Despite their fluctuating values, cryptocurrencies are still on the rise. The Securities and Exchange Commission (SEC) in response is eager to impose registration regulations on cryptocurrencies that are traded on online platforms. As the SEC’s purpose is to protect investors and maintain a fair and efficient market, they are concerned that many of these online platforms may be unlawful and do not effectively protect the interests of investors, which has become apparent through the various fraudulent initial coin offerings. Early in March, the SEC voiced its concerns that “many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not.” The Commission continued to caution investors as these platforms will use the word “exchange”, which can mislead investors into believing that the platform meets the SEC’s regulatory standards when they in fact do not.
In order for the SEC to better protect the market and its participants, the Commission proposed that these online platforms should be registered with the SEC, just like any other trading platform. The Commission stated that “[t]o get the protections offered by the federal securities laws and SEC oversight when trading digital assets that are securities, investors should use a platform or entity registered with the SEC, such as a national securities exchange, alternative trading system (“ATS”), or broker-dealer.”
The SEC set out a list of questions for investors to ask before trading on online platforms using cryptocurrencies, including:
- Is the platform that trades securities registered as a national securities exchange?
- Is the platform an alternative trading system (ATS)? If so, is the ATS a registered broker-dealer and has it filed a Form ATS with the Commission?
- Are any of the brokers listed on FINRA’s Broker Check? (Check here )
- Does the platform have sufficient cybersecurity protections?
- How are users’ assets protected on the platform?
- What are the trading protocols?
- What are the fees and how are the prices set?
Investors should diligently research these platforms before signing up. The Commission notes that individuals trading cryptocurrencies on these digital platforms should seek legal counsel to ensure compliance with federal securities laws. It is essential to confirm that the trading platform you use is legitimate and abides by SEC regulations as either a national securities exchange or ATS. Taking these steps will protect your future investments.
 Securities and Exchange Commission. (March 7, 2018) “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.” Available at: https://www.sec.gov/news/public-statement/enforcement-tm-statement-potentially-unlawful-online-platforms-trading. Accessed on March 16, 2018.