SEC Proposed Rulemaking Could Impact Blockchain Trading Platforms

On January 26, 2022, the Securities and Exchange Commission issued a rule-making proposal intended to enhance investor protection and cybersecurity for alternative trading systems that trade Treasurys and other government securities.[1] The 650-page proposal contains over 220 separate requests for feedback (with many having multiple subparts). Comment requests address wide-ranging issues affecting trading venues of all kinds. Most relevant to the blockchain industry is that the SEC proposal seeks to regulate “communication protocol systems.”[2]

While the regulations never mention the terms “blockchain,” “cryptocurrency,” or even “token,” there are industry concerns that the widely used term “communication protocol systems” may apply to both blockchain and cryptocurrency trading platforms. This can include wallets and block explorers that allow users to connect to smart contracts and other market participants – if not almost every blockchain-based application. SEC President Gary Gensler remarkably commented in conjunction with the new SEC proposal that “…it updates the rules regarding the definition of an exchange to cover platforms for all types of asset classes that bring together buyers and sellers.” [3]

Securities and Exchange Commission Commissioner Hester Pierce criticized the proposal for not allowing an appropriate comment period normally provided by the SEC:[4]

Regardless of the literal and figurative size of this release, the Committee has determined that it is appropriate to give the public 30 days to read, understand, consider, consult, identify, model, evaluate and discuss these Rules and how they are likely to affect the trading venues for each type of securities traded in our markets. . . .

A period of ninety days would have been reasonable, given the breadth of issues and potential implications of the proposed rule. No shorter period would be sufficient to give me confidence that the Commission was receiving sufficient analysis and public comment to enable us to proceed with adoption in a manner consistent with our responsibilities to the market, the law, or the American people.

Despite the opposition of Commissioner Pierce, participants in the blockchain industry, trading platform, or otherwise will have only 30 days from January 26, 2022 to comment on the SEC’s proposed new rules. This unusually short suspension period for what is seen as an important regulatory proposal for the SEC industry reflects the speed at which the blockchain is moving all things around. The SEC’s speed also reflects its ongoing efforts to secure a jurisdiction as a regulator of decentralized finance. It is expected to face the challenges of making the proposed rules.


[1] [Press Release] The Securities and Exchange Commission is proposing amendments to include important treasury market platforms within the Air Transport Services (ATS) regulation. (January 26, 2022)

[2] [Proposed Rule] Amendments to Exchange Law Rule 3b-16 regarding the definition of “exchange”. . . (January 26, 2022)

[3] Gensler chair, Statement on Alternative Trading Systems for Government Securities (January 26, 2022)

[4] Commissioner Pierce, Statement of opposition to the proposal to amend the ATS Regulations (January 26, 2022)

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, No. 28

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