In recent months, the Securities and Exchange Commission (SEC) led by Gary Gensler has been criticized for its “regulation by enforcement” policy, and many are seeking clarity in crypto rules.
Today, the crypto industry took a few steps toward clarity when a Texas federal judge threw out the agency’s broker-dealer rule. Under the definition proposed by the SEC, the term “broker” includes all liquidity providers and market makers who hold more than $50 million in capital.
According to Justice Reed O’Connor of Texas, the agency exceeded its authority by adopting a broad definition of a “broker” unrelated to the text, structure and spirit of the Exchange Act.
The crypto community welcomed the legal victory, with Marisa Tashman Coppel of the Blockchain Association calling it a massive victory for the growing industry.
DEALER RULE VOID! The SEC exceeded its statutory powers. HUGE win for the entire industry @BlockchainAssn And @CryptoFreedomTX !!! pic.twitter.com/Zv1Mhv1uwl
– Marisa Tashman Coppel (@MTCoppel) November 21, 2024
SEC Proposes Expanded Definition of Broker-Dealer
On February 6, 2024, the SEC adopted new rules for market participants and updated the definition of broker/dealer. Under the agency’s revised rules, market participants with capital of more than $50 million must register as securities brokers or dealers.
At the time of publication of the rules, more than 40 market participants must register and submit to the definition and regulation of the broker.
As of today, the market cap of cryptocurrencies reached $3.24 trillion. Chart: TradingView
Critics and observers say the SEC overstepped its authority and created unrealistic requirements. For example, criticism has been leveled at the agency for applying the Know Your Customer (KYC) protocol, even on decentralized platforms without central operators.
An abuse of authority, according to the judge
O’Connor ruled that the agency abused its power. The district court judge further explained that the SEC’s proposed rules for broker-dealers are “independent” of the nation’s securities laws.
Critics filed their complaints in court after the SEC officially updated the definitions in February 2024. The Crypto Freedom Alliance and the Blockchain Association are two organizations that initiated the complaint against the agency.
Uncertain times for the SEC
The SEC faces uncertain times, especially now that its Chairman Gary Gensler has already announced his intention to resign. In a Twitter/X post dated November 22, Gensler announced that he would resign on January 20, 2025. With Gensler’s resignation and legal challenges, the SEC’s approach to crypto remains uncertain.
On January 20, 2025, I will leave office @SECGov Chair.
A thread 🧵⬇️
–Gary Gensler (@GaryGensler) November 21, 2024
O’Connor’s decision represents the latest challenge and setback for the SEC. Although the agency can still appeal this decision to the 5th Circuit Court of Appeals, the ruling is a significant blow. Crypto support scored a victory on clarifying the definition of broker, and with new US President Donald Trump at the helm, the industry can expect more favorable policies soon.
Featured image of DALL-E, chart by TradingView
