The crypto world is debating the SEC’s proposed amendments to exchange regulations, which could impose additional burdens on crypto platforms and hamper innovation, according to Commissioner Hester M. Peirce (aka “Crypto Mom”).
The U.S. Securities and Exchange Commission (SEC) announced on April 14 that it is reopening the comment period and providing supplemental information for proposed amendments to the definition of “exchange” under Exchange Act Rule 3b-16. The move has garnered attention, particularly in the crypto markets, as SEC Chair Gary Gensler emphasized that many crypto trading platforms fall under the current definition of an exchange and are thus obliged to comply with securities laws. However, the announcement was met with dissent from SEC Commissioner Hester M. Peirce, who has a history of advocating for a more cautious regulatory approach to the crypto space.
The SEC initially proposed the amendments in January 2022 and reopened the comment period in May 2022, with the most recent comment period closing on June 13, 2022. The reopening release emphasizes the applicability of existing rules to platforms trading crypto asset securities, including decentralized finance (DeFi) systems, and provides supplemental information for systems included in the new proposed exchange definition. Public comments will be accepted for 30 days following the reopening release’s publication in the Federal Register.
In response to the SEC’s announcement, Commissioner Hester M. Peirce issued a statement titled “Rendering Innovation Kaput: Statement on Amending the Definition of Exchange.” Peirce, who has been dubbed “Crypto Mom” for her pro-crypto stance, voiced her dissent, arguing that the SEC’s approach would lead to stagnation, centralization, expatriation, and extinction of new technology.
Peirce’s statement recalls how, over 30 years ago, the SEC faced a similar challenge when innovative firms were developing alternative ways to connect buyers and sellers. At that time, the SEC chose innovation, permitting these systems to operate without forcing them to register as national securities exchanges. This decision fostered further innovation and eventually led to the creation of Regulation ATS in 1998.
However, Peirce argues that the SEC’s current approach contrasts sharply with its past actions. She claims that the Commission is now aggressively expanding its regulatory reach, solving nonexistent problems while refusing to alter its basic approach to exchange regulation. Peirce accuses the SEC of dismissing the possibility of making practical adjustments to its registration framework and punishing entrepreneurs’ good faith attempts with enforcement actions. She sees the reopening of the comment period as a threat rather than a conversation.
Peirce asserts that the reopening release doubles down on the proposal’s defects identified by commenters, stretching the statutory definition of “exchange” beyond a reasonable interpretation to reach a poorly defined set of activities without evidence of investor benefit. She contends that the SEC’s current approach signals disinterest in facilitating innovation and competition in financial markets, instead seeking to protect incumbents.
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