• The United States Securities and Exchange Commission (SEC) announced that it will be revisiting the proposed redefinition of an “exchange” under the agency’s rules.
• This could include crypto market participants in decentralized finance, or DeFi, in its definition of an exchange.
• SEC Chair Gary Gensler said that this would benefit investors and markets by bringing certain brokers under additional regulatory scrutiny as well as “modernizing” rules that define an exchange.
SEC Targets DeFi in Vote to Revisit Proposal Concerning Definition of ‘Exchange’
The United States Securities and Exchange Commission (SEC) has announced it will be revisiting the proposed redefinition of an “exchange” under the agency’s rules — a move that could include crypto market participants in decentralized finance, or DeFi. In an April 14 open meeting with SEC commissioners and staff, SEC Chair Gary Gensler said the proposed rule amendments could benefit investors and markets by bringing certain brokers under additional regulatory scrutiny as well as “modernizing” rules that define an exchange.
Proposed Amendments to Account for Evolving Nature of Trading Platforms
Under the proposal, an “exchange” would be more closely defined as a system that “bring[s] together buyers and sellers of securities through structured methods to negotiate a trade” and explicitly include DeFi. Gensler noted: “This would account for the evolving nature and electronification of trading platforms in the last 25 years.”
Criticism from Crypto Advocacy Groups
The commission proposed similar amendments in January 2022, keeping the comment period for the public open until June. Some crypto advocacy groups criticized the SEC’s actions at the time, suggesting it was an overreach of their authority that could jeopardize participation in this space.
Concerns Raised by Commissioner Hester Peirce
SEC Commissioner Hester Peirce, also known as “Crypto Mom” due to her pro-crypto policy positions, raised concerns about how to address operators who move from securities to non-securities trading. She commented there was “so much ambiguity” regarding the SEC’s current treatment of securities: “It seems perverse to me that we would be encouraging centralization.”
Benefits Stated by Chairman Gary Gensler
Gensler added: “Given how crypto trading platforms operate today, many of them currently are exchanges regardless of this reopening release we’re considering today…These platforms match orders of multiple buyers and sellers of crypto securities using established non-discretionary methods.” He concluded these changes would help protect investors while modernizing regulations surrounding exchanges.