The U.S. Securities and Exchange Commission (SEC) has announced that many online cryptocurrency trading platforms will have to register with the SEC or else close operations. The SEC is particularly concerned traders may believe that platforms describing themselves as “exchanges” have met certain customer-protecting criteria, when in fact they have not.

When the SEC head Jay Clayton testified in front of the senate banking committee in February he said that he had “never seen an ICO which wasn’t a security”. With their latest statement the SEC are claiming that it is not just the offerings which are subject to securities law, but the secondary markets too.

The SEC is particularly concerned that, “many online trading platforms appear to investors as SEC-registered and regulated marketplaces when they are not”. By calling themselves “exchanges”, these platforms are giving customers a false sense of confidence.

Currently, though some platforms may say they have “strict standards to pick only high-quality digital assets to trade” these standards are not reviewed by the SEC, and they “should not be equated to the listing standards of national securities exchanges”.

If there is a mechanism by which assets “that meet the definition of a ‘security’ under the federal securities laws” can be traded, then “the platform must register with the SEC as a national securities exchange” provided it is not otherwise exempt from registration.

Bitcoin fell sharply on the news, down nearly 12% to a two week low of $9,450.

For Ripple CEO Brad Garlinghouse, exchanges now have three options, “de-list ICOs, register, or close”. However, he thinks that the “market is having an outsized reaction” as the impact will be mainly felt on “ETH given ERC20 tokens”.

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