Recently the issues regarding the changing fund names in the blockchain technology while trading is increasing. Under the 80-year old Investment Company Act of 1940, the issuers are not allowed to use the names which are materially misleading and fake.
This Act was further strengthened by the U.S. Securities and Exchange Commission (SEC) in 2001. The ‘Name Rule’ of SEC has demanded that funds must authenticate 80% of the assets and they must possess the same segment of investment as described by their names. Therefore, the SEC took the initiative to curb this issue by dropping blockchain tags.
Initiatives are taken by the SEC to ensure the security of blockchain technology:
SEC has taken the step by giving warnings to the fund providers to stop using tag names in blockchain while trading. Recently many blockchain themed fund names are misplacing. It is reported that every third fund changed their name in the year 2018 and one fund replaced the blockchain with transformational data sharing.
This lead to the SEC taking these kinds of initiatives to ensure security. According to Bloomberg, this is a preventive step to ensure fair trading in blockchain exchange trading funds (ETFs).
Defending Name has become a Real Task
The SEC has stricken the inquiry process and started asking more questions from the companies. The CEO of the fund provider exchange trading concept has elaborated that SEC has started enquiring about every detail of the funds and are demanding justification on the naming.
Their constant questioning and the justification about minimal details is troublesome and, now defending the name has become a tough task.
SEC is of the belief that this would put responsibility pressure on the exchange trading fund investors and other stakeholders on one hand and clears the market on the other.