The SEC says that many exchanges are currently unregulated and can do whatever they want with your money.
8 Mar, 2018TECHCRUNCH.COM
The U.S. Securities and Exchange Commission has issued a warning on cryptocurrency exchanges. The SEC says that many exchanges are currently unregulated and can do whatever they want with your money. As an investor, you should be extremely careful. As a company running an exchange, you should expect a crackdown soon.
The SEC first assumes that cryptocurrencies and tokens offered through ICOs are securities. As securities, cryptocurrency exchanges should follow the same rules as every exchange. They should register through the SEC as a national securities exchange, an alternative trading system (ATS) or a broker-dealer.
But the SEC says that the current situation is a mess. “The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not,” the SEC wrote. “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.”
Many exchanges have set up their own rules when it comes to listing new cryptocurrencies, but the SEC has no say in this process and can’t guarantee that those are safe investments.
Similarly, 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 also reminded cryptocurrency exchanges that they’re supposed to register as an ATS for example. After Circle’s acquisition of Poloniex Nathaniel Popper saw a confidential Circle presentation. Circle plans to work with the SEC to register Poloniex:
“The SEC was very favorable on this approach and indicated that they would not pursue any enforcement action for prior activity,” Circle wrote. “They said we are the first and only company in the space to approach them, and were very progressive on working closely with us.”
So it seems like there could be a grace period for U.S.-based exchanges before an eventual crackdown. But many U.S. investors rely on foreign exchanges to trade cryptocurrencies. It’s unclear how the SEC plans to protect U.S. investors from creating accounts on foreign exchanges.
Here’s the SEC’s list of questions to cryptocurrency investors to help them pick an exchange:
This article was first published by Romain Dillet on TechCrunch