The United States Securities and Exchange Commission (SEC) has recently implemented new regulations that will require a broader range of market participants to register with the SEC, join a self-regulatory organization, and comply with federal securities laws and regulations. These rules have the potential to increase oversight of the crypto and decentralized finance sectors.
The extensive set of rules, consisting of 247 pages, was proposed in 2022. It includes redefining the terms “dealer” and “government securities dealer” in the Securities Act Rules, as well as clarifying the phrase “as a part of a regular business” as used in the Securities Exchange Act of 1934.
The rules will be applicable to market participants who play significant roles in providing liquidity to the markets. According to the new definitions, a dealer could be someone who expresses trading interest at or near the best available prices for a particular security or earns revenue primarily from capturing bid-ask spreads or any incentives provided by trading venues for liquidity-supplying trading interest. SEC Chair, Gary Gensler, expressed his thoughts on the matter, stating:
“There is a lower threshold for the application of the new rules, requiring dealers to have or control at least $50 million.”
The rules were adopted in a vote that followed party lines, with the two Republican SEC members voting against them. The initial 2022 proposed rule, spanning 194 pages, did not mention crypto except in a footnote. However, it faced objections from both the crypto industry and pro-crypto politicians. The final rule now includes an entire section dedicated to crypto. It states:
“Four out of five SEC members have released statements regarding the rule change. Republican Mark Uyeda criticized the rule change as overreach, stating, “Today’s action solidifies the Commission’s belief that the definition of ‘dealer’ is virtually limitless. The public should be concerned about the vast scope of this claimed jurisdiction.” Hester Peirce, the other Republican SEC member, did not release a statement.
Commissioner Caroline Crenshaw supported the changes, addressing a clear loophole in the current system. She stated, “There is an evident gap here, where market participants with a significant market share engage in activities similar to those performed by registered dealers without being subject to the same regulations.”
The rules will take effect 60 days after their publication in the Federal Register.