Oct. 29, 2023
Dear SEC, I am writing to provide a comment on the proposed amendments to the definition of "exchange" under Rule 3b-16. While I understand the SEC's goal of regulating platforms that are functionally operating as exchanges, I am concerned the expanded definition and scope of coverage is far too broad. Specifically, the inclusion of systems that "offer trading interest" or "offer use of non-firm trading interest" could potentially encompass a wide range of activities far beyond what are commonly considered exchanges. As proposed, the new definition could require registration for things like bulletin boards, chat rooms, or decentralized finance (DeFi) protocols that merely facilitate communication of trading interest between users. Taken to the extreme, the logic behind the proposed definition suggests that every individual user of a smart contract that allows peer-to-peer transaction of securities could be considered an unregistered exchange. This is clearly not a practical or reasonable outcome. Casting such a wide regulatory net would stifle innovation and force burdensome registration requirements on systems where they are unnecessary and inappropriate. I urge the SEC to significantly narrow the scope of the proposed changes to Rule 3b-16. The focus should be specifically on platforms operating with an exchange-like central limit order book and matching functionality. DeFi protocols, chat apps, and bulletin boards enabling decentralized communication between individual traders should not be covered under the exchange definition. The SEC must be careful not to discourage financial innovation and participation that expands access to markets for more Americans. Thank you for the opportunity to comment on this important proposal. Please reconsider the expansive scope of coverage to avoid negative impacts on development of decentralized finance and peer-to-peer exchange.