In recent months, the Securities and Exchange Commission (SEC) under Gary Gensler has been under fire over its “regulation-by-enforcement” policy, and many are looking for clarity in crypto rules.
Today, the crypto industry moved a few steps into clarity when a Texan federal judge tossed the agency’s broker-dealer rule. By SEC’s proposed definition, the term “dealer” includes all liquidity providers and market makers that hold over $50 million in capital.
According to Texas Judge Reed O’Connor, the agency has overstepped its authority by adopting a broad definition of a “dealer” unrelated to the Exchange Act’s text, structure, and spirit.
The crypto community has lauded this legal win, with Marisa Tashman Coppel of the Blockchain Association calling it a massive win for the growing industry.
DEALER RULE STRUCK DOWN! SEC exceeded its statutory authority. HUGE win for the entire industry @BlockchainAssn and @CryptoFreedomTX !!! pic.twitter.com/Zv1Mhv1uwl
— Marisa Tashman Coppel (@MTCoppel) November 21, 2024
SEC Offers An Expanded Broker-Dealer Definition
On February 6th, 2024, the SEC adopted new rules for market participants and updated the definition of the broker/dealer. Under the agency’s revised rules, market participants with over $50 million in capital must register as dealers or securities dealers.
At the time of the rules’ publication, over 40 market participants must register and be subject to the broker’s definition and regulations.
According to critics and observers, the SEC has overstepped its authority and has created unrealistic requirements. For example, critics have hit the agency for enforcing the Know Your Customer (KYC) protocol, even on decentralized platforms with no central operators.
An Abuse Of Authority, Judge Says
O’Connor ruled that the agency had abused its authority. The district court judge further explained that the SEC’s proposed dealer rules are “untethered” from the country’s securities laws.
Critics filed their complaints in court after the SEC formally updated the definitions last February 2024. The Crypto Freedom Alliance and the Blockchain Association are two organizations that initiated the complaint against the agency.
Uncertain Times For SEC
The SEC faces uncertain times, especially now that Chairman Gary Gensler has already announced his intention to resign. In a Twitter/X post dated November 22nd, Gensler shared that he will step down on January 20th, 2025. With Gensler’s resignation and legal challenges, the SEC’s crypto approach remains uncertain.
On January 20, 2025 I will be stepping down as @SECGov Chair.
A thread
— Gary Gensler (@GaryGensler) November 21, 2024
O’Connor’s ruling is the latest challenge and setback for the SEC. While the agency can still appeal this ruling in the 5th Circuit Court of Appeals, the decision is a big blow. Crypto support has scored a win over the clarification of the dealer’s definition, and with incoming US President Donald Trump at the helm, the industry can expect friendlier policies soon.
Featured image from DALL-E, chart from TradingView
