Coin Center deems SEC proposal to change the term ‘exchange’ unconstitutional

The proposed adjustment by the U.S. Securities and Exchange Commission (SEC) to the term ‘exchange’ in the Securities Exchange Act of 1934 is unconstitutional, Coin Center, a group that advocates for industry interests, said.

Today Coin Center filed a comment explaining why the First Amendment arguments against the rule are strong and why the Supreme Court is poised to rule against the SEC should it finalize this new rule as drafted. https://t.co/V3bJNPte0v 2/

— ɥƃɹnquǝʞןɐΛ ⚖ (@valkenburgh) April 14, 2022

The organization noted that the regulator’s initiative is written in complex language. The SEC offers to change the phrases ‘order aggregation’ and ‘use of methods’ for executing trades to ‘aggregation of buyers and sellers’ and ‘ensuring the availability’ of ‘communication protocols’.

“The proposal is intended to close the regulatory gap and the current differences that affect the competitive balance between similar securities markets,” the Commission said.

According to Coin Center, entities falling under the updated term would have to register with the SEC. The firm’s Director of Research, Peter Van Valkenburgh, noted that the changes would affect ‘anyone who writes or distributes software [for decentralized exchanges]’. The agency, for its part, does not mention DeFi or cryptocurrency.

Coin Center said the change could apply to a broad swath of companies and threaten ‘unconstitutional restrictions.’ At the same time, the lack of a direct reference to digital assets does not answer whether the SEC intended to extend the formulation to the relevant trading platforms.

Coin Center urged the regulator to rethink the initiative. Its public consultation ends on April 18, after which the SEC will make a final decision.

Earlier in March, the industry advocacy group described as a threat to innovation and privacy the proposed FinCEN rules regulating cryptocurrency transactions.

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