SEC staff narrows token buyback guidance to networks with no central party
SEC staff updated crypto guidance to clarify that token buyback announcements do not constitute promises of essential managerial efforts under the Howey test only if the network is functional and has no central party.
The SEC's Division of Corporation Finance revised its crypto FAQ on Sept. 28, adding the phrase "and has no central party" to its answer on token buybacks three days after originally publishing the guidance. Under the updated text, an issuer's announcement of a non-security crypto asset buyback program does not represent a promise to undertake essential managerial efforts under the Howey test if the underlying network is functional and lacks a central party.[3][2][1]
Staff maintained that a buyback announcement on a network that is not yet functional could still count as a promise of essential managerial efforts if the issuer frames the program as creating yield or return for token holders. While the FAQ does not define what constitutes a central party, an adjacent answer explains that once a functional network lacks a central party, no individual or entity holds the control necessary to dictate the system's success or failure.[3][2]
Miles Jennings, general counsel and head of policy at a16z crypto, praised the change on X after previously expressing concern over the initial Sept. 25 wording, according to reporting by journalist Eleanor Terrett. The guidance builds upon an interpretive release issued by the SEC on March 17, though the division emphasized that the FAQ answers reflect staff views and carry no legal force or effect.[3]
Key facts
- The SEC Division of Corporation Finance updated its crypto FAQ on Sept. 28, adding the words "and has no central party" to its guidance on token buybacks three days after its initial publication.
- The revised FAQ states that announcing a non-security token buyback on a system that is functional and has no central party does not constitute a promise of essential managerial efforts under the Howey test.
- A buyback announcement on a network that is not yet functional may still be deemed a promise of essential managerial efforts if presented as creating yield or return.
- The SEC guidance does not define "central party," but notes that without one, no entity holds control over the functional network's success or failure.
- Miles Jennings of a16z crypto praised the narrowed wording on X, stating it strengthens durability and guards against circumvention of securities laws.
- The FAQs build upon a March 17 interpretive release and reflect staff interpretations that have no legal force or effect.
Sources · 3 sources
- TW
The Wolf Of All Streets@scottmelkerPost on X ·
JUST IN: SEC STAFF UPDATES SEPT. 25 CRYPTO GUIDANCE, ADDING NEW CLARITY THAT TOKEN BUYBACK ANNOUNCEMENTS ON FUNCTIONAL, DECENTRALIZED NETWORKS GENERALLY DO NOT SIGNAL THE ESSENTIAL MANAGERIAL EFFORTS USED IN THE HOWEY TEST
Open source - CO
CoinDesk@CoinDeskPost on X ·
NEW: The SEC clarifies that token buyback announcements from issuers of decentralized crypto assets do not constitute a promise of essential managerial efforts under Howey, though the same buyback tied to yield on a non-functional network could. https://t.co/yju4d5WOMU
Open source - UN
UnchainedArticle ·
SEC Staff Narrow Token Buyback Guidance to Networks With ‘No Central Party’ SEC staff tightened their new guidance on crypto token buybacks on Monday, three days after first publishing it, limiting its reach to networks that are both functional and have “ no central party .” The Division of Corporation Finance revised its crypto FAQ on Sept. 28, adding the words “and has no central party” to its answer on buybacks. As updated, staff wrote in the document that where a system meets both conditions, “an issuer’s announcement of a non-security crypto asset buyback program would not constitute a representation or promise to undertake essential managerial efforts.” Such a promise is one way a token sale can become an investment contract, and so a security, under the Howey test. The rest of the answer is unchanged. On a network that is not yet functional, staff still say a buyback announcement could count as such a promise “if the issuer presents the buyback as creating yield or return for token holders.” Get Unchained’s crypto news in your inbox with the free Unchained Daily newsletter . What Changed When the division first published the FAQs on Friday, Sept. 25, the buyback answer required only that the crypto system be functional. The SEC posted a comparison with the prior version alongside the change. The buyback answer does not define a central party. A neighboring answer in the same FAQ explains why the concept matters: once a functional system has no central party, issuer statements likely would not create a new investment contract, because no one “has control of the functional crypto system that would allow them to take any action which would affect the failure or success of the crypto system.” Jennings Welcomes the Edit Miles Jennings , general counsel and head of policy at a16z crypto , had raised concerns about the original wording. Journalist Eleanor Terrett , who reported the update on X, noted Jennings had said last week that the earlier text could “empower an issuer to announce the buyback program without that announcement then creating an investment contract.” On Monday, Jennings praised the revision. “The narrowing of Friday’s guidance will bolster its durability, while guarding against attempts to misconstrue it by those that wish to circumvent securities laws,” he wrote in a post on X. “Pragmatic and clear rules are all crypto needs to succeed, and the SEC just delivered again.” More crypto projects are using revenue to repurchase their own tokens. Ethena proposed a buyback program in late August. The FAQs build on the interpretive release the SEC issued on March 17. They reflect staff views, not a Commission rule, and “have no legal force or effect,” the division said. Related Listen: Crypto’s Clarity Act Collapses. Two Days Later, the SEC Introduces Its Innovation Exemption The post SEC Staff Narrow Token Buyback Guidance to Networks With ‘No Central Party’ appeared first on Unchained .
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