The Securities and Exchange Commission has made it clear that ICOs are securities by its standards and that exchanges trading those assets need to register with the agency. Yet one director said he is surprised by the lack of self-reporting.
“We’re underwhelmed by the enthusiasm for coming within the regulatory structure right now,” Brett Redfearn, SEC Director of division of trading and markets, told CNBC at the Sandler O’Neill Global Exchange and Brokerage Conference Wednesday.
“There are a number of exchanges that are trading ICOs that I would think that we would see more registrations.”
SEC Commissioner Jay Clayton made clear to CNBC earlier at the conference that tokens, or digital assets used in a fundraising process known as an initial coin offering, or ICO, are securities.
“We regulate the offering of that security and regulate the trading of that security,” Clayton said.
Whether an asset is a security right now follows the “Howey Test” which comes from a 1946 U.S. Supreme Court case that classifies a security as an investment of money in a common enterprise, in which the investor expects profits primarily from others’ efforts.
“We’ve created this pronged test, the Howey Test, where people look at the different characteristics and determine if it’s a security,” Redfearn said. “Quite frankly not all of them are obvious on its face exactly what it is.”
The agency will “continue to try to clarify where possible,” Redfearn said. There will be more statements coming from the commission on the topic, he added, but did not specify when.
Some companies tied to those cryptocurrencies, including Ripple, have argued that some should fall under a different category, in many cases because of their utility.
Clayton first said in March that allICOs constitute securities, and reiterated that Wednesday saying “if it’s a security, we’re regulating it.”