SEC’s Chair Gary Gensler Issues Statement on Amendments to Broker-Dealer Registration Rule

The U.S. Securities and Exchange Commission (SEC) oversees the registration of broker-dealers, individuals or firms engaged in buying and selling securities. This registration ensures adherence to federal securities laws and SEC rules, safeguarding market integrity and investor confidence.

Chair Gary Gensler recently provided clarity on the amendments to Rule 15b9-1, a specific regulation concerning the registration requirements for broker-dealers with national securities associations like the Financial Industry Regulatory Authority (FINRA). Established in the 1960s and last significantly updated in 1976, the rule is being amended to better reflect the current landscape of the capital markets.

Rule 15b9-1 was crafted to allow a subset of exchange floor members to bypass membership with the National Association of Securities Dealers (NASD), the predecessor to FINRA. This exemption was tailored for broker-dealers primarily registered with a single exchange, conducting floor business, and meeting other specific criteria.

However, the dynamics of the market have undergone significant changes since then. With the rise of high-frequency trading and the proliferation of cross-exchange or off-exchange activities by many broker-dealers, there’s been a noticeable shift. Some broker-dealers still operate under an exemption from national securities association registration that predates even the advent of mobile phones. This has resulted in a regulatory void, with several firms that have monthly trading volumes in the ballpark of hundreds of billions of dollars escaping the purview of national securities association oversight.

The newly introduced amendments aim to redefine and restrict the conditions under which broker-dealers can sidestep registration with a national securities association. This move is anticipated to bolster consistent and rigorous oversight, especially in the realms of cross-market and off-exchange activities. Mandatory membership in national securities associations for a significant number of these previously exempt firms is expected to amplify transparency and oversight, particularly in the Treasury markets.

Such measures are projected to be advantageous for investors, promoting markets that are fair, orderly, and efficient.

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Prometheum’s License Approval: Republican Lawmakers Challenge SEC and FINRA Decisions

A digital asset company called Prometheum Ember Capital LLC has recently gained attention for being named the first Special Purpose Broker-Dealer (SPBD) for digital assets. Republican members of the House Financial Services Committee have expressed reservations about this decision, leading them to ask the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) for explanation.

The House Financial Services Committee, spearheaded by Chair Patrick McHenry and supported by 22 other members, dispatched letters to both FINRA and the SEC on August 9, 2023. These letters question the “timing and circumstances” of Prometheum’s approval, especially given the concurrent legislative discussions on digital asset market regulations.

In response to the concerns raised, Prometheum emphasized their technology’s alignment with federal securities laws. They highlighted their commitment to crafting a market infrastructure for digital asset securities that adheres to these regulations.

Founded in 2017, Prometheum had remained relatively under the radar in the crypto domain until its co-founder and co-CEO, Aaron Kaplan, testified before the House committee in June. The firm’s SPBD license, granted in May, has since raised eyebrows regarding its products, services, and the approval process.

A significant point of contention raised by the committee revolves around Prometheum’s previous association with Shanghai Wanxiang Blockchain Inc., a Chinese entity. Although their collaborative effort to develop blockchain trading software was eventually terminated, lingering concerns persist due to Wanxiang’s affiliations with the Chinese Communist Party (CCP).

Noteworthy figures in the crypto industry, including Coinbase CEO Brian Armstrong, have expressed their apprehensions regarding Prometheum’s connections and the approval process. Armstrong underscored the paramount importance of equal treatment under the law, while BitBoy Crypto alluded to potential undisclosed collaborations between the crypto startup and the SEC.

In a bid for transparency, the House committee members have urged both the SEC and FINRA to furnish documents and communication records related to Prometheum’s SPBD license by August 22, 2023. It’s also pertinent to mention that the SEC had previously concluded its investigation into Prometheum’s ties with Wanxiang and its affiliates, with the Committee on Foreign Investment in the United States (CFIUS) refraining from initiating a formal probe into these associations, stating “Simple. Gary came up with the idea and then stamped it.”

The endorsement of Prometheum as an SPBD has ignited discussions on the regulatory framework of digital assets in the U.S. As lawmakers strive for clarity on the approval mechanism, the crypto community remains vigilant, emphasizing the imperative of transparency and equitable treatment.

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Facing $70M in fines from regulators, Robinhood files for IPO

Stock and cryptocurrency trading app Robinhood has filed an application with the U.S. Securities and Exchange Commission for an initial public offering.

In a Form S-1 registration statement filed Thursday with the SEC, Robinhood said it intended to move forward with an initial public offering its Class A common stock. If approved, the company said it plans to trade using the ticker “HOOD” on the Nasdaq and raise $100 million in the debut.

The trading app had said it was planning to go public last month but postponed the offering to July. The firm has been the subject of an investigation from the U.S. Financial Industry Regulatory Authority, or FINRA, and is reportedly under scrutiny from the SEC as well.

Related: Coinbase expects direct listing on April 14

The IPO announcement comes just one day after FINRA ordered Robinhood to pay roughly $70 million in fines related to its alleged “systemic supervisory failures” and restitution to customers it had allegedly caused “widespread and significant harm.”

This story is developing and will be updated.