On February 6, the U.S. Securities and Exchange Commission (SEC) adopted new rules aimed at expanding the scope of market participants required to register with the agency, adhere to self-regulatory organizations, and comply with federal securities laws. These regulations, proposed in 2022 and spanning 247 pages, introduce redefinitions of terms like "dealer" and "dealer in government securities" within the Securities Act Rules, along with clarifications on phrases such as "as part of the regular course of business" as outlined in the Securities Exchange Act of 1934.
The revised rules specifically target market participants playing significant roles in liquidity provision within the market. Under the updated definition, a trader engaging in activities like representing trading interests on both sides of the market or earning revenue primarily through bid-ask spreads must register with the SEC as a dealer. Chairman Gary Gensler emphasized the common-sense nature of these measures, stating that they align with Congressional intent and aim to ensure regulatory oversight where market making activities are conducted.
The applicability of the new rules is subject to a lower limit, with dealers required to own or control at least $50 million to fall within the regulatory framework. The adoption of these rules saw a party-line vote, with two Republican SEC members opposing the measure. Despite initial opposition from the cryptocurrency industry and pro-cryptocurrency politicians during the proposal stage in 2022, the final rule includes a dedicated section addressing encryption and functional analysis of securities trading activities.
Commissioner Carolyn Crenshaw highlighted a perceived gap in the regulations, pointing out that certain market participants responsible for significant market volume engage in activities akin to those of dealers but currently operate without the requirement of dealer registration. This acknowledgment underscores the necessity of the rule changes in ensuring comprehensive oversight and regulatory compliance within the evolving financial landscape.
