The US securities and exchange Commission (SEC) will simplify the procedure for settlements using digital securities for broker-dealers to reduce their operational risks.
According to the SEC’s letter dated September 25, broker-dealers and alternative trading systems (ATS) that work with digital securities will not be subject to penalties and penalties if they comply with the new rules. The model of most ATS includes four stages: the buyer and seller send orders to the ATS, then the ATS matches these orders, notifies the buyer and seller of the agreed transaction, and then the transaction is carried out – bilaterally or with the involvement of custodians.
According to the SEC, many ATS want to follow a simplified model due to the lack of storage of tradable assets, and the above four-step model exposes them to too much risk. ATS suggested that regulators simplify this process, and the financial institutions regulatory Agency (FINRA) demanded more detailed information when a broker-dealer does not have the right to store assets.
According to the SEC document, now the process of ATS working with digital securities will be carried out as follows.
Step 1: the buyer and seller send their orders to the ATS, inform their custodians and provide them with the necessary instructions to complete the transaction.
Step 2: the ATS matches orders.
Step 3: the ATS notifies the buyer, seller, and custodian of the agreed transaction, after which the custodian services follow the agreed instructions.
Under the SEC’s client protection rules, broker-dealers are required to hold and control all fully paid-up securities or excess margin securities transferred by the broker-dealer to the clients ‘ account. This will protect customers from losses and delays in accessing their securities in the event of an ATS failure. However, this is difficult to implement when working with digital assets.
The SEC said that broker-dealers who choose the optimized model will not be subject to enforcement actions related to Customer protection rules. The Commission also noted that broker-dealers are afraid to take on the role of custodian of digital assets, since they work with a minimum capital of $250,000 and initially inform their clients that they do not take responsibility for conducting transactions.
However, broker-dealers reported that they apply special procedures for evaluating stock tokens and check whether such stock tokens are registered with the SEC and whether they comply with Federal laws. The SEC document is not a legal definition, but it serves as evidence that regulatory control over digital assets in the United States is becoming clearer.
Recall that this month, the platform for trading tokens-shares tZERO received FINRA approval to launch a retail broker-dealer tZERO Markets.