Business 10 April 2018

Ed Drake

Coinbase seeks SEC license for brokerage

Cryptocurrency trading platform Coinbase has applied to the U.S. Securities and Exchange Commission (SEC) for a license to offer brokerage and electronic trading services, according to reports.

Last week, the Wall Street Journal reported that the San Francisco-based firm have met with regulators in recent weeks as it begins the process of applying for the required licenses.

Crucially, the licensing would enable Coinbase to list a number of other tokens, including those previously ruled by the SEC to be securities, and could open up a raft of new token and cryptocurrency markets on the Coinbase platform.

Valued at over $1.6 billion, Coinbase is the leading platform for buying cryptocurrencies like SegWit-Coin BTC (also known as Bitcoin Legacy or Core) and Bitcoin Cash. If the license is to be granted, and Coinbase predictably follows through on listing an array of new tokens and cryptocurrencies, it could be the trigger for other platforms to follow suit.

As far as cryptocurrencies are concerned, the SEC has remained vague on what is and isn’t to be classed as a security. As guidance, the agency recommends following the Howey test, derived from a Supreme Court ruling in 1946, which provides that (1) there is an investment of money, (2) an anticipated profit from the investment, (3) that the investment is in a common enterprise, and (4) that the profits are derived from the efforts of a third party.

The definition matters, because platforms like Coinbase run the risk of falling foul of securities laws, unless they are licensed and regulated to engage in securities brokerage.

On the license being granted, Coinbase will only be permitted to list tokens that have been registered with the SEC by their issuers, which means investors will have access to full financial disclosures, unless they are limited to institutional investors only.

Coinbase President Asiff Hirji said removing the uncertainty in the current regulatory structures would allow Coinbase, and by extension other platforms, to offer a broader range of assets.

“As soon as there is more regulatory clarity than there currently is you would expect us to start listing more assets,” Hirji told CNBC.

As the Coinbase application unfolds, it is expected that other exchanges will likely follow suit to remain competitive across potential new, regulated token markets.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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