The Securities and Exchange Commission (SEC) recently concluded its investigation and reached a settlement with RSE Markets Inc. regarding allegations of operating as an unregistered securities exchange. RSE Markets was engaged in running a marketplace that facilitated the buying and selling of securities, specifically equity interests in collectible assets like valuable cars and watches.
The SEC’s order states that RSE operated the Rally Platform, comprising the RallyRd.com website, the Rally App, and associated trading functionality, between July 1, 2018, and November 20, 2021. The platform catered to retail investors in the United States, enabling them to purchase and sell securities. The secondary market trading for these securities was exclusively conducted on the Rally Platform during specific trading windows arranged by RSE. To match orders, RSE utilized an algorithm based on price and time priority, arriving at a final clearing price for executing matched orders. Both buyers and sellers had to confirm their willingness to transact at the final clearing price. The SEC’s order notes that RSE treated the trading interests it accepted as firm orders, as evidenced by data showing that almost all matched trading interests were confirmed and executed.
Despite marketing the Rally Platform as a stock exchange, RSE failed to register it as a national securities exchange or operate it under any exemption from registration. This non-compliance denied investors crucial protections offered by securities laws, such as disclosure filing requirements with the Commission and the obligation to maintain specific books and records.
Tejal D. Shah, Associate Regional Director of the SEC’s New York Regional Office, highlighted that RSE operated and promoted its platform as an exchange without adhering to the SEC’s registration provisions. Operating an unregistered trading platform, as RSE did, deprived investors of essential safeguards and oversight.
As part of the settlement, RSE neither admits nor denies the SEC’s findings but has agreed to cease and desist from any violations or future violations of Section 5 of the Securities Exchange Act of 1934. Additionally, RSE will pay a civil penalty of $350,000.
The SEC’s investigation into the matter was carried out by Rebecca Reilly, John Lehmann, and Sandeep Satwalekar of the New York Regional Office, under the supervision of Tejal D. Shah.