The US Securities and Exchange Commission (SEC) has announced separate lawsuits against crypto giants, Binance and Coinbase.
A brokerage company now claims that it has a blueprint in order to bring crypto trading into the larger regulated market.
As first reported by the WSJ, Prometheum’s plan will involve the use of an exemption that US regulatory authorities developed 50 years back in order to allow for the trading of shares that had certain restrictions.
The exemption may be used on a daily basis in the stock market in order to sell off a large number of shares.
Rule 144 is an exemption that permits the public resale of restricted or control securities if a number of conditions are met. This includes how long the securities are held, the way in which they are sold, and the amount that can be sold at any one time. It has not yet been used in the crypto industry.
Currently, crypto exchanges typically use state rules to skirt federal requirements when trading in crypto that are not deemed to be securities. If a digital asset is a security, it must adhere to registration and exemption requirements.
Prometheum, a startup with no crypto trading unit, believes it has the answer to providing liquidity for crypto-assets onto regulated exchanges and established brokerages.
Prometheum co-Chief Executive Aaron Kaplan told the WSJ:
“It’s an element of what you would call the intellectual capital that led us to build out a unique business, and essentially other people haven’t necessarily focused on that.”
Prometheum has been approved as one of the first brokerage companies to obtain a permit to hold customers’ digital assets.
Prometheum may serve as proof that a regulated path to trading can make crypto’s market structure work effectively with traditional securities laws.
Crypto-assets have now been trading actively for many years in the United States on exchanges like Coinbase, however, the SEC said that a number of cryptos are deemed as securities that need to be traded by qualified/registered brokers as well as exchanges.
The SEC has sued Coinbase, stating that the firm has violated existing rules that required it to register as a US-based exchange operator or broker.
Trying to find a registered broker that aims to trade certain crypto-assets does not actually make the tokens permissible to be traded.
The SEC has not commented on Prometheum’s interest in using the rule to trade crypto tokens.
But applying Rule 144 to digital assets that are not digital securities may not adhere to what the SEC desires.
Addressing the exemption’s guidelines, such as proving that the seller held the particular asset for a year, may be challenging to ascertain in crypto where trading is somewhat anonymous. Quoted in the WSJ article David Adams, an attorney working at Goodwin Procter LLP, explained.
“Any broker-dealer that embarks down this path is going to be under incredible scrutiny. Just because you are approved…that does not mean that goodwill will necessarily continue if you start to list some crypto assets or tokens that the SEC [doesn’t agree with].”
Annemarie Tierney, a lawyer who has worked in the past for Nasdaq and the NYSE and is well-known in the Fintech industry said there is no register of h0lders of tokens – you have no idea where they have been – raising more questions.
Prometheum apparently believes that digital assets like Filecoin, Flow, The Graph, Compound, and Celo may be traded via its platform.
Benjamin Kaplan, the co-Chief Executive Officer of Prometheaum said they have vetted the approach both internatlly and with their legal counsel.
It’s worth noting that Prometheum is not trading any such tokens at this time. The company still needs approval for settlement to pursue its strategy. The firm intends to reveal other tokens it would be trading as they get closer “to going live.”