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US SEC Issues Fresh Guidelines on ICOs and Decentralized Exchanges, Makes Registration Mandatory

November 17, 2018 10:35
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It seems that time isn’t changing SEC’s approach towards ICO tokens and decentralized exchanges. The US markets watchdog has once again reiterated its infamous and disliked position which says that most ICOs will be treated as security token offerings. Therefore, their issuers must comply with the traditional security laws and legal requirements that are applicable to other issuers of securities.

The guidelines were reiterated in a recent press release published yesterday. SEC said in the release that any tokens sold through an ICO in expectation of an ROI will be considered securities. The statement also revealed that SEC has settled charges with Paragon Coin Inc. and CarrierEQ Inc. Both these companies were charged by the regulator for selling securities disguised as tokens.

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The statement released by SEC also touched on the subject of investment companies dealing with cryptocurrencies. It was made clear by the SEC that all such companies will be treated exactly like hedge funds, and therefore they must register with SEC to ensure proper compliance (just as they must register to trade in stocks).

SEC’s harsh stance on ICOs has led to many projects being funded outside United States. This is not surprising at all, given the fact that complying with securities law is one of the most cumbersome things to do for any startup. That’s why early stage companies avoid being listed on an exchange through the IPO. Now if ICOs also take them to the same route, why would they want to raise them?

Decentralized exchanges also need to register

So far there’s nothing surprising in all these requirements. They reflect SEC’s choices from quite some time. What came as a slightly new nugget of information was the registration requirement for decentralized exchanges. SEC said in its press release that decentralized exchanges will be treated just like centralized exchanges, and therefore the developers of those exchanges should also register with SEC. What this means is… you can create a decentralized exchange whose smart contracts don’t give you any power over it once it’s operational, but the SEC won’t spare you. It will still hold you liable as an operator of that exchange. In short, create an exchange and you’re f***ed!

Needless to say that this latest requirement of SEC will also evoke strong reactions from the crypto community. But frankly, there’s not much that we can do about it. If any decentralized exchange wants to provide the service to US-based users, it will have to comply with whatever SEC says.

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