- The SEC is proposing to broaden the definition of an exchange
- The proposed definition change was spotted by advocacy group Coin Center
- Research director Peter van Valkenburgh told the SEC that the proposal was unconstitutional
The Securities and Exchange Commission (SEC) is proposing to redefine the concept of an exchange in a move that has been labeled “unconstitutional”. The suggestion is buried within the Federal Register, Vol. 87, No. 53 issued on March 18, and amid the arcane language is a suggestion to expand the 1934 definition of an exchange in a move that would lead to “anyone writing or distributing [decentralized exchange] software” needing to register as an exchange according Coin Center research director Peter van Valkenburgh.
SEC Definition Change “Violates the First Amendment”
The SEC’s proposed change to the 1934 Securities Exchange Act would include “systems that offer the use of non-firm trading interest and communications protocols to bring together buyers and sellers of securities.” In a tweet thread posted yesterday, van Vandenburgh summarized that the proposal “violates the First Amendment by requiring a license to speak” by requiring exchange code writers to register before they can ‘speak’.
Van Valkenburgh went into more detail in an open letter to the SEC which criticized the scope of the proposed change, saying that the amendment “would create an inappropriately broad standard for registration that would impose an unconstitutional prior restraint on the protected speech activities of countless software developers and technologist.”
Van Valkenburgh added that “the Supreme Court has already ruled against similar
unconstitutional overreach by the Commission in the context of the Investment Advisers Act,
and is primed to do so again given recent opinions dealing with data brokers and commercial speech.”
Coin Center Fighting the Good Fight Again
Coin Center has already done battle with US lawmakers recently, with Executive Director Jerry Brito helping the battle against the America Competes Act and the Infrastructure Bill. Now it seems it’s van Valkenburgh’s turn to take up the reins and fight the SEC over its proposed definition change, summing up the potential impact:
The chilling effect inherent in imposing an overly broad standard for registration,
matched with severe penalties for non-compliance, will lead many creative and inventive
Americans to self-censor. Therefore, the standard proposed in this rulemaking will be
immediately eligible for a pre-enforcement challenge on First Amendment grounds.
The proposed definition change, which is clearly a move on decentralized exchanges, is further evidence of the SEC looking to change the DeFi landscape without explicitly saying so.
