tZERO, a pioneer in digital asset trading platforms, achieved a significant milestone by receiving approval from the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) to become a special purpose broker-dealer (SPBD). This allows tZERO to custody digital asset securities, marking a major step forward in the evolving digital finance ecosystem.
This development places tZERO among an elite group of firms—becoming only the second broker-dealer approved to offer custody services for digital securities, after Prometheum. It also enables the company to offer a comprehensive, end-to-end solution for digital asset securities, covering issuance, trading, clearance, and settlement without relying on third-party custodians.
What Does This Mean for the Industry?
The approval enables tZERO to transform the digital securities lifecycle. Issuers can now create, issue, and transfer digital securities on the blockchain while utilizing smart contracts for automation. After initial holding periods required by regulation, these securities can be traded on tZERO’s Alternative Trading System (ATS), benefiting from a seamless environment that integrates custody, clearance, and settlement.
One of tZERO’s first moves under this new license will be the full digitization of its Series-A preferred equity security (TZROP). Issued back in 2018, TZROP was a trailblazer for private digital securities trading and will now serve as the first asset to trade on the enhanced tZERO Securities ATS. This development could significantly streamline digital securities trading, potentially attracting more issuers to adopt blockchain-based securities.
Regulatory Innovation and Infrastructure
tZERO has long maintained that many digital assets, including cryptocurrencies, should be treated as securities. However, the company has also argued that the proper infrastructure to support these assets within a regulated framework has been lacking. This approval addresses that gap by providing issuers and investors with a regulated, secure, and compliant platform to trade digital assets under U.S. securities law.
According to tZERO’s CEO David Goone, this moment represents a “monumental inflection point” in the company’s journey, reinforcing tZERO’s belief that blockchain is the future of capital markets. The firm’s Chief Legal Officer, Alan Konevsky, emphasized that this license showcases how regulatory clarity can foster real-world innovation, enabling the creation of compliant, novel financial products.
Competition and Challenges
While tZERO’s approval is a significant achievement, it comes amid growing competition. Earlier in 2023, Prometheum became the first platform to receive the SPBD designation. Prometheum has already launched its custody service, offering support for a range of digital assets, including Ethereum (ETH) and Uniswap (UNI). As competition heats up, both firms are expected to play critical roles in shaping the future of digital securities trading, especially as regulators continue to refine their approach to digital assets.
The Road Ahead
tZERO’s custody service is expected to go live in early 2025, starting with its own equity security and potentially expanding to other digital asset issuers. This positions tZERO to capitalize on the growing interest in digital securities, which leverage blockchain technology to provide more efficient, transparent, and secure financial transactions.
This approval could also set a precedent for other companies looking to offer similar services, further accelerating the adoption of digital securities and blockchain technology in capital markets. While the regulatory landscape around digital assets continues to evolve, tZERO’s approval is a positive step toward a future where digital securities and traditional finance converge.
In summary, tZERO’s newly acquired broker-dealer status positions it as a key player in the digitization of financial markets, with the potential to offer unparalleled services in the custody and trading of digital asset securities.
