The Council of Institutional Investors (CII) and Templum, Inc. (Templum) each recently submitted comments to the SEC to call for the agency to embrace blockchain technology in a variety of contexts regarding the registration and transfer of securities. The dominant system for clearance and settlement of securities in the United States has its roots in the “paperwork crisis” of the early 1970s, and the resulting regulatory regime based on immobilization of securities is largely inconsistent with a blockchain-based system of traceable shares.
To date, virtual currency exchanges in the United States have structured their operations in an effort to avoid being required to register as an exchange with either the Securities and Exchange Commission or the Commodity Futures Trading Commission. While these efforts may be entirely legal, without the regulatory protections of exchange registration, they could create enhanced risks for customers, particularly in the case of a fund’s insolvency or collapse. A recent federal case highlights these risks and provides a roadmap for asserting personal jurisdiction over a virtual currency exchange.