Disclosures
Copper Markets (US), Inc. (“Copper”), is a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC); a member of the Financial Industry Regulatory Authority (FINRA); and a member of the Securities Investor Protection Corporation (SIPC). More information on Copper Markets (US), Inc. may be found at https://brokercheck.finra.org.
All investments carry certain risks (https://www.finra.org/investors/investing/investing-basics/risk), and digital assets are no exception. Asset allocation and diversification (https://www.finra.org/investors/investing/investing-basics/asset-allocation-diversification) are critical strategies for managing investment risk (https://www.finra.org/investors/investing/investing-basics/risk). However, digital assets as well as stocks, mutual funds and exchange-traded funds (ETFs) that derive value from digital assets can carry both traditional investing risks and an added set of unique risks. (https://www.finra.org/investors/investing/investment-products/crypto-assets/risks)
Digital assets are risky and often extremely volatile. Digital assets have experienced higher levels of volatility relative to more traditional investment assets, meaning that price swings and any investment value may go up and down dramatically and unpredictably, and the risk of losing all of your investment is significant. Digital assets are also less liquid than more traditional financial instruments like stocks and bonds, which can exacerbate price volatility and make it more difficult to sell.
Registration of digital assets and digital asset entities is limited. Under federal securities laws, securities and the people or entities that offer or sell them typically must be registered. Registration of a securities offering or entity provides important investor protection through rules related to, among other things: disclosure of information about the company, offering and securities being offered; custody of assets; conflicts of interest; standards of conduct; and minimum capital requirements.
A particular digital asset or digital asset transaction may be a security, a commodity or another asset type (e.g., property) under applicable law. Many digital assets lack, or are offered or sold in a manner that isn’t consistent with, the robust regulatory protections and market oversight that investors have under the federal securities laws. Whether a particular digital asset or digital asset transaction is a security depends upon whether it meets the definition of a security under federal securities laws. A number of tests and factors, such as the Howey Test and Reves Test, both based on court cases, may be used in evaluating what is and isn’t a security.
Whether a particular digital asset or digital asset activity is a security depends upon whether it meets the definition of a security under federal securities laws. Unregistered digital assets, digital asset broker-dealers and digital asset exchanges might not provide important investor protections.
To find out if a broker-dealer is registered, search BrokerCheck at https://brokercheck.finra.org/. To find out if an asset is registered as a security, check with the SEC (https://www.sec.gov/edgar/search-and-access).
Digital assets that are not securities as defined in the Securities Investor Protection Act (SIPA) are not protected under SIPA. Even some digital assets that are securities under other federal securities laws or that are offered and sold as securities under those laws might not be securities under SIPA—in which case, coverage and protections afforded to securities customers through SIPA might not apply, even if those digital assets are held by a broker-dealer that is a member of the Securities Investor Protection Corporation (SIPC). In particular, an “investment contract” that is a “security” under other federal securities laws isn’t a “security” under SIPA unless it’s also registered with the SEC under the Securities Act of 1933. Although Copper treats non-security digital assets it custodies for customers as “financial assets” to help ensure that customer non-security digital assets do not become part of Copper’s estate in the event that Copper is placed in a liquidation under SIPA or the Bankruptcy Code, non-security digital assets are not protected by SIPA and may not be protected by any other specific insolvency regime, and customers may nevertheless be exposed to loss of such assets in the event of an insolvency.
Learn more from SIPC (https://www.sipc.org/) about the protections afforded to customers under SIPA and find answers to questions (https://www.sipc.org/for-investors/investor-faqs#are-digital-asset-securities-protected-by-sipc) about SIPC customer protection.
When buying, selling or storing digital assets through an affiliate of a broker-dealer or another third party with which the broker-dealer has established an arrangement, investors might interact with an entity that is subject to more limited regulatory oversight or where regulatory clarity is lacking. In these situations, be aware that the entity might not operate under the same investor protection rules and regulations as the broker-dealer.
Transactions in digital assets are often irreversible, meaning unauthorized transfers cannot be canceled. Bad actors continue to exploit investor demand and public interest in digital assets to perpetrate fraud, including through Ponzi schemes (https://www.sec.gov/files/ia_virtualcurrencies.pdf), pyramid schemes, pump and dump schemes (https://www.finra.org/investors/insights/pump-and-dump-scams), the sale of fake coins, phishing scams, romance scams, “pig butchering (https://www.finra.org/investors/insights/avoiding-relationship-investment-scams)” scams, and other forms of market abuse and fraudulent tactics. The pseudonymous nature of digital assets is another reason behind bad actors’ focus on this space. Whatever the scam, once assets are sent, they’re generally gone for good. Such bad actors have tried to lure unsuspecting investors into storing their public and private keys with fake digital asset service providers. Fraudsters might befriend investors and entice them to move their digital asset wallets to a different (fraudulent) digital asset service provider, or they might fraudulently pose as tech support staff for legitimate digital asset service providers. It’s important to carefully vet an institution before using its service.
Theft of digital assets is a significant risk, and diligence should be exercised in selecting digital asset service providers to mitigate against cybersecurity risks and theft. There are many touchpoints where something can go wrong (such as with digital wallet providers), and many of these entities might be operating internationally and without any regulatory oversight. As in the case of scams, recovery of stolen digital assets is rare.
More information about digital assets and related risks is available at: https://www.finra.org/investors/investing/investment-products/crypto-assets
ADDITIONAL RISK DISCLOSURES:
Regulatory and Legal Uncertainty: Digital assets may not be covered by the Securities Investor Protection Corporation (SIPA) or Federal Deposit Insurance Corporation (FDIC) insurance, meaning investors may not have the same protections as traditional brokerage accounts.
Operational Failures: Risks include blockchain malfunctions, hard forks, airdrops, or 51% attacks, which can impact asset ownership or value. There may be external factors which may cause the loss of value of any digital asset where modifications on any blockchain protocol are made. Blockchain networks are generally spread across a number of participating nodes, with no barrier to entry for additional nodes, to give effect to a decentralized, permissionless network. The more decentralized a blockchain network, the wider the spread of nodes and theoretically, the more secure the network.
There are also private, permissioned blockchain networks that are made up of a select number of nodes within a concentrated network.
However, should one node, or many nodes acting in concert have the capacity to control over 50% of a blockchain, there is a risk that these nodes will then sabotage the network a (“51% Attack”). Consequences of a 51% Attack may include: transaction reversals, deletion of transactions or the attacking nodes retrieving all digital assets supported by that blockchain network. In such circumstances, it is usually very difficult or even impossible to retrieve lost digital assets.
Digital Asset Specific Risks: A digital asset may have specific characteristics and risks that differ from other digital asset, including risks arising from its design, governance, consensus mechanism, liquidity profile, functionality and use case. Further risk disclosures may be provided to you from time to time in respect of a particular digital asset prior to you entering into an initial transaction, or where new digital assets or new product features are made available.
Once digital assets are purchased, they are stored in an electronic wallet. Electronic wallets have a public key and a private key or password that allows access to them. However, electronic wallets are not impervious to hackers and digital assets may be stolen from an electronic wallet with little prospect of having them returned. The loss of a private key required to access an electronic wallet may be irreversible and it may result in the loss of the digital assets stored in the electronic wallet.
A blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for validating new blocks, which are made up of transactions. The open-source structure of a blockchain network protocol means that the core developers of the network protocol and other contributors are generally not directly compensated for their contributions in maintaining and developing the network protocol. A failure to properly monitor and upgrade a network protocol could damage the network protocol and affect the value, liquidity or even the existence of any digital asset supported by that blockchain network.
New blocks are validated and transactions are confirmed by peers. If the rewards and transaction fees are not sufficiently high to incentivize the peers, they may cease expending processing power to validate blocks and confirmations of transactions on the blockchain could be slowed or ceased, affecting the value, liquidity or even the existence of any digital assets supported by that blockchain network.
Market Volatility and Liquidity: Digital asset prices are highly volatile, and markets may have limited liquidity compared to traditional securities. Digital assets are vulnerable to sharp changes in price due to unexpected events or changes in market sentiment. Some digital assets may be highly illiquid, infrequently traded, and may therefore be more difficult or impossible to sell within a reasonable timeframe or at a price which reflects “fair” value. Liquidity also varies between exchanges, with some exchanges having a more liquid trading market than others. Other factors that may affect the price of digital assets include changes in the total number of digital assets in existence, the monetary policies of governments, the fees associated with processing transactions, trade restrictions and regulatory measures. A sophisticated, technical understanding may be needed to fully understand the characteristics of, and the risks associated with, particular digital assets.
Criminal Activities and Fraud: Transactions in digital assets are usually public, but the identities of the participants in these transactions are usually not. Transactions by any one participant are therefore largely untraceable and provide owners of digital assets with a high degree of anonymity. It is therefore possible that digital assets may be used for transactions associated with criminal activities, including money laundering. This misuse could affect a customer directly or indirectly. For example, law enforcement agencies may decide to close an exchange and prevent access to or use of any digital assets that the exchange may be holding for a customer. Public information about particular digital assets may also be unbalanced, incomplete or misleading.
Technology Risk: The underlying distributed ledger technology (DLT) or smart contracts may have bugs or security flaws. In general, it is impossible to cancel or reverse a transaction that has been submitted to any blockchain network supporting a digital asset, such that after a transaction request has been submitted to a blockchain network, a customer will not be able to cancel or modify it.
There are some instances where blockchain transactions, i.e., digital asset transfers, may be unconfirmed for a duration of time and, in some circumstances, may not be confirmed at all. There is therefore a risk that where such instances occur, transactions may never complete and digital assets may remain in a state where they cannot be transferred to another electronic wallet.
Some digital assets may settle on more than one underlying layer one (1) blockchain. However, certain exchanges and other counterparties may not support transactions on all of these blockchains. There is therefore a risk that a customer may be unable to recover digital assets if they are sent using an unsupported network.
CORE DISCLOSURES
Regulatory Disclosure Statement
The U.S. Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority, Inc. (“FINRA”), and other regulators have various rules and regulations that require broker-dealers to disclose certain policies and procedures including, but not limited to, customer identification, business continuity, order routing and investor protection.
In compliance with U.S. Securities and Exchange Commission requirements, Copper is providing you with the following documents and disclosures that describe the various accounts and services that Copper offers.
New Account Opening - Verifying Your Identity
To assist the government’s fight against the funding of terrorism and to prevent money laundering activities, federal laws and regulations require financial institutions to obtain and verify information that identifies each customer who opens an account.
When opening an account, Copper is required to obtain your name, address, tax information and other information and documentation that will be utilized to verify your identification. For accounts other than natural persons (e.g.: a corporation, partnership or trust) Copper will request identifying documents evidencing the existence of the entity, such as articles of incorporation, a government-issued business license, a partnership agreement or a trust agreement. Copper may also request to see a valid government issued form of identification evidencing nationality or residence and bearing a photograph such as a driver’s license, passport or other identifying documents for the Control persons or beneficiaries of the account.
As required by federal law, if Copper is unable to verify your identity, Copper will not be able to open an account or establish a relationship with you. Copper reserves the right to request additional information or documentation at any time at its sole discretion. Material changes in account information should be forwarded in writing to Copper’s Compliance Department at the following address:
Copper Markets (US), Inc.
1250 Broadway, Suite 2602
New York, NY 10001
Attention: Chief Compliance Officer
Obligations
Regulation Best Interest (“Reg BI”) (https://www.finra.org/rules-guidance/key-topics/regulation-best-interest)
Best Execution (FINRA Rule 5310 (https://www.finra.org/rules-guidance/rulebooks/finra-rules/5310))
Regulation S-P (https://www.sec.gov/rules-regulations/2024/06/s7-05-23) see Copper Privacy Policy
Copper Business Continuity and Disaster Recovery Policy
Copper has a Business Continuity and Disaster Recovery Policy which ensures that Copper can quickly recover from natural and human-caused disasters and crisis events while continuing to support customers and other stakeholders.
The Business Continuity and Disaster Recovery Policy provides the framework for responding to business disruptions, consistent with regulatory requirements and industry best practice. It defines Copper’s policy on business continuity activities, including business continuity and disaster recovery planning for all critical business processes and service activities undertaken by Copper for its business and customers in order to articulate and achieve the following directives:
- Effectively manage any incident that may cause a business disruption to Copper.
- Provide continuity of critical business processes and services managed by Copper.
- Minimize the potential impact that any business disruption would have on Copper and its reputation.
For more information about our business continuity planning, you can contact us at:
Copper Markets (US), Inc.
1250 Broadway, Suite 2602
New York, NY 10001
Attention: Chief Compliance Officer
Information on the Securities Investor Protection Corporation (“SIPC”)
The Securities Investor Protection Corporation (“SIPC”) was created by the Securities Investor Protection Act of 1970 (“SIPA”) with the primary purpose of providing protection, within the limits of the SIPA, to securities customers of failed brokers or dealers who are members of the SIPC. Copper Markets (US), Inc. is a member of the SIPC. Information on SIPC and the SIPC Brochure is available at www.sipc.org, (https://www.sipc.org) by contacting SIPC at (202) 371-8300 or by sending an email request to asksipc@sipc.org.
Complaints:
In accordance with SEC Rule 17a-3(a)(18)(ii), please be advised that any complaints may be directed to the following:
Copper Markets (US), Inc.
1250 Broadway, Suite 2602
New York, NY 10001
Attention: Chief Compliance Officer
Product Specific Disclosures:
Custody: Broker-dealers must maintain strict policies regarding these risks as per SEC.gov guidance (https://www.sec.gov/newsroom/speeches-statements/trading-markets-121725-statement-custody-crypto-asset-securities-broker-dealers).
OTC: Digital Asset OTC Trading can present certain risks. These can include counterparty risk, whereby one party defaults or fails to fulfill their obligations; Regulatory uncertainty due to the laws and regulations applicable to digital assets vary by jurisdiction and are continually evolving. Participants must ensure compliance with local laws to avoid legal complications; and Operational risks due to the private nature of OTC trades, which can make them more susceptible to fraud or misrepresentation. To mitigate these risks, Copper relies on its established global network, track record, and reputation as an institutional custodian for digital assets and OTC trades.