What Are the Implications of a “Security” Vs. “Commodity” Classification for a Crypto Derivative Product?
Classification determines the primary regulator and the applicable legal framework. A "security" derivative falls under the SEC's jurisdiction, subject to the Securities Exchange Act.
A "commodity" derivative falls under the CFTC's jurisdiction, subject to the CEA. Security classification typically involves stricter disclosure, registration, and anti-fraud requirements.
This difference significantly impacts how the derivative product can be offered and traded.
Glossar
Derivative Product
Instrument ⎊ A Derivative Product is a financial instrument whose value is intrinsically derived from the performance of an underlying asset, index, or rate, rather than possessing inherent value itself.
Traditional Commodity Futures
Basis ⎊ Traditional commodity futures represent standardized contracts obligating the exchange of a specific quantity of a physical commodity at a predetermined future date and price, historically serving as foundational instruments for price discovery and risk transfer in agricultural and energy markets.
Security Classification
Framework ⎊ Security classification, within cryptocurrency, options trading, and financial derivatives, establishes a tiered system for controlling access to sensitive information and systems, directly impacting operational risk and regulatory compliance.