The US Securities and Exchange Commission (SEC) is exploring ways to regulate crypto trading platforms as the SEC Chairman Gary Gensler wants to bring it under the control of the agency in the name of investor protection.
The US securities regulator is looking at making it more feasible for crypto trading platforms to register as exchanges with the agency, Gensler said on April 5.
Centralised and decentralised crypto trading platforms have traded over $100 billion worth of digital currencies a day recently, Barron’s reported, adding that 99 percent of the trading was handled by the top five trading platforms. Similarly, 80 percent of trading in decentralised finance, or DeFi, is concentrated in the hands of the top five platforms.
As SEC regulates platforms that trade in securities, Gensler has asked the agency staff to explore ways “to register and regulate platforms where the trading of securities and non-securities is intertwined.”
"The crypto market is highly concentrated, with the bulk of trading taking place on only a handful of platforms... which play roles similar to those of traditional regulated exchanges. Thus, investors should be protected in the same way," Gensler said in a virtual speech at an event hosted by his alma mater University of Pennsylvania.
Crypto industry vs SEC
Gensler has been asking crypto-trading platforms like Coinbase to submit oversight to the SEC as they too allow investors to buy and sell assets that meet the legal definition of securities. However, trading platforms have refused, The Wall Street Journal reported.
Over the past year, the crypto currency industry has lobbied with policymakers in the US to avoid coming under the jurisdiction of the SEC. According to crypto trading platforms, developers of digital currencies would face difficulties meeting the disclosure requirements like that of publicly-traded companies designed by the SEC, the report said.
How crypto trading platforms are different from others
Although both are called exchanges, crypto trading platforms are different from securities exchanges in a number of ways.
In the securities trading market, an order is placed by an investor through a broker. The broker sends the order to an exchange. The exchange then matches the buyer to a seller or to a registered market maker. The broker is the custodian of the customer’s assets.
However, in the crypto market, investors interact with the trading platforms directly. The trading platforms are the custodian of their clients’ assets and also act as market makers sometimes. According to the SEC, this creates novel risks and potential conflicts of interest.
SEC chief determined
Gensler said the agency was working on ways to register crypto trading platforms as exchanges, which may require them to pull out their custody and market-making services from other businesses.
According to the SEC Chairman, the regulator was willing to discuss the forms and disclosure norms with the industry and evaluate their concerns.
However, he warned that any crypto currencies that is a security “must play by the same market-integrity rulebook as other securities.”
