SEC chief won’t ease securities rule for cryptocurrencies

The chief of the Securities and Exchange Commission (SEC) said Wednesday that the agency should not change its longstanding definition about what constitutes a security to ease the rules for cryptocurrencies.

“We are not going to do any violence to the traditional definition of a security that has worked for a long time,” SEC Chairman Jay Clayton told CNBC on Wednesday.

“We’ve been doing this a long time, there’s no need to change the definition,” added Clayton, whose agency oversees the stock market and a wide swath of U.S. investment offerings.

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The SEC and the Commodity Futures Trading Commission (CFTC) have boosted their oversight of cryptocurrency markets as the burgeoning industry expands and attracts billions of dollars in investments.

Cryptocurrencies can straddle the lines between several types of investments, complicating federal regulatory efforts. 

A virtual token could be considered a security, akin to a stock or bond; a commodity, a scarce resource with inherent value; and a currency — all at the same time.

Clayton and CFTC Chairman J. Christopher Giancarlo have both asked Congress for greater authority over cryptocurrencies and related investment offerings. The trading watchdogs say they don’t want to hamper the market, but want greater oversight authority to ensure cryptocurrency offerings comply with federal law.

Traders began offering a slew of cryptocurrency-related futures and derivatives after the value of bitcoin and other virtual currencies exploded in late 2017.

Dozens of companies — some legitimate, others fronts for frauds — sought to raise capital by offering their own virtual coins through initial coin offerings (ICOs). In an ICO, a company offers investors the ability to buy tokens of its own cryptocurrency just as other firms sell shares of stock.

The SEC and CFTC have focused on fraudulent cryptocurrency offerings and those that don’t comply with federal trading laws. They’ve worked in tandem to bust dozens of token sales and ICOs that flout federal law or dupe potential investors.

Clayton also said the SEC wouldn’t change its rules for ICOs. The chairman urged companies interested in ICOs to consult with the SEC on how to conduct one legally.

“If you have an ICO or a stock, and you want to sell it in a private placement, follow the private placement rules,” Clayton said. “If you want to do any IPO with a token, come see us.”