SEC Chairman signals stablecoins and other tokens could fall under its rules on security-based swaps and says more regulation is coming

SEC Chairman signals stablecoins and other tokens could fall under its rules on security-based swaps and says more regulation is coming
Gary Gensler Scott Olson/ Getty Images
  • SEC Chair Gary Gensler spoke at the American Bar Association Derivatives and Futures Law Committee Virtual Mid-Year Program.
  • The SEC said stablecoin issuers will have to register and existing transparency requirements will apply to tokens like stablecoins.
  • Researchers at the Federal Reserve and Yale recently urged regulators in a report to tame "wildcat" stablecoins.

The US Securities and Exchange Commission's chair, Gary Gensler has indicated stablecoins and other security-backed tokens will not be exempt from the regulator's upcoming rule changes.

Gensler told the American Bar Association Derivatives and Futures Law Committee's virtual mid-year program on Wednesday that stablecoin issuers would need to register with the regulator and ensure certain levels of transparency in how they transact.

"Make no mistake: It doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities," Gensler said.

"These platforms - whether in the decentralized or centralized finance space - are implicated by the securities laws and must work within our securities regime," he said.

Stablecoins, which are crypto coins pegged to an asset such as the dollar, such as Tether, have come under greater scrutiny from regulators given their potential for destabilizing payments systems.


Transparency is a big topic in the crypto-space as digital tokens are popular, in part because of their decentralized nature, and the relative anonymity they afford their users.

But the US regulator has started to clamp down on some aspects of the crypto market to prevent the use of these coins in illicit activities, such as money laundering. The SEC also sued Ripple Labs late last year over sales of its network's XRP token, which the regulator said should be treated as a security and not a currency.

Gensler said greater transparency would mean that, even for over-the-counter swaps deals, the public would be able to see both the price and the volume at which these transactions took place.

He said that for a company to register a stablecoin, it would have to have solid back-office controls and adequate cushions against losses, through both its own capital reserves and customer margin.

On top of that, the Genlser said the SEC will require companies to have a host of new counterparty requirements for capital and margin, including internal risk management systems, supervision and chief compliance officers, trade acknowledgement and confirmation, record-keeping and reporting procedures.


Security-based swap participants will be able to register with the SEC from November 1 ahead of the new rules taking effect from November 8. Then by February 14 2022, those involved in storing the swaps will be required to make public the data on terms such as price, notional value of the swaps and individual transactions.

Security swaps are essentially contracts under which one party lends an asset, such as stablecoins in this case, over a fixed period of time to a second, in exchange for another asset, or payment flow.

Given that crypto trading is often international, Gensler also urged companies to meet these new criteria regardless of where they are based.

"We don't want dealers to be incentivized to move among jurisdictions so they can take advantage of regulatory arbitrage," he said.