Financial Services Republicans Demand SEC Rescind Proposed Rulemaking Regarding the Definition of “Exchange”
Washington,
June 13, 2023 -
Today, all Republicans on the House Financial Services Committee—led by Chairman Patrick McHenry (NC-10)—sent a letter to the Securities and Exchange Commission (SEC) demanding that the SEC rescind its proposed rulemaking regarding the definition of “exchange.” The lawmakers highlight how the SEC’s rulemaking exceeds its statutory authority in an effort to push the digital asset ecosystem overseas, and runs contrary to the SEC’s missions to protect investors and promote capital formation.
Read the full letter here.
Read excerpts from the letter below:
“We write to express our concerns with the Securities and Exchange Commission (SEC)’s proposed amendments to Rule 3b-16 under the Securities Exchange Act of 1934 (Exchange Act) regarding the definition of exchange (Proposed Rule). Last year, the Committee on Financial Services sent a letter to Chair Gensler expressing our concern that the Commission’s attempt to expand the definition of an exchange to include ‘Communication Protocol Systems’ exceeded its statutory authority. With this re-opening, it is clear that the Committee’s initial concerns were valid. The Proposed Rule will stifle innovation and harm digital asset market participants and the U.S. economy more broadly. We urge you to withdraw this proposal as it would effectively shut down development of the digital asset ecosystem and continue to stagnate U.S. technological innovation.
“The Proposed Rule significantly expands the definition of exchange in the Exchange Act to include systems that ‘bring […] together buyers and sellers of securities using trading interest’ and ‘make […] available [communication protocols] under which buyers and sellers can interact and agree to the terms of a trade.’ For digital assets, the Proposed Rule would go well beyond regulating centralized digital asset platforms and apply to persons acting ‘in concert’ with each other. This could capture a wide range of individuals in the digital asset ecosystem, including software developers and participants in a blockchain network’s consensus mechanism.
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“Given the goals of this Proposed Rule, it is clear that Chair Gensler is using this proposal to push his own personal views regarding digital assets. Chair Gensler has previously made statements on his own behalf claiming that DeFi exchanges are essentially equivalent to traditional intermediaries in financial markets even if they call themselves something different. He has also appeared before this Committee, testifying that ‘given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the SEC.’ It appears this Proposed Rule is an attempt to assert this personal view as official SEC policy without adequate analysis or justification.
“Finally, the Proposed Rule demonstrates the SEC’s hostility towards technology that is not perfectly compatible with the rules and regulations that exist today. Rather than create rules that would meet the SEC’s mission of consumer protection and protecting financial markets, the Proposed Rule seeks to shoehorn technology that operates fundamentally different into decades old rules for those traditional platforms. This will have significant effects on further development in the space. Indeed, the Proposed Rule acknowledges that expanding the definition of exchange would ‘make it more difficult to innovate.’ Additionally, the proposal’s disregard for companies leaving the United States and ‘instead choos[ing] to operate outside the U.S. or exit the market,’ is contrary to its mission to promote capital formation.”
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