SEC Expands Definition of 'Dealer' to Include Crypto Firms and Traditional Finance Operations

According to Blockworks, the Securities and Exchange Commission (SEC) has voted to expand the definition of 'dealer' to include companies that routinely trade US Treasurys and other securities. This move impacts both cryptocurrency firms and traditional finance operations. The SEC's newest rule, first proposed in March 2022, passed in a 3-2 vote. Commissioners Hester Peirce and Mark Uyeda voted against the measure. The new regulations place hedge funds, proprietary trading firms, and others who act as liquidity providers for US Treasurys and securities through trades exceeding $50 million under the SEC's definition of dealer. These companies will have to register with the agency, become members of a self-regulatory organization (SRO), and comply with federal securities laws. Crypto companies that trade more than government securities and/or digital assets that the government classifies as securities are now considered dealers. SEC Chair Gary Gensler wrote in a statement that firms have been 'acting as de facto market makers' and that this deprives investors and the markets themselves of important protections. Ahead of Tuesday's vote, interested parties in the crypto and hedge fund industries submitted comment letters to the SEC accusing the agency of overstepping its power and creating unattainable policies. The National Association of Private Fund Managers and crypto companies claimed the SEC has no legal authority over their markets. However, Gensler disagrees, stating that the SEC is permitted to regulate dealers and brokers under the 1986 Government Securities Act. The DeFi Education Fund (DEF) also submitted a comment letter in 2022 and said on Tuesday that the SEC's new rule is 'misguided and unworkable.' DEF claimed that the SEC failed to confront the substance of their concerns and failed to articulate any discernible path to compliance for DeFi market participants. They argued that imposing obligations on entities in the DeFi ecosystem that cannot be complied with is wrong, impractical, and hostile to innovation.