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Regulation Update: How to interpret the Statement on Potentially Unlawful Online Platforms for Trading Digital Assets?

A Quick Glance of the Crypto Market

We are going to breakdown the public statement released by SEC for you.

Our stance: Neutral.

Let’s jump into it!

Part 1: Introduction

Part 2: Considerations for Investors Using Online Trading Platforms (For Consumers)

  1. Make sure the exchange that you have used is not giving you the false impression that they are regulated or meet the standards of the SEC.
  2. Even if they use “strict standards”, most of these exchanges are not reviewed by the SEC.
  3. Don’t assume the trading protocols meet the standards of an SEC-registered national securities exchange.
  4. Even if the exchange tells you that they “offer order books with updated bid and ask pricing and data about executions on the system,” they may not have the same integrity as a SEC approved exchange.

Part 3: Considerations for Market Participants Operating Online Trading Platforms (For Exchanges)

  1. Join us or you are out: This is a warning shot for the U.S. based exchanges that you either register with SEC or operate under an exemption from registration.
  2. SRO: If you are going to self-regulate as an industry, then the self-regulatory organization (SRO) must have rules and procedures to govern and discipline the members and persons associated with its members. You may ask what is a SRO? SRO is like a professional organization like ASCE for civil engineers or medical board for doctors. They are like the civilian equivalent of regulators in the business.
  3. ATS is no longer exempt: Those who operated as an ATS is no longer free from regulatory requirements. ATS(s) are required to register with the SEC as broker-dealers and with a SRO as members. A Form ATS needs to be filed. ATS will follow the federal securities laws.
  4. Digital wallet is no longer exempt: Digital wallets, although not strictly an exchange by SEC’s definition, will also be regulated as long as the digital assets are defined as securities and wallet based companies may need to comply with “other registration requirements under the federal securities laws, including broker-dealer, transfer agent, or clearing agency registration, among other things.”

Read about our previous post on the Virtual Currencies Senate Hearing here.

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