SEC Changes Regulatory Framework to Tighten Crypto Market Control

New rules adopted by the U.S. Securities and Exchange Commission (SEC) expand the requirements for crypto market and decentralized finance (DeFi) participants as part of compliance with federal securities laws and regulations.

The U.S. Securities and Exchange Commission adopted final revisions to the statutes relating to securities trading. In particular, the new rules require market participants who take on significant liquidity-providing roles to register with the SEC.

Under federal securities laws and regulations, the concepts of “dealer” and “government securities dealer” were redefined. Specifically, any exchange trader can be defined as a dealer if they:

• take on significant liquidity-providing roles in the markets;
• express trading interest;
• earn revenue from capturing bid-ask spreads;
• have or control at least $50 million.

The new rules classify a large number of crypto companies and DeFi market participants as “dealers.” They should register with the SEC and be under the agency’s complete control.

According to Gary Gensler, SEC Chair, the new rules will protect investors and promote market integrity, resiliency, and transparency. He called the measures “common sense” and hinted at the agency’s plans to actively employ the new rules to regulate the crypto market. Caroline Crenshaw, SEC Commissioner, stated that the changes will allow the agency to broaden its authority and regulate those financial market participants who control a significant share of assets but don’t register their activities.

Some SEC members disagree with the agency’s measures. Mark Uyeda, Republican and SEC Commissioner, said that the new rules allow anyone to refer to any person who buys and sells securities as a “dealer.” It also extends beyond the SEC’s statutory authority. The lack of any limiting principles creates the possibility of arbitrarily interpreting the law.

The SEC proposed amendments in 2022. The original document mentioned crypto in one footnote. The final rule devotes an entire section to digital assets. The rules will take effect 60 days after publication in the Federal Register.

Previously, the regulator could only classify cryptocurrency as a security if it met the criteria of the Howey Test. That way, Ripple Labs celebrated a partial win over the SEC in court.

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