Article written by Adi Shoval
A Commissioner in the United States Securities and Exchange Commission (the “SEC”) unveiled key principles of a forthcoming safe harbor proposal aimed at providing token-based projects greater freedom in the first stages of development. The SEC Commissioner, Hester Peirce, presented the proposal during her speech at the International Blockchain Congress in Chicago.
According to the proposal, crypto startups will have a three-year grace period, during which they can participate in and develop a functional or decentralized network that is exempted from the registration provisions of federal securities laws if they meet certain conditions. Commissioner Peirce reasoned that this is due to the dynamic nature of the analysis whether a token is considered a security, which may change by the time the token matures.
Commissioner Peirce also explained that the SEC recognizes that secondary trading is necessary for the transfer of tokens and therefore, to mitigate existing regulatory uncertainty on the applicability of securities laws to secondary trading of tokens, the safe harbor exempts persons engaged in certain token transactions from the definitions of “exchange,” “broker,” and “dealer” under the Securities Exchange Act of 1934.
Commissioner Peirce noted that the safe harbor is also designed to protect token purchasers by requiring disclosures tailored to the needs of the purchasers while preserving the anti-fraud provisions of federal securities laws.
CLICK HERE to read Hester Peirce’s speech and the safe harbor proposal.
