Gary Gensler, Chairman of the Securities and Exchange Commission, raised multiple concerns regarding crypto trading platforms, token issuers in general, and stablecoins in particular -- during a presentation before the University of Pennsylvania Law School on April 4, 2022.

In prepared remarks published in connection with his presentation, Mr. Gensler said that, because crypto trading platforms are "likely trading securities," he has directed SEC staff to undertake several defined initiatives. These include: (1) "getting the platforms...registered and regulated much like exchanges"; (2) assessing how best to "ensure the protection of customer assets" on such exchanges, "in particular whether it would be appropriate to segregate out custody"; and (3) working with the Commodity Futures Trading Commission "to consider how best to register and regulate platforms where the trading of securities and non-securities is intertwined." Mr. Gensler did not distinguish between centralized and decentralized trading platforms in laying out his initiatives, noting that his concerns apply to "crypto trading and lending platforms, whether they call themselves centralized or decentralized (DeFI)."

Mr. Gensler also expressed some reservations regarding the registration of crypto platforms as alternative trading systems, noting that ATSs are "generally used by institutional investors," while crypto asset platforms are typically accessed by retail customers. While not foreclosing ATS registration for crypto platforms, Mr. Gensler indicated that he has directed staff "to consider whether and how the protections that are afforded to other investors on exchanges with which retail investors interact should apply to crypto platforms."

Mr. Gensler also expressed concerns regarding stablecoins. He noted that stablecoins (1) may implicate financial stability and monetary policy considerations; (2) can "potentially be used for illicit activity"; and elevate investor protection issues. Mr. Gensler appeared particularly bothered by trading platforms that issue their own stablecoins, saying that "there are conflicts of interest and market integrity questions that would benefit from more oversight."

Finally, Mr. Gensler said that he agreed with former SEC Chairman Jay Clayton when Mr. Clayton noted that "most crypto tokens are investment contracts under the Howey Test" (see SEC v. WJ Howey). Accordingly, said Mr. Gensler "it is important that we work to get crypto tokens that are securities to be registered with the SEC."