SEC votes to expand ‘dealer’ rule to rope in crypto firms

The SEC’s newest rule brings hedge funds, proprietary trading firms and crypto companies that trade more than $50 million in US Treasurys and/or securities under its purview

article-image

SEC Commissioner Hester Peirce | Permissionless II by Blockworks

share

In a move impacting both cryptocurrency firms and traditional finance operations, the Securities and Exchange Commission on Tuesday voted to expand the definition of ‘dealer’ to include companies that routinely trade US Treasurys and other securities. 

The SEC’s newest rule, first proposed in March 2022, passed in a 3-2 vote. Commissioners Hester Peirce and Mark Uyeda voted against the measure. 

“I still do have concerns that we are forcing a regulatory regime on a set of entities… it’s going to inevitably cause some very difficult questions, both for us but more importantly for the firms that have to face these conflicting obligations,” Peirce said during an open meeting Tuesday. 

The new regulations place hedge funds, proprietary trading firms, and others who act as liquidity providers for US Treasurys and securities through trades exceeding $50 million under the SEC’s definition of dealer. The classification means these companies will have to register with the agency, become members of a self-regulatory organization (SRO), and comply with federal securities laws. 

Crypto companies that trade more than government securities — and/or digital assets that the government classifies as securities — are now considered dealers. 

Firms have been “acting as de facto market makers, and despite their regularity of participation consistent with buying and selling securities or government securities ‘as a part of a regular business,’ a number of these firms have not registered with the Commission as dealers,” SEC Chair Gary Gensler wrote in a statement. “This deprives investors and the markets themselves of important protections—protections that benefit market integrity, resiliency, transparency, and more.”

Read more: Gary Gensler lost the bitcoin ETF battle. Can he win his crypto war?

Ahead of Tuesday’s vote, interested parties in the crypto and hedge fund industries submitted comment letters to the SEC accusing the agency of overstepping its power and creating unattainable policies. 

The National Association of Private Fund Managers said the rule presents “inherent conflicts with the framework designed by Congress as contained in the securities laws” in a May 2022 letter, echoing similar sentiments from crypto companies that claim the SEC has no legal authority over their markets. 

SEC Chair Gary Gensler disagrees, saying on Tuesday that his agency is permitted to regulate dealers and brokers under the 1986 Government Securities Act, which passed “in response to a dozen firms in the Treasury markets that had failed between 1982 and 1985.” 

Read more: The anti-Gensler movement is picking up steam on both sides of the aisle

The DeFi Education Fund (DEF), which also submitted a comment letter in 2022, said on Tuesday that the SEC’s new rule is “misguided and unworkable.” 

“While the SEC acknowledged receiving comments discussing DeFi, including our concerns, the SEC not only failed to confront the substance of our concerns but also failed altogether to articulate any discernible path to compliance for DeFi market participants,” DEF said. “Imposing obligations on entities in the DeFi ecosystem that cannot be complied with is wrong, impractical, and hostile to innovation.”


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Top Icon.png

Research

Osmosis thrived in H2 2023 on the back of increased DeFi activity deriving from recently launched Cosmos-related projects and better market conditions. With new value accrual mechanisms for the native token, Osmosis is well-positioned to continue its strong performance in 2024.

/

article-image

Though the opposing flow trend is likely to slow over time, industry watchers note, bitcoin fund assets could one day eclipse the $90 billion gold ETF space

article-image

Celestia had the first mover advantage. EigenDA has staked ether. What sets Avail apart?

article-image

Bitcoin moved 1% higher Monday morning in New York, Matrixport analysts say $62,000 could happen next month

article-image

It’s hard to believe right now that crypto — even with all of its flexibility and massive capabilities — could ever be like cash on the internet

article-image

Michael Saylor announced Monday morning that MicroStrategy bought 3k more bitcoin after the X account was compromised over the weekend

article-image

Plus, Pudgy Penguins grows its brand and a group of Autoglyphs sell for $14.5 million