ASA: Largest Crypto Theft in History Offers Lessons for SEC’s Tokenized Stock Exemption

WASHINGTON – Shortly after the U.S. Securities and Exchange Commission (SEC) authorized trading of tokenized U.S. stocks, attackers attributed to North Korea stole about $6.36 billion from Binance, most of it in about 20 minutes. Today, the American Securities Association (ASA) filed comments urging the SEC to close the gaps the attack exposed in its Innovation Exemption order. ASA asked the SEC to hold every venue that trades U.S.-listed stocks with U.S. retail investors to the same investor protection, market integrity, anti-money laundering and cybersecurity standards as the registered venues and broker-dealers it competes with.

“ASA supports innovation in our capital markets, but every venue trading U.S.-listed stocks must be held to the same standard, regardless of the technology it uses,” said ASA President and CEO Chris Iacovella. “Although the largest crypto theft in history occurred at an unregistered offshore exchange, it shows what’s at stake for retail investors. Chairman Atkins has rightly called the Innovation Exemption a bridge toward durable rulemaking, and we urge the SEC to build in the safeguards that keep investors’ assets secure in addition to disclosures that tell them about the risk.”

ASA recommended that the SEC:

• Close the offshore affiliate gap by barring a venue’s affiliates from supplying liquidity unless they are U.S. persons that consent to SEC jurisdiction and examination and keep their books and records in the United States.

• Secure its jurisdiction before a loss, not after by requiring affiliates and large liquidity providers to consent irrevocably to the jurisdiction of the SEC and U.S. courts.

• Deny foreign adversaries a laundering channel into U.S. equities by requiring anti-money laundering, customer identification and suspicious activity reporting programs equal to those of broker-dealers, and by barring participation by persons tied to foreign adversary nations.

• Apply Regulation SCI-level cybersecurity protections to every venue, regardless of trading volume. This includes the smart contracts, administrative keys and price feeds that could be used to drain a pool.

• Follow the interim order with durable rulemaking. ASA agrees with Chairman Atkins that the order is an interim measure that “must be followed by durable rulemaking.”
  

ASA also asked the SEC to issue an investor alert making clear that offshore crypto exchanges are not registered with or examined by the SEC. It further asked the SEC to replace the order’s opt-out notice process for third-party tokenization with affirmative issuer consent.

Read ASA’s full comment letter here.

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The American Securities Association (ASA) represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.