The Securities and Exchange Commission (SEC) continues to issue new rules at a breakneck pace. Today, the Commission has adopted new rules that impact “market participants who engage in certain dealer roles.” These market participants who shoulder significant liquidity roles in markets must soon register with the SEC, become a member of an SRO, and comply with federal securities laws.
While SEC Chairman Gary Gensler says the “measures are common sense,” Commissioner Mark Uyeda disagrees with the decision, calling the new definition “practically limitless.”
Following the adoption of the new rules, Commissioner Uyeda issued a dissenting opinion describing them as problematic and lacking clarity as they do not discern dealer status, which means they could be interpreted beyond the Treasury market.
“The lack of any limiting principle creates the potential for arbitrary and capricious government action,” says Uyeda. “Further, today’s action may reduce liquidity in the Treasury markets, make them more volatile, reduce the number of liquidity providers, and increase debt costs to taxpayers.”
As adopted, the rules require:
- Any market participant that engages in activities as described in the rules would be a “dealer” or “government securities dealer” and, absent an exception or exemption, required to:
- Register with the Commission under Section 15(a) or Section 15C, as applicable;
- Become a member of an SRO; and
- Comply with federal securities laws and regulatory obligations, including as applicable, SEC, SRO, and Treasury rules and requirements.
Commissioner Uyeda says the public should be concerned about the expansion of scope included in the new rules. He says this means that “the government should define ex-ante which activities are lawful and which are not. Without such definition, governmental authority can be arbitrary and even tyrannical. Government can favor some entities, while disfavoring others.”
One comment letter addressing the new rules, criticized them, noting that the “Commission had ignored the reality that its conduct has made dealer registration impossible for entities that trade digital assets, adding that the rules are unworkable.”
The Blockchain Association submitted a comment letter, stating:
“the Proposal exceeds the scope of the SEC’s statutory authority under the Exchange Act because it effectively eliminates the statutory “trader” exclusion to the “dealer” definition.
Uyeda explains:
“This rulemaking targets proprietary trading funds (PTFs), private funds, and others who make money by buying low and selling high in the Treasury market while creating additional regulatory confusion for other markets, including crypto-asset securities.”
The Rule Fact Sheet is available here.
