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

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.”