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SEC Proposes Rules to Include More Market Participants as
​“Dealers” or “Government Securities Dealers”​

May 20, 2022

The SEC recently proposed new rules that would require certain market participants, including private funds and proprietary trading firms, to register as a dealer or government securities dealer if certain qualitative or quantitative standards are met. Such rules are intended to capture market participants providing liquidity in a dealer-like role but not registered as dealers.

Under the proposed qualitative standard, the following three patterns of buying and selling are viewed as having the effect of providing liquidity:

  1. Routinely making roughly comparable purchases and sales of the same or substantially similar securities in a day;

  2. Routinely expressing trading interests that are at or near the best available prices on both sides of the market and that are communicated and represented in a way that makes them accessible to other market participants; or

  3. Earning revenue primarily from capturing bid-ask spreads, by buying at the bid and selling at the offer, or from capturing any incentives offered by trading venues to liquidity-supplying trading interest.

Under the proposed quantitative standard, a person engaged in buying and selling more than $25 billion of government securities in each of four out of the last six calendar months will be deemed to be a government securities dealer. These two standards are not intended to provide an exhaustive list.

The proposed rules would not apply to “a person that has or controls total assets of less than $50 million” or “an investment company registered under the Investment Company Act”.

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