Crypto platforms fear the SEC’s new exchange rules

Cryptocurrency platforms fear they are facing stricter regulatory scrutiny after the US Securities and Exchange Commission proposed new rules that could include more digital asset exchanges under its jurisdiction.

The amended rules seek to fill the regulatory gap by making platforms outside the SEC’s oversight meet existing standards designed to protect investors and promote fair and orderly markets.

The new 654-page guide, backed by the SEC in last month’s vote, does not explicitly address the exchange of digital assets. However, the crypto sector and legal experts believe that the industry may fall under the SEC’s expanded definition of a “stock exchange”, which officials say is aimed at capturing securities trading platforms that fall outside the agency’s scope.

“When it comes to digital assets, I think there are certainly some concerns,” said Stephen Wink, a partner at Latham & Watkins.

The SEC declined to comment.

A broader definition of exchange would include platforms that “make available. . . communication protocols “through which” buyers and sellers can interact and agree to the terms of trade “.

“This change could potentially affect more people in digital assets,” Wink said.

Proponents of cryptocurrencies said the rules could affect so-called automated market makers such as Uniswap, which facilitated more than $ 70 billion in trading volume in January.

The exchanges run on open source software programs without central control points, which allows traders to exchange tokens without going through intermediaries – a feature that complicates the application of existing regulations to these platforms. The development teams that set up the exchanges say they have no authority to close them.

Gary Gensler, chairman of the SEC, said the proposed amendments would modernize the guidelines on “the definition of a stock exchange to cover platforms for all types of asset classes that bring together buyers and sellers”.

If the platforms were affected by the new guidelines, they probably did not comply with securities laws, said someone familiar with rule-making, adding that platforms that do not trade in securities should not comply with existing or proposed rules.

The agency’s proposal has shaken the crypto sector, which is seeking to analyze the new rules. The SEC has given 30 days for public comment on the proposal, a deadline that some cryptocurrency advocates have complained is too short.

The new rule “is not very clear whether code developers, developers or interface providers are affected or not,” said Michael Egorov, founder of the decentralized Curve Finance exchange.

“I don’t think the rule will work in this form, at least in DeFi,” Egorov said, adding that he did not see the SEC as “malicious” to the sector.

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“There have been a number of inquiries about this proposed rule,” said Joshua Ashley Kleiman, co-head of global technology at Linklaters. “Some people came and said, ‘Do you think this was for the digital asset space?’ . . Is this a Trojan horse?

But for Kleiman, the new guidelines are designed to reflect new ways of doing business, not to “deliberate” in a particular sector.

The Digital Asset Markets Association (ADAM), a trade group whose membership includes the FTX exchange, wrote in a public comment that the changes could expand the SEC’s oversight of cryptocurrency exchanges and decentralized networks “in ways not publicly mentioned or discussed.” “Of the proposal. ADAM requested the SEC to extend the comment period by at least 60 days.

The regulatory implications for crypto platforms, if the rules are adopted and applied to the industry, remain unclear. Experts say the potential effects include a jump in registrations with the regulator or crypto exchanges, which throw tokens that qualify as securities to avoid SEC oversight. A wave of coercion is also possible.

The proposed rules come after repeated calls from Gensler to tighten controls on an industry he said offers insufficient investor protection. He said many digital products could be considered securities, but stopped issuing new rules, saying existing laws were clear enough.

Regulators have accelerated the imposition of measures against crypto players. In September, Coinbase said the SEC had warned it would sue the company if it launched a digital asset lending product, which it eventually refused.

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