The advent of digital assets has caused a flurry of attention from investors and regulatory agencies. While some of these have been met with skepticism, others have fueled the industry’s growth. In fact, several jurisdictions have made it a priority to become a hub for cryptoexchanges.

Whether or not secondary digital asset exchange are regulated in the same way as traditional securities is a matter of debate. However, regulatory agencies such as the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) have jurisdiction over brokers, dealers, and exchanges, which means they have a role to play in overseeing the industry.

Some jurisdictions have introduced new regulations to support the secondary market for trading security tokens, while others are pursuing an experimental approach to the same issue. This is an indication that the emergence of cryptoexchanges has a lot to offer the public, but there are still some important questions about their legal and regulatory status.

Among the key challenges are how to distinguish between security tokens and other types of digital assets, how to ensure their transparency, and how to ensure their integrity. There are several different approaches to this problem, each with its own set of pros and cons.

One model proposes a single trustee for digital asset security transactions, while another proposes that a single, registered cryptoexchange be the conduit. Although both models have their merits, each could create a host of problems of their own.

A second option involves leveraging existing licensing and regulatory regimes to bring well-established practices to bear on digital assets. However, this could inhibit the evolution of exchange mechanisms. Furthermore, the regulatory framework is already weighed against the realities of digital asset markets, which may make a comprehensive approach a difficult task.

The LSEG Technology engine, for example, has been deployed across many digital asset exchanges around the world. It is the product of a partnership between LSEG, a global securities regulator, and Investec, a leading financial services provider. Using a similar technology, the SEC has rolled out a comparable product to its members’ offices.

The LSEG Technology’s primary role is to improve the speed and reliability of transaction processing. Digital assets require the ability to process large numbers of orders in real time. Hence, an exchange’s engine must be fast enough to meet the demands of traders. Similarly, infrastructure must be secure and reliable.

In short, the LSEG Technology engine is the best example of the many ways a regulatory agency can help improve the secondary market for digital assets. But the true test of whether such a solution is viable will depend on a range of other factors, including a clear mandate to address the problem and adequate funding.

Until the regulatory ecosystem for digital assets is more developed, there is a chance that these technologies will fail to deliver on the promise of openness and innovation. If a lack of regulatory oversight leads to a skewed industry, the result is likely to be a tangled mess.

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