On Wednesday, the U.S. Securities and Exchange Commission (SEC) published proposed rule changes related to the Alternative Trading Systems (ATS). However, a surprise inclusion is the suggested change to the definition of an “Exchange”. It proposes to cover systems that include “communication protocols to bring together buyers and sellers of securities.”
Some in the crypto community are concerned that this might include automated market makers and DeFi protocols. But given that the definition applies to buyers and sellers of securities, these crypto commenters acknowledge that DeFi protocols deal with securities, as the SEC has claimed.
The review of ATS rules is substantially driven by issues in the $22 trillion U.S. Treasury market as well as the related repo markets. However, the change to the definition of an exchange is intentionally not limited to these markets. SEC Chair Gensler said he supported the change to the “definition of an exchange to cover platforms for all kinds of asset classes that bring together buyers and sellers.”
The document published by the SEC extends to more than 650 pages. While comments are requested, the timeframe is just 30 days, something that dissenting Commissioner Hester Peirce suggested should be 90 days.
On the issue of changing the definition of an exchange, Peirce commented, “This change could deter innovation and dissuade new entrants from entering into the market for trading venues and execution services, but communication protocol services have become more sophisticated and now play a significant role in the trading of certain types of securities.”
She also urged “those who operate any service that is designed to facilitate any communication between potential buyers and sellers of any type of security” to read the release, even if the operation is unrelated to Treasuries, fixed income or traditional securities.
A brief analysis of the proposals by a lawyer is available here.
Meanwhile, most venues looking to trade security tokens (rather than crypto) aim to get approval as an ATS. But today, the BSTX announced it received the go-ahead from the SEC to launch as a fully-fledged national securities exchange.