SEC Schedules Meeting to Potentially Extend Deadline on Changes to Definition of an Exchange

The Securities and Exchange Commission (SEC) has scheduled an open meeting for April 14, 2023, to consider reopening the comment period of the proposed changes.

The SEC proposed amendments to Rule 3b-16 under the Exchange Act Regarding the Definition of “Exchange,” which could potentially impact crypto exchanges as well as ATSs or alternative trading systems. A change could also impact decentralized finance or DeFi as well. Currently, there are hundreds of comments on the proposal. One form letter opposing the changes had 170 submissions.

To quote the Blockchain Association and its comment letter on the proposed amendments:

“The Proposal fails to adapt to — let alone acknowledge 16 — the fundamentally new ways in which individuals can conduct asset exchanges using DeFi protocols. Instead, it would improperly apply regulations designed for intermediating exchanges like the New York Stock Exchange to software or software developers. 17 By adopting a static regulatory response to a “paradigmatic” technological development in financial services, the Proposal, unfortunately, will not accomplish the laudable objectives motivating its consideration.”

The association asks the Commission to work more closely with stakeholders to craft new rules.

The Commission has been criticized for its apparent rush to create new rules without embracing the consultative process, seeming to push a political agenda.

A comment letter submitted by securities law expert David Burton of the Heritage Foundation hammered the proposed release as being 591 pages long covering 250 issues with a brief comment period that made assessment almost impossible. Burton criticized the Commission for:

“Forcing countless businesses into the extremely burdensome regulatory regime that governs exchanges is no small thing. It will have an adverse impact on innovation and the efficiency of markets. It will raise costs to investors. It will suppress competition to the advantage of incumbent firms. It is therefore inconsistent with the statutory mission of the Commission, to wit, to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

While an extension of the comment period may provide more time for stakeholders to reflect on the proposed amendments it is not an indication of an intent to rethink the possible changes.


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