On December 23, 2020, the Securities and Exchange Commission issued a statement proposing a structure under which brokers and dealers can hold securities on digital assets under Rule 15c3-3 of the Securities Act of 1934. Among other things, the statement: which expires five years after publication, suggests that the broker-dealer may hold securities for digital assets as long as they operate in accordance with the conditions listed in the statement, including but not limited to limiting their activities solely digital asset securities by introducing strong written policies and procedures and ensuring exclusive control over securities held by trustees.
Block non-digital activity
It is important to emphasize that this statement provides convenience only to intermediary traders who limit their activities solely to digital securities with an emphasis on the custody of these securities. Contrary to some of the industry’s misleading reactions to the contrary, brokerage traders looking to sponsor securities for digital assets are strictly prohibited from holding non-digital assets such as bitcoin (BTC) or participating in any non-digital asset. kind. While this is clearly not a catalyst for the Securities and Exchange Commission’s (SEC) ban on non-securities digital activities, an intermediary who will engage in such activities will be subject to various government licensing requirements for senders of money.
The SEC statement also prohibits brokers and dealers from conducting other types of traditional securities transactions. Thus, in order to take advantage of the offer announced in the announcement and take an interest in digital securities, brokerage firms currently operating are in a sadistic and strange position as they have to get rid of most, if not all, of their current business. lines. The uninitiated might assume that current clearing houses with advanced operational capabilities, extensive industry mechanisms, and strong technical expertise would be well positioned to take the first step in digital storage – they would be wrong, according to the SEC.
Better yet, having taken a turnaround in foreign business and presumably going through the approval process for the Financial Industry Regulatory Authority or FINRA, it can fairly be assumed that there is clarity on what exactly digital asset security is and hopefully there is a regulatory framework. Prosperity There is an environment for successfully starting a business fully focused on preserving digital securities – and again, this is not true.
The latest action against Ripple clarifies that there is still no agreement on what exactly constitutes “digital asset security”. Despite its longevity, the application of the Howie test to all kinds of digital instruments is still, unfortunately, an imprecise and imprecise solution to a problem that requires precision and consistency. The SEC’s strict application of the Howie test to digital assets also prevents brokers and dealers from taking a practical, if not extended, approach to preservation, treating all digital assets as securities for digital assets.
On the subject: SEC vs. Ripple: Expected But Unwanted Development
FINRA Membership Process
Moreover, brokers-traders will be forced to participate in the potentially lengthy and cumbersome FINRA membership process in order to take advantage of the SEC statement and digital securities holdings. A broker-trader wishing to engage in digital asset activities (whether securities or non-securities) cannot do so without the prior approval of FINRA.
We believe that the SEC’s proposal may appeal to only a small group of companies that may actually operate government licensed institutions (to safeguard digital securities other than securities) and who have already evaluated or applied for FINRA membership to safeguard digital securities. … While the statement reflects the views and position of the SEC, it is clear that the final implementation of this statement and the assessment of the conditions accompanying it will in fact be transferred to FINRA.
Since there is no doubt that some market participants are painfully aware, FINRA has historically struggled to navigate effectively and efficiently the technical and regulatory implications of digital asset technology – in some cases, a number of broker and dealer job seekers leave constant uncertainty or force them to abandon applications. The whole process.