The SEC is very concerned about the possibility of market manipulation in certain crypto trading venues, a senior regulator revealed in an interview with CNBC. Brett Redfearn, the Director of Division and Trading at the SEC, shared insights on the state of crypto industry regulation, ranging from the categorization of assets as commodities or securities, to whether current systems can support this rapidly-evolving industry. In his first interview since joining the regulator, he said that the SEC is very interested in encouraging the development of a more sound regulatory structure.
The Lingering Question on Securities and Commodities
Determining whether a digital asset is a security or a commodity is not as obvious as it seems, said the former Global Head of Market Structure at JP Morgan. While the SEC continues to use the Howey Test to determine whether assets are securities, it hasn’t been easy, as most of these assets are complex and have multiple applications.
WE CONTINUE TO CLARIFY WHERE POSSIBLE. I THINK THAT THERE WILL BE MORE STATEMENTS COMING FORWARD FROM THE COMMISSION ON THIS, BUT IN THE MEANTIME WE ARE HIGHLY ENCOURAGING ANY MARKET PARTICIPANT INVOLVED IN THE SPACE TO REALLY LOOK AT THESE PRODUCTS AND RUN THAT TEST TO DETERMINE WHETHER OR NOT THEY MEET THE PRONGS OF BEING DEFINED AS SECURITIES.
So, when will the crypto industry get a definitive answer from the regulator on which assets are classified as securities? In keeping with the narrative from the SEC, Redfearn shied away from giving any exact timelines, instead stating that the commission will issue more statements on this topic moving forward. He also shied away from settling the biggest debate in the crypto industry today – whether Ether and XRP are securities. He did, however, promise that the SEC would release a statement on at least one of these products in the future.
Redfearn’s interview came days after SEC chairman Jay Clayton strongly suggested that most of the digital assets currently trading on exchanges are doing so unlawfully as commodities. In an interview with CNBC, he defined a security as an asset whose holders expect a return on their investment. Clayton insisted that any such asset was under the SEC’s jurisdiction and that it would regulate the offering and trading of those assets.
The two regulators affirmed the commission’s commitment to working together with any ICO issuer that comes forward. However, Redfearn said that the commission was “underwhelmed by the enthusiasm for coming within the regulatory structure right now.” Clayton, on the other hand, insisted that while the SEC will remain supportive of compliant industry players, it wouldn’t change its set regulations which have existed for decades just to appease the crypto industry.
The current infrastructure doesn’t need to be overhauled in order to accommodate the crypto industry, Redfearn continued. While admitting that some changes are needed, Redfearn stated that some of the current procedures such as registering as a broker-dealer or an alternative trading system are well laid out and that a number of firms have been in touch with the SEC on the same.