The U.S. Securities and Exchange Commission (SEC) has set clear expectations for cryptocurrency labeling under new regulations, with Nasdaq proposing a highly specific taxonomy for digital assets.
The U.S. Securities and Exchange Commission (SEC) has been grappling with how to regulate the cryptocurrency market, and Nasdaq has weighed in on the issue. In a 23-page letter sent to the SEC‘s crypto task force, ‘we believe that a highly specific taxonomy for digital assets is necessary for effective regulation’ , Nasdaq proposes a highly specific taxonomy for digital assets.
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Defining Digital Assets: A Four-Bucket Approach
Nasdaq suggests that digital assets be categorized into four buckets:
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Financial Securities: Tokens tied to assets that are securities under existing definitions, such as stocks, bonds, and exchange-traded funds (ETFs).
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Digital Asset Investment Contracts: Tokenized contracts that check all the securities boxes under a ‘clarified version’ of the Supreme Court‘s so-called Howey test.
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Digital Asset Commodities: Meeting the U.S. definition of commodities.
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Other Digital Assets: Stuff that doesn’t fall anywhere else and shouldn’t have rules for securities or commodities imposed on it.
Jurisdictional Border: A Shared Responsibility
Nasdaq argues that the SEC and Commodity Futures Trading Commission (CFTC) should work together to define the precise border between their jurisdictions. The letter suggests that digital assets that constitute financial securities must trade as they do today, while platforms that can handle digital asset investment contracts, commodities, and other types of assets under one roof should have a crossover trading designation.
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) collaborate to regulate financial markets.
The SEC oversees securities, such as stocks and bonds, while the CFTC regulates derivatives, like options and futures contracts.
Jointly, they establish rules for market participants, including broker-dealers and investment advisers.
This collaboration helps maintain market integrity, protect investors, and prevent manipulation.
In 2020, the two agencies reported a record number of enforcement actions, highlighting their commitment to regulating financial markets.
Safety Measures and Constraints
Nasdaq also emphasizes the need for safety measures or further constraints on firms that want to handle investors’ activity from top to bottom. The company contended that regulators should consider imposing stricter regulations on firms that want to participate in the digital asset market.
A Credible Approach
In its letter, Nasdaq underlined its digital-asset credibility, highlighting its expertise in trading and clearing services, market and trading surveillance, and central securities depository technology. The company’s proposal is seen as a credible approach to regulating the cryptocurrency market, and it has sparked interest among regulators and industry stakeholders alike.
Next Steps
As the SEC continues to grapple with how to regulate the cryptocurrency market, Nasdaq‘s proposal serves as a useful framework for discussion. The company’s emphasis on precision and clarity in labeling digital assets is seen as an important step towards creating a more effective regulatory environment.
The Securities and Exchange Commission (SEC) is a US government agency responsible for regulating securities markets.
Its primary goal is to protect investors by ensuring the accuracy of financial disclosures, preventing insider trading, and maintaining fair market practices.
The SEC regulates various sectors, including broker-dealers, investment advisers, and publicly traded companies.
It also enforces laws such as the Securities Act of 1933 and the Securities Exchange Act of 1934.
As a result, companies must comply with strict reporting requirements to avoid penalties and maintain investor trust.
