Regulations requiring companies acting as dealers to register with the U.S. Securities and Exchange Commission (SEC) have been adopted. According to an attorney, the securities regulator attempted to address decentralized finance (Defi) with the guidelines, which specifically target liquidity providers (LPs) with assets of at least $50 million that are part of decentralized exchanges (DEX).
Growing Unease Regarding SEC’s Updated Dealer Regulations
The Securities and Exchange Commission (SEC) of the United States this week issued regulations to “include certain significant market participants as ‘dealers.'” SEC Chair Gary Gensler stated, “I am happy to support this adoption because it requires firms that act like dealers to register with the Commission as dealers.”
Jake Chervinsky, chief legal officer of Variant, stated that “dealers” are “any person engaged in the business of buying and selling securities… for such person’s own account,” as defined by the securities laws, which provide the SEC the jurisdiction to supervise them. “This refers to major market leaders such as Citadel, etc.” The new legislation, he noted, targets decentralized finance (defi), and specifically the liquidity providers (LPs) of DEXs, or decentralized exchanges.
By completing its proposed “dealer” rule, which specifically targets DEX LPs with at least $50 million in assets, the SEC took a shot at Defi.
The dealer rule was proposed by the SEC two years ago, according to Chervinsky. The SEC’s authority is limited by the statute’s definition of “dealer,” which is significantly larger than the proposed rule, he warned. “It also defies decades of precedent in policy, capturing individuals who shouldn’t and can’t register as dealers,” the statement reads.
“The proposal was found to be impeding innovation, going beyond the SEC’s statutory authority, and breaching multiple rulemaking requirements under the Administrative Procedure Act,” the attorney continued. Still, he made clear:
Unfortunately, the SEC nevertheless finalized the rule, albeit with a caveat for individuals whose total assets did not exceed $50 million.
“If it makes it through judicial review, it is scheduled to go into force in 2025. “I anticipate that a lawsuit will be filed soon,” he said. “It won’t give the SEC jurisdiction over defi even if it becomes effective. Digital assets are securities, which is the basis for the SEC’s power over defi dealers. Across the nation, this fundamental issue is the focus of litigation, most of which the SEC is losing.
In the Securities and Exchange Commission’s rulemaking process to revise the definition of a “dealer,” the digital asset industry “engaged in a good faith effort to address concerns,” the statement reads. Head of Legal at the Blockchain Association Marisa Coppel emphasized:
Regretfully, the final rule largely ignores industry concerns and instead cements an unworkable regulation that undermines a well-established framework in favor of a vague focus on whether an individual behaves as a “de facto” market maker.
Coppel issued a warning, saying, “The revised ‘dealer’ definition could lead to withering innovation across the digital asset ecosystem, provide no clarity to market participants, and impose impossible requirements onto defi projects.”
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