The US Securities and Exchange Commission (SEC) has proposed rules to extend Regulation ATS (Alternative Trading Systems) to include “systems that offer the use of non-firm trading interest and provide protocols to bring together buyers and sellers for trading any type of security”, according to a press release. It means that the agency is looking to expand the definition of a securities exchange to include decentralised exchanges. The commission said that the proposal would “protect investors and enhance cybersecurity by bringing more various securities and treasuries under the regulatory umbrella." The draft rules require entities to either register as exchanges or register as broker-dealers and comply with Regulation ATS. What is a decentralised exchange? DEXs are peer-to-peer marketplaces where cryptocurrency traders make transactions directly without handing over management of their funds to an intermediary or custodian. These transactions are facilitated through the use of self-executing agreements written in code called smart contracts. This is the first time that a major economy like the US has proposed to regulate decentralised exchanges and if enacted, the proposal is likely to threaten the ability of decentralised exchanges to comply with SEC regulations. It could also serve as a blueprint for other countries that are contemplating crypto regulations. Why are the proposed rules being criticised? Many in the crypto community suggest that the SEC’s definition moves away from systems that match securities orders using a traditional order book, to any system allowing buyers and sellers to communicate their securities trading interest. One of the reasons…
