The SEC’s U.S. Trading and Markets Division has issued updated guidance on crypto market activity, providing greater clarity for exchanges, broker-dealers and alternative trading systems (ATS).
Although the agency did not introduce new rules, it indicated that it would not object to certain crypto trading structures and capital treatments, provided that companies continue to comply with applicable federal securities laws.
The guidelines cover trading cryptocurrency pairs, stable capital calculations, disclosure standards, clearing obligations, and Regulation M considerations for crypto exchange-traded products (ETPs).
Key Points
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The SEC allows direct exchanges between security tokens and assets like Bitcoin without fiat conversion.
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Brokers can treat proprietary stablecoins as easily tradable at a 2% discount.
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ATS brokers can combine brokerage, custody and clearing if the laws are followed.
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The SEC allows crypto ETP transactions under its Regulation M if the rules are followed.
Exchanges and ATSs can facilitate trading crypto pairs
A central feature of the update is the clarification of crypto pairs trading. The Division stated that federal securities laws do not prohibit national securities exchanges or ATSs from facilitating direct transactions between a crypto asset security and an insecure crypto asset, such as Bitcoin.
In practical terms, this means that a security token can be exchanged directly for an insecure crypto asset without first being converted to fiat currency. However, the Division emphasized that existing regulatory obligations remain unchanged. ATSs must continue to comply with the requirements of the ATS Regulations, including recordkeeping and reporting responsibilities.
Additionally, the guidelines address valuation mechanisms when transactions are valued on non-US dollar denominated assets. For reporting and National Market System quotation purposes, companies can convert transaction values to U.S. dollars. However, the Division stated that any conversion method must be applied in a consistent, unbiased and reasonable manner. This clarification aims to ensure transparency while adapting to price structures denominated in cryptocurrencies.
Stablecoin capital processing and broker-dealer operations
Beyond trading mechanisms, the Division has provided additional clarification on broker-dealer capital requirements, including under Rule 15c3-1, the Net Capital Rule.
The Division said it would not object to a broker-dealer viewing its proprietary holdings in a payments stablecoin as readily tradable. When calculating net capital, the firm may apply a 2% discount to the market value of its larger long or short proprietary stable position. This position provides greater certainty for companies engaged in crypto-related activities.
The guidance then extends to operational roles. A broker that operates an alternative trading system may simultaneously perform custody, brokerage or clearing functions. However, each function must independently comply with applicable federal securities laws. In other words, combining roles is permitted, but regulatory responsibilities remain distinct.
Closely related is the issue of registration of clearing agencies. The Division stated that separate registration would not be required when a broker-dealer clears and settles customer trades in the course of its regular brokerage or trading activities. For example, this may involve debiting and crediting internal customer accounts. This precision makes it possible to define the boundary between the brokerage functions and the obligations of clearing agencies.
Disclosure Standards and Regulation M Relief for Crypto ETPs
The update also addresses transparency requirements for trading platforms. The Division clarified that information regarding crypto asset security operations can be made using Form ATS or Form ATS-N. Brokers must describe the differences in subscriber access, onboarding procedures, settlement processes, and trading mechanisms related to crypto activities. This includes specific information regarding pairs trading agreements.
Finally, the Division turned its attention to exchange-traded crypto products. It said it would not object to trading in crypto ETP stocks under circumstances similar to those described in the SEC staff’s 2006 no-action letter relating to Regulation M for commodity-based investment vehicles. This position only applies if ETP shares are listed on a national securities exchange and participants avoid conduct that would violate Regulation M outside of a permitted distribution.
Overall, the guidelines do not change the regulatory framework governing crypto markets. Instead, it clarifies how existing securities laws apply to evolving business structures, capital treatments, and product offerings in the digital asset space.