Introduction to the Legal Dispute
On October 10, Bitnomial Exchange, LLC initiated a legal battle against the US Securities and Exchange Commission (SEC) and its commissioners. The lawsuit, filed in the United States District Court for the Northern District of Illinois, contests the SEC’s assertion that XRP is a security. Bitnomial is seeking both declaratory and injunctive relief to counter the federal regulator’s attempt to assert jurisdiction over digital asset futures. Bitnomial maintains that such regulatory oversight should fall exclusively under the Commodity Futures Trading Commission (CFTC).
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Background of the Dispute
Bitnomial, a designated contract market approved by the CFTC, has recently been under scrutiny following its plans to list XRP Futures. The SEC’s intervention followed Bitnomial’s self-certification process with the CFTC for the listing, which was intended to begin on or after August 13, 2024. According to the complaint, the SEC claimed jurisdiction over a product already under CFTC regulation.
The SEC reached out to Bitnomial post-certification to discuss the proposed listing, asserting that proceeding with the listing would breach federal securities laws. The SEC’s position was that XRP is an investment contract, thus qualifying as a security, and therefore, XRP Futures would fall under joint SEC and CFTC jurisdiction. Consequently, the SEC demanded Bitnomial to adhere to additional requirements, including registering as a national securities exchange (NSE) and submitting to SEC oversight.
Bitnomial’s Counterarguments
Bitnomial disputes the SEC’s classification of XRP, referencing a summary judgment by Judge Analisa Torres from the Southern District of New York on July 13, 2023. This ruling rejected the notion that XRP itself is a security in secondary market transactions.
Bitnomial’s legal team argues against the SEC’s interpretation, stating, “Bitnomial disagrees with the SEC’s view that XRP is an investment contract and, therefore, a security, and that XRP Futures are thus security futures.” They further argue that compliance with the SEC’s demands would be impractical, as it would necessitate Bitnomial to undergo the costly and burdensome process of registering as a national securities exchange.
Legal Relief Sought by Bitnomial
In its legal filing, Bitnomial requests the court to declare that XRP Futures are not security futures and to restrain the SEC from exerting jurisdiction over their exchange. This includes preventing any enforcement actions regarding the listing, trading, purchasing, or selling of these futures on Bitnomial’s platform. The exchange emphasizes that this declaration is crucial before listing the contract to avoid potential SEC enforcement based on their interpretation of the law.
Context and Relevance
This lawsuit emerges amidst ongoing regulatory challenges faced by the crypto industry. Notably, the SEC filed a motion to appeal Judge Torres’s final ruling on October 2. Additionally, on October 8, Crypto.com initiated its lawsuit against the SEC following a Wells notice. In a related development, Canary Capital filed with the SEC on October 8 to launch a spot XRP exchange-traded fund (ETF), shortly after a similar filing by Bitwise.
