U.S. SEC Clears Dealers Rule Expansion, Raising DeFi Concerns

The Securities and Exchange Commission (SEC) of the United States published new rules that define the terms “dealer” and “government securities dealer,” on February 6. 

I was pleased to support today’s rules further defining a dealer and government securities dealer.More on Tom Cruise, Top Gun, Dealers, Traders, & our latest @SECGov rule:

— Gary Gensler (@GaryGensler) February 6, 2024

The new regulations, which were first put forth in 2022, mandate that more players in the cryptocurrency industry register, become members of a self-regulatory body, and abide by federal securities laws. 

The decentralized finance (DeFi) ecosystem, pro-crypto lawmakers, and the crypto community have strongly disapproved of the proposed SEC regulations. The crypto industry has objected to the rules since they were first suggested two years ago, claiming that the definition of crypto securities is unclear.

The definition of a dealer, which can compel liquidity providers to register as securities dealers, is the main source of complaint. As a result, all liquidity providers in possession of more than $50 million in capital would have to SEC registration.

Hester Pierce, a commissioner of the SEC, declared in an official statement that she is unable to support the final rule because the definition of a dealer is “inconsistent with the statutory framework within which it sits and will distort market behavior and degrade the market quality and turns traders, many of whom are customers.” 

Pierce continued, “In addition to harming the market participants who find themselves transformed into dealers, this rule harms the broader market. It penalizes liquidity provision, which means there will be less of it. The penalty comes from a costly and ill-fitting regulatory regime for liquidity-providing market participants.”

To illustrate how the new regulations will affect liquidity providers, Gabriel Shapiro, general counsel of Delphi Labs, summarized the exchange between Pierce and SEC officials over the dealer registration requirements.

Hughes brought up the fact that the SEC has encountered significant legal resistance over its efforts against cryptocurrency companies. Coinbase, Grayscale, and Ripple have contested the SEC’s actions in court.

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2024-02-07 19:16