The U.S. SEC Division of Trading and Markets has issued updated guidance on crypto market activity, providing greater clarity for exchanges, broker-dealers, and alternative trading systems (ATSs).
While the agency did not introduce new rules, it signaled it would not object to certain crypto trading structures and capital treatments, provided firms continue to comply with existing federal securities laws.
The guidance addresses crypto pairs trading, stablecoin capital calculations, disclosure standards, clearing obligations, and Regulation M considerations for crypto exchange-traded products (ETPs).
Key Points
-
SEC allows direct trading between security tokens and assets like Bitcoin without fiat conversion.
-
Broker-dealers can treat proprietary stablecoins as readily marketable with a 2% haircut.
-
ATS broker-dealers may combine brokerage, custody, and clearing if laws are met.
-
SEC permits crypto ETP trades under its Regulation M framework if rules are followed.
Exchanges and ATSs May Facilitate Crypto Pairs Trading
A central feature of the update is clarification around crypto pairs trading. The Division stated that federal securities laws do not prohibit national securities exchanges or ATSs from facilitating direct trades between a crypto asset security and a non-security crypto asset, such as Bitcoin.
In practical terms, this means a security token may trade directly against a non-security crypto asset without first being converted into fiat currency. However, the Division emphasized that existing regulatory obligations remain unchanged. ATSs must continue to comply with Regulation ATS requirements, including recordkeeping and reporting responsibilities.
In addition, the guidance addresses valuation mechanics when trades are priced in non-U.S. dollar assets. For reporting and National Market System quotation purposes, firms may convert transaction values into U.S. dollars. However, the Division stated that any conversion method must be applied consistently, impartially, and reasonably. This clarification aims to ensure transparency while accommodating crypto-denominated pricing structures.
Stablecoin Capital Treatment and Broker-Dealer Operations
Beyond trading mechanics, the Division provided additional clarity on broker-dealer capital requirements, particularly under Rule 15c3-1, the Net Capital Rule.
The Division stated it would not oppose a broker-dealer considering its proprietary holdings in a payment stablecoin as readily marketable. In calculating net capital, the firm may apply a 2% haircut to the market value of its larger long or short proprietary stablecoin position. This position offers greater certainty for firms engaging in crypto-related activities.
The guidance then expands to operational roles. A broker-dealer that operates an alternative trading system may simultaneously perform custodial, 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 question of clearing agency registration. The Division stated that separate registration would not be required when a broker-dealer clears and settles customer trades as part of customary brokerage or dealing activity. For example, this may involve debiting and crediting internal customer accounts. This clarification helps define the boundary between brokerage functions and clearing agency obligations.
Disclosure Standards and Regulation M Relief for Crypto ETPs
The update also addresses transparency requirements for trading venues. The Division has clarified that disclosures concerning crypto asset security operations can be made using Form ATS or Form ATS-N. Broker-dealers must describe differences in subscriber access, onboarding procedures, settlement processes, and trading mechanics linked to crypto activities. This includes specific disclosures concerning pairs trading arrangements.
Finally, the Division turned to crypto exchange-traded products. It stated that it would not object to transactions in crypto ETP shares under circumstances similar to those outlined in the SEC staff’s 2006 Regulation M no-action letter for commodity-based investment vehicles. This position applies only if the ETP shares are listed on a national securities exchange, and participants avoid conduct that would violate Regulation M outside a permitted distribution.
Overall, the guidance does not alter the regulatory framework governing crypto markets. Instead, it clarifies how existing securities laws apply to evolving trading structures, capital treatments, and product offerings in the digital asset space.