Proposed Rules Could Require Dealer Registration by Certain Principal Trading Firms, Private Funds, Investment Advisers and Other Market Participants
On March 28, 2022, the US Securities and Exchange Commission (“SEC”) proposed two new rules – SEC Rules 3a5-4 and 3a44-2 (the “Proposed Rules”) – that would further define the phrase “as part of a regular business” in the definitions of “dealer” and “government securities dealer” in Sections 3(a)(5) and 3(a)(44) of the Securities Exchange Act of 1934 (the “Exchange Act”), respectively, requiring persons engaging in such activities, absent an available exception or exemption, to register as a dealer or government securities dealer pursuant to Sections 15(b) or 15C(a) of the Exchange Act.
Specifically, the Proposed Rules would establish three qualitative standards designed to require registration of market participants who engage in a routine pattern of buying and selling securities or government securities for their own account that has the effect of providing liquidity to other market participants. In addition, proposed SEC Rule 3a44-2 would establish a bright-line quantitative standard under which a person engaging in specified levels of trading activity in US Treasury Securities would be deemed to be buying and selling such securities as a “regular business,” regardless of whether such person meets any of the qualitative standards. Moreover, as further described in this Legal Update, to account for variations in corporate structure and ownership, the Proposed Rules would define the terms “own account” and “control.”