Interfacing with our Inner Demons: Comments on the Division of Trading and Market’s Statement on Certain User Interfaces

I commend the Division of Trading and Markets for its statement on front ends and self-custodial wallets used by investors in onchain crypto asset securities transactions.[1] Specifically, the staff lays out circumstances in which it will not object to an interface provider creating, offering, and/or operating an interface without registering as a broker-dealer pursuant to Section 15(b) of the Exchange Act. While the staff expressing its view is helpful, I favor a more permanent regulatory approach that addresses the broker definition in light of current market circumstances.

The law is already clear that wallets and interfaces do not become "brokers" solely because they enable users to create or control self-custody wallets or transmit instructions to a blockchain; allow users to view onchain prices or data; or format messages for users to sign or approve from a self-custody wallet.[2]

Crypto is forcing the Commission to confront its inner demons that have driven it toward ever more expansive readings of the securities laws. Recent history is littered with a patchwork of no-action letters and enforcement actions that have contorted the term "broker" beyond recognition. As I wrote in dissent to one such enforcement action: "The problem with requiring anyone whose products and services touch the financial services industry to [register or] come in for no-action relief is that it dissuades people from applying their ingenuity to serving the securities industry."[3]

People have shown great ingenuity in developing crypto wallets and front ends that serve users well. It would be a shame if investors in crypto asset securities transactions were unable to use these tools because of an overly broad reading of the term "broker."

The Commission needs public feedback to inform future rulemaking to assess terms like "broker" against the backdrop of new technologies. Please engage with us and provide us with your views and recommendations.