SEC Issues Statement Concerning “Digital Asset” Exchanges

The SEC’s Divisions of Enforcement and Trading and Markets issued a public statement on March 07, 2018 titled “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”

The statement was issued to warn investors that “online trading platforms” where users can “buy and sell digital assets, including coins and tokens offered and sold in so-called Initial Coin Offerings (“ICOs”) provide a mechanism for trading assets that meet the definition of a “security” under the federal securities laws.”

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The SEC went on to say that there are “concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not” because they “refer to themselves as “exchanges,” which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.”

There were a number of additional ‘SEC staff concerns’ raised: While many of the platforms claim strict standards “to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets.” As well, “the SEC does not review the trading protocols used by these platforms, which determine how orders interact and execute.” Lastly, they state that “there is no reason to believe” that “order books with updatated bid and ask pricing and data about executions on the system…has the same integrity as that provided by national securities exchanges”

They advise that these platforms “must register as a national securities exchange or operate under an exemption from registration, such as the exemption provided for ATSs under SEC Regulation ATS [Alternative Trading System].”

In other words, although this advisory is strongly worded, it is simply an advisory. It does not announce any actions that the SEC will take, and mostly provides things to consider and look for by traders that are buying and selling tokens on cryptocurrency exchanges. It may, however, give a hint towards possible future action by the SEC, especially in regards to the exchanges that allow US-based customers.


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