The Securities and Exchange Commission(SEC) Chairman Gary Gensler continues to navigate how to regulate crypto exchanges, including separating out crypto market makers. Gensler also argued that most cryptocurrencies are likely securities and hence, must be regulated in a similar way.
“Any token that is a security must play by the same market integrity rule book as other securities under our laws,” Gensler remarked at the Penn Law Capital Markets Association Annual Conference.
He concluded by saying that just because different technology is used in crypto does not imply that the crypto market be treated differently. He added that the Commission has robust ways to protect investors trading on platforms and so must apply these same measures in the crypto markets.
Gensler stated that the bureau is looking into ways the crypto trading platforms could act as market makers that trade for their own accounts on the other side of their customers. The agency also wants to see if those market makers need to function separately from those platforms.
The SEC is also considering if protections given to someone investing on traditional exchanges are applicable after questions were raised if exemptions for ‘alternative trading systems (ATS) could be applied to crypto.
Gensler explained that, unlike ATS, crypto trading platforms have millions of retail customers directly trading on the platform without involving a broker.
Gensler has directed the SEC to get crypto trading platforms to register with the Commission and bring them under regulation like exchanges.
He said that issuers of crypto tokens that are securities ought to register their offers and sales of these assets with the Commission. They also need to comply with the agency’s disclosure requirements or meet an exemption.
Citing BlockFi’s case, wherein it failed to register its retail crypto lending product, he said that SEC would bring enforcement action if firms do not comply. Although later, BlockFi did launch a new version of its loan product, BlockFi Yield, that would comply with SEC regulations.
Recently, the Commission also introduced new cryptocurrency standards to protect crypto assets against hacking losses.
Gensler also explained that crypto is based on a broad definition by Congress and the Supreme Court’s so-called “Howey Test.”
Gensler also mentioned the need to regulate stablecoins. He said stablecoins are often owned by trading platforms. He further added that individual investors do not hold a direct right of redemption for the two largest stablecoins by market capitalization.
Gensler’s statements were more of a reiteration of US Lawmakers who had recently proposed a Bill to make a transparent stablecoin market. He expressed his concerns related to the financial stability and monetary policy when it comes to stablecoin.
This is so as some stablecoins could resemble money market funds or other securities. He also said regulators need to keep stablecoins secured against illicit activities.
