The Staff of the Division of Trading and Markets (the “Staff”) of the Securities and Exchange Commission (the “SEC” or the “Commission”) recently issued a statement (the “Statement”) providing its views on the application of the broker-dealer registration requirements under Section 15(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to persons that create, offer, and/or operate certain software interfaces utilized by users to prepare transactions in crypto asset securities (“Covered User Interface Providers”). The Statement is part of the SEC’s broader effort to provide regulatory clarity on how federal securities laws apply to activities involving digital assets and cryptocurrencies. According to the Staff, it is an interim step while the SEC continues to consider regulatory issues relating to crypto asset securities activities and the feedback it has received. As such, absent intervening action by the Commission, the Statement will be considered withdrawn effective five years from April 13, 2026.
A “Covered User Interface” is an interface provided by a website, browser extension, or other software application, such as a mobile app, that may be embedded in a self-custodial wallet or separately available for download. These interfaces are designed to assist users engaging in user-initiated crypto asset securities transactions on blockchain protocols/blockchain-based smart contracts using the user’s own self-custodial wallet. Covered User Interfaces convert user-identified transaction parameters (such as buy/sell, volume, crypto asset security, and price or price range) into blockchain-legible commands for signature and transmission via the user’s self-custodial wallet. Covered User Interfaces may also provide market data (such as potential execution routes, asset prices, and estimated transaction costs or “gas” fees), present educational material to help users formulate and set their desired transaction parameters, and solicit investors to use the interface, with Covered User Interface Providers generally charging users a fixed percentage per transaction.
Under Section 15(a) of the Exchange Act, absent an exception or exemption, it is unlawful for any “broker”, as defined by Section 3(a)(4) of the Exchange Act (generally, any person engaged in the business of effecting transactions in securities for the account of others), to induce or attempt to induce the purchase or sale of any security without registering under Section 15(b) of the Exchange Act. Provided the following conditions are met, the Staff will not object to a Covered User Interface Provider, including persons who create, offer, and/or operate self-custodial wallets with an associated Covered User Interface, operating without broker-dealer registration under the Exchange Act:
- the Covered User Interface permits users to customize default transaction parameters and provides educational material to help users set them;
- the Covered User Interface Provider does not solicit investors to engage in specific crypto asset securities transactions;
- the Covered User Interface Provider selects default trading venues or distributed ledger trading systems (e.g., automated market maker liquidity pools) to connect with;
- any affiliations between the Covered User Interface Provider and connected trading venues or distributed ledger trading systems are clearly disclosed, and affiliated venues or systems are accessed on the same terms as unaffiliated ones;
- if only one execution route is shown, the Covered User Interface provides the user the ability to view additional routes, as applicable; if multiple routes are shown, users can filter or sort them by objective factors (e.g., price or speed);
- the Covered User Interface does not provide commentary on execution routes (e.g., labeling one as “best price” or “most reliable”);
- the Covered User Interface uses only pre-disclosed, objective, and independently verifiable software parameters for preparing trading instructions and displaying market data;
- the Covered User Interface does not exercise control, discretion or decision-making over market information provided or transactions beyond the functions described in the Statement;
- compensation is limited to a fixed charge to the user, which may be charged per crypto asset securities transaction (either as a flat fee or a percentage of the transaction) or be charged as a flat fee that is based on objective factors, applied consistently, and is product, execution route, execution venue and counterparty agnostic. In other words, the Covered User Interface Provider cannot receive any compensation based on the size, value, or occurrence of a crypto asset securities transaction from any person other than the user (this would also preclude receipt of payments for order flow by the Covered User Interface Provider);
- the Covered User Interface Provider maintains policies, procedures and controls to evaluate, onboard, and audit connected trading venues and distributed ledger trading systems based on objective factors, and to periodically reassess default transaction parameters and address any conflicts of interest or risks associated with such parameters; and
- the Covered User Interface Provider prominently discloses all material facts to users, including its (i) registration status (i.e., a prominent disclaimer that it is not registered with or regulated by the SEC relating to its creation, offering, and/or operation of a Covered User Interface), (ii) fee structure, (iii) material conflicts of interest, (iv) interface limitations, (v) software parameters, (vi) cybersecurity controls, (vii) policies, procedures and controls to protect user trading information, including from potential fraud or manipulation (e.g., involving maximal extractable value strategies), (viii) trading venue or distributed ledger trading system integrations, and (ix) default transaction parameter methodology.
The Statement is expressly limited in scope. A Covered User Interface Provider that engages in, or holds itself out as providing, any of the following services with respect to securities will not benefit from the Staff’s position:
- negotiating transaction terms;
- soliciting specific transactions;
- making investment recommendations or providing advice;
- arranging financing;
- processing trade documentation;
- conducting independent asset valuations;
- holding, accessing, handling, managing, or possessing user funds, securities, or stablecoins;
- executing or settling transactions; or
- taking or routing orders.
The Statement is the latest in a series of SEC statements aimed at clarifying the application of federal securities laws to crypto asset activities—see, for example the Joint Interpretation from the SEC and Commodity Futures Trading Commission on Certain Types of Crypto Assets and Certain Transactions Involving Crypto Assets. Importantly, the Statement does not address the Staff’s views on persons that create, operate, and/or offer custodial wallets held on behalf of an investor with an associated Covered User Interface. As with prior staff statements on crypto asset matters, the Statement does not carry the force of a formal rule or regulation.
Read the Staff’s full Statement.