Texan Judge Tosses SEC's Broker-Dealer Rule, Crypto Industry Scores a Win

In recent months, the Securities and Exchange Commission (SEC) under Gary Gensler has been under fire over its “regulation-by-enforcement” policy

A Texan federal judge has struck down the Securities and Exchange Commission’s (SEC) broker-dealer rule in a recent court ruling.

According to the ruling, the SEC had overstepped its authority by adopting a broad definition of a “dealer” that is not supported by the Exchange Act’s text, structure, or spirit.

The crypto industry has hailed the decision as a major win, with the Blockchain Association calling it a “massive” victory for the growing industry.

The SEC had adopted new rules for market participants on February 6, 2024, which included an updated definition of a broker/dealer.

Under the agency’s revised rules, market participants with over $50 million in capital were required to register as dealers or securities dealers.

At the time of the rules’ publication, over 40 market participants were set to be impacted by the broker’s definition and regulations.

However, critics and observers accused the SEC of overstepping its authority and creating unrealistic requirements.

For instance, critics hit the agency for enforcing the Know Your Customer (KYC) protocol, even on decentralized platforms with no central operators.

According to Judge Reed O’Connor, the SEC had abused its authority and that the agency’s proposed dealer rules are “untethered” from the country’s securities laws.

The complaints were filed in court after the SEC formally updated the definitions last February 2024. The Crypto Freedom Alliance and the Blockchain Association were among the organizations that initiated the complaint against the agency.

The SEC now faces uncertain times, especially with Chairman Gary Gensler announcing his intention to resign.

In a Twitter/X post dated November 22nd, Gensler shared that he will step down on January 20th, 2025. With Gensler’s resignation and the legal challenges, the SEC’s crypto approach remains uncertain.

On January 20, 2025 I will be stepping down as @SECGov Chair.

A thread 🧵⬇️

— Gary Gensler (@GaryGensler) November 21, 2024

O’Connor’s ruling marks the latest challenge and setback for the SEC. While the agency can still appeal this ruling in the 5th Circuit Court of Appeals, the decision is a big blow. Crypto support has scored a win over the clarification of the dealer’s definition, and with incoming US President Donald Trump at the helm, the industry can expect friendlier policies soon.