THE Securities and Exchange Commission (SEC) is seeking comments from the industry on its draft digital asset exchange rules, as the regulator aims to keep up with the latest developments in information and communication technology and their financial market applications.
The proposal, which is broken down into 10 articles — many with multiple chapters, is now available for comment from exchanges, broker-dealers, investment houses, the investing public, and other interested parties.
The SEC will wait for comments up to Aug. 14.
The proposed “Rules on Digital Asset Exchange” (DAE) primarily govern registration and operation of an exchange in which digital assets are traded on a online platform accessible in or from the Philippines.
“Digital asset” vests certain rights, including digital representation of value that is used as a medium of exchange, unit of account, or store of value and is not legal tender, whether or not denominated in legal tender, the SEC said in the draft. It is intended to represent assets such as debt or equity in the promoter; or otherwise intended to represent rights associated with such assets; or intended to provide access to an application or service or product by means of blockchain.
Digital asset trading conducted through media other than online electronic platform are outside the coverage of the proposed rules. In this case, Securities Regulation Code provisions apply.
“These rules are not exhaustive,” the SEC said, adding that it“may impose additional requirements to address any specific risks posed by digital asset activities, and waive or modify any of these rules at its discretion, where appropriate.”
The SEC defines a digital asset exchange as an organized marketplace or facility that brings together buyers and sellers, and executes trades of securities.
“They can be viewed as an online marketplace for the entire digital asset network,” the draft states.
Covered activities include buying/selling digital assets with legal tender as well as buying/selling digital assets with other digital assets.
Digital asset activity may include any the following involving the Philippines or a Philippine resident:
• receiving digital asset for transmission or transmitting digital asset;
• storing, holding, or maintaining custody or control of digital asset on behalf of others;
• facilitating buying and selling of digital asset;
• performing exchange services as a customer business; or
• controlling, administering, or issuing a digital asset.
“The development and dissemination of software in and of itself does not constitute digital asset business activity,” SEC said.
Under the proposed rules, all persons or entities that will form or operate as a digital asset exchange should be duly incorporated under the SRC and its implementing rules and regulations or under the laws of another jurisdiction.
An applicant should specify in the application his intention to conduct digital asset activities either by himself or in concert with others, prior to engaging in said activities.
Applicants wishing to register as a DAE are required to maintain in fiat form an initial paid-up capital of at least P100 million. The DAE is required to hold regulatory capital equivalent to 12 months of operational expenses. — Victor V. Saulon