On November 21, 2024, the U.S. District Court for the Northern District of Texas granted summary judgment to plaintiffs in two parallel lawsuits that challenged the SEC’s February 2024 adoption of new Rules 3a5-4 and 3a44-2 under the Securities Exchange Act of 1934, which expanded the definition of “dealer” and “government securities dealer” in Sections 3(a)(5) and 3(a)(44) of the Exchange Act. The expanded definitions required persons that engage in a regular pattern of buying and selling securities that has the effect of providing liquidity to other market participants (e.g., proprietary trading firms providing market liquidity) to register with the SEC and become members of a self-regulatory organization (e.g., FINRA).

The court held that the Exchange Act’s text and legislative history indicate that a person must have customers in order to meet the definition of “dealer” and be subject to the Exchange Act.  The court vacated the new rules, concluding that “the SEC exceeded its statutory authority by expanding the definition of dealer, untethered from the text, history, and structure of the [Exchange] Act.” 

The two orders were issued under the captions:  National Association of Private Fund Managers; Alternative Investment Management Association Limited; and Managed Funds Association v. SEC, No. 4:24-cv-00250-O (N.D. Tex. 2024), and Crypto Freedom Alliance of Texas, et al. v. SEC, No. 4:24-cv-00361-O (N.D. Tex. 2024).