The US Securities and Exchange Commission has warned investors about the risks involved in investing in initial exchange offerings (IEOs).
According to the document published by the US regulator, a large number of IEOs violate federal securities laws and have a structure similar to that of ICOs.
The SEC has highlighted investors should be extremely cautious when they find projects that promise too high profits. Particularly, the regulator has said that:
"IEOs are being touted as an innovation on ICOs because they are offered directly by online trading platforms on behalf of companies – usually for a fee – to provide immediate trading opportunities for the digital assets. While IEO providers may claim their sales are different from ICOs, they may still violate federal securities laws."
The SEC has also stressed unregulated exchanges offering IEOs are unable to provide investors with the level of protection they require.
To celebrate IEOs in the US, trading platforms must be registered as a national securities exchange or an alternative trading system (ATS) if the offered token is considered as a security. In addition, these exchanges must be a registered broker-dealer. The regulator has said it has not yet approved any IEO:
"There is no such thing as an SEC-approved IEO."