By Josiah Wilmoth
The US Securities and Exchange Commission (SEC) has issued an official notice informing cryptocurrency exchanges that they must register with the agency if they intend to list security tokens or else face potential prosecution under federal securities regulations.
SEC Warns Unregistered Cryptocurrency Exchanges Against Listing Security Tokens
The SEC delivered this warning in a Wednesday statement published by the agency’s divisions of enforcement and trading and markets, explaining that cryptocurrency exchanges that list security tokens and fail to register with the SEC or seek an exemption operate in violation of federal regulations.
“The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not,” the agency wrote. “If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
This declaration has broad implications, as SEC Chairman Jay Clayton has stated on a variety of occasions that most of the token generation events (TGEs) he has encountered constitute securities offerings.
Clayton reiterated this assertion on in a Tuesday interview with Fox Business, stating that “many of the [TGEs] I’ve looked at specifically are securities.”
“They are offerings of interest in an enterprise where the buyer…is basically saying I’m investing with you with the promise of a future return, whether you deliver something to me in the future as a result of your efforts or because I sell it to somebody else who wants that return in the future. That’s a security, and the SEC’s job is to regulate the offer and sale of securities.”
US-Based Bittrex Claims It’s in Compliance
It remains to be seen to what degree the SEC will enforce this policy moving forward, as well as whether it will seek any penalties against exchanges for past violations. Following Circle’s acquisition of cryptocurrency exchange Poloniex, the company reportedly said during a private presentation that the SEC had given it an informal assurance that it would not penalize Poloniex for past violations, as long as Circle brought it into regulatory compliance moving forward.
At least one US exchange, Bittrex, has released a statement responding to the announcement, claiming that it has taken measures to ensure that it is compliant.
“Bittrex uses a robust digital token review process to ensure the tokens listed on the exchange are compliant with U.S. law and are not considered securities,” the company said. “Bittrex is committed to helping advance the United States’ global leadership in this emerging industry, and we look forward to continuing our proactive dialogue with the SEC and other regulators on how to build a secure, fully-regulated environment for blockchain that encourages innovation and economic growth.”
Strategic Coin is a leading research and advisory firm for companies planning to integrate blockchain capabilities into their business model via utility token launches. Our customer research reports provide qualitative and quantitative analysis of token use cases and platform value. With the Strategic Coin Advantage network of partners, we offer customized services for the pre-launch, full-launch, and post-launch phases of Token Generation Events (TGEs).
Featured Image from Jonathan Ernst/Reuters