February 10, 2022 SEC’s Reg ATS Proposal Seen Signaling More Potential Authority over Crypto Todd Ehret Thomson Reuters Follow | Profile | More Share Speculation in the blockchain and cryptocurrency world is centering on whether new SEC regulation for Alternative Trading Systems, or ATSs, could also impact the trading of cryptocurrencies. In this article, Todd Ehret, of Thomson Reuters Regulatory Intelligence, explores whether the new rules expressly written for government securities might also apply to cryptocurrencies in the future. New proposed rules from the U.S. Securities Exchange Commission related to Alternative Trading Systems have raised speculation in the crypto industry that the regulatory expansion could include blockchain and cryptocurrency unregulated platforms. The proposal does not specifically reference cryptocurrencies or blockchain, but the mention of “communication protocol systems” could apply to trading venues of all types such as unregulated platforms according to several attorneys and SEC Commissioner Hester Peirce, who dissented from the proposal on grounds that the comment period was too short. The challenge of building a regulatory framework for cryptocurrencies and related digital assets will be significant, require a delicate balance of enabling innovation while providing investor protection and regulatory certainty to industry participants. Key to the regulatory effort will also be the clear definitions. Last week’s rule proposal may have come as a surprise to the crypto and blockchain industries, some elements of which perceived it as an early shot in what will be a long and complex regulatory battle. RegATSproposal Alternative Trading Systems (ATSs) are SEC-regulated electronic trading systems that match orders for buyers and sellers of securities. Over recent years, trading in U.S. government securities on such platforms has grown significantly. The level of regulatory oversight and investor transparency over these venues has not matched similar platforms for corporate bonds or equity securities. The proposed rules are intended to protect investors and enhance cybersecurity in ATSs that trade U.S. Treasury securities. They expand upon a similar 2020 proposal under former SEC chair Jay Clayton. The SEC’s proposal would also bring Treasury trading platforms with significant volume under Regulation Systems Compliance Integrity (SCI), a rule focused on the resiliency of technology infrastructure, Gensler said. In addition it would require these platforms to comply with the Fair Access Rule, which seeks to ensure fair access to platforms for participants and would prohibit platforms from making unfair denials or limitations of access. SEC Chair Gary Gensler alluded to the expansiveness of the proposal in a statement. He said it “modernizes the rules related to the definition of an exchange to cover platforms for all kinds of asset classes that bring together buyers and sellers.” SEC Commissioner Hester Peirce, while agreeing with the broad outlines of the rule, dissented, arguing that the 30-day public comment period was too short given the enormity of the proposal. Peirce said the 650-page document, containing more than 220 separate comment requests, raised about a dozen significant issues. She cited a reach to “currently unregulated communication protocol systems” and that the proposal “goes well beyond government securities, or even fixed-income securities; key parts of the proposal affect trading venues that make any type of security available for trading,” Peirce said in a statement. Peirce said, the proposal is “certainly not sloppy, but at the same time it is too wide-ranging and, given its length, too unwieldy to facilitate careful consideration.” Concerns over “more regulatory authority” and “word swap” William K. Kane, a Partner with the law firm Sheppard Mullin, told Regulatory Intelligence, “The SEC proposal is a push towards more regulatory authority and a signal that it is saddling up for a big ride into the wild west of blockchain,” Kane said. Kane and his colleagues and co-authors, William de Sierra-Pambley and Zachary Golda, wrote in a National Law Review article, the proposal “could include wallets, block explorers that allow users to call smart contracts, and other market participants — if not virtually every blockchain-based application.” The lawyers also wrote, “the SEC’s swiftness also reflects a continued effort to secure jurisdictional authority as a regulator of decentralized finance. Challenges to the proposed rulemaking are to be expected.” Kane stressed the significance of page 34 of the proposed rule, discussing expanded concepts of trading interest beyond “orders” and of asset marketplaces. “What is conspicuous only in its absence in the proposal is the term blockchain or cryptocurrency,” Kane told Regulatory Intelligence. “What we see instead are references to an increasingly electrified platforms and technology infrastructure, and a word swap from ‘orders’ to ‘trading interests’ as that term is defined for Exchange Act Rule 3b-16.” This article,”SEC’s Reg ATS Proposal Seen Signaling More Potential Authority over Crypto” of Emerging,” first appeared on February 1, 2022, and comes from Thomson Reuters Regulatory Intelligence. Photo Credit: “Set of cryptocurrencies on dollar bills” by marcoverch is licensed under CC BY 2.0 • • • • Todd Ehret is a Senior Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence. He has more nearly 25 years’ experience in the financial industry where he held key positions in trading, operations, accounting, audit, and compliance for broker-dealers, asset managers, private equity, and hedge funds. Before joining Thomson Reuters he served as a Chief Compliance Officer and Chief Operating Officer at a Registered Investment Adviser/Hedge Fund for nearly a decade. TabbFORUM is an open community that provides a platform for capital markets professionals to share their ideas and thought leadership with their peers. The views and opinions expressed are solely those of the author(s). They do not necessarily reflect the opinions of TABB Group, its analysts, TabbFORUM and its editors, or their employees, affiliates and partners.
We'll see how this plays out, it's going to be extremely difficult to monitor most DEX's or even wallets without someone doing some elaborate investigating. They can't even monitor our own bank accounts without an investigation. At the end of the day, all they want is their little tax money. Just pay your taxes and let them investigate all they want.