SEC proposal could impact crypto/DeFi

Until recently, dealers in government securities have benefited from technological advances and innovation that has transformed nearly every stage in the securities trading lifecycle. They have been somewhat insulated from the burden of new regulations. A new SEC rule proposal could change that by increasing regulation in government securities trading, and perhaps incongruously, increasing regulation of trading in crypto assets.

On January 26, 2022, the SEC published a proposed rule to modify the definition of “exchange” to include “Communication Protocol System.” The stated purpose of this proposed modification is to align the regulatory environment for government securities trading with that of equity securities by expanding the definition of “exchange” to include a new class of regulated trading platform, the Communication Protocol System—which, while not defined, generally refers to software used by many dealers of government securities for execution and price discovery. What this proposed expansion of exchange may also do is require certain crypto trading platforms, e.g., decentralized exchanges, to register with the SEC and adopt compliance and governance programs similar to that of an exchange or an ATS.

Explore our latest publication that covers the SEC proposal’s impact on government securities trading and the potential impact on trading crypto assets, covering:

• An overview of government securities trading
• Characteristics of an exchange
• Key terms: “trading interest”, “bring together”, and “non-discretionary methods”
• Potential impact on crypto and DeFi