Following a continuous stream of litigation against small-cap and penny stock convertible debt lenders, the SEC has proposed some statutory changes to the definition of a “dealer” under the Exchange Act. The SEC’s enforcement attack on convertible debt lenders began in 2017 and has been decried by industry participants as regulation by enforcement which, unfortunately, is not resulting in judicial orders or settlements offering clear guidance (see HERE). Also, unfortunately, the proposed new rules, which were published in March 2022 and are likely to reach final rule stage this year, still do not help small-cap investors navigate the regulatory highway.
The rule is intended to require certain proprietary or principal traders and liquidity providers to register as either a dealer or government securities dealer as applicable. The proposed rules would amend Exchange Act Rules 5a5-4 and 3a44-2 to enhance the definition of “as part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Exchange Act.