- OpenSea is asking the SEC to confirm that NFT platforms are not securities exchanges or brokers
- OpenSea says NFT marketplaces do not hold assets, match trades, or give investment advice
- The request follows the SEC closing its investigation into OpenSea and clarifyingthat some crypto assets are not securities
OpenSea, a nonfungible token (NFT) marketplace, has formally requested the US Securities and Exchange Commission (SEC) to clarify that NFT platforms should not be categorized as securities exchanges and brokers under federal law. In a letter dated April 9 sent to SEC Commissioner Hester Peirce, who heads the agency’s Crypto Task Force, OpenSea’s legal team noted that marketplaces like OpenSea legal team highlighted the need for clear regulatory guidance on the classification of NFT marketplaces.
Adele Faure, the company’s general counsel, and Laura Brookover, deputy general counsel, added that platforms like OpenSea do not perform core functions required to be securities exchanges or brokers under the Securities Exchange Act of 1934. According to the letter, NFT marketplaces do not carry out transactions, act as financial intermediaries, or bring together multiple buyers and sellers for identical assets.
Distinction from Traditional Exchanges and Brokers
OpenSea explained that NFT marketplaces don’t function like traditional markets. The company continued that its digital marketplace platform allows users to browse and discover unique digital assets. OpenSea provides a platform to sell and buy NFTs through smart contracts, and it is not involved in executing or settling transactions.
However, the letter states that the lack of order execution, custody of assets, and investment advising disqualify NFT marketplaces from the definitions of brokers and exchanges. OpenSea has no customers’ assets or funds, nor does it provide any advisory services and thus cannot impact the investment decisions. Therefore, they reason that applying broker‑dealer obligations would be inconsistent with the platform’s operating model.
Context of Regulatory Developments
The appeal follows the SEC closing an investigation into OpenSea for potential securities law violations. The probe closure fits in with other crypto-armored regulatory changes taken by the current administration. Moreover, memecoins are not securities, according to recent staff statements by the SEC’s Division of Corporation Finance. Some stablecoins meeting the conditions denoted in the statements are not subject to securities regulations.
OpenSea referenced these developments and suggested similar guidance be issued for NFT marketplaces. Faure and Brookover asked the Crypto Task Force to issue informal guidance that would exempt NFT platforms from Exchange and Broker rules. They contended that such a move would solve industry uncertainty and allow technology companies to operate under clear regulatory expectations.
Concerns Over Regulatory Overreach
In the letter, OpenSea said it was concerned that previous enforcement actions had more to do with explaining how regulatory jurisdiction should expand than even if this jurisdiction would make NFT marketplaces more secure. Touting that the platform is regulated as a ‘Trading Facility’ under the Exchange Act was premature, as the service does not meet the criteria for such. Namely, it does not unite numerous sellers of the same asset in one centralized manner.
According to the company, NFT marketplaces are decentralized and non-custodial and do not follow traditional regulatory requirements like capital reserves and financial reporting. OpenSea also urged the SEC to produce guidance that takes into account the different characteristics of an NFT marketplace compared to more traditional forms of trading and protects innovation in the digital asset ecosystem.
OpenSea’s request is to provide regulatory certainty for the continued development of NFT platforms in the United States while complying with applicable laws.
