The Securities and Exchange Commission (SEC) recently issued an exemptive order that, while not explicitly about crypto, provides a significant legal advantage to digital asset exchanges. This order delays compliance deadlines for Regulation NMS, the rulebook governing U.S. equity trading, until late 2026.
The SEC justified this delay, citing a "lapse in appropriations" and the need for "orderly market functions" as traditional markets struggled with new rules. This action, intended for Wall Street, inadvertently creates a powerful precedent for crypto platforms facing enforcement amid regulatory ambiguity.
Bolstering Crypto's "Fair Notice" Defense
The exemptive order grants traditional exchanges "breathing room" when rules are unclear—a situation mirroring crypto firms' challenges. This directly strengthens the "fair notice" defense, central to many crypto lawsuits: enforcement should pause when regulators fail to provide clear, workable standards.
Crypto companies like Kraken, Bittrex, and Binance have long invoked this defense, arguing that punishment without explicit guidance violates due process. Judge William Orrick allowed Kraken's fair-notice defense to proceed. Reinforcing this, Judge Stephanos Bibas of the Third Circuit criticized the SEC:
"The SEC repeatedly sues crypto companies for not complying with the law, yet it will not tell them how to comply."
This judicial critique aligns with the SEC's own acknowledgment of regulatory hurdles in traditional markets, where compliance dates clash with unfinished rulemaking.
SEC's Contradiction: A Clear Double Standard
Regulation NMS governs fundamental aspects of U.S. equity trading. Despite a court denying a petition to lift a stay, the SEC granted temporary exemptive relief based on traditional exchanges' inability to implement changes during a funding lapse.
The parallel to crypto is stark. For three years, the SEC has pursued enforcement against digital-asset platforms for allegedly operating unregistered exchanges. Yet, it has consistently failed to finalize clear rules for compliant crypto operations, leaving platforms to argue they cannot comply with non-existent standards.
The agency’s contradictory stance is undeniable: it claims existing securities law is "clear enough" for crypto, but for its own traditional equity markets, it explicitly granted multi-month relief, recognizing the necessity of time and regulatory clarity.
A New Legal Blueprint for Crypto
This exemptive order provides crypto litigators with a potent new tool. They can now cite the SEC's own actions in motions for stay, preliminary injunctions, and appeals. The core argument is straightforward: if the SEC deems delayed compliance necessary for "orderly market functions" in traditional finance due to contested rules and constrained resources, then this principle must apply equally to digital asset venues navigating enforcement without finalized, crypto-specific frameworks.
The order, while silent on blockchain, effectively codifies the defense that enforcement without workable rules creates chaos, and regulatory relief is the proper remedy. With Reg NMS relief extending until late 2026, crypto cases will continue to leverage this precedent, offering lawyers a clear roadmap for future litigation.
Source: CryptoSlate
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