‘XRP Is Not A Security’: Bitnomial Files Lawsuit Against SEC

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

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. 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’s self-certification with the CFTC to list the futures contract, scheduled to commence trading on or after August 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.

The SEC posited in its exchange with Bitnomial 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, emphasizing that the summary judgment of the Southern District of New York from July 13, 2023, by Judge Analisa Torres had rejected the SEC’s stance that the token itself is a security in secondary market transactions.

Bitnomial’s legal counsel argues, “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.” They further contend that compliance with the SEC’s demands would be infeasible, as it would require Bitnomial to register as a national securities exchange, a process that would impose undue regulatory burdens and costs on the company.

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 at a time when the SEC filed a motion to appeal the final ruling by Judge Torres on October 2. The SEC has not articulated what it plans to appeal yet. On Oct. 8, crypto exchange Crypto.com also sued the SEC after it received a Wells notice. Notably, Bitnomial’s complaint comes after Canary Capital filed with the SEC on Oct. 8 to launch a spot XRP exchange-traded fund (ETF), just days after a similar application from Bitwise.

At press time, XRP traded at $0.5344.