SEC's New Rules Heighten Oversight of Crypto, Decentralized Finance
Summary:
The US Securities and Exchange Commission (SEC) has established new rules requiring larger market participants to register and abide by federal securities laws, potentially placing stricter supervision over cryptocurrencies and decentralized finance. The laws redefine the terms “dealer” and “government securities dealer”, and apply primarily to participants with significant roles in market liquidity. The regulations, subject to a lower limit of control or possession of $50 million, were approved with some opposition. They'll take effect 60 days post their Federal Register publication.
The United States Securities and Exchange Commission (SEC) on Feb. 6, implemented regulations requiring broader market participant registration, joining a self-regulatory body, and adherence to federal securities laws and policies. These updated regulations are likely to place cryptocurrencies and decentralized finance under closer scrutiny.
The latest regulations, encompassing 247 pages, were initially suggested in 2022. They reinterpret the terms "dealer" and "government securities dealer" as mentioned in the Securities Act Rules, including the statement "as a part of a regular business," as utilized in the Securities Exchange Act of 1934. These regulations are intended for market participants who significantly contribute to the market's liquidity. Specifically, a dealer according to new definitions may demonstrate "trading interest that is at or near the best available prices on both sides of the market for the same security" or generate revenue "primarily from capturing bid-ask spreads, by purchasing at the bid and selling at the offer, or from seizing any incentivized offers by trading arenas to supply trading interest.”
Gary Gensler, Chair of the SEC, remarked that these measures make common sense. Adding that anyone trading like a de facto market maker must register with the SEC as a dealer unless there is an exemption or exception as per the intent of Congress.
A lower threshold has been established under the new regulations wherein dealers must possess or control a minimum of $50 million to be accountable to it. The two Republican members of the SEC voted against these regulations adopted along party lines. The initially proposed 194-page rule of 2022, didn't mention crypto with the exception of one footnote. However, it faced opposition from both the crypto industry and pro-crypto politicians. The final rule contains a dedicated section about crypto.
Four out of five SEC members made public statements on the revised regulations. Mark Uyeda, a Republican member, opposed the change, calling it overreach and warning the public about the extensive range of this assumed jurisdiction.
Commissioner Caroline Crenshaw supported the changes, citing the glaring loophole that significant market volume participants are involved in dealer-like activities without being registered as dealers.
The updated regulations will become effective 60 days following their listing in the Federal Register.
Published At
2/7/2024 12:17:05 AM
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