Thursday, February 2

SEC would expand definition of “stock exchange” to regulate DeFi

Key facts:
  • The SEC is proposing to change the definition of “stock exchange” to broaden the scope of its regulation.

  • Commissioner Hester Peirce and figures in the DeFi community publicly reject the change.

The United States Securities and Exchange Commission (SEC) published on January 26 a proposal to change the definition of “stock exchange” in order to expand its regulation. The initiative sparked concern and public backlash from the community that fears the impact this will have on decentralized finance (DeFi).

The SEC communicated that the purpose of the proposal is to “include systems that offer the use of communication protocols and loose business interests to bring together buyers and sellers of securities.”

In this way, decentralized finance platforms could be included, under the term ATS (abbreviations in English of “alternative trading system”), declared in a statement Gabriel Shapiro, a DeFi enthusiast advocate. Although the document does not make any express reference to DeFi, blockchain, protocols or AMM (automatic market maker).


“However, I think it is very likely that the SEC staff will use their expanded definitions of ‘stock exchange’ to bolster the currently weak arguments that AMMs constitute stock exchanges,” he noted.

An example of an AMM could be a decentralized exchange (Uniswap or Pancakeswap, among others), in which a smart contract determines the price of assets based on supply and demand. These protocols, for the most part, do not require identification (just connect an Ethereum wallet, Binance Smart Chain, or the corresponding network). If this new measure were to be carried out, they should start collecting personal information from their users.

Community asks to raise their voice to take care of DeFi

Gabriel Shapiro: “We should not underestimate the threat that this sudden and radical paradigm shift from the SEC poses to the blockchain and decentralized finance movements.” He also stressed: “We have been given a minimum of 30 days to make our voices heard.”

Commissioner Hester Peirce, who published a statement of dissent on the proposal (disagree), ruled that the 30-day period given by the SEC for review “is unreasonably reckless.” He said so, considering that its “effects will have an impact on all the markets we regulate, in ways that we cannot foresee.”

The Commission has determined that it is appropriate to provide the public 30 days to read, understand, consider, consult, identify, model, evaluate and discuss these rules and how they are likely to affect trading venues for all types of securities traded on our markets.

Hester Peirce, Commissioner of the United States Securities and Exchange Commission (SEC).

SEC Commissioner Hester Peirce released a statement disagreeing with the proposal to change the definition of “stock exchange” so quickly. Fountain: Twitter.

According MarketsMediaThe commissioner also told the Finance on the Blockchain forum: “It’s really important to get commitment from people across the cryptocurrency and traditional markets.” There he also stated that there is still a lot of uncertainty about how the SEC thinks about digital asset values ​​and there are even different points of view within the regulator.

The SEC also proposes in its plan that, changing the definition of “stock exchange” would override previous no-action guidance. As well as, Gabriel Shapiro indicated, it would remove “guidance that provides reassurance that certain types of systems are not stock exchanges.”

The SEC should review this proposal to make clear that it is not, in effect, intended to prohibit the creation and deployment of mere code for peer-to-peer token trading or websites, including even simple blockchain explorers such as Eterscan, that they simply provide information about interactions that have occurred or may occur.

Gabriel Shapiro, enthusiastic DeFi lawyer.

For his part, Gary Gensler, the president of the SEC, pointed out in a release: “many things have changed”. “In that time, the private fund industry grew in size to a net asset value of $11 trillion and evolved in terms of business practices, complexity of fund structures, and investment strategies and exposures,” he said.

That is why he believes it is convenient to change the definition of “stock market” to broaden its regulation. Even if DeFi is not the only thing that could be in the sights of the SEC. As CriptoNoticias reported, the regulatory entity would also be monitoring interest payment services on bitcoin (BTC) deposits and other cryptocurrencies.