SEC Faces Backlash Over New Rules Impacting Crypto Market Participants
Summary:
The U.S. Securities and Exchange Commission (SEC) has faced significant criticism following new rules redefining "dealer" and "government securities dealer" that require more crypto market participants to register and comply with federal securities laws. These changes could potentially force liquidity providers with over $50 million in capital to register as securities dealers. High-profile critics of the move include SEC commissioner Hester Pierce and many in the DeFi and crypto community. The revisions are feared to hamper liquidity provision and place burdensome regulatory regimes on market participants, leading to legal challenges.
On February 6, the U.S. Securities and Exchange Commission (SEC) revised its definitions for the terms "dealer" and "government securities dealer". These changes, initially proposed in 2022, dictate a more extensive range of cryptocurrency market contributors to enlist, participate in a self-governance body, and follow federal security laws. Many in the cryptocurrency sector, including decentralized finance (DeFi) and advocates for cryptocurrency like Hester Pierce, have criticized these revisions. There has been ongoing concern since their first proposal two years ago over the vague definition of cryptocurrency securities.
The majority of this disapproval arises from the modified definition of a dealer, which could mandate registration as security dealers for liquidity providers. This means all liquidity providers managing over $50 million would have to register with the SEC. SEC commissioner Hester Pierce expressed her disapproval in an official statement, noting the discrepancies within the dealer definition, the impact on market behavior, market quality, and the conversion of traders, many of whom were clients, into dealers.
Pierce further argued that this ruling not only damages market participants who now find themselves transformed into dealers but also does a disservice to the wider market. It harms liquidity provision, leading to less availability and aligns market participants under a costly and burdensome regulatory system.
As Gabriel Shapiro, General Counsel at Delphi Labs, summarized on social media, there's growing opposition to these changes in the DeFi community and among crypto specialists. Shapiro questioned whether all liquidity providers managing assets of $50 million qualify as securities dealers. According to him, not all do, as it depends on whether the tokens in the pool or trades through the pool are securities transactions. He added that these issues are under debate both generally and specifically.
Bill Hughes, the Director of Global Regulatory Matters at Consensys, states that the new rule increases the urgency to provide clarity on which crypto assets are securities under U.S. law. Hughes added that these new changes would face federal court challenges, with multiple industries seeking judicial review due to their massive impact on securities markets. Hughes highlighted that the SEC had previously faced considerable judicial opposition over their approach towards crypto companies.
The lack of clarity provided by the SEC despite demands from the crypto community and policymakers for several years has also been noted. With the recent regulatory changes, experts suspect that they will also be subjected to judicial review.
Published At
2/7/2024 1:13:19 PM
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