The US Security and Exchange Commission have formerly shown support to custodial broker-dealers like coinbase through the SEC clarification letter that was sent to the Financial Industry Regulatory Authority (FINRA).
The US SEC is known to be on the neck of crypto firms that quarrels over the regulation violations and other issuing sanctions. But the case is different in the present time. The regulators have sent a letter (SEC Clarification Letter) to FINRA clarifying what order and under what conditions the crypto broker-deals may swap digital assets.
Broker-dealers are licensed businesses that are authorized to buy, sell, and trade assets on behalf of their clients. On the other hand, in SEC’s letter addressed to the Vice President of Risk Overnight & Operational Regulation, Ms Kris Dailey, FINRA, it was clarified that broker-dealers like Coinbase could swap between crypto assets on behalf of the customers in a three-step process without violating the regulations.
Transaction of crypto assets devoid of violating regulations
In the past, the broker-dealers cannot swap the crypto assets on behalf of the clients. Customers will have to submit their trades, and then wait for an exchange to find a counterparty for the account of the broker-dealer. After a match for the business is found, the broker-dealer must confirm again from the customers before implementing.
The tiresome process has then been simplified. Once the customers have authorized a trade, the broker-dealer custodians must make these trades and inform their customers right after. The letter also clarifies that in the place of the previous process, when the customer’s trade order and confirmation have done separately, once the process can be completed.
Step 1 – the buyer and seller send their respective orders to the ATS, notifying their custodians of their separate orders submitted to the ATS, and then instructing their custodians to settle transactions after the terms of their charges when the ATS announces the custodians of a match on the ATS.
Step 2 – The ATS counterparts the orders
Step 3 – The ATS then notifies the buyer and seller, and their respective custodians of the matched trade and the custodians carry out the provisional instructions.
The clarification can also help the broker-dealers to become more secure counter to SEC actions, and then customers are even more confident when opting for the service.
Nevertheless, other conditions are devoted to broker-dealer executing customer trades, including a reserve of $250,000 in net capital.
Reaction to the SEC clarification letter
Notwithstanding the SEC clarification letter attempted, an attorney at US law firm Carlton Fields, Drew Hinkes, said it remains challenging for broker-dealers to inaugurate which cryptocurrencies are legal to trade in the first place.
The lawyer says that the broker-dealers still do not have the definite answers on which cryptos are legal or not.
He also interrogated SEC’s Rule 15c3-3. The section needs Broker-dealer to hold physical possession of the customer’s asset.
Essentially, notwithstanding SEC’s effort to clarify crypto trades, their letter shows that there are still dodges at bridging regulation issues with cryptocurrencies in the US.
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