Washington, DC – Today, Congressman Frank Lucas (OK-03) joined his colleagues on both the House Financial Services Committee and House Agriculture Committee for a Joint Financial Services-Agriculture Subcommittee hearing on “The Future of Digital Assets: Measuring the Regulatory Gaps in the Digital Asset Markets”. 

Lucas questioned Kraken’s Chief Legal Officer Marco Santori about the implications of the U.S. falling behind in efforts to craft a financial regulatory structure for digital assets while the E.U., U.K., and other foreign jurisdictions implement their own market structure framework. 

Lucas also questioned Santori and Michael Blaugrund, COO of the New York Stock Exchange, on their perspectives regarding necessary changes in current federal laws and regulations needed in a digital asset market structure framework. Congress must provide the rules of the road for digital assets that will embrace innovation and protect American consumers.

Click here to watch Lucas’ Q&A. 

On importance of U.S. digital asset market structure framework

Lucas: “The EU recently approved its Markets in Crypto-Assets regulation, and the U.K. is currently crafting its own framework. 

“Mr. Santori, as other jurisdictions craft their own frameworks, and more time passes without a digital asset market structure framework in the U.S., how does this make our job more difficult as we write the rules-of-the-road here at home?” 

Santori: “Other jurisdictions are indeed pushing ahead. They have been pushing ahead. These are G-20 jurisdictions with sophisticated financial services markets with sophisticated technology industries. The U.S. is significantly behind in that respect. It’s important that we get it right and not necessarily get it first. But I can tell you firsthand, as a global business with a global footprint, we have made plans to invest in Europe. We are making plans to invest in United Kingdom. Our plans to invest in the United States by hiring people, by expanding our boots on the ground operation- well we’re limited in that regard. We find it quite difficult to figure out just how much we should deploy in terms of resources here without a comprehensive federal plan.”

On current confusion and complicated market structure regulations:

Lucas: “Mr. Blaugrund, following up on that, you discussed how the regulators could choose to provide relief for exchanges that want to list digital assets. 

“From your perspective, what SEC and CFTC rules should be altered to address this?”

Blaugrund: “I think the first issue that needs to be addressed is really a ‘chicken and the egg’ problem. Right now, there are perspective issuers who are reluctant to pursue registration because there aren’t exchanges. And national securities exchanges are reluctant to enter the space because there are no listings that have been effective under the SEC. So, I think the SEC needs to consider some sort of on-ramp to allow for existing tokens to come into the regulatory fold and find a way that we can sort of end this ‘chicken and the egg’ situation.”

Lucas: “Mr. Santori, you discussed that a major barrier for a digital asset trading platform to register with the SEC is the direct interaction with retail investors, rather than through broker-dealers. 

“In your view, what revisions are needed to current law, as it relates to broker-dealers, in order for a digital asset trading platform to be successful and what characteristics of digital assets do you believe make this necessary?”

Santori: “We believe that the broker-deal construct is a flexible enough construct to accommodate a great deal of trading and digital assets. Broker-dealers can interact directly with consumers and investors. They can elect under Reg. ATS to operate essentially as an exchange. This flexibility is, I think, critical to the task in front of Congress today, and you can contrast that flexibility with the rigid regime that exists for national securities exchanges that require intermediation, require that assets not trade after hours because of the price pressure that occurs on that trading after hours, require transfer agents which are one of the extractive intermediaries that are obviated by digital assets and blockchains. We think that the SEC still has a role over the future of digital asset trading and the broker-deals, specifically the ATS regime, is an excellent fit.”

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