Crypto Asset Trading Platforms
Crypto assets are digitally represented assets that typically rely on blockchain or distributed ledger technology and cryptography. Crypto assets may act as a method of payment, a store of value (like money), perform a function or represent an interest in an asset or enterprise. Crypto assets can be referred to as “cryptocurrency,” “utility tokens,” “payment tokens,” “virtual assets,” “digital currency,” “stablecoins,” or “value-referenced crypto assets.” Crypto asset trading platforms (CTPs) facilitate the buying, selling or transferring of crypto assets.
Do crypto asset trading platforms need to register with the ASC?
Alberta securities laws require that persons or companies that are “in the business” of trading securities or derivatives be registered as dealers. Securities legislation applies to CTPs that facilitate or propose to facilitate the trading of crypto assets. A crypto asset, or the user’s contractual right to the crypto asset, may constitute a security or a derivative. If a CTP intermediates trades between buyers and sellers of crypto assets, the platform is acting as a dealer and is required to register under NI 31-103. If the CTP also operates a marketplace that uses established, non-discretionary methods to allow trading between multiple buyers and sellers (the full definition of “marketplace” is in National Instrument 21-101 Marketplace Operation), the CTP will be regulated as a marketplace. A CTP may be a dealer or a dealer and a marketplace, depending on its business model. Refer to CSA Staff Notice 21-327 for information about circumstances under which securities laws apply to CTPs and to CSA Staff Notice 21-329 for guidance about platform types and the regulatory approach and application process applicable to each platform type.
Which crypto assets are securities or derivatives?
Generally, Alberta securities laws will apply to a crypto asset if any of the following circumstances apply:
1. The crypto asset meets the definition of “security” as set out in the Alberta Securities Act. For example:
- It has the characteristics of a commonly known security, such as a share or a unit of an investment fund.
- It is a document constituting evidence of title to or interests in the capital, assets, property, profits, earnings, or royalties of a person or company.
- It is a bond, debenture, note or other evidence of indebtedness (other than a deposit issued by a financial institution).
- It is a profit-sharing agreement.
- It is evidence of an option, subscription or other interest in or to a security.
The CSA has released guidance stating that value-referenced crypto assets, commonly known as stablecoins, may constitute securities and/or derivatives. Refer to CSA Staff Notice 21-332.
2. The crypto asset is offered or sold in a manner that creates an “investment contract” as that term has been interpreted by the courts. CSA Staff Notice 46-308 Securities Law Implications for Offerings of Tokens provides guidance respecting when a crypto asset offered in an initial token offering or initial coin offering will be considered an investment contract and therefore a security. Although they may be labelled “utility tokens” the offering of tokens under an initial coin offering or an initial token offering has generally been considered to constitute a sale of securities.
3. The crypto asset is one of the assets in an investment pool offered to investors.
4. The crypto asset itself meets the definition of “derivative,” as set out in the Alberta Securities Act for example, as an option, swap, forward contract or other financial instrument whose market price is derived from an underlying price, value or thing.
Even if a particular crypto asset is not itself a security or a derivative, in some circumstances a security or derivative may be created and require the CTP to comply with securities law requirements (e.g., those applicable to dealers and marketplaces). This will typically be the case where a CTP holds custody of the crypto asset on behalf of a client and does not immediately deliver it to the client such that the client only has a contractual right or claim to the underlying crypto asset. Refer to CSA Staff Notice 21-327 for further details.
Registering a crypto asset trading platform
For CTPs that have determined that they trade securities, the registration process is mostly similar to that of any other Investment Dealer firm that is required to be a member of CIRO. Refer to Getting Registered and the news release CSA and CIRO expect crypto trading platforms to prioritize applications for investment dealer registration and CIRO membership for additional details. CTPs that perform registerable activities without either being registered or having entered into a pre-registration undertaking (before March 2023) could be subject to enforcement action.
A CTP’s application for registration as an Investment Dealer may be accompanied by an exemptive relief application that requests relief from any dealer registration and, if applicable, marketplace requirements that the CTP is unable to comply with. Examples of exemptive relief that have previously been granted can be viewed on the CSA website. When reviewing these exemptive relief decisions note that there are a number of conditions attached to the relief, including reporting requirements, that a CTP must comply with.