- Coinbase CLO says it is impossible to demand that decentralized exchanges register with the SEC.
- According to Paul Grewal, the move could change the definition of an exchange and how digital assets are regulated.
- The comment comes after the regulator extended the comment period for a proposed rule change in the Securities Exchange Act of 1934.
- Grewal joins crypto advocacy groups and US legislators who have refuted the SEC proposal.
Coinbase Chief Legal Officer Paul Grewal has challenged the US Securities and Exchange Commission (SEC) proposal to have decentralized exchanges (DEXs) register with the regulator like any other exchange.
Coinbase CLO fights off SEC-proposed rule change
Coinbase lead legal officer, Paul Grewal, has addressed the recent action by the SEC to put off the comment period for a proposed rule change in the Securities Act of 1934. Notably, a section of the proposal stipulates that decentralized exchanges should also register with the financial regulator like other securities exchanges.
According to Grewal, the move could alter the definition of exchange and digital asset regulation. Notably, this clap back comes barely 24 hours after the financial markets regulator extended the comment period for a proposed rule change by 120 days. According to Grewal, the proposal took the wrong process and lacked the substance to proceed.
Yesterday we filed a comment letter on the @SECGov proposed rule that seeks to expand the definition of exchange to include DEXs. Tl; dr: this proposal should NOT be adopted, and certainly not before completing the threshold steps for any rulemaking. 1/11 https://t.co/fBXAYiWb4W— paulgrewal.eth (@iampaulgrewal) June 14, 2023
Requiring a DEX to register in the same way as a national securities exchange is impossible…Requiring the impossible violates the APA [Administrative Procedure Act]. And simply saying there is no economic data that does not absolve the SEC from conducting economic analysis, especially when that data exists.
Further, Grewal articulated that the SEC was trying to “front run Congressional action by baking unsupported assumptions about its crypto jurisdiction into the proposed rules.” In his opinion, if rulemaking depended on the regulator’s authority to regulate side-by-side trading of digital asset securities and non-securities, then its proposal ought to also explain the basis for that authority.
This is critical, considering it is currently the subject of open debate in Congress.
Coinbase CLO joins crypto advocacy groups and US legislators
Noteworthy, Grewal is not the first to challenge the regulator’s push for rule changes. The Coinbase CLO comes after several US legislators and cryptocurrency advocacy groups like the Blockchain Association, who have a history of crucifying the proposal.
According to the Blockchain Association, the rule alteration would leave a loophole for the regulator to overreach its authority to control financial products that may not be ready to handle such caliber regulatory requirements. Commenting on this, Grewal says there was a provision for the proposed rule change that required a vigorous consideration of the clear “differences between a decentralized exchange and a traditional exchange.”
Nevertheless, the Coinbase executive invites the opportunity to engage with the financial regulator through fundamental rulemaking on various topics critical to the industry. In his opinion, public rulemaking is vital in the process of achieving more clarity in the market. This would also help keep the system abreast of market changes.
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