Cryptocurrency and Regulatory Landscape: Insights from Katten Attorneys

May 29, 2024

John Lothian

John Lothian

Executive Chairman and CEO

BOCA RATON, Fla. (JLN) — In a recent interview at the FIA’s International Futures Industry Conference, Katten attorneys Lance Zinman and Dan Davis shared their perspectives on the evolving landscape of cryptocurrency and regulatory changes in the financial industry. The future of trading firms may involve more consolidation and a greater number registering as broker-dealers, the two Katten attorneys said. 

Market Consolidation and Regulatory Pressures

Zinman noted that larger firms are thriving, leveraging their sophisticated technology to expand into new asset classes. In contrast, smaller firms are focusing on their core competencies, facing challenges in expanding due to high barriers to entry. This has led to a trend of consolidation, with notable examples such as the GTS acquisition of HC Technologies and Geneva Trading’s sale of GX2 Systems to South Street.

SEC’s Shift on Trader-Dealer Distinction

Zinman highlighted the significant regulatory shift by the Securities and Exchange Commission (SEC) in distinguishing between traders and dealers. The new rule effectively requires many proprietary trading firms to register as dealers, a change that could lead to a significant increase in broker-dealer registrations.

The SEC’s recent rule effectively redefines the distinction between traders and dealers, overturning nearly 80 to 90 years of precedent, Zinman said. According to the new rule, if you are trading in a manner that provides liquidity to the market—whether by being active on both sides of the same market regularly, capturing the bid-ask spread, or using exchange programs for liquidity provision—you are now considered a dealer, he said.  

Digital Asset Trading and ETFs

The discussion turned to digital asset trading, where the introduction of Bitcoin ETFs has driven renewed interest. Davis said that the inflows into these funds have been substantial, but the SEC’s cautious approach to approving new products may slow the pace of innovation.

“It’s a very active market. Obviously the big development over the past few months is the introduction of the Bitcoin ETF that has driven a renewed interest in Bitcoin, and I think digital assets in particular. Obviously the inflows into those funds have been enormous over the past few months,” Davis said.

Katten’s Successes in the Crypto Space

Davis reflected on Katten’s extensive experience in the crypto space, having helped prominent entities like LedgerX and ErisX obtain registration. The firm is currently representing Binance US in SEC litigation, in a case that will significantly influence the determination of whether secondary market transactions in digital assets are securities transactions or not.

“Katten’s been active in the crypto space for a long time. I started counting three years ago, but seven years ago when I just started as general counsel of the CFTC, my first meeting with someone outside of the CFTC about crypto was with Katten. I personally have Katten on my radar for quite a long time in the crypto space,” Davis said.

Regulatory Uncertainty and Market Surveillance

The attorneys emphasized the ongoing regulatory uncertainty in the crypto space, particularly regarding the SEC’s view that most digital assets are securities. The lack of clear guidance in recent settlement agreements, such as the case involving 79 digital assets, makes it challenging for practitioners to advise clients on what constitutes a security.

“There’s none of that in the settlement agreement. So all I know reading that document is that the SEC thinks that some of these unnamed 79 digital assets are securities,” Davis said.

Wall Street Starts Calling Time on ESG Labels After Backlash

Wall Street Starts Calling Time on ESG Labels After Backlash

First Read Hits & Takes John Lothian & JLN Staff Miami International Holdings, Inc. (MIH) announced that the SEC has approved MIAX Sapphire LLC's application to become a national securities exchange. MIAX Sapphire, MIH's fourth national securities exchange for...

We visit more than 100 financial news websites daily (Would YOU do that?)

The Spread

Todays  Options Newsletter

Traders Betting on China Easing Boost Bearish Options on Banks

Observations & Insight Miami International Holdings, Inc. (MIH) announced that the SEC has approved MIAX Sapphire LLC's application to become a national securities exchange. MIAX Sapphire, MIH's fourth national securities exchange for U.S. multi-listed options,...

Now Read This

Options Education Goes Mobile: How Mat Cashman Is Bringing Wall Street to Your Pocket

Options Education Goes Mobile: How Mat Cashman Is Bringing Wall Street to Your Pocket

In the dynamic world of financial derivatives, Mat Cashman of the Options Industry Council (OIC) is on a mission to demystify the complex realm of options trading. As part of the OIC’s investor education team, Cashman is at the forefront of a digital revolution in financial literacy, adapting to the changing habits of a new generation of traders.

“We’re seeing a mirror of what’s happening in the entire industry—the democratization of access to information,” Cashman explains, noting the shift towards mobile-based trading. With 97% of options trades on some platforms now executed via smartphone, the OIC is pivoting to meet traders where they are: on their phones, with attention spans shrinking by the minute.

OCC’s Tech Overhaul Poised to Reshape Options Trading

OCC’s Tech Overhaul Poised to Reshape Options Trading

In the heart of Asheville, NC, in a quiet corner of the bustling Options Industry Conference, Mike Hansen, the chief clearing and settlement services officer of the Options Clearing Corporation (OCC), sat down for an interview with John Lothian News for the JLN Industry Leader video series sponsored by the OCC. His demeanor was calm, but his words carried the weight of an industry on the cusp of significant change.

Hansen, a veteran with over two decades in the options industry, is at the forefront of several transformative initiatives. As the Dallas site leader for OCC, the world’s largest equity derivatives clearing organization, he’s overseeing a technological revolution that promises to reshape the landscape of options trading.

My Skepticism Persists Despite BlackRock’s Larry Fink Reversing Stance, Declaring Bitcoin a Legitimate Financial Instrument

My Skepticism Persists Despite BlackRock’s Larry Fink Reversing Stance, Declaring Bitcoin a Legitimate Financial Instrument

The CoinDesk story that reported that BlackRock’s Larry Fink has declared that bitcoin is a legitimate financial instrument struck a sour note with me. It was just seven years ago, before BlackRock’s Bitcoin ETF hit $21 billion in equity since its launch in January of this year, that Fink was not a bitcoin fan. BlackRock may have $10.6 trillion in assets under management, which gives Fink headlines and gravitas, but his declaration is still just an opinion. 

In 2017, Fink, the CEO of BlackRock, had a notably different and critical view of bitcoin, describing it as “an index of money laundering.” This stance reflected a broader skepticism about the cryptocurrency, which he perceived as being associated with illicit activities.

NYSE Executive Hyde Sees Retail Surge and Regulatory Hurdles Shaping Options Market Future

NYSE Executive Hyde Sees Retail Surge and Regulatory Hurdles Shaping Options Market Future

In an interview at the Options Industry Conference in Asheville, NC, James Hyde, head of business development and strategic partnerships at NYSE Options, offered insights into the current state of the options industry. The interview, conducted by John Lothian News as part of the JLN Industry Leader video series sponsored by OCC, touched on several key topics shaping the market.

When asked about customer priorities, Hyde highlighted the growing interest in short-dated single-name options in the equity space. “The industry is clearly focused on that,” he said, noting that a wide group of stakeholders, including representatives from the Options Clearing Corporation (OCC), exchanges, and the SEC, are actively discussing the topic. 

Pin It on Pinterest

Share This Story