The Cryptocurrency Hearing Came Again. The Chairmen and Members of the SEC All Attended

After Facebook announced to release Libra at the end of June, US Congress began to focus on cryptocurrencies and held intensive hearings. At 10:00 p.m. on September 24 of Beijing time , the congressional hearing is coming again!

After industry (Libra head, Circle CEO) and academia (university professors), this time the summoned member was the regulatory community. The chairmen and members of the SEC all attended.

According to the U.S. government, the SEC has five members nominated by the Senate and appointed by the President, one of whom is the chairman. At present, the chairman of SEC is Jay Clayton, and the remaining four members are Robert J. Jackson Jr., Hester M. Peirce, Elad L. Roisman and Allison Herren Lee, all of whom will attend the hearing at 10 p.m. of Beijing time.

The theme of the hearing was "Oversight of the Securities and Exchange Commission: Wall Street’s Cop on the Beat", and a memorandum was released in advance on the official website.

Why did the hearing summon SEC?

Because the US SEC regulates how companies raise money on private and public markets.

The first paragraph of the memorandum states the main idea. The SEC oversees 27,000 market participants, including investment advisors, mutual funds, ETF, brokers, national exchanges, credit rating agencies, liquidation agencies, the Public Company Accounting Oversight Board (PCAOB), the United States Financial Industry Regulatory Authority (FINRA), and the Municipal Security Rule Board(MSRB)and Financial Accounting Standards Board.

The SEC regulates corporate fundraising in both the public and private markets. The issuance of open market securities must be registered or exempted by SEC, and the relevant information of enterprise finance, management, operation and risk must be disclosed to investors as required.

Exemption issuance, also known as the private market, requires less information to be disclosed and is only aimed at a limited number of experienced investors who do not need securities law protection. In recent years, the private market has developed rapidly, and it is now more than twice as large as the public market. In 2018, issuers raised nearly $2.9 trillion in private markets through exempt issuance, compared with $1.4 trillion in the open market.

To improve funding for innovative enterprises, the Jumpstart Our Business Startups Act, passed in 2012, relaxed the requirement to become a public company with just over 500 registered shareholders to 2000 shareholders or 500 unauthorized investors. And the JOBS Act increased the broader range of funding exemptions and relaxed the limits on the amount of funding.

What will the hearing focus on?

Seen from the memorandum, the hearing focused on cryptocurrencies and whether Libra is a security.

"The U.S. Securities Act applies to securities, including stocks, bonds and investment contracts, whether they are digital or not." In April 2019, the SEC issued a specification on whether digital assets are "investment contracts" based on the Howey test. Howey test refers to satisfying three conditions: 1. investment, 2. for the joint project, 3. have a certain profit expectation. If a digital asset meets the Howey test, it is a security and must be registered or exempted from the SEC.

According to Libra's operating mechanism, the memorandum recognizes that Libra Investment Token can be considered a security because Libra Investment Token can be sold to investors and paid dividends to them. Libra tokens themselves may also be securities. Facebook is not prepared to dividend Libra tokens holders, and it is unclear whether investors have reasonable expectations of profitability. However, the distribution of Libra tokens can be integrated with the distribution of Libra Investment Token, so they can be recognized as securities. And like ETF, Libra can be redeemed

Why is the hearing held?

The hearing was planned.

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