Crypto Exchange and Trading Platform Attorneys
Exchange, broker dealer, alternative trading system, and money transmission analysis for centralized and decentralized trading platforms nationwide.
A platform that brings buyers and sellers together sits at the intersection of three regulatory systems. If the assets traded are securities, the Exchange Act’s exchange, broker dealer, and alternative trading system rules apply. If value moves through the platform, the Bank Secrecy Act and state money transmission statutes apply. If the platform serves New York, its virtual currency regulation applies. Which of these reach a particular platform depends on what is traded, how orders interact, who holds the assets, and where the users are.
Industria Business Lawyers advises operators of centralized exchanges, decentralized exchange protocols and front ends, order matching platforms, and over the counter trading desks on their status under each system and on the registration, licensing, and compliance obligations that follow. We also advise projects deciding whether to list on a platform and platforms deciding what to list.
Every platform is different, and the same words in a statute can reach one design and not another. The analysis is what tells you which side of the line you are on.
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Exchange and Platform Questions We Handle
The Exchange Act definitions were written for stock exchanges and are applied to digital asset platforms by their terms. These are the questions that decide a platform’s obligations.
Whether the Platform Is an Exchange
Section 3(a)(1) of the Exchange Act defines an exchange as any organization, association, or group of persons that constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities, or otherwise performs the functions commonly performed by a stock exchange. Rule 3b-16 provides that a group meets that definition if it brings together the orders of multiple buyers and sellers and uses established, non discretionary methods under which those orders interact and the parties agree to the terms of a trade. We test the platform’s design against both.
Registration or Exemption Under Section 5
Section 5 of the Exchange Act makes it unlawful for a broker, dealer, or exchange to use any facility of an exchange to effect a transaction in a security unless the exchange is registered as a national securities exchange under section 6 or exempted from registration. For a platform that meets the definition and trades securities, the practical paths are registration, an exemption, or restructuring so the definition is not met.
Alternative Trading Systems
Regulation ATS provides that an alternative trading system, rather than registering as an exchange, must register as a broker dealer under section 15 of the Exchange Act and file an initial operation report on Form ATS at least 20 days before commencing operation, with amendments at least 20 calendar days before any material change. We advise on whether the ATS path fits and prepare the filings.
Broker Dealer Status
Section 3(a)(4) of the Exchange Act defines a broker as any person engaged in the business of effecting transactions in securities for the account of others, and section 15(a) makes it unlawful for a broker or dealer to use interstate commerce to effect transactions in securities unless registered. A platform operator, a market maker, or a front end that routes orders may each raise the question. We analyse each role.
Money Transmission and Virtual Currency Licensing
FinCEN guidance FIN-2019-G001 states that exchangers of convertible virtual currency generally qualify as money transmitters under the Bank Secrecy Act. A platform that holds and moves customer value must consider FinCEN registration, a written anti money laundering program, state money transmitter licensing, and New York’s virtual currency license where it serves New York. Our money transmitter licensing page and AML compliance page cover those obligations. Federal registration for exchange operators, and what it does and does not do, is covered on our FinCEN MSB registration page.
Decentralized Platforms
A decentralized exchange protocol, the entity that deploys it, the interface that routes users to it, and the persons who profit from it each present a separate question under the exchange, broker, and money transmission definitions. Whether any of them constitutes, maintains, or provides a market place, or engages in the business of effecting transactions for others, depends on what each actually does. We analyse the roles rather than the label.
Which Framework Applies Depends on What Is Traded
The threshold question for any platform is whether the assets on it are securities, because the Exchange Act rules attach only if they are.
If the assets are securities. The exchange definition, the section 5 registration requirement, the alternative trading system rules, and the broker dealer registration requirement are all in play. The platform must fit itself into one of the paths the Exchange Act allows: registered exchange, exempt exchange, registered broker dealer operating an alternative trading system, or a design that does not meet the definitions.
If the assets are not securities. The Exchange Act rules do not apply, but the money transmission rules still do. A platform that accepts customer value and exchanges or transmits it is generally a money transmitter under FinCEN’s guidance, which means federal registration, a written program, and state licensing analysis in every state where customers are.
If some assets are securities and some are not. Both systems apply, and the platform has to be built and documented to satisfy each. Listing decisions become regulatory decisions.
State overlay. New York’s virtual currency regulation reaches buying and selling virtual currency as a customer business and controlling or issuing virtual currency, where the activity involves New York or a New York resident. Other states reach the same activity through their money transmission statutes. Our digital asset regulatory page covers the securities status analysis that everything else depends on.
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Tell Us About Your Matter
How We Work a Trading Platform Matter
Platform Design Review +
What is traded, how orders are entered and matched, who holds assets and keys, what fees are charged and to whom, and where users are located.
Asset Classification +
Whether each listed or proposed asset is a security under the federal definition, because the answer decides which rules apply to the platform.
Exchange and ATS Analysis +
The platform’s matching mechanism against section 3(a)(1) and Rule 3b-16, and the registration, exemption, and alternative trading system paths available if the definition is met.
Broker Dealer Analysis +
Each role in the platform, including the operator, any market maker, and any interface, against the section 3(a)(4) definition and the section 15(a) registration requirement.
Money Transmission and State Licensing +
The flow of customer value against the federal money transmitter rules, FinCEN’s virtual currency guidance, and the money transmission and virtual currency statutes of each state where users are.
Written Status Memo +
The conclusions under each framework and the registration, filing, licensing, and compliance steps they require, written for the operator, its bank, and its counterparties.
Filings, Licensing, and Listing Policy +
The registrations and applications the memo calls for, a listing policy that keeps future assets inside the analysis, and updates as the platform or the rules change.
FAQ
01 • Platforms Is a decentralized exchange an exchange under the Exchange Act?
The definition in section 3(a)(1) and Rule 3b-16 turns on whether a group of persons brings together the orders of multiple buyers and sellers of securities using established, non discretionary methods. Whether a particular protocol, deployer, or interface meets that description depends on what each does and whether the assets are securities. There is no single answer for all decentralized platforms.
02 • Platforms What is an alternative trading system?
A trading system that meets the exchange definition but, instead of registering as an exchange, registers as a broker dealer and files Form ATS under Regulation ATS. The initial operation report must be filed at least 20 days before the system begins operating.
03 • Platforms If my platform only trades non securities, do the Exchange Act rules apply?
The Exchange Act’s exchange, alternative trading system, and broker dealer rules attach to transactions in securities. A platform trading only assets that are not securities is outside them, but remains subject to the money transmission rules and state licensing regimes that apply to moving customer value.
04 • Platforms Does a crypto exchange need to register with FinCEN?
FinCEN’s 2019 guidance states that exchangers of convertible virtual currency generally qualify as money transmitters, which must register under 31 CFR 1022.380 and maintain a written anti money laundering program. Whether a particular platform is an exchanger depends on what it does with customer value.
05 • Platforms Does listing a new asset change the platform's regulatory status?
It can. If a listed asset is a security, the Exchange Act rules apply to the platform’s activity in that asset even if they did not apply before. A listing policy that analyses each asset before it goes live is how platforms keep the answer stable.
Talk to a Trading Platform Attorney
Centralized and decentralized platforms, matching engines, and trading desks anywhere in the United States. Call (202) 860-1210 or describe your platform through the form. Every platform is different, and the same design can sit on different sides of the line in different frameworks. We will tell you where yours stands under each.
This page provides general information about the regulation of trading platforms under the Securities Exchange Act, the Bank Secrecy Act, and state licensing statutes and does not constitute legal advice. Reading it does not create an attorney client relationship. Statutes, rules, and guidance cited were reviewed on the date this page was last updated and are subject to change. The regulatory status of a particular platform depends on its specific facts.