WASHINGTON — The Securities and Exchange Commission is studying ways to make it more feasible for cryptocurrency trading platforms to register with the agency as exchanges, Chairman Gary Gensler said Monday.
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Gensler has been urging crypto-trading platforms such as Coinbase Global Inc. to submit to SEC oversight for months, saying the firms allow investors to buy and sell assets that meet the legal definition of securities. The trading platforms have refused. They dispute the assertion that they list securities and cite a variety of technical reasons why they view SEC regulation as impractical.
"These crypto platforms play roles similar to those of traditional regulated exchange," Gensler said in a speech for an event hosted by the University of Pennsylvania’s law school. "Thus, investors should be protected in the same way."
Coinbase declined to immediately comment when reached Monday.
Though they call themselves exchanges, crypto-trading platforms differ from regulated securities exchanges in a number of ways.
In the equity market, an investor will place an order to buy or sell a stock through a broker. The broker typically sends the order to an exchange, which matches the buyer to a seller or to a registered market maker. The broker also custodies, or safeguards, the customer’s assets in accounts that are distinct from its own.
In the crypto market, trading platforms interact directly with individual investors. They custody their clients’ assets and act as market makers, often taking the opposite side of a trade. This creates novel risks and potential conflicts of interest, the SEC has said.
Gensler said he has asked SEC staff to work on ways to register crypto-trading platforms as exchanges and ensure they protect their customers’ assets. He said this may require that they separate their custody and market-making services from other parts of their business.
The cryptocurrency industry has aggressively lobbied Washington lawmakers and policy makers over the past year to avoid falling within the SEC’s jurisdiction. They say developers of cryptocurrencies would have a hard time meeting the disclosure requirements the SEC has designed for publicly traded companies.
Gensler expressed a willingness to engage with the industry while reiterating the importance of regulating cryptocurrencies that are securities.
"If there are, in fact, forms or disclosure with which crypto assets truly cannot comply, our staff is here to discuss and evaluate those concerns," Gensler said. But he added: "Any token that is a security must play by the same market-integrity rulebook as other securities."