SEC Issues Another Warning on Cryptocurrencies

The U.S. Securities and Exchange Commission has issued yet another warning that cryptocurrencies can be securities and some cryptocurrency exchanges can be illegal. For investors, that means that you should be cautious when investing in cryptocurrencies. For operators of exchanges, expect more regulations and/or a crackdown.

The SEC reiterated that, if tokens and cryptocurrencies offered through ICOs, fall within the "securities" definition, then the exchanges should follow the same rules as every other exchange. That means registering through the SEC as a national securities exchange, an alternative trading system (ATS) or a broker-dealer.

The SEC described the current state of affairs in the crypto space as misrepresentation.Specifically, “[t]he SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not... 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.”

The SEC never reviews trading tools on cryptocurrency exchanges. For instance, if you submit a limit order on an exchange, you have to trust the exchange that it’ll strictly follow your order. The exchange could give priority to bigger investors or screw up the order book without any consequence.

The SEC offered a list of questions investors should ask before they decide to trade digital assets on an online trading platform: 

- Do you trade securities on this platform? If so, is the platform registered as a national securities exchange (see our link to the list below)?
- Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
- Is there information in FINRA's BrokerCheck ® about any individuals or firms operating the platform?
- How does the platform select digital assets for trading?
- Who can trade on the platform?
- What are the trading protocols?
- How are prices set on the platform?
- Are platform users treated equally?
- What are the platform's fees?
- How does the platform safeguard users' trading and personally identifying information?
- What are the platform's protections against cybersecurity threats, such as hacking or intrusions?
- What other services does the platform provide? Is the platform registered with the SEC for these services?
- Does the platform hold users' assets? If so, how are these assets safeguarded?

- Do you trade securities on this platform? If so, is the platform registered as a national securities exchange (see our link to the list below)? 

- Does the platform operate as an ATS? If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
- Is there information in FINRA’s BrokerCheck ® about any individuals or firms operating the platform?
- How does the platform select digital assets for trading?
- Who can trade on the platform?
- What are the trading protocols?
- How are prices set on the platform?
- Are platform users treated equally?
- What are the platform’s fees?
- How does the platform safeguard users’ trading and personally identifying information?
- What are the platform’s protections against cybersecurity threats, such as hacking or intrusions?
- What other services does the platform provide? Is the platform registered with the SEC for these services?
- Does the platform hold users’ assets? If so, how are these assets safeguarded?