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SEC warns- Crypto-exchanges will face crackdown if they did not clear their mess

Mar 08, 2018 Posted /  4488 Views

SEC warns- Crypto-exchanges will face crackdown if they did not clear their mess

The U.S Securities and Exchange Commission (SEC) has rung the warning bells against the risks associated with cryptocurrencies, and now the SEC has issued an advisory against cryptocurrency exchanges too. According to the Commission, exchanges are mostly unregulated, and they use customers money for their own purposes. It further warned that the investors should be cautious while putting their money in these exchanges.

SEC followed the harsh stance and said that exchange companies if found indulgent in illegal activities would be closed down. SEC has assumed that cryptocurrencies and tokens offered by the ICOs are securities. It clarified that if the tokens are considered as securities, then cryptocurrency exchanges should follow the same regulations as every other exchange dealing with fiat currency does. The commission asked them to register themselves as a national securities exchange, an alternative trading system (ATS) or a broker-dealer.

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Nonetheless, the SEC remarked that the exchanges had created a mess of the present situation.  The commission wrote-

“The SEC staff has concerns that many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not. Many platforms refer to themselves as ‘exchanges,’ which can give the misimpression to investors that they are regulated or meet the regulatory standards of a national securities exchange.”

It is noteworthy that many exchanges have established their own dictates when they proceed to list new cryptocurrencies. It asserted that SEC is not being communicated about the process and hence, cannot confirm if they offer safe investments or not.

Likewise, the SEC stated that it also does not inspect the tools used for trading by the cryptocurrency exchanges. For example, if you propose a limit order on an exchange, you are entirely dependent on the exchange if it’ll stringently follow your order. The exchange will most probably give precedence to larger investors or manipulate the order book without any result.

The SEC also mentioned that the cryptocurrency exchanges had been asked to register as an ATS. For instance, after Circle’s takeover of Poloniex Nathaniel Popper saw a secret Circle presentation. Circle proposes to work with the SEC to register Poloniex:

“The SEC was very favorable on this approach and indicated that they would not pursue any enforcement action for prior activity,” Circle wrote. “They said we are the first and only company in the space to approach them and were very progressive on working closely with us.”

So it appears that SEC has given a grace period to U.S.-based exchanges before an ultimate crackdown. Nonetheless, many U.S. investors are mostly operating with foreign exchanges to trade cryptocurrencies. For now, you can use the SEC’s list of questions to cryptocurrency investors to assist them in picking an exchange:

  1. Do you trade securities on this platform?  If so, is the platform registered as a national securities exchange (see our link to the list below)?   
  2. Does the platform operate as an ATS?  If so, is the ATS registered as a broker-dealer and has it filed a Form ATS with the SEC (see our link to the list below)?
  3. Is there information in FINRA’s BrokerCheck ® about any individuals or firms operating the platform?
  4. How does the platform select digital assets for trading?
  5. Who can trade on the platform?
  6. What are the trading protocols?
  7. How are prices set on the platform?
  8. Are platform users treated equally?
  9. What are the platform’s fees?
  10. How does the platform safeguard users’ trading and personally identifying information?
  11. What are the platform’s protections against cybersecurity threats, such as hacking or intrusions?
  12. What other services does the platform provide?  Is the platform registered with the SEC for these services?
  13. Does the platform hold users’ assets?  If so, how are these assets safeguarded?

Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .

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Tags: Cryptocurrencies SEC Exchange crypto-exchanges trading system trade

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