SEC Offers Securities-Tokens Guidance04.05.2019
The US Securities and Exchange Commission has released additional guidance on which digital assets could be securities by the regulator.
The new framework comes nine months after Chairman Jay Clayton noted that the SEC did not consider bitcoin and ethereum securities based on the US Supreme Court’s Howey Test.
The framework, which the SEC published on its FinHub website, analyzes whether digital assets that are offered and sold are investment contracts, which would make them securities.
“Any time a regulator provides a market with guidance and certainty, it is a big plus for the market, even if the guidance is something we do not want to hear,” Robert Collins, chairman and CEO Mercantile Global Holdings, told Markets Media. “It is better to know and understand what the principles are that the regulators want to apply in a clear fashion.”
The approximately 5,000-word document should not be viewed as regulation or a statement by the Commission, but as the views of SEC staff, according to William Hinman, director of the Division of Corporation Finance at the SEC and Valerie Szczepanik, senior advisor for digital assets and innovation at the SEC.
“The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular asset,” they wrote in a prepared statement.
The framework may apply to entities that offer, sell, distribute, market, promote, buy, trade, facilitate exchange, hold or store, provide services like management or advice or other professional services.
It is too early to tell if the new guidance will strike the appropriate balance in providing enough regulatory oversight without driving opportunities to less regulated or unregulated markets, said Collins.
“Having regulators who are actively engaged and maintaining safe and sound markets is highly valued,” he added. “There is always a balance between over-regulating and pushing markets on to other venues that would be easier to operate in and the investors’ desire for safety, soundness, and reliability.”
23% of buy side is investing in digital securities and tokens.
Japan Exchange Group has started looking into raising funds through issuing security tokens.
Regulated institutions can use the new protocol to create tokens for their customers.
Forge, Societe Generale’s digital assets arm issued digital covered bonds and structured products.
Clearstream and Northern Trust will also participate.