Where Technology Meets Law
SEC issues a statement and request for comment
On December 28, 2020, the SEC issued a very important statement and request for comment to potentially allow broker-dealers to handle digital securities, such as tokens issued to raise capital and other crypto related securities. In its statement, the SEC recognized existing issues, including technical limitations and risks, which are setting digital securities apart from the traditional investment instruments. At the same time, the SEC suggests a number of steps that could be taken by broker-dealers to minimize the risks to investors and other market participants.

At the end of its statement, the SEC asks public to provide comments to the following specific questions:

1. What are industry best practices with respect to protecting against theft, loss, and unauthorized or accidental use of private keys necessary for accessing and transferring digital asset securities? What are industry best practices for generating, safekeeping, and using private keys? Please identify the sources of such best practices.

2. What are industry best practices to address events that could affect a broker-dealer’s custody of digital asset securities such as a hard fork, airdrop, or 51% attack? Please identify the sources of such best practices.

3. What are the processes, software and hardware systems, or other formats or systems that are currently available to broker-dealers to create, store, or use private keys and protect them from loss, theft, or unauthorized or accidental use?

4. What are accepted practices (or model language) with respect to disclosing the risks of digital asset securities and the use of private keys? Have these practices or the model language been utilized with customers?

5. Should the Commission expand this position in the future to include other businesses such as traditional securities and/or non-security digital assets? Should this position be expanded to include the use of non-security digital assets as a means of payment for digital asset securities, such as by incorporating a de minimis threshold for nonsecurity digital assets?

6. What differences are there in the clearance and settlement of traditional securities and digital assets that could lead to higher or lower clearance and settlement risks for digital assets as compared to traditional securities?

7. What specific benefits and/or risks are implicated in a broker-dealer operating a digital asset alternative trading system that the Commission should consider for any future measures it may take?

If you want to get involved and provide a valuable input, you can do so by completing the online comment form at or sending an email to

Summarized by Katrina Arden
Attorney and founder of Blockchain Law Group
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