SEC Rethinks Whether to Expand ‘Exchange’ Definition to Include Crypto: Acting Chair

The Securities and Exchange Commission will assess how a regulatory proposal expanding the definition of an exchange can be modified to exclude entities that facilitate crypto transactions, Acting SEC Chair Mark Uyeda said on Monday.

When the agency first moved in 2020 to establish clearer rules for alternative trading systems, the guidance was intended to mainly impact U.S. Treasury market participants, Uyeda said at an event in Washington, D.C., hosted by the Institute of International Bankers.

Under the leadership of former SEC Chair Gary Gensler, however, Uyeda said that a “vastly expanded definition of an ‘exchange’ would have picked up various protocols used with respect to crypto assets,” requiring them to register with the regulator.

“In my view, it was a mistake for the Commission to link together regulation of the Treasury markets with a heavy-handed attempt to tamp down the crypto market,” Uyeda added.

Uyeda’s comments represent the agency’s latest rebuke of decisions made under Gensler, a crypto skeptic whose actions drew widespread industry condemnation. The former SEC Chair believed that the crypto market must abide by the same rules as other corners of financial markets, yet he raised repeated concerns when it came to crypto firms’ alleged noncompliance.

The regulatory proposal in question has gone through several public comment periods since it was introduced over five years ago, according to the SEC’s website. While the guidance hasn’t been implemented yet, the SEC says it’s at its “final rule stage.”

The proposal’s abstract references “communication protocols [that] bring together buyers and sellers of securities.” Without a clear definition as to what the “communication protocols” are, Uyeda said the rule was expanded far beyond government securities.

In 2022, Coinbase Legal Chief Paul Grewal called out the SEC’s proposal. He said the agency was “going beyond its authority” while intentionally leaving vague parts of the 600-page proposal that could impact decentralized finance, or DeFi, protocols.

Since Gensler stepped down alongside President Donal Trump’s inauguration, the SEC has turned a new leaf. While moving to abandon enforcement actions against various crypto firms, the SEC has vowed to take a more collaborative crypto approach.

In January, Uyeda unveiled a crypto task force for establishing clearer industry rules, led by crypto advocate and SEC Commissioner Hester Peirce. At the time, the SEC said the initiative entailed providing greater clarity as to “who must register” with the regulator.

Edited by Andrew Hayward