SEC’s Corporation Finance to set crypto taxonomy, let some tokens shed ‘security’ status; proposes semi-annual reporting
The SEC’s Division of Corporation Finance, led by Director John B. Moloney, announced plans to develop a clear taxonomy for crypto assets to determine when tokens no longer qualify as investment contracts. As part of “Project Crypto,” the SEC—working with Investment Management and Trading & Markets—outlined four digital asset categories: digital commodities, digital collectibles, digital tools, and tokenized securities. The Division will also propose a regulatory framework for tokens that remain securities and consider rules that permit some issuers to switch from quarterly to semi-annual reporting. Moloney argued the move would reduce unnecessary disclosure burdens; critics warn reduced reporting frequency could create information vacuums and increase insider trading risk. The Division is also handling a post-shutdown backlog of registration filings and reminded foreign private issuers that the Holding Foreign Insiders Accountable Act (HFIAA) requires FPI directors and officers to report transactions by March 18, 2026. Key names: Director John B. Moloney and SEC Chairpersons (Project Crypto referenced under Chair Atkins). Main implications: clearer classification could allow certain tokens to transition from ‘security’ to ‘non-security’ status once networks are sufficiently decentralized, while semi-annual reporting remains contested for its potential market impact.
Neutral
The announcement reduces regulatory uncertainty by proposing a formal taxonomy and a pathway for some tokens to lose ‘security’ status once networks decentralize—this is positive for projects seeking clearer legal standing. At the same time, other elements (a framework for tokens that remain securities and the contentious move to optional semi-annual reporting) preserve regulatory oversight and introduce potential downsides for market transparency. Short-term market reaction is likely muted: clarification reduces legal tail-risk for some tokens, but changes require rulemaking and time to implement. Semi-annual reporting proposals could create volatility around individual equities and tokenized securities if adopted, owing to concerns about information gaps and insider trading windows. Historically, regulatory clarification (e.g., guidance or rulings that remove ambiguity) tends to be modestly bullish for affected crypto tokens as legal risk falls, but proposals that reduce disclosure have raised investor concern and can be destabilizing. Overall, the mix of legal clarity and retained regulation points to a neutral market impact pending final rules and implementation timelines.