Apr. 22, 2023
April 22, 2023 Dear Ms. Vanessa Countryman: I am writing in response to the proposed amendments to Rule 3a-16, specifically regarding the requirement for independent software developers to register as \"exchanges\" or alternative trading systems before they are able to create and publish code. I believe this requirement is unfair and impracticable, especially when the underlying code cannot be significantly altered or controlled by the developers once deployed. If an individual software development (or an organization) deploys a smart contract that they cannot significantly alter or control but constitutes a marketplace for securities under the proposed amendment to Rule 3b-16, then that organization would be deemed an exchange and held responsible for compliance with federal securities laws for that marketplace. This places an undue burden on developers who have no control over the marketplace functionalities of the code once it is deployed. The proposed rule ignores the practical reality of smart contracts and blockchain technology, which are designed to be immutable and decentralized. It is therefore impracticable to require developers to comply with regulations where they cannot control or amend the deployed code. Furthermore, the proposed rule could potentially lead to the SEC's regulation of any type of software that could potentially be used for trading or exchanging digital assets, even if it was not intended for that purpose. This would infringe upon the First Amendment rights of developers to create and publish code. It is well established that software code is a form of expression protected by the First Amendment. The landmark case of Junger v. Daley recognized that software code is an expressive means for the exchange of information and ideas and is thus entitled to First Amendment protection. Therefore, any attempt to regulate the creation and publication of code must be done in a manner that respects this fundamental constitutional right. I understand the SEC's policy objectives of ensuring the oversight, investor protection, and fair and orderly market principles applicable to registered exchanges and ATSs. However, requiring independent software developers to bear the burden of compliance where they cannot control or amend the deployed code is an unfair and impractical solution. The SEC should instead focus on regulating the organizations that deploy the smart contracts and maintain the exchange functionalities, particularly where these organizations retain unique or unilateral control over the disposition of user assets. The organizations should be responsible for compliance with federal securities laws for the marketplace they operate, rather than placing the burden on independent software developers who have no control over the exchange functionalities of the code once it is deployed. I urge the SEC to reconsider the proposed amendments to Rule 3a-16 and to take into account the practical reality of smart contracts and blockchain technology. The amendments should be revised in a manner that does not infringe upon the First Amendment rights of developers and does not place an undue burden on independent software developers who cannot control or amend the deployed code. Thank you for your consideration. Respectfully submitted, Brandon H. Ferrick, Attorney