In the landmark ruling on November 21, 2024, the U.S. District Court for the Northern District of Texas invalidated the Securities and Exchange Commission’s (SEC) controversial ‘Dealer Rule’. This is another setback for the SEC after dropping its lawsuit against Ripple (XRP).
The decision came after two lawsuits, led by crypto and private fund associations, challenged the SEC’s authority in redefining what constitutes a securities dealer.
As per the details, in February 2024, the SEC extended the definition of “dealer” to include market participants that provide good traction of liquidity, such as private funds and individual traders. These amendments raised concerns within the crypto industry, as they would impose heavy compliance burdens on entities trading for their accounts.
Two crypto organizations, including the Crypto Freedom Alliance of Texas (CFAT) and the Blockchain Association, argued that the SEC is going outside its statutory authority.
Judge Reed O’Connor of the Northern District of Texas stated in her judgment, “The Court concludes that the SEC exceeded its statutory authority by enacting such a broad definition of dealer untethered from the text, history, and structure of the Exchange Act.”
Judge Reed O’Connor ruled in favor of the crypto industry, saying that the dealer rule is inconsistent with the Securities Exchange Act of 1934.
She clarified that the term “dealer” historically implies to entities acting on behalf of customers, not individual market participants.
“The Rule as it currently stands de facto removes the distinction between ‘trader’ and ‘dealer’ as they have commonly been defined for nearly 100 years. The Court refuses to allow such a broad expansion of the Exchange Act by way of this Rule,” O’Connor added further.
The judgment is a tight slap for the SEC after its aggressive regulatory actions last year. While the crypto market is growing, the ruling will encourage investors to invest in crypto.
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