According to (The Block), a Texas court has ordered the U.S. Securities and Exchange Commission (SEC) to revoke a controversial rule that broadly redefined the term “dealer.” The move also Impacting both cryptocurrency companies and traditional financial companies.
The rule was implemented in February after the SEC Commission voted 3-2, but Judge Reed O’Connor found it exceeded the SEC’s statutory authority.
Traditionally, a dealer is an entity that buys and sells securities for its own account, rather than for the accounts of others. The SEC's expanded definition seeks to include within the scope of a dealer any entity that has the effect of providing market liquidity, particularly in the U.S. Treasury market.
Individuals in the cryptocurrency industry initially opposed this provision because a footnote in the draft rule specifically noted that entities "engaging in the trading of crypto securities" must comply with securities laws, register with the SEC, and join a self-regulatory organization supported by the industry. In other words, the expanded interpretation effectively eliminated the distinction between the traditional understanding of "dealers" and "market makers."
The Blockchain Association and the Crypto Freedom Alliance of Texas filed a lawsuit against the SEC in April (the same month the rule officially took effect), accusing the rule of overstepping its authority and conflicting with existing laws that have regulated securities dealers for 90 years. Marisa Coppel, the legal head of the Blockchain Association, cited the Securities Exchange Act of 1934 in an email sent to The Block and stated:
"The SEC has clearly exceeded its authority by adopting a definition of 'market maker' that the courts have described as 'disconnected from the text, history, and structure of the trading laws.'"
The judge O’Connor, who was previously responsible for presiding over the Consensys and SEC lawsuit, agreed with the views of the lobbying group and ordered that the entire rule must be completely revoked. In response, the SEC stated that they are reviewing the ruling to determine the next steps.
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