SEC Warns on Unlawful Platforms, Seeks Registration of Crypto Exchanges

The US SEC has warned about irregularities with crypto exchanges, saying they must register with the agency or obtain an exemption from registration.

The US Securities and Exchanges Commission (SEC) published a warning that calls for the regulation of crypto exchanges. The agency said that crypto companies providing exchange solutions would need to register with the SEC in order to continue or start operating in the US. The decision, along with some unfavorable news from Japan, hit Bitcoin hard, dragging it down to around $9,880 from about $11,000.

The SEC statement says:

“Many platforms 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. Although some of these platforms claim to use strict standards to pick only high-quality digital assets to trade, the SEC does not review these standards or the digital assets that the platforms select, and the so-called standards should not be equated to the listing standards of national securities exchanges.”

The SEC said that it did not review the trading protocols applied by crypto platforms, suggesting that some services might provide different standards based on the investors’ profiles despite claiming a single approach.

The agency also expressed concerns that these platforms might promote exchange features such as order books with real-time bid and ask prices or information about order execution. However, the SEC cannot guarantee that the data can be trusted as in the case with national stock exchanges, which are regulated.

According to the SEC, some platforms offer an asset trading mechanism that falls under the definition of a “security” in terms of federal securities laws. Consequently, if a service offers trading solutions for assets that resemble securities and acts as an exchange, it must register with the SEC as “a national securities exchange or be exempt from registration.”

Interestingly, the SEC tends to stress the fact that cryptocurrencies might be viewed as securities, while the US Commodity Futures Trading Commission (CFTC) considers them commodities.

It’s worth noting that crypto exchanges that eventually register with the SEC will have to stick to a list of rules and expect inspections.
Coinbase and its GDAX platform, which are the largest players in the US market, are not registered with the SEC, but they don’t view cryptos as securities either.

Coinbase said in a statement:

“Under the current SEC guidance, Coinbase and the GDAX exchange are exempt from registration requirements as they do not list assets that could be considered securities.”

Gemini president Cameron Winklevoss welcomed the move:

“We applaud the SEC’s statement. The trading of ICO tokens that are unregistered securities on unlicensed exchanges has gone on for far too long. This is dangerous for consumers and bad for the cryptocurrency ecosystem as whole.”

Circle, the company that acquired crypto platform Poloniex, seems to be ready to register with the SEC as an alternative trading system (ATS), according to a confidential presentation disclosed by a Twitter user:

Even though some crypto exchanges pretend the regulator’s decision is a positive change, Bitcoin investors don’t seem to be happy at all. The BTC quotation fell over $1,200 to the lowest level since February 26, dragging the whole crypto market down.

However, the SEC is not the only party to blame for the bearish sentiment. Japan’s Financial Services Agency required two local exchanges to halt their activity and penalized four others.

Elsewhere, Binance, one of the largest exchanges, experienced some troubles with hackers, who triggered “irregular trades.”

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