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In response to a December 2020 SEC statement allowing limited purpose broker-dealers to custody "digital asset securities" consistent with SEA Rule 15c3-3 ("Customer protection-reserves and custody of securities"), provided that they do not custody any other assets, SIFMA argued that the SEC should take a "technology-neutral approach" to rulemakings and focus on broker-dealer flexibility instead of the underlying technology.
SIFMA stated that the "overbroad" categorization of digital asset security means that digitally represented securities that might not carry the risks described in the SEC's statement would be included in this definition.
In its comment letter, SIFMA argued that the establishment of special purpose broker-dealers to custody digital asset securities would result in operational fragmentation, creating a "trifurcated market" that would further burden broker-dealers and customers. SIFMA urged the SEC to consider allowing a continuous service model (i.e., not limiting a broker-dealer's business activities to digital asset securities only) for customer convenience, stating that custodying digital asset securities in a separate entity would disrupt client interactions "across the securities lifecycle."
SIFMA also urged the SEC to consider:
- the adoption of "minimum practices or principles" in risk controls, highlighting that in the clearance and settlement of digital asset securities, custody risks might be different than those associated with traditional securities, but they are not necessarily greater;
- the issuance of guidance on whether reliance on a good control location would be available for digital asset securities; and
- which material facts issuers must disclose, by distinguishing between factors that impact the value of a digital asset security and factors that impact the risk of loss or theft.
Primary Sources
- SIFMA Press Release: SIFMA Comments on Digital Asset Securities Custody Framework
- SIFMA Comment Letter: SEC Statement And Request For Comment on Custody of Digital Asset Securities by Special Purpose Broker-Dealers
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