Requiring decentralized exchanges (DEXes) to register with the Securities and Exchange Commission (SEC) in a manner similar to other exchanges is considered “impossible” by Coinbase Chief Legal Officer Paul Grewal. He voiced his disagreement with the SEC’s proposed rule change that could alter the definition of an exchange and impact the regulation of digital assets. Grewal argues that the proposal attempts to force a square peg into a round hole and is fundamentally flawed on both process and substance.
The SEC’s proposed rule change, centered on extending the comment period for a change in the Securities Exchange Act of 1934, could result in securities laws applying to decentralized exchanges in a manner similar to how they apply to securities exchanges. Grewal considers this approach to be untenable, as it is impossible to demand DEXes to register similarly to national securities exchange. According to Grewal, requiring the impossible constitutes a violation of the Administrative Procedure Act, and the SEC cannot simply rely on the absence of economic data to avoid conducting economic analysis.
He further alleges that the SEC is trying to outpace Congressional action by incorporating faulty assumptions about the SEC’s cryptocurrency jurisdiction within the proposed rules. The SEC’s proposal has also been criticized by US lawmakers, crypto advocacy groups like the Blockchain Association, and other stakeholders.
The primary concern is that this rule change would allow the SEC to exceed its authority and extend its purview to a range of financial products that are ill-equipped to handle the regulatory requirements. Grewal believes that there is room for improvement in the proposed rule change, provided that there is a robust consideration for the significant differences between DEXes and traditional exchanges.
With the SEC becoming increasingly involved in cryptocurrency regulation in the US, separate lawsuits have been filed against Crypto firms Binance and Coinbase for alleged violations of securities laws. This has resulted in a backlash from lawmakers calling for the removal of SEC Chair Gary Gensler. In response to an appeal filed by the SEC, a federal court is currently awaiting the results regarding the extension of 120 days to respond to Coinbase’s request for regulatory clarity.
Source: Cointelegraph
