SEC’s Expansive Reach Into Crypto And DeFi: Redefining ‘Dealer’ Unleashes New Horizons
In 2022, proposed rule changes faced criticism from the crypto industry and opposition from Republican SEC commissioners.
On February 6, the SEC adopted rules requiring broader registration, SRO membership, and compliance with federal securities laws. These regulations aim to enhance oversight over crypto and decentralized finance.
The extensive 247-page rules proposed in 2022 redefine terms like “dealer” and “government securities dealer” in Securities Act Rules, along with the phrase “as part of a regular business” in the Securities Exchange Act of 1934.
The rules target market participants playing significant roles in liquidity provision. Defined criteria include expressions of trading interest at optimal prices and revenue derived mainly from bid-ask spreads or trading venue incentives. SEC Chair Gary Gensler commented on the development.
These measures are common sense. […] Absent an exemption or exception, if anyone trades in a manner consistent with de facto market making, it must register with us as a dealer – consistent with Congress’s intent.
The new rules set a threshold for application, requiring dealers to possess or control at least $50 million to fall under their jurisdiction.
Adopted via a party-line vote, with Republican SEC members dissenting, the 194-page 2022 proposal drew objections from the crypto industry and supportive politicians. While the original proposal barely mentioned crypto, the final rule dedicates an entire section to the sector.
Four out of the five SEC members issued statements regarding the rule change. Republican Mark Uyeda criticized it as overreach, expressing concerns about the expansive interpretation of the “dealer” definition. Hester Peirce, the other Republican member, did not provide a statement.’
Commissioner Caroline Crenshaw said in support of the changes, “There is a clear loophole here: market participants with a significant share of market volume are engaging in activities like those performed by dealers, without being registered as dealers.”
The rules are scheduled to take effect 60 days following their publication in the Federal Register.
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