The SEC is reportedly reconsidering its push to mandate that crypto firms register as exchanges

Acting SEC Chairman Mark Uyeda has directed SEC staff to explore options for withdrawing a proposed rule change that would broaden the definition of alternative trading systems to encompass cryptocurrency firms.

A proposed rule change that would require certain crypto firms to register as exchanges may be scrapped following a new directive from the acting chairman of the U.S. Securities and Exchange Commission (SEC).

Speaking at the Washington Conference of the Institute of International Bankers on March 10, Acting SEC Chairman Mark Uyeda stated that he had asked SEC staff to explore options for dropping the portion of the proposal that would expand regulation of alternative trading systems (ATSs) to include crypto firms.

"Given the substantial negative public feedback on the definition of an exchange in relation to crypto, I have requested SEC staff to consider abandoning that aspect of the proposal," Uyeda said.

"In my opinion, it was a mistake for the commission to tie Treasury market regulations to an overly aggressive effort to crack down on the crypto industry."

Uyeda explained that the rule was initially developed in 2020 under former SEC Chairman Jay Clayton to provide clearer regulations for alternative trading systems, primarily affecting participants in the U.S. Treasury markets.

Source: US Securities and Exchange Commission

However, when it came time for former SEC Chair Gary Gensler to enforce the rule, he took a "very different direction" by broadening its scope beyond just alternative trading systems (ATSs).

"Instead of addressing the specific issues related to Government Securities ATSs, a revised version of the rule was introduced in 2022 that sought to redefine the regulatory definition of an exchange," Uyeda explained.

"The updated definition included communication protocols but failed to provide a clear explanation of what that term encompassed. As a result, the significantly expanded definition of an exchange would have inadvertently applied to various protocols used in the crypto asset space," he added.

Gensler’s time at the SEC came with an aggressive regulatory stance toward crypto. 

He brought upward of 100 regulatory actions against firms from 2021 until his resignation on Jan. 20, the same day as Donald Trump started his second term as US president. Trump had promised to fire Gensler if elected. 

After Genlers’ resignation, the SEC has since taken a new friendlier approach toward crypto. A growing number of firms facing legal action from the regulator have had their cases dismissed, including crypto exchange Gemini on Feb. 26, Kraken on March 3 and crypto trading firm Cumberland DRW on March 4.

Meanwhile, the agency has also launched a crypto task force dedicated to developing a framework for digital assets led by crypto-friendly Commissioner Hester Peirce.