Global DCA writes to comment upon the Proposing Release because of its significance to the digital asset industry and the public. In the Proposing Release, the Securities and Exchange Commission (the “Commission”) proposes to redefine the term “dealer” in Exchange Act Section 3(a)(5) by the addition of proposed new Exchange Act Rule 3a5-4.
The main focus of our letter is on the application of the expanded definition of “dealer” to entities that trade digital assets that are within the meaning of the term “securities.” In our view, the application of the dealer registration requirement to such entities is unworkable, and the Commission has completely underestimated the costs of such registration. In fact, the Commission has ignored the reality that its own conduct has made dealer registration impossible for entities that trade digital assets.
While we will focus on the implications of mandatory registration for traders in digital assets, we observe, as a starting matter, that we believe that the Commission’s proposed expansion of the term “dealer” is inconsistent with the historical understanding of the term as used in the statute.
By way of example, the Commission’s proposed expansion of the term “dealer” would include “day traders”; i.e., entities that trade throughout the day but that are essentially flat as of the end of the day. Day trading is a strategy that has long existed, and the Commission has not previously stretched the statutory language to treat day traders as “dealers.”2 The Commission’s expansion of the statutory language beyond its historical meaning is outside of its authority. If the Commission seeks to redefine and expand statutory terms, it should work with Congress to amend the Exchange Act.
For all the reasons stated in this letter, we respectfully ask the Commission to modify its rules applicable to dealers in digital assets before it makes any attempt to force entities to register as dealers in digital assets. As the proposal stands, the Commission seeks to force entities to register as dealers in digital assets under a regime that would make it illegal for them to trade or provide custody, and prohibitively expensive.
Given the significance of holdings of digital assets to 40 million Americans, we think it behooves the Commission to give consideration to whether its obligation to foster capital formation is consistent with the adoption of rule interpretations that appear so destructive to capital.
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