The Blockchain Association is suing the SEC over its promulgation of rules that expand the definition of a securities broker-dealer to include those that act as liquidity providers in DeFi protocols.
Posted April 23, 2024 at 9:05 AM EST.
The Blockchain Association, a nonprofit dedicated to promoting pro-innovation policy for digital assets, is suing the U.S. Securities and Exchange Commission (SEC) over its new definition of securities broker-dealers movable.
Together with the Crypto Freedom Alliance of Texas (CFAT), the Blockchain Association filed a lawsuit against the SEC in the Northern District of Texas, seeking a court order to overturn the SEC’s dealer rule.
The lawsuit alleges that the securities regulator violated the Administrative Procedure Act by illegally broadening the SEC’s interpretation of the statutory term “dealer,” promulgated under the Securities Exchange Act of 1934.
In February, the SEC adopted a new framework that defines a broker as a market participant that provides liquidity and acts as a market maker. The Commission emphasized that these redefined rules for brokers would apply to the trading activities themselves, rather than the type of securities traded, and would apply to brokers controlling funds worth at least 50 million of dollars.
Essentially, this makes the framework applicable to those using automated market makers, subjecting liquidity providers on decentralized finance (DeFi) protocols to the same requirements as securities traders in traditional financial markets.
The SEC’s reworked definition of a broker-dealer sparked outcry from many in the crypto community, including the Commission’s Hester Pierce and Mark Uyeda, who opposed the rule in a vote that ended 3-2.
At the time, Peirce said the rule “eviscerates” the distinction between brokers and dealers in the law and in the SEC’s own guidance, while Uyeda noted that the public should be concerned about “the immense scope of this claimed competence.”
The Blockchain Association called the new dealer definition an “unworkable rule” that would be a setback for innovation in the digital asset ecosystem.
The entity was also among those who sent a comment letter to the SEC during the 39-day comment period in 2022, emphasizing that the proposed rule would violate the SEC’s statutory authority and, among other things, contradict the SEC’s own prior guidance.
The Blockchain Association claims the SEC ignored its comment letters and the concerns raised therein, even though it was legally required to respond.
“This is the latest example of the SEC’s blatant attempts to illegally regulate outside of its authority, circumventing legal requirements to address the numerous concerns received during its compressed comment period,” wrote Kristin Smith, CEO of the Blockchain Association, in an emailed statement.
“The Dealer Rule advances the SEC’s anti-digital asset crusade and illegally redefines the limits the statutory authority granted to him by Congress, threatening to drive American businesses abroad and instill fear among American innovators,” Smith wrote.