- SEC voted to require registration as a dealer for crypto trading activities deemed securities, with exception for traders under $50M in assets. Aims to increase oversight of evolving markets.
- Concerns raised over how protocols like AMMs could comply and register as dealers when just software. Questions over how many liquidity providers would fall under rule.
- Rule closes gap where firms act as de facto market makers without SEC registration, which requires reporting data and recordkeeping. Takes effect in 60 days, with 1 year transition period.
The Securities and Exchange Commission (SEC) voted Tuesday to adopt new rules that will require market participants with significant liquidity-providing roles to register as dealers and comply with federal securities laws. The rules will also apply to certain crypto trading activities.
SEC extends dealer rules to crypto
The SEC voted 3-2 to approve the rulemaking, which will require registration as a dealer for those trading crypto assets deemed securities, with the exception of traders with less than $50 million in assets.
According to the 247-page adopted rule, the regulations apply to “products, structures and activities involved in the so-called DeFi market” that meet the dealer definition by regularly buying and selling crypto securities and providing liquidity.
The crypto industry had criticized the proposed rule for being unreasonable and failing to provide a clear compliance path. The DeFi Education Fund called the final rule “misguided and unworkable.”
Concerns over compliance challenges
During the SEC meeting, Republican Commissioner Hester Peirce questioned how protocols like automated market makers (AMMs) could comply and register as dealers when they are just software.
Peirce also asked how many liquidity providers on AMMs would fall under the rule, to which SEC staff responded that data is lacking due to the market’s lack of transparency and compliance.
SEC Chair Gary Gensler emphasized the $50 million threshold and said the rule aims to apply registration evenly across crypto and non-crypto dealers.
Rule requires dealer registration and reporting
According to Gensler, the rule closes a gap where firms act as “de facto market makers” without SEC registration, which requires reporting data and maintaining records.
The final rules take effect 60 days after Federal Register publication. Market participants will have one year from the effective date to comply.
The rule aims to increase oversight and transparency for the evolving markets driven by electronification and algorithmic trading, as part of the SEC’s mission to protect investors.