FINRA: Self-Regulatory Organization for Broker-Dealers

FINRA oversees approximately 3,400 broker-dealer firms and 612,000 registered representatives across the United States, including every broker-dealer and ATS operator in the security token market. As the sole self-regulatory organization (SRO) for broker-dealers under Section 15A of the Securities Exchange Act of 1934, FINRA’s examination, licensing, and enforcement activities directly determine which platforms can operate, which individuals can sell security tokens, and what compliance standards apply to every secondary market transaction in the tokenized securities ecosystem.

Organizational Overview

FINRA (Financial Industry Regulatory Authority) was created in 2007 through the consolidation of NASD (National Association of Securities Dealers) and the member regulation, enforcement, and arbitration functions of the New York Stock Exchange. It operates under the oversight of the SEC, which must approve all FINRA rules before they take effect.

FINRA’s key statistics relevant to the security token market:

• Membership: All 47 ATS platforms registered for digital securities are FINRA member firms
• Examinations: FINRA conducts approximately 2,200 routine examinations of member firms annually
• Enforcement: FINRA brought 546 disciplinary actions in 2024, including actions against firms handling digital asset securities
• Budget: $1.3 billion annual budget funded by member firm fees and regulatory assessments
• Staff: Approximately 4,000 employees across regional offices

FINRA’s Role in Security Token Market Structure

Member Firm Supervision

Every security token ATS platform — including tZERO, Securitize Markets, INX, Prometheum, and all other registered platforms — must be a FINRA member firm. FINRA membership requires:

New Member Application (NMA). Firms seeking to operate in the security token space must submit a New Member Application demonstrating adequate net capital, supervisory systems, compliance procedures, and qualified personnel. The NMA process for digital asset firms has historically taken 12-24 months, reflecting FINRA staff’s heightened scrutiny of blockchain-based operations.

Continuing Membership Application (CMA). Existing FINRA member firms that add digital asset securities activities must file a CMA demonstrating that their expanded operations meet FINRA requirements. This applies to traditional broker-dealers entering the security token space.

Net Capital Compliance. FINRA monitors member firm compliance with the SEC’s Net Capital Rule (Rule 15c3-3), which requires broker-dealers to maintain minimum net capital based on their business activities. For firms holding digital asset securities, the net capital calculation must account for the unique valuation and liquidity characteristics of tokenized assets. The special purpose broker-dealer framework addresses some of these challenges.

Representative Registration and Licensing

FINRA administers the examination and registration process for individuals associated with member firms. Security token platform employees who engage in securities activities must pass qualifying examinations:

• Series 7 (General Securities Representative): Required for individuals engaged in the solicitation, purchase, or sale of securities, including security tokens.
• Series 63 (Uniform Securities Agent): Required in most states for securities representatives, covering state securities laws and Blue Sky requirements.
• Series 24 (General Securities Principal): Required for individuals supervising securities business, including ATS operations.
• Series 99 (Operations Professional): Available for back-office personnel handling trade settlement, recordkeeping, and custody operations.

FINRA’s BrokerCheck system provides public access to registration, employment history, and disciplinary information for all registered representatives — a transparency tool that applies equally to personnel at security token platforms.

ATS Oversight

While ATS registration is with the SEC (via Form ATS or Form ATS-N), FINRA conducts the ongoing examination and supervision of ATS operations because all ATS operators are FINRA member broker-dealers. FINRA’s examination of security token ATS platforms focuses on:

• Order handling and execution quality — Ensuring fair order matching, best execution obligations, and compliance with the ATS’s disclosed matching methodology.
• Customer protection — Verifying segregation of customer assets, accuracy of customer account statements, and compliance with the Customer Protection Rule for digital asset custody.
• Transfer restriction enforcement — Confirming that the ATS does not facilitate trades that violate Rule 144 holding periods, accredited investor requirements, or other transfer restrictions embedded in the security token.
• Anti-money laundering — Reviewing the ATS’s AML compliance program, suspicious activity reporting, and customer identification procedures.
• Books and records — Examining trade blotters, order tickets, correspondence, and blockchain transaction records for completeness and accuracy.

FINRA Rules Specific to Digital Securities

FINRA has issued several rules and notices directly addressing digital asset securities:

Regulatory Notice 19-24 (2019)

FINRA’s first comprehensive guidance on digital assets, requesting firms to notify FINRA if they engage in digital asset-related activities. The notice identified the types of activities that trigger FINRA oversight, including tokenized securities issuance, ATS trading, custody, and transfer agent functions. This notice effectively required all firms in the security token space to self-identify to FINRA.

Regulatory Notice 21-25 (2021)

Updated guidance addressing custody frameworks for digital asset securities, including requirements for private key management, wallet security, and customer asset segregation. The notice aligned FINRA expectations with the SEC’s special purpose broker-dealer framework and addressed the unique operational risks of blockchain-based custody.

FINRA Rule 3110 (Supervision)

Requires each member firm to establish and maintain a system to supervise the activities of its associated persons that is reasonably designed to achieve compliance with securities laws and FINRA rules. For security token firms, this includes supervision of smart contract deployments, token minting and burning operations, and on-chain compliance enforcement mechanisms.

FINRA Rule 4512 (Customer Account Information)

Requires firms to maintain certain account information for each customer, including name, tax identification number, and employment status. For security token platforms, this rule intersects with KYC requirements and accredited investor verification obligations, requiring platforms to maintain comprehensive investor records in both on-chain and off-chain systems.

FINRA Enforcement in Digital Asset Securities

FINRA’s enforcement actions in the digital asset space have addressed several key areas:

Supervisory Failures. FINRA has sanctioned firms for failing to establish adequate supervisory systems for digital asset activities, including inadequate review of cryptocurrency transactions, insufficient training of registered representatives on digital asset characteristics, and failure to update written supervisory procedures (WSPs) to address blockchain-specific risks.

Suitability Violations. Under FINRA Rule 2111 (now Reg BI-aligned), firms must ensure that security token recommendations are suitable for the customer based on their investment profile, risk tolerance, and financial situation. FINRA has examined whether firms adequately assess customer suitability before recommending illiquid, high-risk security token investments.

Communications with the Public. FINRA Rule 2210 governs all member firm communications, including marketing materials for security token offerings. FINRA has examined whether firms’ digital marketing, social media, and whitepaper disclosures comply with fair balance, risk disclosure, and anti-misleading requirements — an area particularly relevant to general solicitation under Reg D 506(c).

ATS Transparency Data

FINRA publishes quarterly ATS transparency data for NMS stocks, providing aggregate volume and trade count information for each ATS. While security tokens are not NMS stocks, FINRA’s ATS reporting requirements apply to all ATS-traded securities, and this data provides the most authoritative source for market activity tracking.

The FINRA ATS transparency data includes:

• Weekly aggregate share volume by ATS
• Weekly aggregate trade count by ATS
• Quarterly statistical summaries

Coordination with the SEC

FINRA operates under SEC oversight through a delegation framework established by the Securities Exchange Act. The SEC retains authority to approve, amend, or abrogate any FINRA rule. In the digital asset space, this relationship manifests in:

• Joint examinations — The SEC and FINRA conduct coordinated examinations of security token platforms, particularly during initial operational launches.
• Enforcement referrals — FINRA refers significant violations to the SEC’s Division of Enforcement, particularly cases involving potential Section 5 registration violations or fraud.
• Rulemaking coordination — FINRA’s digital asset rule development proceeds in consultation with SEC staff to ensure consistency with Commission policy, including the Crypto Task Force priorities.

For detailed analysis of FINRA’s trading rules for digital securities, see our FINRA rules guide. For the broker-dealer registration process that triggers FINRA membership, see our broker-dealer requirements analysis. For the ATS platform comparison across FINRA-member trading venues, see our comparisons section.

FINRA’s Role in Token Offering Compliance

Beyond secondary market oversight, FINRA plays a direct role in primary offerings through its review of Form D marketing materials and broker-dealer participation in token distributions. Member firms that act as placement agents or selling agents for security token offerings must ensure:

• Due diligence review. FINRA Rule 5110 (Corporate Financing) requires member firms to review the terms and arrangements of securities offerings they participate in, including compensation disclosure and filing with FINRA’s Corporate Financing Department. Token offerings distributed through FINRA member firms must comply with these requirements.
• Accredited investor verification. Firms participating in Reg D 506(c) offerings bear joint responsibility for verifying accredited investor status — a failure can result in both SEC enforcement and FINRA disciplinary action.
• Bad actor screening. Firms must verify that no covered persons associated with the offering are subject to Rule 506(d) disqualification events.

For security token issuers, engaging a FINRA member firm as placement agent adds regulatory overhead but provides meaningful compliance protection. FINRA-supervised distribution establishes a documented compliance trail that significantly reduces enforcement risk compared to self-distributed offerings.

Examination Priorities for Digital Securities

FINRA publishes annual examination priorities that increasingly address digital asset activities. For 2025-2026, the priorities relevant to security token market participants include: ATS operational compliance, custody arrangements for digital securities, customer communications about tokenized investments, and anti-money laundering programs adapted for blockchain-based transfers. Firms operating in the digital securities space should review these priorities annually and update their compliance programs accordingly.

For FINRA’s official digital asset resources, see FINRA’s Digital Assets Topic Page and FINRA BrokerCheck.