US lawmakers tell US SEC that redefining long-standing concepts will be detrimental to digital ecosystem

Patrick McHenry, ranking member of the U.S. House Financial Services Committee, and Bill Huizenga, member of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, sent a letter to SEC Chairman Gary Gensler on Monday regarding the SEC's proposed amendments to the Securities Exchange Act of 1934 Expressing their concerns, the amendment would broaden the definition of an exchange and the phrase "as a regular part of business." The two lawmakers said the changes could stifle innovation in the digital asset ecosystem.

Both said they understood the communication protocol system would be included in the definition of an exchange under the lengthy new language proposed on Jan. 26. The proposal does not explicitly mention the communication protocol system. This redefinition came under fire from Coin Center last week. The crypto lobby group said this would create a "speech-based definition" of exchanges and influence decentralized exchanges by requiring them to be licensed. Coin Center claimed that the change would violate free speech.

The March 22 proposal would change the wording "as part of routine business" in the definition of "dealer". It would extend the meaning of that wording to those who "engage in the day-to-day purchase and sale of securities (or government securities) that are able to provide liquidity to other market participants" and require registration with the US SEC. The SEC added in a footnote that the rule would also apply to digital assets that are considered securities.

"The SEC's analysis in both proposals was insufficient to justify the proposed changes. ... Most importantly, the SEC failed to identify the problems that these rulemakings were designed to address, especially when it came to When requiring certain market participants that facilitate digital asset transactions to register with the U.S. SEC,” McHenry and Huizenga wrote.

Separately, lawmakers noted the short comment period for the proposal in the more than 800-page document. They asked for the comment period to be extended to at least 60 days. “We also request that the two rules discussed above be re-proposed, with full economic analysis, rationale and clearer explanations surrounding the intent of the rulemaking as it applies to the digital asset ecosystem,” they concluded.

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