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© Reuters. FILE PHOTO: U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before a House Financial Services and General Government Subcommittee hearing on President Biden’s budget request for the Securities and Exchange Commission, on Capi

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By Chris Prentice

NEW YORK (Reuters) -The U.S. Securities and Exchange Commission on Friday reopened consultation on a proposal to expand the definition of an “exchange,” following pushback from the cryptocurrency industry which fears being ensnared.

The SEC voted 3-2 to take additional comments from the public after crypto firms criticized the plan as vague and aimed at roping in decentralized finance (DeFi) platforms.

The plan, first proposed in January 2022, would expand the definition of an exchange to include platforms that use “communication protocols” such as request-for-quote systems. The change, if adopted, is expected to capture many more venues beyond traditional exchanges that bring together orders from multiple buyers and sellers in a marketplace.

The proposal was aimed at Treasury markets and marketplaces for other government securities, where inter-dealer brokers have functioned like exchanges without registering as them. But crypto firms fixed on the plan amid growing tensions with the regulator.

Some DeFi platforms may fall under the proposed definition, but others may already be considered exchanges by the existing one, SEC officials said this week.

The officials estimated about dozen crypto firms would fall under the expanded definition, but declined to provide any more specifics about which firms.

“Make no mistake: many crypto trading platforms already come under the current definition of an exchange,” SEC Chair Gary Gensler said in prepared remarks published on Friday.

Most crypto trading platforms meet that definition, regardless of whether they call themselves decentralized, Gensler said.

Friday’s public vote to reopen the comment period for 30 days was unusual.

Typically, the commission would decide behind-the-scenes if extending a public comment period is necessary.

The meeting underscored the ideological divide among the commissioners, with both Republican commissioners dissenting.

The reopening “doubles down” on an initial proposal that would force centralization and undercut new technologies, Commissioner Hester Peirce said at the meeting.

“No longer does this commission worry that regulatory bullheadedness often produces absurd consequences,” she said. “Rather, today’s commission aggressively expands its regulatory reach to solve problems that do not exist.”

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