The United States Securities and Exchange Commission (SEC) has denied a Coinbase Global Inc. (NASDAQ: COIN) petition for rulemaking on transactions with cryptocurrencies deemed to be securities.
Gary Gensler, the SEC chairman, gave three reasons for denying Coinbase’s petition on Friday in a statement.
Coinbase’s original request was for clarification and rules for the regulation on securities offered and traded using digital methods, as well as rules to help identify what are and are not securities.
Gensler indicated that the existing laws and regulations already apply to cryptocurrencies. He argued there were was nothing about the cryptocurrency security markets that suggest investors and issuers are otherwise less deserving of the protections of the existing securities laws. The final point was that the commission would retain its authority to determine its own rule making priorities.
Paul Grewal, Coinbase’s chief legal officer who signed the petition, anticipated this argument and added a discussion of the Howey test and the Reves decision, which are critical elements of modern securities law, to the petition. Gensler responded directly to the arguments in the Coinbase appendix, which was the only part of the 32-page petition that he addressed.
The Howey test is a legal rule that decides if something is an investment subject to U.S. securities laws. It involves three main parts: investing money, in a common project, with the expectation of making money from the efforts of others. If all three parts apply, it’s usually considered a security and regulated accordingly, ensuring investor protection.
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Coinbase proposed rulemaking is ‘not appropriate’
Gensler further stated that the timing for Coinbase’s proposed rulemaking is not appropriate. He pointed out that the SEC is presently seeking input on crypto-related regulations through the solicitation of comments. Lastly, Gensler emphasized that the agency has discretion in making rules.
SEC Commissioners Hester Peirce and Mark Uyeda issued a joint statement wherein they criticized the decision. While they acknowledged the last two points made by Gensler, they asserted that the concerns raised in the petition should be dealt with.
“Any examination of these matters should involve conducting public roundtables, releasing concepts for discussion, and seeking comments,” Pierce and Uyeda said. “This approach would enable us to hear from a broad spectrum of market participants and other stakeholders,”
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