Bitnomial Sues SEC Over XRP Classification

Bitnomial, a designated contract market approved by the CFTC, has been in the spotlight after its plans to list XRP Futures were challenged by the SEC.

Bitnomial Sues SEC Over XRP Classification, Seeking Court Declaration on Futures Jurisdiction

Bitnomial Exchange, LLC has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) and its commissioners on Oct. 10 over the agency's claim that XRP is a security. The complaint, filed in the United States District Court for the Northern District of Illinois, seeks declaratory and injunctive relief against the SEC's attempt to exercise jurisdiction over digital asset futures that Bitnomial argues should be regulated exclusively by the Commodity Futures Trading Commission (CFTC).

The exchange, which is designated as a contract market by the CFTC, has faced the SEC's challenge to its plans to list XRP Futures. According to the complaint, "The SEC asserts jurisdiction over a product that is already regulated by and subject to the exclusive jurisdiction of the CFTC." The SEC's intervention came after Bitnomial self-certified with the CFTC to list the futures contract, which is set to begin trading on or after Aug. 13, 2024.

"After filing its self-certification with the CFTC, but before Bitnomial listed XRP Futures for trading, the SEC contacted Bitnomial to discuss the contemplated listing. In discussions with Bitnomial, the SEC asserted that Bitnomial would violate the federal securities laws if Bitnomial proceeded with its contemplated listing of XRP Futures pursuant to its CFTC self certification," the complaint reveals.

In its exchange with Bitnomial, the SEC posited that the crypto asset is an investment contract and, by extension, a security. "The SEC asserted that XRP Futures are security futures which are subject to joint SEC and CFTC jurisdiction. The SEC further asserted that Bitnomial is required to comply with a host of additional SEC requirements before listing these Futures, including the significant task of registering as a national securities exchange (“NSE”) and submitting to the SEC’s jurisdiction," Bitnomial writes.

The exchange disputes this classification, highlighting the summary judgment of the Southern District of New York from July 13, 2023, by Judge Analisa Torres, which rejected the SEC's stance that the token itself is a security in secondary market transactions.

"Bitnomial disagrees with the SEC's view that XRP is an investment contract and, therefore, a security, and that XRP Futures are thus security futures," Bitnomial's legal counsel argues. They further contend that complying with the SEC's demands would be impractical, as it would require Bitnomial to register as a national securities exchange, a process that would subject the company to excessive regulatory burdens and costs.

Bitnomial is requesting the court to declare that XRP futures are not security futures and to enjoin the SEC from asserting jurisdiction over it or pursuing any enforcement actions related to the listing, trading, purchasing, or selling the futures on Bitnomial's exchange. "Bitnomial seeks this declaration prior to listing the contract contrary to the SEC's interpretation of the law, which would expose Bitnomial to SEC enforcement," the firm writes.

The lawsuit comes as the SEC filed a motion to appeal the final ruling by Judge Torres on Oct. 2. The agency has yet to specify what it plans to appeal. Meanwhile, on Oct. 8, crypto exchange Crypto.com also sued the SEC after receiving a Wells notice. Bitnomial's complaint follows Canary Capital's filing with the SEC on Oct. 8 to launch a spot XRP exchange-traded fund (ETF), days after a similar application from Bitwise.

At press time, XRP trades at $0.5344.