Aaron Kaplan, founder and co-CEO of Prometheum, said regulatory approval for its alternative trading system means ATS will be the “only game in town” for retail investors to buy and sell digital assets an once they are regulated as securities.
The United States Securities and Exchange Commission has approved Prometheum Ember ATS (PEATS) to allow institutional and retail investors to trade digital asset securities, with final regulatory approval required before the launch of ATS this year. FINRA, the US regulator, has already approved the company as an ATS member and operator.
Gary Gensler, chairman of the SEC, spoke about the regulation of crypto assets in his testimony before the U.S. House of Representatives Financial Services Committee on October 5.
Gensler said large parts of the crypto industry do not operate within regulatory frameworks that protect investors and consumers, guard against illicit activity, and ensure financial stability.
“Frankly right now it’s more like the Wild West or the old ‘buyer beware’ world that existed before securities laws were enacted,” Gensler added. “This asset class is rife with frauds, scams and abuse in certain applications. We can do better.
Staff at the SEC and other US regulators are working to protect investors in the crypto markets under their current authorities.
“To the extent that there are securities on these trading platforms, under our laws they must register with the Commission unless they qualify for an exemption,” Gensler added. “I think this technology has been and can continue to be a catalyst for change, but technologies don’t last long if they stay outside the regulatory framework.
Kaplan argued that Gensler’s testimony shows that he wants crypto exchanges to register with the SEC because the overwhelming majority of digital assets they trade are securities. Regulated securities platforms must ensure fair disclosure of information, ensure investor protection and ensure the existence of a fair and orderly market.
“Trading on a crypto exchange is like trading without a prophylactic,” Kaplan said. “You are trading without the protections that you are supposed to have. “
He expects that one day there will be an official statement that many digital assets are securities that must be traded on regulated platforms.
“The writing is on the wall,” Kaplan added. “We are in a really strong and unique position as a regulated site and the sky is the limit.”
Prometheum was founded in 2017 by a group of Wall Street lawyers as a blockchain-driven company to create an end-to-end ecosystem for trading in digital asset securities. Their initial thesis was that securities laws would be the best way to deal with digital assets.
Critics have argued that regulation kills innovation, but Kaplan countered that money has always been regulated and the digital asset industry has been allowed to grow without supervision.
“Regulators have allowed the sector to grow until it has shifted from a marginal concept to a mainstream concept,” he added. “Full institutional participation requires full compliance with securities laws. “
Preparation for launch
Kaplan said the company is close to completing its testing before the ATS goes live for retail and institutional investors to start trading.
Retail investors will be able to register with ATS directly, and in the future, third-party brokers will be able to facilitate transactions for their brokerage clients through their existing accounts. The ATS also supports algorithmic trading strategies for institutions.
“One of the things that sets us apart is that we built our own trading software,” Kaplan added. “In our demonstrations, regulators and institutions were impressed with what we have built”
PEATS automates know your customer and anti-money laundering requirements and integrates traditional and blockchain technology with on-chain custody and settlement provided by Anchorage Digital Bank, the world’s first federally chartered digital bank.
Kaplan continued that ATS aims to be the equivalent of a public market infrastructure.
He declined to comment on the products that will be released at launch. Kaplan said, “It’s a crawl, walk, run approach.”