Fidelity Urges SEC to Clarify Rules for Broker-Dealers Handling Crypto Assets

TLDR

• Fidelity is requesting more explicit regulations from the SEC for broker-dealers managing cryptocurrency assets.
• The company is advocating for directives concerning the trading of tokenized securities on Alternative Trading Systems (ATS).
• Broker-dealers require definitive guidance on the custody of crypto assets and the pairing of crypto with traditional securities for trading.
• Fidelity endorses the application of blockchain technology in processes related to recordkeeping and settlement.
• The firm emphasizes the importance of harmonizing regulations for tokenized securities with those for conventional securities.

 

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(SeaPRwire) –   Fidelity has urged the U.S. Securities and Exchange Commission (SEC) to provide more explicit regulations for broker-dealers involved with crypto assets. The company indicated that more precise directives are necessary for custody, trading activities, and tokenized securities. Furthermore, it advocated for the adoption of blockchain systems and alternative trading platforms, particularly as regulatory bodies strive to incorporate cryptocurrencies into current market frameworks while upholding investor safeguards and market transparency.

Need for Clearer Broker-Dealer Guidance

Fidelity articulated that broker-dealers need enhanced regulatory clarity to facilitate the offering, custody, and trading of crypto assets. The company presented these concerns in its submission responding to an SEC request for information. It expressed support for the initiatives undertaken by the agency’s Crypto Task Force aimed at developing a systematic framework for digital assets.

The firm observed that current securities legislation already establishes a robust foundation. This encompasses the Securities Exchange Act and Regulation ATS. Nevertheless, crypto assets present novel operational complexities. Broker-dealers require direction to manage these assets without encountering legal ambiguities.

Fidelity mentioned that recent pronouncements from SEC leadership have been beneficial. It cited guidance that permits broker-dealers to hold certain crypto assets in custody. However, it further stated that additional guidance is essential for trading and settlement procedures. This specifically includes support for trading pairs involving cryptocurrencies and traditional securities.

Tokenized Securities and ATS Framework

Fidelity pressed the SEC to establish unambiguous standards for the exchange of tokenized securities on alternative trading systems. These platforms, managed by broker-dealers, are crucial to secondary market transactions. The firm indicated that clarity is imperative due to the varying legal classifications tokenized assets can possess.

It clarified that the classification hinges on the economic composition of each token. In certain instances, tokens signify ownership interests in a security. In other scenarios, they might be categorized as securities-based swaps. This situation generates ambiguity for broker-dealers who facilitate these trades.

Fidelity asserted that broker-dealers ought to be able to depend on an asset’s classification. Such reliance would mitigate the risk of contravening securities regulations. It also requested confirmation that tokenized iterations of securities should maintain the identical regulatory standing as their foundational assets. The firm further noted that such harmonization could diminish market fragmentation. It could also enhance efficiency across conventional and blockchain-powered markets.

Balancing Traditional and Decentralized Markets

Fidelity discussed the interplay between intermediated and disintermediated trading platforms. It observed that blockchain-powered platforms have the potential to provide quicker settlements and reduced expenses. They could also enhance transparency and accessibility.

Nonetheless, these platforms might not possess the same regulatory protections afforded to conventional intermediaries. Fidelity suggested that the SEC ought to examine how both types of systems can coexist and function collaboratively. This involves assessing risks like price disparities across various platforms. The firm additionally proposed mandating disclosure requirements for participants utilizing decentralized platforms. This measure could assist in apprising investors of potential hazards. 

Fidelity indicated that this methodology would foster wider market participation. It advocated for permitting the use of blockchain in recordkeeping, given that existing regulations do not comprehensively cover distributed ledger systems. Revised guidance would facilitate broker-dealers’ adoption of emerging technologies. The firm also asked the SEC to affirm that enabling on-chain settlement does not categorize broker-dealers as clearing agencies under current regulatory frameworks.