SEC Deep-Sixes Its Expanded “Dealer” Definition

Last year, the Securities and Exchange Commission amended its definition of “dealer” to require broker-dealer registration by some persons or entities previously considered securities “traders” not subject to such registration. 

The amended dealer definition faced fierce opposition. Some of the reasons why significant elements within the securities industry vigorously opposed the definition are discussed in our articles examining the legal challenges to the SEC’s new dealer definition and analyzing the implications of the SEC’s expanded dealer definition. Crypto advocacy groups also raised concerns that, among other things, the change imposed impractical requirements on financial protocols that do not entail any centralized authority and therefore would have difficulty, for example, enforcing broker-dealer “know your customer” and anti-money laundering requirements.

As anticipated, the SEC’s amendment was promptly challenged in federal court. The district court granted summary judgment in favor of the challengers and, in January 2025, just before former SEC Chair Gary Gensler’s final day at the agency, the SEC filed an appeal.  But only a few weeks later, on February 19, 2025, the SEC filed a motion requesting that the appeal be dismissed and confirming that the appellees do not oppose such dismissal.

Although the SEC has not publicly articulated the reasons for its abrupt change of position, the change:

• Reflects regulatory and cryptocurrency policies favored by the current administration.
• Implements recent executive actions by President Trump.
• Demonstrates the SEC’s willingness and ability in some cases to promptly and dramatically reverse its previous policy positions and actions.

To dive deeper, see these related articles from our EO Watch project:

• “Executive Order Making ‘So-Called Independent Agencies’ Directly Responsive to the President Is Another Nail in the Coffin of the ‘Headless Fourth Branch of Government’” –Analyzes the implications of the executive order on independent agencies.
• “Immediate Practical Effects of SEC-Related EOs” – Discusses how recent executive orders have influenced SEC regulations.
• “Trump Administration’s Executive Order on Digital Assets: A Significant Shift in U.S. Crypto Policy” – Explores the shift in U.S. crypto regulation under the Trump administration's executive orders.