SEC Chair says crypto market manipulation must be eliminated

digital asset market manipulation

SEC Chair says crypto market manipulation must be eliminated

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SEC Chair Jay ClaytonUS Securities and Exchange Commission (SEC) Chair Jay Clayton told the Consensus: Invest conference in New York that digital ETF approval will only be possible once market manipulation concerns are answered.

“The prices retail investors are seeing are the prices they should rely on, and free from manipulation – not free from volatility, but free from manipulation,” Clayton said during his appearance at the digital investment conference, November 27.

The SEC head said regulators’ key role is protecting investors, as well as trying to provide clarity for industry innovators as digital securities develop.


Tokens are mostly securities


SEC Enforcement DivisionClayton spoke about the question of whether the sale of digital tokens during initial coin offerings (ICOs) constitute securities offerings. He said with few exceptions, ventures financed by tokens are securities, a position the SEC has articulated recently in the DAO Report in July 2018. The SEC did provide clarity that made an exception for bitcoin and Ethereum as utility tokens.

He cautioned companies pitching investors with tokens. “If there’s a gap between what you’re telling [the SEC] and what you’re telling people investing in your venture, that’s not a good place to start.”

He said it’s the “behavior” of the token that determines its status. He said a token used to wash laundry would not be considered a security because it is not intended as an investment.

bitcoin trading averages $4 billion dailyHe reminded the audience of investors and financial professionals that companies cannot skirt the regulatory process by simply calling their digital coins “utility tokens.”

On Nov 18, the SEC settled charges with CarrierEQ Inc (Airfox) and Paragon Coin Inc which both conducted ICOs in 2017. This was the first investigation and settlement of an initial coin offering leading to charges by the SEC.


SEC steps up investigations, monitoring, and education


As part of its role of regulating the investment industry and protecting investors, the SEC has increased its investigations into some cryptocurrency industry practices, cryptocurrency exchange operations, and a number of ICO capital raising projects.

The result has been several high-profile settlements along with outreach to cryptocurrency exchanges and other investment industry leaders.

SEC created FinHubIn mid-October, the SEC launched FinHub, “a resource for public engagement on the SEC’s FinTech-related issues and initiatives, such as distributed ledger technology (including digital assets), automated investment advice, digital marketplace financing, and artificial intelligence/machine learning,” according to its news release announcement.

FinHub is designed to help the SEC reach out to the financial and technology industries as well as create a vehicle for the industries and investors to interact with regulators as the digital security space grows.


New crypto self-regulation group formed


At Consensus, a group of 10 companies in the digital asset space and financial services market, announced a new self-regulatory group aimed at developing standards for a code of conduct for the industry.

Participants in the new Association for Digital Asset Markets (ADAM) include founding members Galaxy Digital, Genesis Global Trading, GSR, Hudson River Trading, Paxos, Symbiont,  BitOoda Technologies, BTIG, Cumberland and XBTO.

The goal of ADAM according to spokesperson Seth London is to work towards becoming a full self-regulatory organization (SRO). “ADAM must earn the trust of market participants and regulators before it can discuss the SRO designation with regulators and governments that have the power to appoint SROs,” he told CoinDesk.

What’s clear from the conference is that regulators and the digital securities industry recognize the need for regulations, higher standards, and eventually a strong code of conduct that guides the industry and protects investors.

Visuals courtesy of SEC