On April 14, 2023, the United States Securities and Exchange Commission (“SEC”) reopened the comment period and provided supplemental information on proposed amendments to Rule 3b-16 under the Securities Exchange Act of 1934 (“Exchange Act”) which defines certain terms used in the definition of “exchange” in Section 3(a)(1) of the Exchange Act..  The reopening is primarily intended to address the significant comments received by the SEC in response to the initial proposal, many of which questioned the proposal’s application to trading systems that enable trading of crypto asset securities.  The reopening comment period will end 30 days after its publication in the Federal Register or June 13, 2023, whichever is later.

Key takeaways:

  • The SEC makes clear that, regardless of the proposal, if an organization, association, or group of persons meets the definition of “exchange” with respect to crypto assets that are “securities,” then it must register as a “national securities exchange” or “alternative trading system” (“ATS”).
  • The SEC believes that decentralized finance (“DeFi”) systems already meet the existing definition of an “exchange” to the extent the crypto assets traded on their platforms are securities.
  • Further, the SEC believes that the “group of persons” operating the DeFi system must determine who should register the “exchange” as a national securities exchange or ATS.
  • This proposal and the reopening of the comment period are unlikely to change the crypto industry perception that seeking a path to registration will lead to enforcement action for crypto firms.

The SEC also is seeking further comment on issues that drew significant reaction from the securities industry more broadly.

For a more in-depth discussion, please click here.

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