Oct. 29, 2023
Issues with Proposal: Scope - expanded definition of exchange is overly broad and may encompass systems that should not be subject to exchange registration and regulation. This could stifle innovation. Decentralized systems - The proposal aims to regulate communication protocols and smart contract systems. However, decentralized systems may not fit neatly into exchange regulatory frameworks. Compliance burdens - Entities newly defined as exchanges would need to register with the SEC, become members of self-regulatory organizations, and implement complex compliance requirements. This could be infeasible for some. Effects on developers - The compliance burdens may discourage software developers and blockchain innovators from building new systems if they are deemed exchanges. This could chill innovation. Clarity - clarification is needed on key terms like "active market participants" and when decentralized systems cross the threshold of exchange status. Ambiguance could create regulatory uncertainty. Broker-dealer overlap - The expanded definition potentially overlaps with the existing definition of broker-dealer. This could create confusion over regulatory obligations. International coordination - SEC should coordinate with foreign regulators before unilaterally expanding the exchange definition, to avoid conflicting cross-border rules. In summary, key concerns include the broad scope, burdens on innovators, stifling of decentralization, lack of clarity, and potential conflicts with foreign regulatory approaches.