Adam Tracy Explains SEC Compliance for Trade Signal Providers

Adam Tracy Analyzes SEC Requirements for Trading Signal Providers

Cryptocurrency trading compliance expert Adam S. Tracy details the securities law compliance requirements for cryptocurrency trade signal providers.


rade signals are a huge thing in crypto. They’ve been around, especially in the Forex world, for quite a while, right? Trade signal providers. You see ton of outfits providing general information against market forces that are effectively buy and sell signals on different cryptocurrencies. And that’s a trade signal provider. There’s no legal definition of trade signal provider, or technology provider. A technology provider would be a … Well, exactly what it says. A technology provider, a software provider, who takes trade signals and then either delivers the trade signals or executes the trade on your behalf. Those all kind of fall under the same definition of what, for purposes of right now, we’ll just consider trade signal providers.

And the question of legality in the crypto space is really kind of up in the air. Like the question of legality in the crypto space for basically everything is sort of up in the air. But it’s a two-part … It’s really a four-part analysis with two competing sets of laws, securities and commodities. Right now we’ll just deal securities and tomorrow I’ll hit the commodities end of it. But your main concern as a trade signal provider in the securities arena is the Investment Advisers Act of 1940. That requires “investment advisors” to register with the SEC.

I’ll read exactly what the definition of an investment advisor is, which is, “A person for compensation who engages in the business of advising others, either directly or indirectly through publications or writings, as to the value of securities or as to the advisability of investing in purchasing or selling securities.” Okay. It’s a mouthful. But first things first. Are we dealing with securities? Because if we aren’t dealing with securities, then the Investment Advisers Act doesn’t apply. So now we go back to this fundamental issue that we have with US securities laws, right? Is a particular cryptocurrency a security?

As I’ll detail in my next video, Bitcoin, Ethereum, most cryptocurrencies actually are deemed to be commodities. And so to the extent that you’re providing signals on say Bitcoin or Ethereum, those are commodities. The Investment Advisers Act of 1940 does not apply, and then obviously no registration as an investment advisor.

But we get into the STO arena, or we get into some of these ICOs where you have some specious grounds. Is this in fact a security? And so the question becomes, out of safety. Assuming for argument’s sake alone, let’s say that I’m going to offer trade signals on what are either as a security token, or an ICO token, which is on the fence. It’s in that gray area. Okay. And do I have to register?

Because in function, as a trade signal provider, you are advising others. You are advising others as to the purchase or sale of this cryptocurrency. And if it’s a security, then by definition you’re acting as an investment advisor. But there’s exemptions, many exemptions to registration.

One of them is the publisher exemption. And this goes back to the days where stock newsletters were very big. You used to see these. They used to come in huge binders, and they were exempt from investment advisor registration because of this publishers exemption.

Now, to qualify for this exemption from registration as an investment advisor, a couple things. One, you can only provide “impersonal advice.” Meaning the advice that you provide, the trade signals you provide, cannot be tailored to a specific client. So you sort of have to provide a general, to the market at large, or to your clientele at large, as opposed to tailoring one’s particular portfolio. You have to provide this sort of general advice. You can’t tailor your advice, or be tailoring your advice to specific clients, into their situations.

Just think of like a financial advisor. Your CFP, what they would do. Okay. They’re mostly investment advisors. You can’t tailor your advice. Your trade signals have to be general in nature, dictating market forces, buy and sell signals, things like that. And two, the trade signal has to be bonafide. It can’t be promotional. So in the sense that you are, let’s say, promoting an ICO token, and this is huge on YouTube. You see this all the time.

You see people out there like, “Buy this, buy that ICO. I’m into this ICO this ICO.” Well, in essence they’re acting as investment advisors, and they’re unlicensed investment advisors. Because they’re not providing bonafide advice. They’re providing trade signals. The investment recommendation to purchase that ICO, but they’re being paid to do it, or they were paid to do it. So it can’t be promotional. You can be paid to provide the signal, but you can’t be paid by the promoter of the ICO, or that coin or that token to offer the advice. So that’s huge.

And then three, your publishing has to be of general and regular circulation. And I’m quoting again. So instead of sporadic sort of, you have to be engaged in the business. Instead of saying, “I’m going to do it here. I’m going to do it here. I’m going to do it in response to one-off market forces,” you actually have to be engaged on a consistent and regular basis and providing those tracings.

So if you meet those three qualifications, not tailoring your advice to a particular client, bonafide, non-promotional trade signal provision, and regular publishing, not time-to-time, you’re going to meet that publisher exemption.

So irrespective of what you’re dealing, what cryptocurrency you’re dealing with, and I would argue, and I’ll get into the next video, Bitcoin, Ethereum, those are commodities. That’s a whole other bag which we’ll have to get into. But let’s think ICO tokens, and even, of course, STO tokens, if you were worried about whether or not their securities, and whether or not you fall as a trade signal provider, whether you fall into that classification as an investment advisor that require registration, the publisher exemption is where you have to go, The publisher exemption, if you follow those three tenants, are what’s going to obviate your need to register as an investment advisor, which is sort of cumbersome, and can be a costly and time-consuming ordeal.

So again, think of the publisher exemption. Also, the fundamental question when you go into it is what am I actually giving the trade signals on? Am I giving the trade singles on a commodity or a security? We’re talking about securities here, Investment Advisor Act registration, and whether that’s applicable. My next video I’ll hit, I’ll discuss the commodities end of it, which is a little more in-depth than probably a little more apropos to most trade signal providers out there. But if you have any questions, hit me up. I’m Adam Tracy. info’s below. I’ll talk to you next time. Thanks.

A former professional rugby player, Adam S. Tracy brings over twenty years’ experience as an attorney, consultant and dealmaker with a particular focus on cryptocurrency, digital products, payments and immersive corporate structures. As an accomplished executive and advisor to high risk merchants and stakeholders, Adam has proven himself as a results oriented, decisive leader with proven success advising early market entrants, technology adapters, as well as established participants across a wide range of verticals. Adam Tracy’s attack-first personality allows him to excel in dynamic, demanding environments including complex corporate negotiations, distressed environments and regulatory investigations.

In addition, Adam S. Tracy also has a successful track record co-founding high risk industry ventures, building & leading cross-functional teams, and spearheading diverse corporate transactions. A serial entrepreneur, Adam has successfully started and created exits across a wide swath of markets, including various mobile SaaS ventures, nutraceuticals, peer-to-peer payment systems, and several telemarketing-based ventures. Moreover, as a recognized expert in the payments field, Adam Tracy has been a blockchain and digital currency evangelist and influencer since the early days of Bitcoin.

Utilizing his proprietary “Pre-Event Driven™” strategy for decision making, Adam S. Tracy further leverages his over twenty years’ experience to create cost-effective, value-add solutions for each client. A data-driven acolyte, Adam continually refines his strategies based on field studies and data collection. Moreover, Adam Tracy further augments his range of solutions by actively networking with regulators, liquidity providers, legal and compliance experts, deal-flow brokers, investors and management of leading high risk industry ventures.

Adam S. Tracy earned his Bachelor of Science in Computer Applications and Bachelor of Science in Finance from the University of Notre Dame. He subsequently earned his Masters in Business Administration from the DePaul Kellstadt Graduate School of Business, while concurrently earning his Juris Doctorate from the DePaul College of Law. Adam lives outside Chicago with his with his wife, four dogs, and two cats.

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