry best practices with respect to protecting against theft, loss, and unauthorized or accidental use of private keys?
- What are industry best practices to address events that could affect a broker-dealer’s custody of digital asset securities such as a hard fork, airdrop, or 51% attack?
- What are the processes, software and hardware systems, or other formats or systems that are currently available to broker-dealers to create, store, or use private keys and protect them from loss, theft, or unauthorized or accidental use?
- What are the accepted practices with respect to disclosing the risks of digital asset securities and the use of private keys?
- Should the Commission expand this position in the future to include other businesses such as traditional securities and/or non-security digital assets?
- What differences are there in the clearance and settlement of traditional securities and digital assets?
- What specific benefits and/or risks are implicated in a broker-dealer operating a digital asset alternative trading system?
The request for comments statement is embedded below.