Trading, Transfer, Custody, and Liquidity

Core principle: Legal permission to resell, operational ability to transfer, access to a trading venue, and available buyers are separate requirements.

Four different activities

another Trading Agreeing to buy or sell securities A buyer and seller agree on quantity and price Settlement Completing delivery of the securities and payment Ownership and cash records are updated following the trade A transfer is not necessarily a sale. It might be a gift, inheritance, or movement between accounts.

A completed trade agreement does not necessarily mean settlement is complete. SDR explanation: The team must establish both the right to sell and the process for completing the transaction.

Primary and secondary markets

A primary market involves securities issued by the company. A secondary market involves purchases and sales of existing securities.

Transaction Who generally receives the purchase money?

Investor buys newly issued securities

Issuer

Investor buys another holder’s securities

A successful offering does not guarantee that an active secondary market will develop.

Regulation A resale status

Securities sold under Regulation A are generally not restricted securities under the federal Securities Act framework. Non-affiliates generally have a more accessible resale position than holders of securities acquired in many private offerings. Applicable resale and state-law requirements still matter. [R36] Restricted securities are securities acquired in specified transactions that carry federal resale limitations.

An affiliate is a person or entity that controls, is controlled by, or is under common control with the issuer. Important distinctions

• Regulation A does not impose the same general restricted-security holding period as many private offerings. Affiliate status can affect resale analysis; Contractual restrictions may still apply; State-law requirements may affect a resale; Operational processing and market demand remain separate.

The SEC explains that even nonrestricted-security resales require registration or an available exemption. [R04] Accurate SDR language: Regulation A securities generally are not restricted securities. Whether and how a particular holder can sell still depends on applicable requirements, the documents, and the available trading arrangements.

Transferability, tradability, and liquidity

That suggests a $100,000 position if all units could sell at that price. However, only 500 units may have buying interest at $10. Selling the remainder could require a lower price or a long wait.

Training point: A displayed price does not establish a realizable price for the entire holding.

Where can securities trade?

Possible arrangements include:

frameworks

Specific conditions and operational readiness

A tokenized security is not automatically required to trade only on an ATS. It also does not automatically become tradable on the issuer’s existing exchange.

The proposed security and venue require their own review.

What is an alternative trading system?

An alternative trading system, or ATS, is a trading system operating under the applicable Regulation ATS framework rather than registering as a national securities exchange.

Under that framework, the operator must satisfy requirements including broker-dealer registration and applicable filings.

The SEC explains that Form ATS is a notice, not an application through which it approves an ATS before operations begin. [R37]

Roles to distinguish

Accurate description

Trading is provided through the identified system operated by the specified legal entity, subject to its requirements.

Avoid calling a venue “SEC-approved” merely because a Form ATS is on file. For any platform discussed in sales materials, verify the actual operator and service scope before making specific claims.

Venue acceptance is separate from offering qualification

An offering can be qualified without its securities being available for secondary trading. A venue may require its own review of: Issuer and security information; Current disclosures; Shareholder or noteholder records; Token standards and network compatibility; Transfer restrictions; Custody and settlement; Participant eligibility; Fees and agreements.

SDR question: Has the venue accepted this particular security, or is trading access still proposed?

Distinguish “planned,” “under review,” and “available.”

Market makers and buying interest

A market maker is a participant that provides buying and selling quotations under applicable arrangements. The bid is a quoted buying price.

The ask is a quoted selling price. The bid-ask spread is the difference between them.

Hypothetical example

Quote Price per unit

Bid $9.00

Ask $10.00

Spread $1.00

An investor seeking an immediate sale may encounter the $9 bid, subject to available quantity and other conditions.

A market-maker arrangement does not necessarily promise: Continuous buying interest; Unlimited purchases; A minimum price; Recovery of the original investment.

Ask what the actual agreement provides.

Trading hours and settlement

A blockchain can process transactions outside traditional market hours. That does not establish that a particular security can trade continuously.

Trading hours depend on the venue, security, applicable framework, and operating arrangements. Likewise, blockchain confirmation and complete securities settlement are not necessarily the same event.

Most applicable U.S. broker-dealer securities transactions operate on a standard T+1 settlement cycle, subject to exceptions. T+1 means one business day after the trade date. [R38] Example: A covered trade executed on Monday ordinarily settles Tuesday, assuming both are business days.

For a particular tokenized transaction, the team must confirm: When ownership legally changes; When payment becomes final; How the records reconcile; What happens if delivery or payment fails.

Do not promise “instant settlement” without support for the full transaction process.

What is custody?

Custody concerns how assets or relevant access credentials are held and safeguarded. For tokenized securities, examine both:

• The legal ownership or entitlement arrangement.
• Control of the credentials used for blockchain activity.

Common models

Model General arrangement Main question

Self-custody Holder manages relevant credentials What responsibilities and recovery options apply?

Third-party custody Provider manages specified safeguarding functions What rights, controls, and failure protections exist?

Indirect securities holding An intermediary records the investor’s entitlement What interest does the investor hold, and how is it protected?

Investor.gov explains that self-custody places responsibility for private keys on the holder, while third-party custody introduces provider risks, including loss of access following failure. [R39] A securities arrangement may provide recovery mechanisms beyond those available for ordinary crypto assets.

Those mechanisms must be confirmed rather than assumed.

Wallets, keys, and recovery

A wallet is software or a service used to manage credentials and interact with blockchain assets. A private key authorizes relevant transactions.

A seed phrase is a recovery credential used by some wallet systems. These credentials require careful protection. Investor.gov warns that lost or stolen credentials can result in loss of access. [R39] Questions for the operational team

• Must investors manage their own keys?
• Can unauthorized transfers be prevented or addressed?
• Is there a lost-access process?
• Who can pause or reissue tokens?
• What proof of ownership is required?
• How do recovery actions update official records? SDR practice: Direct credential and recovery matters to the authorized provider. Do not request an investor’s private key or seed phrase.

Ownership records and reconciliation

The authoritative ownership record is the record recognized under the governing arrangement and applicable law as establishing the relevant ownership or entitlement.

Reconciliation means comparing records and resolving discrepancies. A tokenized system should establish how the following remain consistent: Investor identity; Account position; Token balance; Transfer records; Issuer or intermediary records; Payment entitlements.

Hypothetical discrepancy

A token transfer appears onchain, but the receiving investor has not completed a required approval. The system must establish whether the transfer is blocked, pending, ineffective, or handled through another documented process.

A visible blockchain event alone does not explain every legal consequence.

Fees affect practical proceeds

Investors may encounter: Trading charges; Custody fees; Transfer charges; Network fees; Payment or withdrawal charges; Bid-ask spreads; Price impact.

Hypothetical sale

arrangement.

A realistic investor-exit scenario

Investor question: If I buy $25,000 of tokens, can I sell them next month? Accurate response: We need to distinguish permission to resell from the practical ability to sell. The offering documents explain applicable restrictions, and the trading arrangements determine access and processing. A sale also requires buying interest at an acceptable price.

Facts to establish

• Has issuance completed?
• Is the investor an affiliate?
• Are contractual restrictions present?
• Is the security accepted by a venue or broker?
• Does the investor have the required account?
• Are custody and transfer arrangements ready?
• What buying interest exists?
• What costs apply? Do not turn a general resale benefit into a guaranteed exit date.

SDR discovery and handoff