SEC Staff Clarifies Broker-Dealer Custody And Trading Of Crypto Assets

Key Takeaways

• Staff of the Securities and Exchange Commission's Division of Trading and Markets have issued a statement that provides guidance on how broker-dealers can take "physical possession" of crypto asset securities.
• The Staff's position has shifted from one where barely any broker-dealers were permitted to custody crypto assets, to one in which any carrying broker may do so by meeting the requirements set forth in the statement and other guidance.
• The Staff have also issued a series of FAQs that discuss the conditions under which crypto asset securities and crypto asset non-securities may be traded as "pairs" on alternative trading systems and national securities exchanges.
• Relatedly, SEC Commissioner Hester Peirce has issued a Request for Information that asks for input on how the regulatory landscape for alternative trading systems and national securities exchanges can be improved, particularly in the context of the trading of crypto asset on these platforms.
• Taken together, these regulatory developments demonstrate that the regulatory landscape for the trading of tokenized securities and crypto assets continues to rapidly evolve. In particular, TM Staff appear to be creating a path for the trading of crypto assets (both securities and non-securities) on SEC-regulated platforms such as alternative trading systems and national securities exchanges.

Introduction

In December 2025, the staff (the "Staff") of the SEC's Division of Trading and Markets ("TM") issued a statement¹ on the custody of crypto asset securities by broker-dealers (the "December Statement") and a set of "Frequently Asked Questions"² (the "December FAQs") on the trading of crypto assets on alternative trading systems ("ATSs") and national securities exchanges ("NSEs"). Notably, this guidance was issued at the same time as a Request for Information³ ("RFI") from SEC Commissioner Hester Peirce, which seeks input from market participants on how the regulatory landscape for ATSs and NSEs can be improved, particularly in the context of the trading of crypto assets on these platforms.

The December Statement, the December FAQs and Commissioner Peirce's RFI all point to the SEC's emerging new regulatory approach to crypto asset market structure and indicate that the Staff considers traditional market intermediaries (such as broker-dealers, NSEs and ATSs) as capable of custodying, trading and clearing trades in both crypto assets that are securities (such as tokenized securities) and non-securities (such as bitcoin and ether).

The December Statement: Physical Possession of Crypto Asset Securities

The December Statement builds on FAQs issued by TM Staff in May 2025,⁴ which clarified that broker-dealers could take custody of both crypto asset securities and crypto asset non-securities. (Our discussion of the May FAQs is available here). While the May FAQs noted that broker-dealers (beyond Special Purpose Broker-Dealers that had been established for the express purpose of custodying crypto asset securities under previous SEC leadership) could custody both crypto asset securities and non-securities, the December Statement discusses how broker-dealers can custody crypto assets and securities.

Rule 15c3-3 under the Securities Exchange Act of 1934 (commonly known as the "Customer Protection Rule") generally requires custodying brokers to take "physical possession" or "control" of their customers' fully paid and excess margin securities. Custodying brokers generally may establish control of such securities by maintaining them free of liens at a "good control location."⁵ Broker-dealers often custody customer securities with a third-party custodian (e.g., the Depository Trust Company or a clearing bank), while keeping uncertificated securities, such as mutual fund shares, with the issuer or at the issuer's transfer agent.⁶

The December Statement states that broker-dealers can take physical possession of a customer's fully paid and excess margin crypto asset securities by:

• Ensuring that the broker-dealer has access to the crypto asset security and the ability to transfer it on the associated distributed ledger. Doing so would involve ensuring that the broker-dealer has the private keys associated with the crypto asset security.
• Establishing and enforcing industry-standard written policies, procedures and controls to protect against the theft, loss or unauthorized use of the private keys.
• Establishing and enforcing written policies and procedures to assess the distributed ledger technology and the network where transfers of the crypto asset security are recorded. The broker-dealer must conduct this assessment both before undertaking to maintain possession of the crypto asset security, as well as at reasonable intervals thereafter.
• Establishing and enforcing written policies, procedures and arrangements to:
  • specifically identify, in advance, the steps the broker-dealer will take to respond to events that could affect the firm's possession of crypto asset securities, including blockchain malfunctions, 51% attacks, hard forks or airdrops;
  • allow the broker-dealer to comply with a lawful order as to seizing, freezing, burning or preventing transfer of the crypto asset securities; and
  • allow for the transfer of the crypto asset securities held by the broker-dealer to a broker-dealer, trustee, receiver, liquidator or other appropriate person, if the broker-dealer can no longer continue as a going concern and self-liquidates or is subject to bankruptcy or similar proceedings.

Possession vs. Control: Notably, while Rule 15c3-3 applies to both "physical possession" and "control" of customers' fully paid and excess margin securities, the December Statement relates only to the "physical possession" of crypto asset securities, and not to "control" of such securities. By contrast, the May FAQs state that a broker-dealer may take "control" of a crypto asset security but do not discuss how such control should be maintained beyond stating that established "good control locations" for securities can be used for crypto asset securities.⁷ While broker-dealers now have guidance on how to take physical possession of crypto asset securities, there is relatively little guidance on how to take control of crypto asset securities or how existing guidance on "good control locations" under Rule 15c3-3 applies to crypto asset securities. Broker-dealers will likely have to review existing guidance on "good control locations" under Rule 15c3-3 to determine whether such locations continue to apply for crypto asset securities.

Material Weaknesses in the Blockchain: The December Statement also clarifies that for the purposes of Rule 15c3-3, a broker-dealer does not have possession of a crypto asset security if it is aware of any material security or operational problems or weaknesses related to the distributed ledger technology and the network, or is aware of other material risks associated with custody of the crypto asset security. Note, however, that this limitation arises only from risks related to the custody of crypto asset securities —for example, a broker-dealer is not prohibited from taking custody of crypto asset securities merely because it is aware of reputational risks around crypto asset custody.

The Expanding Range of Crypto Custodial Options: A year ago, only Special Purpose Broker-Dealers⁸ were allowed to custody crypto asset securities, and no broker-dealers were allowed to custody crypto asset non-securities. Following the issuance of the May FAQs, by contrast, all carrying broker-dealers are permitted to custody both crypto asset securities and crypto asset non-securities. Since that time, federal banking regulators have also issued favorable guidance enabling banks to provide crypto asset safekeeping services. (Our discussion of these banking-related developments is available here). Accordingly, introducing broker-dealers, and retail and institutional investors, now have a range of crypto custodial options to choose from —for instance, they may maintain their crypto asset securities with a federally regulated bank, with a Special Purpose Broker-Dealer or with a carrying broker. This expanded range of custodial options will likely deepen institutional and retail interest in crypto asset securities and their trading.

Crypto Asset Non-Securities: The December Statement is likely to be helpful in guiding broker-dealers on the physical possession of crypto asset securities, and the May FAQs clarify that broker-dealers can take control of crypto asset securities. However, the May FAQs also note that Rule 15c3-3 does not extend to crypto asset non-securities.⁹ Broker-dealers are not bound by the terms of Rule 15c3-3 in taking physical possession or control of bitcoin or other crypto asset non-securities.

It is not clear whether this statement means that any broker-dealer (even an introducing broker-dealer) may take possession or control of customers' crypto asset non-securities and custody them as they wish, without limitation. That conclusion might be a step too far: while broker-dealers are not bound by Rule 15c3-3 in custodying crypto asset non-securities, it is possible that the SEC may see such custody of non-security crypto assets by broker-dealers that are not permitted or equipped to custody securities as potentially posing risks to such broker-dealers' securities businesses. Similarly, it is not clear whether non-custodying broker-dealers may interpret the December Statement or the May FAQs as effectively permitting them to custody crypto asset non-securities. To the extent a carrying broker custodies crypto asset non-securities, it might nevertheless be advisable to adhere to the terms and procedures under Rule 15c3-3 as much as possible.

The relationship between crypto asset securities and non-securities, and the limitations on the SEC's ability to regulate crypto asset non-securities directly, are also key themes animating the December FAQs. As we discuss further below, the FAQs discuss the "paired" trading of crypto asset securities and non-securities, as well as the SEC's ability to regulate the platforms on which such pairs are traded.

The FAQs and the RFI: An Emerging Regulatory Landscape for Crypto Trading

"Pairs trading" is common on crypto asset trading platforms: for example, the trading of bitcoin for a stablecoin is prevalent across several crypto trading venues. Market participants may also be interested in trading a crypto asset security (such as a tokenized security) for a stablecoin, or for bitcoin. Such pairing of a crypto asset security with a crypto asset non-security has previously raised questions about the extent to which the SEC can regulate such trading.

The December FAQs address this question directly, stating that ATSs¹⁰ and NSEs may trade pairs of crypto asset securities and non-securities, but that such pairs trading would need to comply with federal securities laws and regulations.¹¹ The December FAQs further state that an ATS trading a pair of crypto asset securities for non-securities must provide data regarding its pairs trading activities as required by Form ATS or Form ATS-N, as applicable.¹² While ATS reporting rules currently require securities transactions to be recorded and reported in U.S. dollars, the December FAQs state that for transactions based on the value of non-U.S. dollar assets, such as non-security crypto assets, an ATS can provide transaction value data in U.S. dollars using consistent, impartial and reasonable methods commonly applied by market participants for converting the value of non-dollar assets.

The December FAQs also identify several disclosures (currently required under Form ATS and Form ATS-N) that ATSs trading crypto asset security/non-security pairs should provide, including:

• Differences in treatment or access to services among or between ATS subscribers;
• Onboarding requirements for ATS subscribers;
• Securities traded on the ATS, trading operations and clearance and settlement processes;
• Service providers to the ATS;
• Products and services the broker-dealer operator offers subscribers for effecting transactions or submitting, disseminating or displaying orders and trading interest in the ATS; and
• Trading by the broker-dealer operator and its affiliates on the ATS.¹³

Trading crypto asset non-securities on a NSE is likely to prove more difficult than trading such assets on an ATS. As an initial matter, NSEs currently do not trade non-securities, and any proposal to trade a non-security would likely require the NSE to propose rule changes that are required to be approved by the SEC. For this reason, among others, SEC Commissioner Hester Peirce released an RFI on the same day as the December FAQs seeking input on how the regulatory landscape for NSEs and ATSs can be improved both generally, as well as in the particular context of crypto asset trading. Commissioner Peirce's RFI seeks input, among other matters, on:

• What NMS plan amendments may be necessary to accommodate security and non-security crypto asset pairs trading on NSEs.
• Whether the Commission should propose a new Form ATS for the trading of crypto assets and if so, what information that form should require to be disclosed.
• Whether ATS form filings for crypto assets should be confidential and subject to Commission approval.

Notably, Commissioner Peirce's RFI also asks one major question that goes beyond the trading of crypto assets on ATSs and NSEs and instead seeks to address the regulation of crypto infrastructure, such as automated market makers and decentralized exchanges. The RFI asks how the SEC can protect the ability of individuals to develop and deploy software and transact directly (or indirectly through autonomous software intermediation) without unwarranted regulatory barriers. This question, on whether (and how) "decentralized" crypto infrastructure should be subject to existing SEC regulatory categories, is the subject of differing views among market participants, and the RFI appears to invite more information and views on the question.

Concluding Observations

The December Statement, the December FAQs and the RFI seek to build upon the joint statement in September by the Staffs of TM and the Commodity Futures Trading Commission's Divisions of Market Oversight and Clearing and Risk, noting that "current law does not prohibit SEC- or CFTC-registered exchanges from facilitating trading of...spot crypto asset products."¹⁴ While it is possible that comprehensive crypto market structure legislation from Congress could introduce entirely new market intermediaries, in the absence of such legislation, TM Staff appears to be creating a path for the trading of crypto assets (both securities and non-securities) on SEC-regulated platforms such as ATSs and NSEs.

Many questions on such trading remain. One such question may be whether ATS and NSEs, in addition to trading crypto security/non-security pairs, could also trade pairs of crypto assets that are both non-securities (e.g., bitcoin for non-security stablecoins¹⁵), and whether, and to what extent, the SEC would have regulatory jurisdiction over such non-security crypto pairs. The RFI represents an important opportunity to engage with the Commission on the shaping of a future crypto trading landscape, and market participants may want to communicate their thoughts on ATSs and NSE reform as quickly and comprehensively as possible.

The regulatory landscape for crypto custody, by contrast, has developed very swiftly over the course of 2025. As we noted above, the regulatory position has shifted from one where barely any broker-dealers were permitted to custody crypto assets, to one in which any carrying broker may do so by meeting the requirements under the December Statement. However, even on the custody front, more guidance will likely be sought, including on specific questions such as the extent to which the broker-dealer may share a private key and the nature of material weaknesses in a blockchain that might prevent a broker-dealer from taking control. Market participants will also likely have questions on whether and how other trading rules such as Regulation SHO or Regulation NMS apply to crypto asset securities.

The various open questions around trading and custody notwithstanding, the basic elements of the regulatory landscape for the trading of crypto asset securities or tokenized securities appear to be coming together relatively rapidly. Market participants who operate or seek to operate trading platforms may want to consider whether the development or acquisition of an ATS could be a significant supplement to their existing spot crypto trading operations.

Footnotes

1 Division of Trading and Markets: Statement on the Custody of Crypto Asset Securities by Broker-Dealers (Dec. 17, 2025).

2 Division of Trading and Markets: Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology (Updated Dec. 17, 2025).

3 Commissioner Hester M. Peirce, And Then Some: Request for Information Regarding National Securities Exchanges and Alternative Trading Systems Trading Crypto Assets (Dec. 17, 2025).

4 Division of Trading and Markets: Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology (May 15, 2025).

5 Exchange Act Rule 15c3-3(b) and (c).

6 Registered mutual fund transfer agents have long been recognized as good control locations for broker-dealers, subject to certain conditions. See generally Letter to Edward A. Kwalwasser, New York Stock Exchange, from Michael A. Macchiaroli, Assistant Director, Division of Market Regulation, Securities and Exchange Commission (pub. avail. Mar. 3, 1986).

7 See May FAQ 2. "Could a broker-dealer establish control of a crypto asset that is a security via paragraph (c) of Rule 15c3-3?" "In the Staff's view, yes. The Staff notes that although certain control locations in paragraph (c) of Rule 15c3-3 reference a security being in certificated form to establish control under that provision, the Staff will not object if such crypto asset securities are not in certificated form when held at an otherwise qualifying control location under paragraph (c) of Rule 15c3-3."

8 Special Purpose broker-dealers were a class of broker-dealers created by a Commission statement and were authorized to custody crypto asset securities upon meeting certain conditions. (See Custody of Digital Asset Securities by Special Purpose Broker-Dealers, 86 Fed. Reg. 11627 (Feb. 26, 2021). Notably, the Commission statement permitted special purpose broker-dealers to custody crypto asset securities but did not allow them to trade or custody traditional (i.e., non-crypto) securities alongside crypto asset securities. It also effectively prohibited special purpose broker-dealers from trading crypto assets that were not securities, such as bitcoin or ether. These two restrictions made special purpose broker-dealer status unviable for many crypto market participants, and five years after the statement was issued, there are today only two special purpose broker-dealers registered with the Financial Industry Regulatory Authority ("FINRA").

9 See May FAQ 1. "Does paragraph (b) of Exchange Act Rule 15c3-3 apply to crypto assets that are not securities?" "No. Paragraph (b) of Rule 15c3-3 applies only to securities carried by a broker-dealer for the account of customers or for a proprietary securities account of another broker or dealer, known as a "PAB account" (as further defined in paragraph (a)(16) of Rule 15c3-3)."

10 ATSs effectively function as exchanges but are regulated by the SEC and FINRA as broker-dealers. See § 242.301(a)(4)(i).

11 See December FAQs 11 and 12.

12 Form ATS-N is the form required to be provided by ATSs that trade NMS securities. Unlike Form ATS, it is not filed confidentially.

13 See December FAQ 12.

14 Staff of SEC and CFTC, SEC-CFTC Joint Staff Statement (Project Crypto-Crypto Sprint) (Sept. 2, 2025).

15 See SEC Staff Issues Statement on Stablecoins, Dechert OnPoint (April 2025) (discussing statement by the Staff of the SEC's Division of Corporation Finance clarifying that certain 1:1 U.S. dollar-backed stablecoins do not constitute securities under the U.S. federal securities law). Under the GENIUS Act, "payment stablecoins" are neither "securities" nor "commodities" for purposes of the U.S. federal securities and commodities laws and a "permitted payment stablecoin issuer" is not an "investment company" for purposes of the Investment Company Act of 1940. See The GENIUS Act for Asset Managers: What to Know, Dechert OnPoint (August 2025).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.