The U.S. Securities and Exchange Commission (SEC) seem very serious regarding its objective of taming crypto exchanges. The SEC has also issued an open warning to the latter. In fact, exchanges must take this seriously, as there’s no out-innovating the regulatory reach of the commission.
Tokens and cryptocurrencies offered through initial coin offerings (ICOs) are assumed as securities by the SEC. Thus it is of the opinion that cryptocurrency exchanges need to follow the same rules as every exchange. The SEC says that crypto exchanges should register as an alternative trading system (ATS) or a broker-dealer through the commission, as a national securities exchange. However, seeing the present state of affairs, the SEC says that the situation is a mess.
A lot of crypto platforms refer themselves as exchanges. This gives investors the misimpression that they are regulated or in other words, they meet the regulatory standards of a national securities exchange. Many of these so-called exchanges have also set up their own rules in terms of listing new tokens.
Taking its initiative of taming exchanges further, the SEC is in the midst of its first ever case against an exchange running on the Ethereum blockchain. Robert Cohen, the chief of the SEC’s newly created cyber unit said that using any blockchain to create an exchange without central operations, does not take away the original creator’s responsibility.
Cohen said that the focus is not on the label that is attached to something or the technology that is used. The focus is on what the platform is doing, whether it’s on a smart contract or not and whether it is decentralized or not, as reported on Forbes. The commission’s charges are not against the exchange, but Zachary Coburn, the founder of the unlicensed decentralized token exchange, EtherDelta.
In order to help investors pick an appropriate crypto exchange, the SEC has provided a list of questions for them, as reported on TechCrunch. Some of these questions include: Do the investors trade securities on the platform? If yes, is the platform registered as a national securities exchange? What are the trading protocols on the platform? How are prices set on the said platform? How does the exchange safeguard the users’ trading and personal identification information?
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