Grasshopper Capital Daily: SEC Cracks Down On Exchanges

SEC Looking at Exchanges
The SEC issued a statement warning cryptocurrency exchanges that they must comply with existing federal securities laws or face charges. Many exchanges list tokens that meet the definition of securities and as such, the exchange must be registered as either a national securities exchange, alternative trading system ("ATS"), or broker-dealer. Most platforms state that they are exchanges, but under US law are not. The statement goes on to further say that companies that are operating as an exchange must think about a variety of factors that affect their legality. These factors include proper storing of records, safeguarding custody of customer funds, and preventing misuse of public information. The statement ends with:

We encourage market participants who are employing new technologies to develop trading platforms to consult with legal counsel to aid in their analysis of federal securities law issues and to contact SEC staff, as needed, for assistance in analyzing the application of the federal securities laws.In particular, staff providing assistance on these matters can be reached at

What does this mean? I believe that the SEC is giving a warning to exchanges to delist tokens that are "securities" and become compliant. Exchanges such as Bittrex have begun delisting ERC-20 tokens such as FunFair and Metal. Bittrex has a policy for delisting tokens and one of the reasons for delisting is, "Evolving regulatory standards and other compliance issues". It's unlikely that the SEC will shut down exchanges like Bittrex or GDAX because the US government knows that in order to stay competitive in a burgeoning market, it must have smart regulation. The US government's approach to cryptocurrency has been reasonably cautious and prudent. If exchanges can work on problems such as KYC/AML, creating fair markets, and creating liquid markets, they will be in good shape.

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