The U.S. Securities and Exchange Commission (SEC) is reconsidering a controversial rule that expanded the definition of exchanges to include crypto firms.
Acting Chairman Mark Uyeda has called for a reassessment of the regulation, which was initially introduced in 2020 to enhance oversight of Alternative Trading Systems (ATSs).
At the Institute of International Bankers’ Washington Conference on March 10, Uyeda stated that the rule’s expansion was a mistake, urging SEC staff to explore removing the crypto-related provisions. He explained that the original intention was to improve transparency and oversight of Government Securities ATSs. However, under the leadership of Gary Gensler, the SEC took the rule in a significantly different direction, broadening its scope to cover a wide range of crypto platforms.
One of Uyeda’s main criticisms centred on the vague wording in the 2022 version of the rule, which included terms like “communications protocols” without a clear definition. He argued that this ambiguity could have inadvertently subjected numerous crypto-related platforms to exchange regulations, even if their primary function was to operate as communication protocols or decentralized networks.
The revised rule introduced by Gensler could compel specific crypto platforms to register as exchanges, even if they primarily function as decentralized communication systems. Uyeda criticized this move as a “mistake” and noted that public feedback on the expanded exchange definition was largely negative. Consequently, he has instructed SEC staff to consider abandoning this part of the proposal and refocus on regulating Government Securities ATSs as initially intended.
In a related development, the SEC has established a Crypto Task Force to tackle regulatory challenges in the crypto industry. As part of the
“Spring Sprint Toward Crypto Clarity” initiative, it will host roundtable discussions starting on March 21 with a session titled “How We Got Here and How We Get Out – Defining Security Status.” The event will be held at SEC headquarters in Washington, D.C., and live-streamed on SEC.gov.
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