SEC proposes to include more market participants under the rules for "dealers" or "government securities dealers".

The U.S. Securities and Exchange Commission (SEC) has recently proposed new rules requiring certain market participants, including private funds and proprietary trading firms, to register as dealers or government securities dealers if they meet certain qualitative or quantitative criteria. The proposed rules aim to bring market participants who provide market liquidity in a dealer-like capacity but are not registered as dealers under the same regulatory framework as dealers. Under the proposed qualitative criteria, the following three trading patterns would be considered as providing liquidity:

1. Regularly buying and selling similar quantities of the same or substantially similar securities within the same day;

2. Regularly expressing willingness to trade with other market participants at the best market price or near it, in a manner that makes other market participants aware of this willingness, whether buying or selling; or

3. Earning revenue primarily through capturing bid-ask spreads, buying and selling at quoted prices, or receiving incentives from trading venues for providing liquidity.

Under the proposed quantitative criteria, market participants who have bought and sold more than $25 billion in government securities per month for four out of the past six months would be considered government securities dealers. Even if a market participant does not meet the proposed qualitative or quantitative criteria, they may still be deemed a dealer or government securities dealer.

The proposed rules do not apply to market participants with total assets owned or controlled of less than $50 million or to investment companies registered under the Investment Company Act of 1940.