The U.S. Securities and Exchange Commission (SEC) is set to overhaul a controversial proposal that would have required digital asset exchanges to register under alternative trading system (ATS) rules. Acting SEC Chair Mark Uyeda announced on Monday that he has directed staff to scale back parts of the 2022 proposal, which originally sought to broaden the definition of an “exchange.”
Reevaluating the Crypto Regulation Approach
The proposal was initially introduced to close regulatory gaps by ensuring that certain trading platforms adhered to SEC oversight. However, it faced strong industry pushback, particularly from major firms such as Coinbase Global Inc., which argued that the rule would severely restrict their operations and stifle innovation within the digital asset sector.
“In my view, it was a mistake for the Commission to link together regulation of the Treasury markets with a heavy-handed attempt to tamp down the crypto market,” Uyeda stated in prepared remarks at an Institute of International Bankers conference in Washington.
Returning to the Rule’s Original Intent
The SEC is now considering revisions to bring the rule back to its initial focus, which was first introduced during the Trump administration. Originally, the proposal aimed to regulate proprietary trading firms that actively engage in trading U.S. Treasuries. Uyeda emphasized that these firms should be subject to the same regulatory framework as banks and other institutions handling U.S. bond transactions.
“Despite being dependent on sophisticated technology, ATSs that trade U.S. government securities are not subject to the transparency, fair and orderly markets, investor protections, and system integrity rules that apply to ATSs generally,” Uyeda explained.
The Future of the SEC’s Regulatory Approach
Alternative Trading Systems (ATSs) are platforms for buying and selling securities, including U.S. Treasuries, without being classified as fully regulated exchanges. They operate under Regulation ATS, which mandates broker-dealer registration with the SEC.
While Uyeda did not specify a timeline for a potential re-proposal or vote, any new regulatory action is expected to take several months. This could mean that Paul Atkins, President Donald Trump’s nominee to lead the SEC, might oversee any future rulemaking if confirmed by the Senate.
Industry Implications
The decision to pare back crypto-related provisions from the proposal signals a major shift in regulatory focus. Instead of targeting digital asset platforms, the SEC appears to be refocusing on traditional financial markets, particularly Treasury trading firms. This could provide relief to crypto exchanges, which have faced increased regulatory scrutiny over the past few years.
With potential changes ahead, industry participants will closely watch how the SEC’s stance on crypto regulation evolves, especially as new leadership takes charge.
