Recent SEC Rulings Eyeing on Crypto Exchanges

On November 16, the U.S. Securities and Exchange Commission (SEC) issued a Statement on “Digital Asset Securities Issuance and Trading.” SEC is an entity which operates with an aim to protect investors, maintain fair, orderly, and efficient markets while examining securities exchanges ICOs, mutual funds etc.

Notably, it is reported that the new ruling by SEC also addresses crypto exchanges along with the ICOs. This is expected to make a large and long-lasting impact on crypto markets.

Here, the SEC guidelines claim that a platform that offers to trade in digital asset securities and operates as an “exchange” must register with SEC. Additionally, it will treat decentralized exchanges just like centralized exchanges, and therefore the developers of those exchanges should also register with SEC. In its statement, the SEC drafts what exactly is considered as an “exchange.”

Recently, two ICOs Airfox and Paragon were found guilty by SEC, as they failed to register tokens as securities. Although, both the ICOs had no fraudulent activity or other worrisome actions, they violated the registration policies.

Talking about exchanges, the SEC declared a settlement with the founder of EtherDelta, a platform facilitating trading digital assets securities. Allegedly, he was breaking the securities laws willfully, avoiding the registration of his platform without exemption. Although, the settlement did not tie to EtherDelta directly, but to the founder. He sold the business in December of last year.

Notably, Registration of exchanges will bring a difference in the economic atmosphere. With that, SEC advises those firms which use blockchain or distributed ledger technology for trading digital assets to review their activities on an ongoing basis to figure out whether the digital assets they are trading are securities.

Moreover, an SEC director has already revealed that the agency plans to release “plain English” guidance for when a token is or is not a security.

Apart from that, the New York State Office of the Attorney General (OAG) formed a report on crypto exchanges a few months ago. The report, in the introduction, specifies, “virtual asset trading platforms now in operation have not registered under state or federal securities or commodities laws.”

According to OAG’s report, digital asset platforms present a risk to the investor by not having the additional buffer of broker-dealers, as it directly deals with the user. Both, OAG and SEC have a similar function, that is to safeguard the investor.

The intention behind this new ruling by SEC was to affirm that, while it encourages technological innovation, financial institutes, especially for crypto assets, need to obey the Commission’s well-established and well operating federal securities law framework.