Bitnomial Exchange, LLC filed a complaint with the U.S. Securities and Exchange Commission (SEC) and its commissioners on October 10th. The lawsuit challenges the SEC’s classification of XRP as a security.
The lawsuit was filed in the United States District Court for the Northern District of Illinois, seeking declaratory and injunctive relief to prevent the SEC from exercising jurisdiction over digital asset futures. The exchange believes that such actions by regulatory agencies should be overseen only by the Commodity Futures Trading Commission.
Bitnomial, a CFTC-approved designated contract market, came into the spotlight after the SEC opposed its plan to list XRP futures. According to the complaint, “the SEC asserts jurisdiction over products that are already regulated by and under the exclusive jurisdiction of the CFTC.” Bitnomial had filed a self-certification with the CFTC to list futures contracts scheduled to begin trading after August 13, 2024.
The lawsuit reveals that after Bitnomial self-certified with the CFTC, the SEC contacted the company claiming that listing XRP futures violated federal securities laws. The SEC said that XRP futures are classified as securities futures and are subject to joint regulation by the SEC and CFTC. Additionally, the SEC required Bitnomial to comply with additional SEC regulations, including registering as a National Stock Exchange (NSE) and submitting to SEC oversight.
Object to SEC classification
Bitnomial strongly disagrees with the SEC’s position. The company points to a July 13, 2023 decision by Judge Annalisa Torres of the Southern District of New York, which rejected the SEC’s argument that XRP itself constitutes a security in secondary market transactions. Bitnomial argues that XRP should not be classified as a security because it does not meet the terms of the investment contract.
The company argues that complying with SEC requirements, such as registering as an NSE, would be unduly burdensome and costly, effectively disrupting its operations. Bitnomial’s lawyers emphasized the difficulty of meeting these regulatory standards and argued that the SEC’s definition of XRP as a security is incorrect.
Despite the legal victory, XRP is down 13% since the beginning of the year and has fallen significantly since the start of October. Source: Brave New Coin XRP Liquid Index
In its lawsuit, Bitnomial declares that XRP futures are not securities futures and asserts that the SEC may assert jurisdiction over the company or pursue enforcement actions related to the listing, trading, and sale of XRP futures on its platform. They are asking the court to prevent them from doing so. “Bitnomial requires this declaration before listing contracts, which is contrary to the SEC’s interpretation of the law and exposes Bitnomial to SEC enforcement,” the complaint states.
broader legal context
The lawsuit follows the SEC’s Oct. 2 filing of an appeal of Judge Torres’ final ruling, although the SEC has not yet disclosed details of the appeal. Just days ago, on October 8, Crypto.com filed a complaint with the SEC after receiving a notice from Wells. Another important development is that Canary Capital filed with the SEC to launch a Spot XRP exchange-traded fund (ETF) on October 8, shortly after the filing by Bitwise.
The Bitnomial case highlights growing tensions between the SEC and XRP-related companies as courtroom skirmishes over the classification of digital assets continue. Several industry executives have already rallied behind Bitnomial and criticized the SEC for banning futures trading on derivatives exchanges. According to popular lawyer Bill Morgan, the SEC has filed documents claiming XRP is a security, but it has determined that “all sales of XRP at issue were investment contracts, and the token itself is not a security.” It did not note that the court rejected the SEC’s argument that the safety”.
Another attorney, Fred Rispoli, expressed dissatisfaction with the agency’s current leadership, describing it as “the next level of government corruption.” Rispoli said the move ends any slight hope the SEC would change course, adding that significant reforms are needed to be optimistic about the future.
