Coinbase CLO says requiring DEXes to register with SEC is ‘impossible’.
Paul Grewal, the chief legal officer of Coinbase, a cryptocurrency firm based in the United States, has opposed a proposed rule change by the Securities and Exchange Commission (SEC) that could alter the definition of an exchange and how digital assets are regulated.
In a Twitter thread on June 14th, Grewal stated that the SEC proposal was “too flawed on process and substance to move forward” and attempted to “fit a square peg in a round hole.” He was referring to the SEC’s extension of the comment period for a proposed rule change in the Securities Exchange Act of 1934, which could result in securities laws applying to decentralized exchanges in the same way they currently apply to securities exchanges.
Grewal stated that “requiring a DEX to register in the same way as a national securities exchange is impossible,” and “requiring the impossible violates the [Administrative Procedure Act]. And simply saying there is no economic data doesn’t absolve the SEC from conducting economic analysis, especially when that data exists.”
He also added:
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“The SEC is attempting to front run Congressional action by baking unsupported assumptions about its crypto jurisdiction into the proposed rules.”
Some US lawmakers and crypto advocacy groups, including the Blockchain Association, have also criticized the SEC proposal, claiming that the rule change would allow the commission to exceed its authority and expand its purview to a range of financial products not equipped to handle such regulatory requirements. According to the Coinbase CLO, there was a way forward with the proposed rule change, requiring “robust consideration of the profound differences between a DEX and a traditional exchange.”
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
Related: Paradigm slams SEC’s ‘incoherent’ attempt to police decentralized exchanges
Coinbase’s comments come at a time when the SEC is in the limelight in the US for regulating cryptocurrency. The commission has filed separate lawsuits against Binance and Coinbase for alleged violations of securities laws, prompting backlash from lawmakers calling for SEC chair Gary Gensler’s removal.
Before the SEC lawsuit, but following a Wells notice indicating potential enforcement action, Coinbase filed a reply in support of its July 2022 petition for a writ of mandamus, attempting to force the commission to provide regulatory clarity for firms seeking to register. As of June 13, the SEC was waiting for the results of an appeal filed in federal court requesting 120 days to respond to Coinbase’s request.
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