Citadel Securities has issued a statement telling the Securities and Exchange Commission that it should not grant exemptive relief regarding definitions of an exchange or broker-dealer for DeFi trading protocols.
Citadel Securities is a global market maker that provides liquidity for institutions and retail investors. It is owned by Ken Griffin, founder of hedge fund Citadel.
As the SEC aims to enable digital securities, or tokenized assets, which can incorporate enhanced abilities due to technology while ensuring investor protection remains in place, Citadel says that allowing DeFi protocols to facilitate trading will “undermine investor protections and create a dual regulatory regime for the same securities.”
To quote Citadel:
“In their telling, these DeFi trading protocols use smart contracts and algorithms to facilitate “peer-to-peer” trading of tokenized shares without the presence of a registered intermediary. And, if there is no registered intermediary, then nearly all of the rules governing the secondary trading of U.S. equities that are designed to protect investors would no longer apply.”
Citadel says that DeFi trading protocols do, in fact, involve intermediaries.
The company states that there appears to be a “multitude of firms involved in ‘DeFi’ trading protocols that potentially fall within the statutory definitions of a ‘broker’ or ‘dealer’ when trading tokenized U.S. equities, in part due to the presence of securities products and other intermediaries, such as exchanges.”
In particular, a “broker” effects transactions in securities for the account of others, which can include (i) actively soliciting investors to purchase securities, (ii) receiving transaction-based compensation in connection with securities purchases or sales, (iii) participating in the order- taking or order-routing process, or (iv) handling securities or funds of others in connection with securities transactions.
While acknowledging there are benefits to tokenization, Citadel obviously does not want competition to emerge from DeFi protocols, and believes that any changes to trading rules should be applied equally between traditional and tokenized shares.
