What is a broker: the licence test the SEC left standing

The Securities and Exchange Commission’s order of September 17, 2026 exempts certain tokenised-stock venues from the exchange definition and certain liquidity providers from the dealer definition, but it leaves the statutory definition of a broker in section 3(a)(4) of the Securities Exchange Act of 1934 standing, including for firms that effect transactions for other people’s accounts.

Release No. 34-106402, File No. 4-927, does two things and stops. It exempts a tokenised securities venue from the definition of exchange in section 3(a)(1), and it exempts a defined liquidity provider, a Covered Firm, from the definition of dealer in section 3(a)(5). Section V states that the exemptions are effective from September 17, 2026 until September 17, 2031. Nothing in those granting clauses amends section 3(a)(4)(A), which defines a broker as a person engaged in the business of effecting transactions in securities for the account of others. This analysis reads that sentence against the United Kingdom’s general prohibition and the European Union’s investment-firm test, then sets the order beside an August 21, 2026 unregistered-broker penalty of $100,000.

Key facts

• Release No. 34-106402, File No. 4-927 (September 17, 2026): Federal Register document 2026-19388, 91 FR 60168.
• The order exempts a tokenised securities venue from “exchange” in section 3(a)(1) and a Covered Firm from “dealer” in section 3(a)(5). It does not exempt “broker” in section 3(a)(4).
• Section V runs the exemptions from September 17, 2026 until September 17, 2031. The introduction also says the order expires five years after publication.
• Section 3(a)(4)(A), 15 U.S.C. § 78c(a)(4)(A): a broker is any person engaged in the business of effecting transactions in securities for the account of others.
• File No. 3-22673 (August 21, 2026): R4 Capital Funding LLC, cease-and-desist and a $100,000 civil penalty under section 15(a)(1), on 31 offerings raising over $1.16 billion.

Methodology and sources

Primary documents are Federal Register document 2026-19388, the September 17, 2026 order published on September 22, section 3(a)(4)(A) at 15 U.S.C. § 78c(a)(4)(A), the Commission’s August 21, 2026 summary of File No. 3-22673, and the Corporation Finance crypto-asset FAQs updated on September 28, 2026. The comparison uses Financial Services and Markets Act 2000 sections 19 and 23, Regulated Activities Order 2001 (SI 2001/544) articles 21 and 25, the Financial Conduct Authority’s wholesale-brokers page, and Directive 2014/65/EU Articles 4, 5, 70 and 93 and Annex I. The window runs from the August 18, 2026 proposing release cited in the FAQs through White & Case’s October 1 alert. Scope is the United States, the United Kingdom and the European Union. The Federal Register page states that its XML is not the official legal edition. The FAQ page says those staff views have no legal force.

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What section 3(a)(4) still requires

A broker is any person engaged in the business of effecting transactions in securities for the account of others. That sentence is section 3(a)(4)(A) of the Securities Exchange Act of 1934, codified at 15 U.S.C. § 78c(a)(4)(A). The person must be engaged in the business, must effect transactions in securities, and must do so for others rather than only for its own account. Own-account activity is tested under the dealer definition in section 3(a)(5). Release No. 34-106402, dated September 17, 2026, exempts tokenised-securities venues from the exchange definition in section 3(a)(1) and certain liquidity providers, called Covered Firms, from the dealer definition. It grants no exemption from section 3(a)(4)(A). Section V runs those exemptions from September 17, 2026 until September 17, 2031. On August 21, 2026, File No. 3-22673 imposed a civil penalty of $100,000 on R4 Capital Funding LLC for unregistered broker services under section 15(a)(1). What is a broker, on that record, is a licensing test the September order left in force.

Absent an exception or an exemption, the order says, section 15(a)(1) makes it unlawful for a dealer to effect transactions unless registered under section 15(b). The Covered Firm exemption applies only to section 3(a)(5). The Commission says the relief is temporary while it evaluates “the application of existing broker-dealer regulatory frameworks to these novel market structures.” A framework still under evaluation has not been disapplied.

A Covered Firm with a public website must disclose that it is not registered as a broker-dealer. That is a condition of the dealer exemption, not a finding under section 3(a)(4). The order also asks whether registered broker-dealer participants need relief from Regulation NMS, including Rule 611, the split drawn in the note on Rule 611 and who it binds.

Staff FAQ question 2.6 does not close the gap: “A trading platform that offers a secondary market for a crypto asset would only be considered a promoter if the trading platform met the definition of “promoter” as defined in Securities Act Rule 405.” The same page says the FAQs “are not a rule, regulation or statement of the Securities and Exchange Commission” and “have no legal force or effect.” White & Case’s October 1 alert states: “The Regulation Crypto Assets proposal does not propose exemptions from the Exchange Act definitions of 'exchange,' 'broker' or 'dealer.' The SEC's September 17, 2026 innovation exemption separately provides temporary, conditional relief for certain venues and liquidity providers engaged in trading tokenized NMS stock; it is not a general exemption for crypto trading platforms.” Comments are due October 20, 2026. The symbol caps do not redefine a broker.

How the United States, the United Kingdom and the European Union draw the line

Sources: 15 U.S.C. § 78c; Release No. 34-106402, 91 FR 60168; SEC File No. 3-22673; FSMA section 19; FSMA section 23; RAO article 21; RAO article 25; FCA wholesale brokers; Directive 2014/65/EU, Article 4; Article 5; Article 70; Article 93; ESMA Article 4. Last updated: October 8, 2026.

The United Kingdom does not use the Exchange Act word broker as its licensing trigger. Section 19 of the Financial Services and Markets Act 2000 states that no person may carry on a regulated activity in the United Kingdom, or purport to do so, unless authorised or exempt. Article 21 of the Regulated Activities Order 2001 specifies dealing in securities as agent. Article 25 specifies making arrangements for another person to buy, sell, subscribe for or underwrite a security. The Financial Conduct Authority lists arranging deals in investments among the permissions a wholesale broker typically needs. In the European Union, Article 4(1)(1) of Directive 2014/65/EU defines an investment firm as a legal person whose regular occupation or business is providing investment services to third parties, or performing investment activities, on a professional basis. Article 5 requires prior authorisation. Annex I lists reception and transmission of orders and execution of orders on behalf of clients. Member States were required to apply those measures from January 3, 2018.

The tests meet on agency and split on form. Article 25 arranging, and reception and transmission of orders, can catch a platform that never uses the American title. The $100,000 figure is one settled civil penalty, not a ceiling. Section 23(1)(b) sets two years on indictment. Article 70 requires fines of at least EUR 5,000,000, or up to 10% of turnover for a legal person. On the FCA wholesale-brokers page, a MiFID firm’s own funds are the higher of a £75,000 permanent minimum requirement or a fixed-overhead requirement. That is capital, not a penalty.

The September order does not align the columns. It exempts exchange and dealer for one on-chain model and does not reach article 25 or reception and transmission of orders. The October 7 account of how CASS 7 treats a UK contract-for-difference broker assumes a firm already inside the perimeter, as does the September 20 note on FINRA Rule 3290.

"Today’s order grants two forms of temporary, conditional exemptive relief under Section 36(a)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”). First, it exempts certain trading venues called Tokenized Securities Venues (“TSVs”) from the definition of “exchange” under Section 3(a)(1) of the Exchange Act. Second, it exempts certain liquidity providers—called “Covered Firms”—from the definition of “dealer” under Section 3(a)(5) of the Exchange Act."

— Paul S. Atkins, Chairman, Securities and Exchange Commission (SEC statement, September 17, 2026)

What an unregistered-broker order still looks like

The worked example is not a tokenised venue. On August 21, 2026 the Commission announced settled charges against R4 Capital Funding LLC of New York, File No. 3-22673. From June 2020 through December 2025 the firm provided broker services on 31 municipal bond offerings that raised over $1.16 billion to finance 27 multifamily housing developments, for four investor clients. It negotiated structure and pricing with the developers, solicited investors, and advised them on the merits of the bonds. It received transaction-based compensation. It was not registered in any capacity. The summary finds a violation of section 15(a)(1). Without admitting the findings, the firm agreed to cease and desist and to pay a civil penalty of $100,000.

Those facts match section 3(a)(4): solicitation, negotiation, advice and pay tied to someone else’s purchase. The Commission charged section 15(a)(1) before signing an order that exempts exchanges and some dealers and grants no broker exemption. File No. 3-22673 is not a holding about automated market makers. A liquidity provider that only posts its own tokens, inside the Covered Firm conditions, sits in the dealer exemption Chairman Atkins described. A firm that solicits customers into the pool, or is paid on the size of their orders, does not. The order supplies no broker exemption for that activity.

What this means for brokers, venues, managers and compliance teams

A firm that effects transactions for customers has no broker exemption in the September 17 order to cite. Section 3(a)(4)(A) and section 15(a)(1) remain the US pair. A registered broker-dealer on a tokenised securities venue is still in the category the order’s comment request treats as a broker-dealer when it asks about Regulation NMS. The venue’s exchange exemption does not cancel that registration.

For a venue, the exchange exemption runs only until September 17, 2031, and only if the person meets the order’s conditions. Outside that box, section 3(a)(1) returns, and section 3(a)(4) was never removed. Chairman Atkins set the time limit in one sentence: “Critically, this interim measure must be followed by durable rulemaking to ensure that onchain markets remain a viable pathway as our capital markets continue to evolve.”

For a manager or custodian, the question is whether the firm effects a client transaction, arranges under article 25, or receives and transmits an order under Annex I. Holding a token is not, by itself, any of those. Placing the trade with client authority can be. File No. S7-2026-27, with comments due October 20, 2026, accompanies a proposal that does not exempt exchange, broker or dealer. FAQ 2.6 is not a defence to section 15(a)(1).

"The Commission does not presume that parties involved in offering onchain trading or liquidity qualify as “exchanges” or “dealers” merely by virtue of their reliance on these exemptions. Before jumping to regulatory conclusions, we want to see who uses the exemptions and how."

— Hester M. Peirce, Commissioner, Securities and Exchange Commission (SEC statement, September 17, 2026)

What is still open after September 17

Commissioner Peirce’s caution is the serious counterpoint. Using the exemption is not an admission that the user was an exchange or a dealer. That is a reason not to treat every liquidity provider as a dealer merely because the exemption exists. It is not a reason to treat a person who effects transactions for others as outside section 3(a)(4). Her statement names the exchange exemption and the dealer exemption. It does not describe a broker exemption.

The order solicits comment on modifying the venue exemption, the Covered Firm exemption, and whether broker-dealer participants need Regulation NMS relief. It states no comment closing date. White & Case dates the Regulation Crypto Assets comments to October 20, 2026, File No. S7-2026-27. Until a final rule says otherwise, that alert’s reading stands: no proposed exemption from exchange, broker or dealer.

Under section 36 the Commission may change the length or any other aspect of the exemptions, including before September 17, 2031. A later instrument could address brokers. This one does not. Introducing customers through software is a separate question, covered when this site reported that CFTC Letter 26-25 ties software relief to passivity. That letter is not an Exchange Act broker exemption. Section 3(a)(4)(A) and section 15(a)(1) remain in force on the documents opened here.

TL;DR

A broker, under section 3(a)(4)(A) of the Securities Exchange Act of 1934, is any person engaged in the business of effecting transactions in securities for the account of others. Release No. 34-106402 of September 17, 2026 exempts certain tokenised-stock venues from the exchange definition and certain liquidity providers from the dealer definition, until September 17, 2031. It does not exempt the broker definition. White & Case’s October 1, 2026 alert says the Regulation Crypto Assets proposal does not propose exemptions from exchange, broker or dealer. Section 15(a)(1) remains the registration duty for agency business. On August 21, 2026 the Commission ordered R4 Capital Funding LLC, File No. 3-22673, to pay a civil penalty of $100,000 for unregistered broker services. Britain and the European Union reach similar activity through authorisation, not that American word.

FAQ

What is a broker under the Exchange Act?

Section 3(a)(4)(A), at 15 U.S.C. § 78c(a)(4)(A), states that a broker is any person engaged in the business of effecting transactions in securities for the account of others. The elements are a business, securities transactions, and another person’s account. Where that definition is met, section 15(a)(1) is the registration section applied in File No. 3-22673 on August 21, 2026. Release No. 34-106402 does not rewrite section 3(a)(4)(A).

Did the September 17, 2026 order exempt brokers?

No. Release No. 34-106402 exempts a tokenised securities venue from “exchange” in section 3(a)(1) and a Covered Firm from “dealer” in section 3(a)(5). Chairman Paul S. Atkins described those two forms of relief and no third. Section V runs them from September 17, 2026 until September 17, 2031. The introduction also says the order expires five years after publication. Neither formulation amends section 3(a)(4)(A).

Who is a Covered Firm, and what must it disclose?

A Covered Firm supplies tokenised NMS stock to a pool with proprietary capital, and may quote prices or commit capital. The section 3(a)(5) exemption is limited to that context. On a public website it must say it is not registered as a broker-dealer, that it may provide liquidity, and that it may receive fees, tokens or other incentives. It must notify the Commission in writing. That disclosure does not decide section 3(a)(4).

How does the UK test differ from section 3(a)(4)?

Section 19 of the Financial Services and Markets Act 2000 bars a regulated activity in the United Kingdom unless the person is authorised or exempt. Article 21 specifies dealing as agent. Article 25 specifies arranging for another person to buy, sell, subscribe for or underwrite a security. Section 23 sets a maximum on indictment of two years or a fine, or both.

What does MiFID II require before a firm handles client orders?

Article 4(1)(1) of Directive 2014/65/EU defines an investment firm as a legal person whose regular business is investment services to third parties, or investment activities, on a professional basis. Article 5 requires prior authorisation. Annex I lists reception and transmission of orders and execution of orders on behalf of clients. Article 93 set application at January 3, 2018. Article 70 sets maximum administrative fines of at least EUR 5,000,000.

What was the penalty in the R4 Capital Funding case?

On August 21, 2026 the Commission settled File No. 3-22673 against R4 Capital Funding LLC. From June 2020 through December 2025 the firm provided broker services on 31 municipal offerings raising over $1.16 billion. It solicited investors and took transaction-based compensation, without registration. The Commission found a section 15(a)(1) violation. The firm agreed to cease and desist and to pay a civil penalty of $100,000, without admitting the findings.

Do the September 2026 crypto-asset FAQs waive broker registration?

No. The FAQs, issued September 25, 2026 and updated September 28, are staff views with no legal force. Question 2.6 limits promoter status to Securities Act Rule 405. That is not section 3(a)(4) or section 15(a)(1). White & Case’s October 1, 2026 alert says the proposal does not exempt exchange, broker or dealer. Comments, it says, are due October 20, 2026.

This article is informational analysis only and does not constitute legal, regulatory, tax, or investment advice. Regulatory frameworks change frequently and interpretation depends on facts and circumstances; primary documents and official regulator guidance always supersede summaries. Firms should consult qualified legal counsel and their relevant supervisory authority before taking any action based on the analysis above.