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SEC’s Jay Clayton says Ether isn’t a security, reiterating the regulator’s stance
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SEC’s Jay Clayton says Ether isn’t a security, reiterating the regulator’s stance

The Securities and Exchange Commission Chairman Jay Clayton has endorsed remarks made by colleague, William Hinman, who declared cryptocurrency Ether not a security, a move that is sure to put owners of the second-largest digital currency at ease.

The confirmation came in a letter dated March 7 to Rep. Ted Budd, who along with Coin Center, a nonprofit research and advocacy center focused on cryptocurrency, had asked Clayton for clarification on Hinman’s comments made last year.

“I agree with Director Hinman’s explanation of how a digital asset transaction may no longer represent an investment contract if, for example, purchasers would no longer reasonably expect a person or group to carry out the essential managerial or entrepreneurial efforts. Under those circumstances, the digital asset may not represent an investment contract under the Howey framework,” wrote Clayton.

The Howey framework stems from a 1946 Supreme Court decision, which said a transaction is an investment contract or security if an investor expects profits “solely from the efforts of the promoter or a third party.”

At a summit in June 2018 sponsored by Yahoo Finance, Hinman, who is the director of corporate finance at the SEC said: “Based on my understanding of the present state of Ether, the ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions.”

Clayton’s affirmation means that digital currencies, as they stand, aren’t subject to strict regulatory oversight, an outcome that is likely to relieve participants in the industry of burdensome and often costly procedures.

Clayton did say — as he has in the past — that at time of creation or launch, a cryptocurrency could be sold as a security.

In an updated post, Jerry Brito, executive director at Coin Center said: “We’re gratified to see that the SEC’s thoughtful approach to applying the Howey test to cryptocurrency comes from the top.”

Major cryptocurrency prices were marginally higher in Tuesday trading. EtherETHUSD, -0.72%  was up 0.6% at $132.79 and bitcoin BTCUSD, +0.02%  had gained 0.5% to $3,873.70.

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