Altcoin News: Letter from US SEC: Ethereum is not security

March 13, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

Jay Clayton is the president of the US Securities and Exchange Commission (SEC). He wrote a letter to MP Ted Budd, in which he writes that ether and similar coins are not securities.

It is written, no security!

The letter from Clayton is a reaction to a letter that Budd sent to Clayton and the SEC. Budd asked whether it is true that ether is not security. In June, director Hinman said in a personal capacity that ether is not security. It was therefore not clear whether this was actually the position of the SEC.

For the sake of clarity, security is another word for effect or share. And if ether would be classified as a security, the cryptocurrency would be subject to strict SEC rules.

What is written in the letter?

Clayton’s response states:

“Your letter urges the Commission to clarify the criteria used to determine whether a digital token is offered or sold as an investment contract, and therefore is an offer or sale of a security. As the Commission stated in the July 2017 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (DAO Report), whether a particular transaction involves the offer and sale of a security — regardless of the terminology used to identify the digital asset — will depend on the facts and circumstances, including the economic realities of the transaction. I believe that the Commission has been transparent with the criteria used to determine whether a digital asset is offered or sold as an investment contract. The DAO Report included detailed legal analysis applying Howey to the facts and circumstances specific to the DAO tokens. Additionally, as your letter notes, Bill Hinman, the Director of the Division of Corporation Finance, delivered a speech in June 2018 that outlined factors for market participants to consider when evaluating whether a digital asset is a security. Moreover, in November 2018, the Divisions of Corporation Finance, Investment Management, and Trading The Honorable Ted Budd Page 2 and Markets issued a statement on digital assets issuance and trading, which included details about how a company that conducted an unregistered securities offering through an ICO might remediate and move forward”

Step for innovation

The attitude of Clayton and the SEC is hailed as a nice step for innovation. Earlier, William Hinman, director of corporate finance at the SEC, said he also agreed. He explained that the SEC uses the Howey test to check whether a certain financial instrument should be considered as security.

What is security exactly?

The SEC assesses whether something is a security based on the Howey test.

If a buyer invests money:

In a joint venture

Profit expected

Mainly because of the efforts of others

If an instrument meets the above test, the SEC sees this as a security. Buying, selling and trading then falls under the regulations of the US government agency.

Bitcoin, Ethereum and many other coins clearly do not meet the above test and are therefore not security.

Why is this important?

American institutional investors, traditional investors and anyone skeptical about the future of ether can breathe a relief. It is not that the SEC is a villainous party, certainly not, but at least investors now no longer have to worry about the sudden occurrence of certain regulations.

You can read the letter below:

Author: Marko Vidrih