Katie W. Branscum
Last week, the Securities and Exchange Commission (SEC) released a public statement clarifying that cryptocurrencies may indeed be subject to federal securities laws, and warns investors and market participants alike of the potentially unlawful associated trading platforms. The statement comes in the wake of increased popularity of “Initial Coin Offerings” (ICOs), where online trading platforms facilitate the buying and selling of digital assets by investors. After noting that some of these digital assets qualify as “securities” under federal securities laws, the SEC goes on to firmly remind readers that any platform meeting the definition of an “exchange” and selling securities must either register with the SEC as such or be exempt from registration.
To avoid the misimpression that a trading platform is an “exchange,” the SEC suggests that investors use a platform registered with the SEC, such as a national securities exchange, alternative trading system (ATS), or broker-dealer, when considering investing in digital assets that are securities. The SEC also recommends investors consider various questions including how are prices set on the platform, and who can trade on the platform? Such considerations can also help investors evaluate whether the trading platform meets the standards of a registered exchange.
The SEC also provides “considerations” for market participants that operate online trading platforms, but the considerations take more the form of reiterating federal securities law: unless an exemption is met, an “exchange” must register with the SEC and be subject to appropriate rules, including federal securities laws. Further, even if an online trading platform does not meet the definition of an “exchange,” other registration requirements may still be triggered. The SEC concluded its statement with a not-so-subtle reference to the ATS regulations and certain SEC enforcement actions related to registration violations.
In echoing the SEC, it is important for market participants to consult with legal counsel regarding the analysis of federal securities law issues when considering engaging in such online trading platforms. This public statement evidences the SEC’s intent to reign over at least some cryptocurrencies
You can read the Commission’s full Public Statement here.