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Lawmakers and Crypto Bodies React to SEC’s Proposed Rule Changes

Republican members of the US congressional committee responded to the SEC’s recently proposed regulation on the definition of an  “exchange”. Some of the committee members think the adjustments do not favor decentralized outfits. Also, they expressed their concern that the changes could come back to haunt them.

Asides concerns from the committee, several notable bodies have also raised objections against the draft.

The US SEC’s Proposed Rule

This time last month, the Securities and Exchange Commission proposed an amendment regarding the definition of “Exchange” under the Exchange Act. The draft bill would designate “exchanges” as firms that “connect buyers and sellers” and “make available” communication protocols. Previously, the regulatory body described exchanges as firms that combine “orders” and “use methods” to conduct trades. In other words, the rule attempts to broaden the definition of “exchange” to encompass companies that connect buyers and sellers and “provide liquidity” to market participants – a significantly broader brushstroke.

According to blockchain advocate Coin Center, broadening the definition of “exchange” will necessitate the registration of more organizations and individuals. It went on to say that the rule change could have significant consequences on the blockchain industry. For example, DEXes could be informed that the commission wants them to register as exchanges.

Previously, on March 28, the SEC suggested changing the definition of a securities dealer. The proposal attempted to stretch the scope of “dealer,” a move that market analysts warn might destabilize the DeFi sector.

Reply from Lawmakers

Two ranking Republican lawmakers of the Financial Services Committee highlighted their  reservations about the modification in a letter to the SEC. The changes, according to ranking members Patrick McHenry and Bill Huizenga, might hinder innovation in the blockchain ecosystem. Moreover, the letter indicated that the SEC failed to diagnose any problem that its rule adjustment addresses. Also, the committee argued that the SEC’s analysis of the proposals is insufficient to uphold such proposed changes.

Additionally, the congressmen argued that the feedback time for the 800-page draft was too short. The SEC previously said that comments should come in no later than April 18, a month after the publication date. The lawmakers requested an extension of at least two months. They also asked for further information regarding the proposal’s objective with regards to the blockchain ecosystem.

Reactions and Letters from Key Crypto Bodies

Following the SEC amendment proposal, various crypto authorities, including Coin Center and ConsenSys, have reacted negatively. Coin Center expressed dissatisfaction with the development, insisting that it unnecessarily exposes developers and publishers to stricter registration requirements. The nonprofit advocacy group added that the proposed rule violates the First Amendment by restricting freedom of speech.

Likewise, blockchain technology firm ConsenSys has protested the SEC’s regulatory modifications that would broaden the definition of “exchange.” Following McHenry’s and Huizenga’s, the Ethereum software company also sent a separate letter to the SEC. In the letter, the software company stated unequivocally that it was against the rules’ language, not the rule change itself. Sarah Milby, a policy manager at Blockchain Association, Washington, also shares this sentiment: 

We think that there’s a potential threat to the industry if this rule were enacted,” said Sarah.

According to Milby, the SEC could be clearer about its language and terms.

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On the matter, Delphi Digital also commented that the SEC’s laws seek to re-define the protocols as prospective securities exchanges. The firm also expressed concern that the rule change would apply to Automated Market Makers (AMMs). Additionally, other crypto groups like DeFi Education Fund, Coin Center, and the Blockchain Association reportedly also sent letters. To date, the SEC has received 125 letters on the subject.

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