SEC Clarifies Crypto Regulation: Allows Security Tokens to Trade with Bitcoin

TLDR

• The SEC’s updated guidance permits direct trading between security tokens and Bitcoin without the need for fiat conversion.
• Broker-dealers can now treat proprietary stablecoins as readily marketable assets with a 2% haircut for capital calculation purposes.
• The SEC clarifies that exchanges and ATSs can facilitate crypto pairs trading while adhering to existing federal securities laws.
• Broker-dealers can combine brokerage, custody, and clearing functions as long as each complies with applicable federal securities laws.
• The SEC allows crypto exchange-traded products to be traded under its Regulation M framework, provided certain conditions are met.

The U.S. Securities and Exchange Commission (SEC) issued updated guidance on cryptocurrency market activity. The guidance provides clarity for exchanges, broker-dealers, and alternative trading systems (ATSs) on crypto market operations. While no new rules were introduced, the SEC clarified that it would not object to certain trading structures, provided firms continue to comply with federal securities laws.

Exchanges and ATSs Can Facilitate Crypto Pairs Trading

The SEC clarified that national securities exchanges and ATSs can facilitate direct trades between crypto asset securities and non-security assets like Bitcoin. This means security tokens can now trade directly with Bitcoin without needing to convert into fiat currency. However, the SEC emphasised that existing regulations continue to apply, such as Regulation ATS for ATSs.

The guidance also addresses how trades involving non-U.S. dollar assets should be valued. For reporting and quoting purposes, firms may convert transaction values into U.S. dollars. The SEC stated that conversion methods should be consistent, impartial, and reasonable. These clarifications aim to maintain transparency while accommodating crypto-denominated pricing structures.

Crypto Regulation and Stablecoin Capital Treatment

The SEC also provided further clarification on broker-dealer capital requirements, specifically regarding stablecoins. Under Rule 15c3-1, broker-dealers may treat proprietary stablecoin holdings as readily marketable assets. Firms can apply a 2% haircut to the market value of their stablecoin holdings when calculating net capital. This change brings clarity to firms involved in crypto trading.

Furthermore, the SEC’s updated guidance allows broker-dealers to perform multiple roles, such as brokerage, custody, and clearing functions, within a single operation. However, each of these functions must independently comply with federal securities laws. The guidance also clarified that a separate clearing agency registration is not required for broker-dealers involved in clearing customer trades as part of their regular business operations.

SEC’s Position on Crypto ETPs and Regulation M

The SEC provided additional guidance on crypto exchange-traded products (ETPs) under Regulation M. The agency stated it would not oppose transactions in crypto ETP shares if they adhere to the same conditions outlined in a 2006 Regulation M no-action letter. The ETP shares must be listed on a national securities exchange, and participants must comply with conduct rules that avoid violating Regulation M.

This position applies specifically to crypto ETPs that are commodity-based, where participants must refrain from conduct that could harm the market. The SEC’s update clarified that crypto ETPs must follow existing rules while allowing innovation in how crypto assets are traded on public exchanges.

The new guidance from the SEC offers more clarity on how existing regulations apply to cryptocurrency trading and related activities. This update supports the growth of crypto markets while ensuring that they remain in compliance with federal securities laws.

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