SEC adopted two rules under 17 CFR 240 to require market participants who engage in certain dealer roles, those who take on significant liquidity-providing roles, to register.
Become members of a Self-regulatory organization (SRO), comply with securities laws.
Follows Mar. 2022 proposed rules by SEC to expand dealer definitions, see #133190.
SEC made available comments received on proposing release; ICI issued comments.
Final Rule Provisions
Rules 3a5-4, 3a44-2 under SEA further define phrase as a part of a regular business.
To identify activities causing persons to be dealers or government securities dealers.
Qualitative standards to identify those who take on significant liquidity-providing roles.
Rules do not seek to address all circumstances under which a person may be acting as dealer/government securities dealer/replace applicable interpretations and precedent.
Final rules excluded any person that has/controls total assets of less than $50 million.
Further, excluded investment companies registered under the Investment company act of 1940, as well as central banks, sovereign entities, international financial institutions.
Applicable Dealer Activities
Regularly expressing trading interest that is at/near best available prices on both sides of market for same security, communicated and represented that makes it accessible.
Or, earning revenue primarily from capturing bid-ask spreads; buying at bid, selling at offer; from capturing incentive by trading venues to liquidity-supplying trading interest
Dealer Requirements
Absent exception/exemption, market participants would be required to register with SEC under Section 15(a) (15 USC 78o) or Section 15C (15 USC 78o-5), as applicable.
Also, required to become a member of an SRO; and comply with federal securities laws and regulatory obligations and applicable SRO and US Treasury rules, requirements.
Modifications to the Proposal
Excluded additional qualitative factor proposed with regard to a firm regularly making roughly comparable purchases and sales of the same or similar securities in a day.
Also, excluded proposal to require registration of all entities with monthly trading volume in government securities above $25bn during 4 out of past 6 calendar months.
Adopted anti-evasion provision rather than proposed aggregation across legal entities.
Effectiveness
Effective 60 days following date of publication of adopting release in federal register.
Compliance date for final rules will be one year after effective date of the final rules.
Feb. 2024 Fed Reg Final Rule
On Feb. 29, 2024, SEC published final rule in federal register, effective Apr. 29, 2024.
Compliance date for final rule is one year from the effective date, Apr. 29, 2025.
Emphasized the one-year compliance period only applies to market participants who are engaging in activities covered by the final rules prior to the compliance date.
Compliance date does not apply to persons whose activities otherwise satisfy the definition of dealer under applicable Commission interpretations and court precedent.
In Mar. 2024, AIMA filed lawsuit against US SEC to vacate dealer rule, see #205243.
