SEC Issues Further Crypto Asset Security Guidance, Addresses Broker-Dealer Physical Possession and Asset Pairs Trading

On December 17, 2025, the staff in the SEC of Trading and Markets (Staff) issued a statement expressing its views on how a broker-dealer can maintain physical possession of a crypto asset security it carries for the account of a customer for purposes of complying with the Customer Protection Rule, Securities Exchange Act (SEA) Rule 15c3-3(b)(1).¹ The same day, the Staff supplemented its FAQs on Crypto Asset Activities and Distributed Ledger Technology with new Q&As addressing crypto asset trading and settlement activities involving national securities exchanges (NSEs) and alternative trading systems (ATSs).² Commissioner Hester Peirce posed a number of related questions to solicit feedback regarding NSE and ATS trading.³

How Can a Broker-Dealer Maintain Physical Possession of Crypto Asset Securities?

A broker-dealer that takes the following measures will be deemed to have “physical possession” of a fully paid or excess margin security of a customer that is a crypto asset security:

• maintain full access to the crypto asset security and the ability to transfer that asset on the relevant distributed ledger technology — in other words, the broker-dealer has access to the private keys necessary to sign transactions on the relevant blockchain for the crypto asset security⁴

• establish and enforce written policies and procedures aligned with industry customs to protect against access to private keys

• establish and enforce written policies and procedures to identify and assess potential risks of the distributed ledger technology and associated network prior to undertaking the asset and at continuous intervals after

• establish and enforce written policies and procedures that (i) identify steps the broker-dealer will take if certain events occur that could affect the firm’s possession of crypto asset securities, including blockchain malfunctions, 51% attacks, hard forks, or airdrops; (ii) allow for the broker-dealer to comply with a lawful order as to seizing, freezing, burning, or prevention of transfer of the crypto asset securities; and (iii) allow for the transfer of the crypto asset securities held by the broker-dealer to a trustee or similar person in the event the broker-dealer can no longer continue or self-liquidates

Additionally, a broker-dealer does not have possession of a crypto asset security if it is aware of any material security or operational problems related to the distributed ledger technology and associated network used to access and transfer the asset or is aware of risks associated with custody of the asset.

What Is Different From Previous SEC Staff Custody Guidance?

In May 2025, the Staff expressed views only on how a broker-dealer could establish “control” of a crypto asset security that is a fully paid or excess margin security of a customer for purposes of SEA Rule 15c3-3(b). The guidance was silent on the question of how a broker-dealer could maintain “physical possession” of any such crypto asset security.⁵ The May guidance noted that the Staff would not object to a broker-dealer establishing “control” if the crypto asset securities are held at a qualifying control location under SEA Rule 15c3-3(c), such as a federal bank.

The SEC’s 2020 Special Purpose Broker Dealer Statement,⁶ which is set to expire soon, permit limited-purpose broker-dealers to custody crypto asset securities. The new guidance expands the path for broker-dealers that are not special-purpose broker dealers to engage in activities in crypto asset securities.

What Is the Significance of the Custody Guidance?

The May 2025 crypto asset security custody guidance addressed reliance by a broker-dealer on a “control” location to satisfy the requirements in SEA Rule 15c3-3(b)(1) regarding fully paid or excess margin securities of customers, including through use of certain arrangements with banking entities.⁷ The latest guidance contemplates “possession” to satisfy the requirement.

What Custody Questions Remain Unanswered?

In connection with the “possession” guidance, additional clarifying guidance from the SEC and the Financial Industry Regulatory Authority (FINRA) would be helpful to establish what they will view to be “reasonably designed written policies” and being “aware of any material security or operational problems or weaknesses” regarding the relevant distributed ledger technology and associated network. Questions also remain about how broker-dealers that custody crypto asset securities can comply with other broker-dealer financial responsibility rules. These areas include the following.

• A carrying broker-dealer is subject to an annual audit of its financial statements and a compliance report under SEA Rule 17a-5(d) that generally is subject to the requirements of the Public Company Accounting Oversight Board (PCAOB). The new standards in the guidance must also be judged through the lens of PCAOB requirements that govern external auditors.

• A broker-dealer will have to reasonably satisfy its auditor’s need to determine whether securities are in the “possession” of the broker-dealer. This raises a question of whether the broker-dealer would hand over the private key to the auditor, which would give full transferability to a third party and consequently introduce additional risks.

• Broker-dealers are required, pursuant to SEA Rule 17a-13, to engage in quarterly count of all securities held, or custodied, for proprietary accounts or the accounts of customers. Failing to maintain possession or control over customers’ fully paid or excess margin securities would constitute noncompliance with SEA Rules and a “material weakness” in internal compliance controls.

• Broker-dealers will need to decide how to reflect crypto asset securities on their stock record. For example, this includes what constitutes the appropriate “short” location to ensure adequate stock record “counts” and to test against short securities differences.

The guidance therefore highlights some tension between crypto-native infrastructure and legacy broker-dealer regulatory constructs. As audit methodologies, custody technologies, and on-chain market structures continue to evolve, further engagement among regulators, auditors, and market participants will likely be necessary to ensure that regulatory requirements appropriately reflect technological realities without undermining the core principles of customer protection, financial responsibility, and market integrity.

Absent additional regulatory guidance, it may be easier for a broker-dealer to rely on the May 2025 FAQ guidance on “control” rather than try to show “possession.” FINRA has not yet provided its own guidance and could impose substantial other conditions. Firms that seek to achieve “possession” of crypto asset securities may wish to discuss with FINRA whether a “materiality consultation” or “continuing membership application” is needed.

Can NSEs and ATSs List and Trade Both Crypto Asset Securities and Nonsecurities?

Yes. The FAQs provide that an NSE or ATS can offer pairs trading — trading that involves a crypto asset that is a security and a crypto asset that is not a security — as long as the NSE or ATS satisfies its obligations under the federal securities laws. An NSE trading pair may need to amend its rules, and National Market System (NMS) plan amendments may be necessary. An ATS trading pair would need to comply with Regulation ATS (among other applicable rules), including by noticing its pairs trading activities as required by Form ATS or Form ATS-N. According to the FAQs, Form ATS and ATS-N can sufficiently accommodate disclosures about trading operations that involve crypto asset securities, including pairs trading.

The FAQs address how an ATS should comply with the requirements in Regulation ATS Rules 301(b)(8) and (9) regarding recording and reporting transactions in USD when a transaction is based on the value of non-USD assets, such as nonsecurity crypto assets. For these transactions, an ATS could provide transaction value data in USD using consistent and impartial methods commonly applied for converting the value of an asset that is not quoted in USD.

Separately, the FAQs confirm that a broker-dealer operator of an ATS can engage in certain broker, custodial, or clearing functions in addition to operating its ATS. For example, according to the guidance, a broker-dealer operator of an ATS does not need to register as a clearing agency when it clears and settles transactions in crypto asset securities for its own customers by debiting and crediting the appropriate customer accounts on its internal books and records.

How Soon Can NSEs and ATSs Facilitate Trading of Securities and Nonsecurities?

The FAQs state that the federal securities laws do not prohibit NSEs and ATSs from offering pairs trading of securities and nonsecurities. However, the process for implementing rule updates for an NSE or ATS to facilitate such trading and remain in compliance with the federal securities laws will likely delay the facilitation of these activities. An NSE that seeks to change its rules must submit the proposed rule changes to the SEC for consideration, a process that includes a period for public notice and comment.⁸ A similar process is required for NMS plan amendments.⁹ Broker-dealer operators of ATSs may also need FINRA approval to operate an ATS that offers trading in nonsecurity crypto assets if the operation of the ATS is a change to the broker-dealer’s business plan.

Can NSEs/ATSs Trade Tokenized NMS Securities?

The FAQs state that an ATS that trades NMS stock that displays subscriber orders in an NMS stock to non-ATS employees and meets certain volume thresholds would need to comply with Rules 301(b)(3) and (4) of Regulation ATS, which set forth order display and fee cap obligations for certain NMS stock ATSs. For orders based on non-USD, the ATS could convert the value of the non-USD asset using the process described above before providing the orders to the NSE or national securities association.

In response to the FAQs, Commissioner Peirce posed questions inviting feedback to the Crypto Task Force in a number of areas.¹⁰ The questions include a statement that ATSs that trade crypto asset securities that are NMS stocks are subject to Rule 304 of Regulation ATS, which requires an NMS stock ATS to file public disclosures on Form ATS-N.¹¹

Will the SEC Object to Crypto Exchange-Traded Product Trading Under Regulation M?

No, the Staff would not recommend enforcement action against persons who transact in crypto exchange-traded products as long as they operate under circumstances described in the Staff’s no-action letter related to commodity-based investment vehicles.¹² Such persons must still abide by other antifraud and antimanipulation securities laws in conducting these transactions.

What Other Rules Might Still Apply to Trading Crypto Asset Securities?

Other rules that may apply to the trading of the crypto asset securities depend in large part on the nature of the underlying security (e.g., NMS stock, over-the-counter equity security, fixed-income, security etc.). In this regard, the FAQs notably do not provide relief from the requirements for Regulation SHO, Regulation SCI, the market access rule (SEA Rule 15c3-5), SEA Rule 15c2-11 (with respect to non-NMS stocks), and Regulation NMS (with respect to NMS stocks).

How Does This All Fit Together?

The guidance expressly contemplates activities in crypto asset securities in a way that further opens the door for the development of a robust tokenized securities market. The SEC’s issuance last week of a no-action letter permitting DTC to launch a tokenization service combined with the new guidance on broker-dealer possession or control and tokenized ATS trading move toward supporting a complete trading and post-trade environment for crypto asset securities. Additionally, the ability for financial intermediaries to support multiple asset types, including NMS securities, crypto asset securities, and nonsecurity crypto assets, moves toward Chairman Paul Atkins’s vision of a unified “superapp” capable of seamlessly accommodating diverse financial instruments within a single platform.

¹ Div. of Trading & Mkts., SEC, Statement on the Custody of Crypto Asset Securities by Broker-Dealers (Dec. 17, 2025).

² Div. of Trading & Mkts., SEC, Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology (Updated Dec. 17, 2025).

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

⁴ Alternatively, it could be sufficient signing authority to transact in a multiparty computation (MPC) arrangement. Previously, under now-withdrawn guidance, the staff raised concerns with the fact that a broker-dealer (or its third-party custodian) who maintains a private key may not be sufficient evidence by itself that the broker-dealer has exclusive control of the digital asset security (e.g., it may not be able to demonstrate that no other party has a copy of the private key and could transfer the digital asset security without the broker-dealer’s consent). The staff no longer raises this as a concern, likely a reflection of developments in market practices around private key storage.

⁵ See SEC Paves the Way for Crypto Asset Activities by Broker-Dealers and Transfer Agents, Sidley Update (May 19, 2025).

⁶ See Custody of Digital Asset Securities by Special Purpose Broker-Dealers, Securities Exchange Act Release No. 90788 (Dec. 23, 2020), 86 FR 11627 (Feb. 26, 2021).

Digital Asset Securities Custody: U.S. SEC Issues Broker-Dealers Enforcement Relief and Requests Industry Comment, Sidley Update (Dec. 28, 2020).

⁷ On December 12, the Office of the Comptroller of the Currency conditionally approved five national trust bank charter applications for firms seeking to provide crypto asset custody, signaling an expansion in bank control locations. See Office of the Comptroller of the Currency, OCC Announces Conditional Approvals for Five National Trust Bank Charter Applications (Dec. 12, 2025).

⁸ 15 U.S.C. § 78s(b)(2); 17 C.F.R. § 240.19b-4.

⁹ 17 C.F.R. § 242.608(b)(2)(i).

¹⁰ See supra note 3.

¹¹ Commn’r Hester M. Peirce, No Longer Special: Statement on the Division of Trading and Markets’ Statement Related to the Custody of Crypto Asset Securities by Broker-Dealers (Dec. 17, 2025).

¹² SEC No-Action Letter, June 21, 2006, TP 06-81, https://www.sec.gov/divisions/marketreg/mr-noaction/currencyshares062106-10a1.pdf.