Senator Criticizes SEC Proposal to Expand Dealer Registration Requirement

Steven Lofchie Commentary by Steven Lofchie

Senator Tim Scott, Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, raised concerns about SEC-proposed rules that expand the dealer registration requirement as to transactions in U.S. Treasury securities.

In a letter to SEC Chair Gary Gensler, Senator Scott's argued that the proposed rules are "overly vague, lack complete economic analysis, and will likely reduce liquidity in U.S. Treasury markets, creating widespread, adverse impacts for the American economy and Main Street investors." He said that the proposed rules could lead to wider bid-ask spreads, inefficient pricing and a reduction in market participants. Further, he warned that the proposed changes could have detrimental impacts on small businesses and individual investors, particularly those relying on Treasuries for retirement security.

Senator Scott criticized the SEC for the lack of economic analysis in the proposed rules. He said that they may not comply with the requirements of the Administrative Procedures Act. The Senator recommended that the SEC rescind the proposed rules and undertake a more thorough analysis to ensure that any future rulemaking is justified, harmless and supported by robust economic research.


The SEC's proposal to expand the dealer registration requirement, based on the volume of an entity's trading, and with regard to the manner in which it trades, or the purpose for which it trades, is unprecedented in 90 years of interpretation of the registration requirements of the Securities Exchange Act. It is clearly vulnerable to judicial challenge. That said, it is not even clear that the expanded dealer registration requirement is the SEC Rule that will have the largest (potentially negative?) impact on the market for U.S. government securities. The SEC's new central clearing mandate for government securities will have an impact on the market that seems impossible to quantify, but seems very likely to raise the cost of financing the U.S. government's debt.  

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