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Requiring DEXes to register with SEC like other exchanges is 'impossible', says Coinbase CLO, Proposed crypto bill would help clear up latest SEC allegations: Rep. Hill, & more.

Jun 14, 2023

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Requiring DEXes to register with SEC like other exchanges is 'impossible', says Coinbase CLO

Paul Grewal, chief legal officer of United States-based cryptocurrency firm Coinbase, has pushed back against a proposed rule change from the Securities and Exchange Commission (SEC) which could change the definition of an exchange and how digital assets are regulated.
In a June 14 Twitter thread, Grewal said the SEC proposal “tries to fit a square peg in a round hole” and was “too flawed on process and substance to move forward”. He was referring to the SEC extending the comment period for a proposed rule change in the Securities Exchange Act of 1934 which could have securities laws apply to decentralized exchanges in the same way they currently apply to securities exchanges.
“Requiring a DEX to register in the same way as a national securities exchange is impossible,” said Grewal. “Requiring the impossible violates the [Administrative Procedure Act]. And simply saying there is no economic data doesn’t absolve the SEC from conducting economic analysis, especially when that data exists.”
Some U.S. lawmakers and crypto advocacy groups including the Blockchain Association have also criticized the SEC proposal, claiming the rule change would allow the commission to exceed its authority and expand its purview to a range of financial products not equipped to handle such regulatory requirements. According to the Coinbase CLO, there was a path forward with the proposed rule change, requiring “robust consideration of the profound differences between a DEX and a traditional exchange”.

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Proposed crypto bill would help clear up latest SEC allegations: Rep. Hill

Congress’ latest proposed crypto bill would take away the “haphazard, schizophrenic” ways of regulators that have laid down enforcement on large industry players, according to US Rep. French Hill.
But the planned framework could have trouble passing anytime soon, some said.

Since then, Reps. Patrick McHenry, R-N.C., and Glenn Thompson, R-Penn., earlier this month introduced what they called a Digital Asset Market Structure draft.
The framework seeks to give the CFTC jurisdiction over digital asset commodities — if certain conditions around decentralization and functionality are met — while allowing the SEC to make arguments for crypto assets it feels are securities.
It would also allow crypto platforms to register with the SEC as an alternative trading system, and with the CFTC as a digital commodity exchange.

The bill’s focus on clearing up token classification comes after SEC Chair Gary Gensler failed to give a clear answer to McHenry’s question at a hearing in April on whether ether was a security or a commodity.

“What we’ve heard in the industry is we don’t think any significant crypto regulation will pass because it’s not a priority within the year we have right now,” he said. “It’s an election cycle.”
The bill doesn’t have Democratic sponsorship yet, Sevillano added.
Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., have their own crypto-focused proposal they had planned to reintroduce: the Responsible Financial Innovation Act.

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