Business

Congressmen tell the SEC that redefining longstanding concepts would be bad for the digital ecosystem

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Senior member of the US House Financial Services Committee Patrick McHenry and senior member of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets Bill Huizenga sent a letter to Securities Exchange Commission (SEC) Chairman Gary Gensler on Monday, to express concern about the SEC’s proposed amendments to the Stock Exchange Act of 1934 that would expand the definition of an exchange and the term “as part of the ordinary course of business”. Congressmen said the changes could stifle innovation in the digital asset ecosystem.

Both said they understood communications protocol systems would be included in the definition of the exchange under lengthy new wording that would be proposed on January 26. Communications protocol systems would not be specifically mentioned in the proposal. The redefinition drew fire from Coin Center last week. The crypto lobby group said it would create a “language-based definition” of an exchange and influence decentralized exchanges by requiring licensing. Coin Center claimed the change was a violation of freedom of speech.

A March 22 proposal would change the wording that defines “as part of the regular business” within the definition of “dealer”. It would extend the meaning of that phrase to someone who “engages in a routine pattern of buying and selling securities [or government securities] that has the effect of providing liquidity to other market participants” and require SEC registration for that person. The SEC added in a footnote that the rule would also apply to digital assets that qualify as securities.

“The SEC’s analysis in either proposal is insufficient to justify such proposed changes. […] Most importantly, the SEC fails to identify the problem that the rulebooks are intended to solve, particularly in relation to requiring certain market participants facilitating digital asset transactions to register with the SEC,” McHenry and Huizenga wrote.

In addition, the congressmen referred to the short comment period for the proposals, which are contained in documents totaling almost 800 pages. They called for the comment period to be extended to at least 60 days. “We also request that the two rulemakings discussed above be re-proposed with sufficient economic analysis, rationale and greater clarity about the intent of the rulemaking with respect to the digital asset ecosystem,” they concluded.