The US Securities and Exchange Commission (SEC) has withdrawn its appeal to reverse the decision by a US court which thwarted its dealer rule, a year on from when the policy was first unveiled.
The dealer rule, introduced in February 2024, required certain hedge funds, among other market participants, to register if they met one of two qualitative standards.
Specifically, the adopted rules meant that an entity would qualify as a dealer or government securities dealer if they regularly express trading interest as close to the best price on both sides of the market for the same security or earn revenue primarily from capturing bid-ask spreads or from capturing incentives offered by trading venues.
If applicable, the new rule would have meant that market participants would have to register with the commission, become members of a self-regulatory organisation (SRO), and comply with federal securities laws and regulatory obligations.
The SEC’s decision to readjust the established rules was met with uproar from the industry, with various groups and entities criticising the change and proactively working to undo the dealer rule.
Read more: Trade associations file joint lawsuit to oppose SEC dealer rule
Following this outrage, one group of digital asset firms in the US filed a complaint for declaratory and injunctive relief in Texas on 23 April 2024, specifically against the SEC and Gary Gensler himself.
The official complaint document highlighted that participants from across the digital assets industry had “expressly warned” the regulator of potential harm to the industry as a result of these rules.
This included “stifling markets’ innovative methods for generating liquidity, increasing costs, decreasing access and competition, and even driving many participants from the market altogether,” said the complaint.
The US district court for the Northern Texas district subsequently ruled that the dealer rule should be vacated, highlighting that congress had defined the term ‘dealer’ “against a pre-existing historical backdrop […] indicative of an understanding that dealers have customers”.
The appeal to this decision, made last month (17 January), was one of the last actions taken by Gary Gensler’s SEC administration. However, the new guard – led by Mark Uyeda, interim chair – has been quick to prioritise reversing this move.
Read more: SEC unveils new crypto task force as Uyeda appointed acting SEC chair
Industry groups across the industry have praised this latest move, with expectations high for next steps from the watchdog under the new leadership.
Speaking in an announcement today, Jack Inglis, chief executive of AIMA said that it “welcomed” the news that the watchdog was abandoning its appeal related to the “ill-advised” dealer rule.
He added: “Hedge funds managed by AIMA’s members are not dealers. They do not have customers – a requirement for determining whether a market participant is a dealer […] While today’s decision significantly reduces uncertainty and the potential for market disruption, we urge the Commission to review their existing enforcement practices with respect to the dealer definition so that they are consistent with the court’s ruling.”