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Financial Services Law Insights and Observations

SEC seeks to include market participants as dealers or government securities dealers

Securities Agency Rule-Making & Guidance Digital Assets SEC Federal Register

Securities

On March 28, the SEC announced two proposed rules, which would require market participants, such as proprietary (or principal) trading firms, who assume certain dealer functions, in particular those who as act as liquidity providers in the markets, to register with the SEC, to become members of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations. According to the SEC, the rules would establish that a market participant engaging in the activities described in the rules is a “dealer” or “government securities dealer” and, absent an exception or exemption, is required to: (i) register with the Commission under Section 15(a) or Section 15C, as applicable; (ii) become a member of an SRO; and (iii) comply with federal securities laws and regulatory obligations, including as applicable, SEC, SRO, and Treasury rules and requirements. A footnote in the proposal indicates that its new rules would apply to any digital asset that is regarded as a security or a government security within existing laws. The SEC also released a Fact Sheet regarding the proposals, which provides information on why the proposal matters and how it applies. Comments are due 60 days after publication of the proposing release on the SEC’s website or 30 days after publication in the Federal Register, whichever period is longer. SEC Chair Gary Gensler released a statement stating he believes that the proposed rules “reflect[] Congress’s statutory intent that firms engaging in important liquidity-providing roles in the securities markets, including in the U.S. Treasury market, be registered with the Commission.”