In a direct challenge to recent regulatory shifts, Congressman Byron Donalds (R-FL) has introduced a new bill aimed at stripping the federal government of its ability to reclassify private investors as professional dealers.
The “Defining Dealer Act” seeks to amend the Securities Exchange Act of 1934, creating a hard line between firms that manage money for the public and individuals trading for their own accounts.
The legislation marks Donalds’ 22nd bill of the 119th Congress and comes as a response to what critics call a “boundless” interpretation of financial law by the Securities and Exchange Commission (SEC).
For nearly a century, the distinction was simple: “investors” trade for themselves, while “dealers” trade for customers. However, recent SEC enforcement theories began targeting professional investors and micro-cap lenders—entities that often provide capital to small companies in exchange for stock—labeling them as unregistered dealers because of the frequency of their trades.
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“It is no secret that the Biden administration deputized regulators to circumvent Congress and carry out their political agenda,” Congressman Donalds said in a statement. “Under then-Chairman Gensler, the SEC disregarded decades of securities law and tried to put the federal government in the middle of every transaction.”
Donalds noted that while some of these regulatory moves have been stalled, his bill would codify the traditional definition of a dealer as “any person buying and selling securities for customers” to prevent future interference.
The bill has gained traction among advocacy groups who argue that regulatory ambiguity has chilled investment in smaller markets. Marc Indeglia, President of the Small Public Company Coalition, argued that the SEC’s recent stance ignored decades of settled practice.
“The Defining Dealer Act restores clarity, protects capital formation, and ensures that the professional investment community can continue to serve the small public companies that depend on it,” Indeglia said.
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The Investor Choice Advocates Network also backed the move, with President Nick Morgan warning that the threat of being recast as a regulated business often forces investors to the sidelines. “When investors can’t tell where the line is, they stop investing,” Morgan added.
If passed, the act would effectively end the statutory “grey area” that has allowed regulators to treat high-frequency private trading as a brokerage business, a move supporters say is essential for the survival of micro-cap companies that rely on private lenders rather than traditional bank loans.
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