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The Howey test doesn't apply here. If it's not securitized and it's not tradable, it's not a security. You can't trade a lending account...you can either hold i

The Howey test doesn't apply here. If it's not securitized and it's not tradable, it's not a security. You can't trade a lending account...you can either hold it, or liquidate it. FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts.

thedufer 5y ago
> The Howey test doesn't apply here. If it's not securitized and it's not tradable, it's not a security. Do you have a reference for that? Because that aspect doesn't sound relevant at all - the court case the Howey test comes from was about securities fitting your description (and, of course, the outcome was that they were considered securities). The Howey case actually refers to them as "investment contracts", which I presume is language from the securities act itself. This seems like better terminology than "securities", if only because it doesn't so obviously conflict with the colloquial meaning. I'm not sure how we got here from there, although the "securities act" naming probably didn't help.
- dragonwriter 5y ago
  > Because that aspect doesn't sound relevant at all - the court case the Howey test comes from was about securities fitting your description The property sold in Howey was marketable and the service contract was held out to any owner, so while I agree that neither securitization nor marketability are requirements, marketability was present in the Howey arrangement.
dragonwriter 5y ago
> The Howey test doesn't apply here. Yes, it does. > If it's not securitized and it's not tradable, it's not a security. Neither securitization nor marketability are requirements for something to be a security. > FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts. I suppose if Congress were writing a new law to specifically assign new regulatory authority for cryptocurrency lending accounts there might be an argument along those lines. But this isn't a matter of choice, its a matter of application of existing law, and if it meets the Howey test and no exception in existing law, such as assignment to a different regulator, exists, its an SEC-regulated security.
- darksaints 5y ago
  > The Howey test doesn't apply here. No, it doesn't. The Howey test applies to commercial paper, tradability is inherent. In that sense, the Howey test isn't the only test for a definition of a security...it is a test that applies to anything that is a tradable financial instrument. If the Howey test was the only test used to define a security, your bank account would be considered a security. But your bank account is absolutely and definitively not a security, and it is regulated by the FDIC, which has no authority over securities. > I suppose if Congress were writing a new law to specifically assign new regulatory authority for cryptocurrency lending accounts there might be an argument along those lines. But this isn't a matter of choice, its a matter of application of existing law, and if it meets the Howey test and no exception in existing law, such as assignment to a different regulator, exists, its an SEC-regulated security. This is obviously and demonstrably false. Even if this product was a security, which it is not, the classification of something as a security does not mean that the SEC has authority. Futures - a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority. Equity Futures - a security of a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority. Equity Future Options - a security of a security of a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority.
  - dragonwriter 5y ago
    > The Howey test applies to commercial paper, tradability is inherent. Howey itself did not concern commercial paper, so if the Howey test only applied to that, it would be nonbinding dicta.
    - darksaints 5y ago
      Meant to say investment contracts.
      - dragonwriter 5y ago
        Investment contracts aren't inherently tradeable. They may frequently be tradeable because of market preferences, but it is not inherent in the category. «an "investment contract" exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.» [0] [0] https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an...
mandevil 5y ago
You have taken the Howey test, which defines what is a investment contract (and therefore requires SEC regulation), and replaced it with "if it's not securitized and its not tradeable it's not", which is, strictly as a matter of US law, completely and utterly wrong. The whole point of the Howey test is to focus on what the transaction does, not it's form, because it was trying to prevent people from tap-dancing around the regulation, exactly like what Coinbase is attempting to do here.

thedufer 5y ago

> The Howey test doesn't apply here. If it's not securitized and it's not tradable, it's not a security. Do you have a reference for that? Because that aspect doesn't sound relevant at all - the court case the Howey test comes from was about securities fitting your description (and, of course, the outcome was that they were considered securities). The Howey case actually refers to them as "investment contracts", which I presume is language from the securities act itself. This seems like better terminology than "securities", if only because it doesn't so obviously conflict with the colloquial meaning. I'm not sure how we got here from there, although the "securities act" naming probably didn't help.

dragonwriter 5y ago
> Because that aspect doesn't sound relevant at all - the court case the Howey test comes from was about securities fitting your description The property sold in Howey was marketable and the service contract was held out to any owner, so while I agree that neither securitization nor marketability are requirements, marketability was present in the Howey arrangement.

dragonwriter 5y ago

> The Howey test doesn't apply here. Yes, it does. > If it's not securitized and it's not tradable, it's not a security. Neither securitization nor marketability are requirements for something to be a security. > FINRA is an obvious choice. They already regulate securities lending, they already regulate margin accounts, they already regulate interactions with FDIC-regulated bank accounts. I suppose if Congress were writing a new law to specifically assign new regulatory authority for cryptocurrency lending accounts there might be an argument along those lines. But this isn't a matter of choice, its a matter of application of existing law, and if it meets the Howey test and no exception in existing law, such as assignment to a different regulator, exists, its an SEC-regulated security.

darksaints 5y ago
> The Howey test doesn't apply here. No, it doesn't. The Howey test applies to commercial paper, tradability is inherent. In that sense, the Howey test isn't the only test for a definition of a security...it is a test that applies to anything that is a tradable financial instrument. If the Howey test was the only test used to define a security, your bank account would be considered a security. But your bank account is absolutely and definitively not a security, and it is regulated by the FDIC, which has no authority over securities. > I suppose if Congress were writing a new law to specifically assign new regulatory authority for cryptocurrency lending accounts there might be an argument along those lines. But this isn't a matter of choice, its a matter of application of existing law, and if it meets the Howey test and no exception in existing law, such as assignment to a different regulator, exists, its an SEC-regulated security. This is obviously and demonstrably false. Even if this product was a security, which it is not, the classification of something as a security does not mean that the SEC has authority. Futures - a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority. Equity Futures - a security of a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority. Equity Future Options - a security of a security of a security, yet the SEC has no jurisdiction and the CFTC has regulatory authority.
- dragonwriter 5y ago
  > The Howey test applies to commercial paper, tradability is inherent. Howey itself did not concern commercial paper, so if the Howey test only applied to that, it would be nonbinding dicta.
  - darksaints 5y ago
    Meant to say investment contracts.
    - dragonwriter 5y ago
      Investment contracts aren't inherently tradeable. They may frequently be tradeable because of market preferences, but it is not inherent in the category. «an "investment contract" exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.» [0] [0] https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets https://www.sec.gov/corpfin/framework-investment-contract-an...

mandevil 5y ago

You have taken the Howey test, which defines what is a investment contract (and therefore requires SEC regulation), and replaced it with "if it's not securitized and its not tradeable it's not", which is, strictly as a matter of US law, completely and utterly wrong. The whole point of the Howey test is to focus on what the transaction does, not it's form, because it was trying to prevent people from tap-dancing around the regulation, exactly like what Coinbase is attempting to do here.