SEC Lays Out New Rules for How Brokers Must Custody Tokenized Assets

What Did the SEC Clarify for Broker-Dealers?

The SEC’s Division of Trading and Markets has released long-requested guidance explaining how broker-dealers should handle the custody of “crypto asset securities,” including tokenized versions of stocks and debt instruments. The customer protection rule requires broker-dealers to maintain “physical possession or control” of customer assets — a standard that predates blockchain rails and has been a sticking point for firms exploring tokenized products.

In Wednesday’s notice, the Division said it is issuing these views as an interim measure while the Commission evaluates broader custody rules and industry feedback. The guidance arrives at a time when the SEC is paying closer attention to the quick-growing tokenization segment, which has repeatedly highlighted in recent remarks.

Under the update, the SEC defines “crypto securities” to include “tokenized versions of an equity or debt security,” drawing a clear line between these assets and other digital tokens. Broker-dealers handling such instruments must be able to show exclusive control over the Secret keys used to move the tokens on a blockchain.

Investor Takeaway

How Does a Broker-Dealer Prove “Physical Possession or Control” Onchain?

The SEC says a broker-dealer can regard itself as having “physical possession or control” if it maintains exclusive access to the Secret keys for a given asset. This means the broker’s systems, personnel, and policies must prevent anyone — internally or externally — from being able to move customer tokens without authorization.

The SEC notes that this requires written policies to protect keys from theft, loss, or misuse, alongside operational controls designed to prevent unauthorized transfers. If a firm cannot guarantee that exclusivity, it cannot claim custody. Likewise, if the broker is aware of any “material security or operational difficultys” in the blockchain network hosting the asset, it cannot count the asset toward custody requirements.

“A broker-dealer does not deem itself to possess a crypto asset security if the broker-dealer is aware of any material security or operational difficultys or fragilenesses with the and associated network … or is aware of other material risks posed to the broker-dealer’s business by custodying the crypto asset security,” the SEC wrote.

What Risks Must Broker-Dealers Plan For?

The guidance stresses that custodying onchain securities involves more than key control. Firms must prepare for protocol-level disruptions such as network attacks, consensus failures, hard forks, or “blockchain malfunctions.” The SEC expects broker-dealers to maintain written plans for handling such events, ensuring assets remain protected and that the firm can meet regulatory obligations.

In addition, the SEC notes that firms must be able to comply with court orders to freeze, burn, or seize assets — actions that may not be trivial on certain chains. Broker-dealers handling tokenized equity must also monitor governance proposals, upgrade schedules, or other protocol changes that could affect asset integrity or transferability, and “take appropriate action to reduce its exposure to such risks.”

This expectation may require custodians to follow chain-level governance discussions and factor those developments into their risk frameworks. The SEC did not prescribe how this monitoring should occur, but the message is clear: custody of tokenized securities requires continuous technical and operational vigilance.

Investor Takeaway

What Comes Next?

The Division called the guidance an “interim step,” suggesting that broader rulemaking around is still underway. For now, the update clarifies how traditional intermediaries can participate in tokenized equity and debt markets without violating the customer protection rule.

The move also signals that tokenized securities are no longer treated as edge-case experiments. By framing them directly within the customer protection rule and requiring real custody standards, the SEC is outlining a path for broker-dealers to support tokenized assets while staying inside the existing regulatory framework.

Whether this guidance unlocks broader participation remains to be viewn, but it reduces one of the major compliance uncertainties for firms exploring tokenization and onchain settlement.