SEC Considers Dropping Crypto ATS Proposal, Crypto Industry Welcomes Shift

The U.S. Securities and Exchange Commission (SEC) is contemplating the abandonment of a proposal that would mandate certain crypto firms to register as alternative trading systems. Acting Chair Mark Uyeda announced this potential shift on March 10, directing SEC staff to explore methods to drop the provision. The proposal, introduced in 2022, aimed to enhance oversight of the crypto sector by categorizing some firms under the same regulatory framework as traditional trading platforms. This would have expanded the definition of alternative trading systems (ATS) to encompass some digital asset platforms. The crypto industry vehemently opposed this move, and Uyeda indicated that merging the regulation of government securities trading with increased oversight of crypto firms was a misstep.

Uyeda stated, "In my view, it was a mistake for the Commission to link together regulation of the Treasury markets with a heavy-handed attempt to tamp down the crypto market." The proposal would have considered not only centralized exchanges as ATS but also DeFi protocols. Bill Hughes, a lawyer at Consensys, welcomed Uyeda’s decision, stating that the proposal tying DeFi platforms to ATS needs to be abandoned. The U.S. House Committee on Financial Services also welcomed Uyeda’s decision.

Uyeda has instructed SEC staff to renew discussions with the Treasury Department, the Federal Reserve, and other market participants regarding the original regulatory plans for alternative trading systems in the government securities market. The SEC is shifting its stance under the new administration and is now more inclined to cooperate with other government agencies and seek public feedback. Commissioner Hester Peirce recently confirmed remarks from Caroline Pham, the acting chair of the Commodity Futures Trading Commission (CFTC), that both regulators cooperate on crypto matters. Peirce also highlighted the importance of feedback from the crypto industry on regulation efforts, adding that people affected by the rules should have a place in making them.

Through the Crypto Task Force led by Peirce, the SEC will conduct a series of public roundtables on various aspects of the crypto industry to gather public feedback. The Crypto Task Force has been meeting with crypto firms to discuss different aspects, such as allowing staking on exchange-traded products (ETP). This shift in the SEC's stance represents a pivotal change in the regulatory landscape for the crypto industry, signaling a more collaborative and feedback-driven approach to regulation.