SEC Eyes Cryptos, Glancing At Equity Markets’ Roadmap

To take stock of the cryptocurrency market, take stock? In a way. After a fashion.

News came Friday that the wild west of cryptocurrencies — where fortunes are made and lost in the blink of an eye, and where regulations are less than regular — might be well-governed by the stock market when it comes to governance.

So opined the Securities and Exchange Commission’s (SEC) Director Brett Redfearn, Reuters reported. Redfearn is head of the SEC’s trading and markets operations. As noted here, there and everywhere, all sorts of recommendations have dotted the crypto landscape, centered on cultivating best practices.

The scramble for a framework overseeing the 1,500 digital currencies changing hands comes as the SEC is concerned about fraud, hacking, money laundering and even terrorist financing, said Redfearn at a New York FinTech conference.

“There are no registered exchanges; there are no registered ATSs (Alternative Trading Venues) trading any of these products,” said Redfearn at the conference. “That is a very big concern for us.”

And caution from SEC Chairman Jay Clayton and others has been, well, cautionary, but then again, the volatility of bitcoin and its brethren show that some investors/speculators are throwing caution to the wind. Clayton, as Reuters noted, also said ICOs — shorthand for initial coin offerings — are securities offerings. As such, they would be subject to the regulatory purview of the SEC.

Inefficiencies abound in pricing, as some cryptocurrencies show a lack of uniformity across trading. The situation today smacks of that of equities a few decades ago, when pricing across electronic trading networks showed similar discrepancies. But the ensuing efficiencies emerged amid rules governing execution and fraud protection.

Earlier this month, the SEC said any exchange that allows for the buying and selling of securities needs to be regulated by the SEC.

Might that be a good thing? There’s no timetable in place. There’s no specific exchange being targeted that might be made an example. The debate still hinges on what a security is.

The exchanges, though, if they provide a way to sell and buy (usually through automated mechanisms) must register with the SEC as a national securities exchange or apply for exemption.

The registration is fine, but one wonders what the rules might be that govern operations. Consider the fact that investors have been hit by errors that have taken cash out of accounts. And trading volume has caused an overload in some cases, with exchanges going dark. The plumbing that connects buyers and sellers needs work.

Redfearn noted that no exchanges have been properly registered yet. Overlaying some rules that worked for equities may indeed give some signposts for cryptos, nascent as they are. The “pump and dump” has been around since paper stock certificates were issued and which now sees trading rendered in bits and bytes. Slow going and painful, perhaps, but guidance needs to be fashioned and heeded.



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