SEC’s Proposal to Amend the Definition of Exchange Violates the First Amendment, Says Coin Center

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Coin Cen­ter has vehe­ment­ly pushed back the con­tro­ver­sial SEC pro­pos­al that sought to rede­fine the def­i­n­i­tion of “exchange” with­in the Secu­ri­ties Exchange Act in a bid to “include sys­tems that offer the use of non-firm trad­ing inter­est and com­mu­ni­ca­tions pro­to­cols to bring togeth­er buy­ers and sell­ers of secu­ri­ties.” The group deemed the regulator’s move as “uncon­sti­tu­tion­al.”

The Wash­ing­ton-based non-prof­it that focus­es on cryp­tocur­ren­cy poli­cies, Coin Cen­ter, announced fil­ing a com­ment let­ter with the Unit­ed States Secu­ri­ties and Exchange Com­mis­sion (SEC). Accord­ing to the cryp­to lob­by, the pro­pos­al by the com­mis­sion breach­es the First Amend­ment by requir­ing a license to speak, even for open source devel­op­ers work­ing behind projects in the ecosystem.

“It’s Unconstitutional, and They Should Change It”

Think tanks and cryp­to lob­by groups’ moti­va­tions to rebuff SEC’s pro­pos­al comes amidst the reg­u­la­tors of the coun­try gear­ing up to tight­en oversight.

Last month, the agency pub­lished Amend­ments Regard­ing the Def­i­n­i­tion of “Exchange.” Many experts believe it tar­gets bring­ing the cryp­to and, most impor­tant­ly, decen­tral­ized finance (DeFi) sec­tor into its reg­u­la­to­ry perime­ter, there­by dra­mat­i­cal­ly redefin­ing the risk pro­file of oper­at­ing a project in the US.

While argu­ing that the impli­ca­tions on devel­op­ers, pub­lish­ers, and repub­lish­ers would be adverse, Coin Center’s com­ment let­ter stated:

“A new SEC pro­pos­al has a seri­ous change hid­den with­in its com­plex lan­guage. Bot­tom line: The pro­pos­al vio­lates the First Amend­ment by requir­ing a license to speak—even of open source devel­op­ers. It’s uncon­sti­tu­tion­al and they should change it. Coin Cen­ter is push­ing back.”

Narrowing the Definition of “Exchange”

The non-profit’s research direc­tor Peter Van Valken­burgh said that the pro­pos­al is “uncon­sti­tu­tion­al” and that the SEC should retract it.

The reg­u­la­to­ry authority’s inter­pre­ta­tion of “exchange” is deemed as inap­pro­pri­ate­ly broad since the lengthy 200 pages doc­u­ment nev­er men­tions cryp­to or DeFi once. Coin Cen­ter also cit­ed Supreme Court’s (SC) pre­vi­ous prece­dent, which could poten­tial­ly com­pel the SEC to with­draw the pro­pos­al if it final­izes the new rule as drafted.

Coin Cen­ter also stat­ed that the Com­mis­sion should nar­row the def­i­n­i­tion of “exchange” before final­iz­ing the pro­pos­al to true pro­fes­sion­al con­duct. Fail­ing to do so could cool down sub­stan­tial pro­tect­ed speech, and sti­fle inno­va­tion in the coun­try, besides fac­ing an unfriend­ly Court that the lob­by believes, is “primed to vin­di­cate the First Amend­ment freedoms.”

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