SEC Commissioner Peirce: Redefining "Exchange" Threatens First Amendment and Crypto

Hey Hackers!

On April 14th, SEC Commissioner Hester M. Peirce published an official statement disagreeing with the SEC’s attempts to redefine the word “exchange”.

This dissenting statement comes after the SEC officially reopened their proceedings to change the definition of “exchange” to include platforms that trade cryptocurrency and provide DeFi services.

In her statement, Peirce argues that the SEC’s regulatory proposal undermines First Amendment protections by creating “significant ambiguity around what speech requires government pre-approval, which will unavoidably chill constitutionally-protected speech”.

Due to the ambiguousness of the proposed standards, Peirce contends that the SEC does not consider whether regulatory compliance is even possible for some businesses.

Hester Peirce urges the SEC to listen to the concerns of affected parties and work with them, instead of doubling down on their campaign of uncontrolled enforcement.

The U.S. Securities and Exchange Commission took to Twitter to announce the reopening of the proposed change to the definition of “exchange”.

“Stagnation, centralization, expatriation, and extinction are the watchwords of this release. Rather than embracing the promise of new technology as we have done in the past, here we propose to embrace stagnation, force centralization, urge expatriation, and welcome extinction of new technology. Accordingly, I dissent.

Today’s Commission aggressively expands its regulatory reach to solve problems that do not exist. Today’s Commission treats its basic approach to exchange regulation as something that must not — indeed cannot — be altered to allow room for new technologies or for new ways of doing business. Today’s Commission tells entrepreneurs trying to do new things in our markets to come in and register. When entrepreneurs find they cannot, the Commission dismisses the possibility of making practical adjustments to our registration framework to help entrepreneurs register, and instead rewards their good faith with an enforcement action. Today’s Commission treats the notice-and-comment rulemaking process not as a conversation, but as a threat.”

- Hester M. Peirce, Commissioner of the SEC

A few hours later, SEC Commissioner Hester Peirce also took to Twitter to spread the word of her dissenting statement against the SEC.

Her tweet shows that she created clothing that incorporates a coded joke about the shirt being an exchange and needing to be registered before wearing.

According to the proposed regulations, even wearing a T-shirt with code could potentially require registration if the code is subsequently used to create a decentralized trading venue.

“Today’s comment reopener perfectly captures the Commission’s new way of doing things. Rather than responding to commenters’ serious concerns about the breadth, ambiguity, unworkability, and potential disruption of the proposal, the reopener, with few exceptions, doubles down on the defects identified by commenters. We stretch the statutory definition of “exchange” beyond a reasonable reading to reach a poorly defined set of activities with no evidence that investors will benefit. We do so with an insouciant laugh at the consequences. Even if one grants for the sake of argument that this proposed amendment to the definition of exchange under our rules is within our authority, the Commission’s cavalier approach stands in marked contrast to its approach a quarter-century ago. The release sends a message that we are uninterested in facilitating innovation and competition in the financial markets and instead seek to protect incumbents. Accordingly, although I am generally supportive of reopening comment periods where it is clear that the Commission will benefit from further good faith engagement with the public, I cannot support what the Commission is doing in this release.

I wish we had proceeded differently. Given commenters’ concerns over the ambiguity and scope of the proposed rule and our still limited understanding of the area we are regulating (which the release repeatedly acknowledges), we should have gone back to square one and issued a concept release instead. We also could have benefited from roundtables to bring together people from all parts of our market to discuss these issues and help us understand them better.”

- Hester M. Peirce, Commissioner of the SEC

The dissenting statement by Hester Peirce also brings up the fact that many companies inquired about the ambiguous term, “Communication Protocol System”, and whether it will be accurately defined by the SEC.

They asked this because there are concerns that the term could be interpreted broadly to capture hundreds of systems, including those in the crypto market.

Peirce also outlines that the proposed rules for decentralized activity (miners and validators) are confusing and unworkable.

I urge everyone to read this scathing statement, as it truly is remarkable to see a high-ranking SEC official stand up against their own commission.

I think this action by Hester Peirce was quite brave, to stand up against the SEC despite it most likely leading to negative consequences for her within her own workplace.

Perhaps this is the start of a faction within the SEC that will stand against the current regime of corrupt regulators.

• What are your thoughts on this news?

• Is the SEC losing faith in Gary Gensler? Will we see more infighting within the SEC?

• Do you think this open dissent could lead to a change in the SEC’s current approach?

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