The SEC Chairman Jay Clayton, in an interview to CNBC, said that the agency will not change or amend rules to accommodate cryptocurrencies while defining what is or what not is a security. He added that it is because of the current rules that USA has been able to build a USD 19 trillion securities market.
Cryptocurrencies a replacement for Fiat
The boss at the helm of on one of the worlds strongest securities regulator SEC, said that cryptocurrencies such as bitcoins are a replacement for Fiats which can be used a replacement of Dollar, Euro or Yen hence it cannot be ruled as security.
For an asset to be classified as security and to come under the purview of SEC it should fit in the definition provided by the “Howey Test”. Howey Test is created based on the ruling given by the US Supreme Court in 1946 which defines securities as an investment of money in a common enterprise, in which the investor expects profits primarily from others’ efforts.
The Howey Test has continued as a prominent determiner of regulatory oversight for many decades. In the past few years, it has been called into question, most frequently with respect to discussions about cryptocurrencies and blockchain technology.
SEC would still be the watchdog for ICO’s
Though cryptos dint falls under its watchlist, Jay Clayton made it clear that it would keep an eye on ICO’s as they are fundraising activities but still won’t bend the rules for it. He made it clear that if an entity privately places its tokens it will have to follow the private placement guidelines laid by the SEC and so would be the case with the ICO’s- which would follow the IPO guidelines. According to him, A token, or digital assets used in a fundraising process are securities. Quoting him
“A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money I say ‘you can get a return’ that is a security and we regulate that,”
SEC Chairman, Mr. Jay Clayton said:
“We regulate the offering of that security and regulate the trading of that security.” and “if it’s a security, we’re regulating it.”
This statement by Jay Clayton comes as a clear answer to companies dealing in cryptos that had claimed that they should be put into the different category, at least some of them based on their utility.
SEC over a period of time has been making the adjustment and coming up with a statement that is clearly giving shape to cryptocurrencies. In late April, SEC Commissioner Robert Jackson had said that SEC was not looking to ban the ICO’s and remains open to a legal avenue for crypto investments. In May SEC created the website HoweyCoins.com to show investors some of the ways a site can look valid when it actually could be a scam.
This week SEC picked a new leader for its emerging cryptocurrency division. Valerie Szczepanik, who already worked at the agency, was promoted to a role that didn’t exist until this week: Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation.
With US regulator giving hints and making every effort to what looks like getting cryptocurrencies to the mainstream, any person associated with cryptocurrencies couldn’t be much happy.
Definitely, the future looks bright and once the efforts of SEC fall in place investor would become more confident in terms of investing and safeguarding his or her rights.
Will these steps by the US security watchdog change the way the world looks at Cryptos? Do let us know your view on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.