SEC takes aim at cryptocurrencies, trading platforms03.09.18
Hot on the heels of the issuance of more 100 information requests and subpoenas by the Securities and Exchange Commission (SEC), the SEC's enforcement staff issued a Public Statement this week on potentially unlawful exchanges and other secondary trading platforms that list and/or facilitate the trading of digital assets like cryptocurrency coins and tokens.
The statement emphasizes that entities participating in activities related to the trading of such digital assets, including many (and likely all) coins and tokens issued through initial coin offerings (ICOs), must: (i) register with the SEC as a national securities exchange, alternative trading system (ATS), or broker-dealer; or (ii) operate under an exemption from such registration.
The statement seems to address the widespread misunderstanding of many cryptocurrency exchanges that such registration was not required, and that state-level licenses, such as money transmitter licenses, would suffice to operate as a crypto securities exchange. It remains to be seen if aspiring crypto exchanges, such as Overstock. Com subsidiary t0 will be successful in launching its ATS that complies with the SEC’s new guidance.
The SEC also offered a set of questions that anyone should ask before trading digital assets on an online trading platform:
- Do you trade securities on this platform? If so, is the platform registered as a national securities exchange?
- Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC?
- Is there information in FINRA's BrokerCheck ® about any individuals or firms operating the platform?
- How does the platform select digital assets for trading?
- Who can trade on the platform?
- What are the trading protocols?
- How are prices set on the platform?
- Are platform users treated equally?
- What are the platform's fees?
- How does the platform safeguard users' trading and personally identifying information?
- What are the platform's protections against cybersecurity threats, such as hacking or intrusions?
- What other services does the platform provide? Is the platform registered with the SEC for these services?
- Does the platform hold users' assets? If so, how are these assets safeguarded?
For more information on navigating the SEC’s exchange registration, ATS and broker dealer regulatory scheme, please contact Marc Adesso, Wes Scott or any member of Waller’s Capital Markets team.