The SEC Takes on Dealer Definitions

The
U.S.
Securities
and
Exchange
Commission
published
a
new
definition
for
securities
dealers,
capturing
crypto.

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The
U.S.
Securities
and
Exchange
Commission
has
put
the
crypto
industry
on
notice
in
what
may
become
a
whole
new
front
in
the
sector’s
legal
war
with
the
agency.
When
the
commission
approved
its
new
approach
to

defining
securities
dealers
last
week,
it
did
so
with
full
knowledge
that
it
could
shake
the
foundations
of
decentralized
finance
(DeFi).

And
the
regulator
officially
didn’t
care.

The
new
rule
could
be
a
blow
for
U.S.
DeFi,
but
it’s
more
than
that.
It
also
suggests
the
commission’s
mindset
when
it
comes
to
policy
that
affects
crypto,
and
there’s
more
of
it
coming.
Around
the
same
time
the
agency
proposed
the
dealer
rule,
it
also
suggested
it
wanted
to
overhaul
its
definition
of
what
makes
an
exchange.
That
proposal
was
clear
in
its

inclusion
of
crypto
platforms
in
that
expanded
category,
suggesting
the
agency
is
trying
to
formalize
oversight
of
digital
assets
firms
by
making
them
comply
with
the
same
rules
as
all
other
securities
exchanges.

Deep
in
the
recesses
of
the
actual
document
behind
the
SEC’s
final
rule
on
what
makes
a
dealer,
it
outlined
how
the
commission
thought
for
a
moment
about
whether
it
just
ought
to
carve
DeFi
out
of
the
new
definition,
which
could
otherwise
cover
some
crypto
projects
with
requirements
they
register
and
comply
with
securities
laws.
The
agency
noted
that
industry
commenters
told
the
SEC
that
such
compliance
could
actually
be
impossible,
but
the
regulator
ultimately
shrugged.

“If
the
commission
were
to
revise
the
final
rules
to
carve
out
or
narrow
the
application
to

market
participants
who
transact
in
crypto
asset
securities,
that
alternative
would
reduce
costs
for
such
market
participants,”
it
noted
in
the
rulemaking
document.
So,
it
wouldn’t
be
fair
to
everybody
else
to
grant
crypto
world’s
argument,
the
agency
decided
in
that
rulemaking,
which
was
narrowly
approved
in
a
3-2
vote
with
both
Republican
commissioners

vehemently
against
the
move
in
their
public
remarks.

Though
cryptocurrency
lobbyists
have
been
calling
for
the
U.S.
government
to
produce
regulations
for
years,
these
SEC
efforts
aren’t
what
they
had
in
mind.
Beyond
the
definitions
for
dealers
and
exchanges,
the
agency
is
also
proposing
to
demand
investment
advisers
only
keep
their
customers’
crypto
assets
with
“qualified
custodians.”
That’s
a
term
that
agency
Chair
Gary
Gensler
has
argued

probably
doesn’t
include
today’s
leading
platforms.

Both
the
exchange
definition
and
the
custody
restrictions
are
aimed
for
completion
in
April,
according
to
the
SEC’s

public
agenda.
But
that
was
also
the
stated
timeline
of
the
dealer
rule
that
the
regulator
already
finished,
so
their
clock
may
be
running
fast.

If
the
agency
sticks
to
dismissing
arguments
from
crypto
businesses
that
say
they’re
being
put
in
impossible
positions,
the
SEC
will
be
approving
rules
that
the
firms
contend
will
push
them
into
existential
crisis
or
inability
to
comply.
As
a
result,
the
companies
will
surely
keep
doing
what
they’ve
been
doing:
challenging
the
regulator
in
court.
It’s
possible
that,
beyond
the
current
dispute
over
what
makes
a
security,
the
digital
assets
sector
will
be
arguing
in
court
over
what
makes
an
exchange,
a
dealer
and
a
qualified
custodian.

If
you’ve
got
thoughts
or
questions
on
what
I
should
discuss
next
week
or
any
other
feedback
you’d
like
to
share,
feel
free
to
email
me
at

nik@coindesk.com
or
find
me
on
Twitter

@nikhileshde.

You
can
also
join
the
group
conversation
on

Telegram.

See
ya’ll
next
week!