---
# System prepended metadata

title: 'SEC Enforcement: 2022 Year in Review | Paul, Weiss'

---

---
created: 2023-04-02T07:23:18 (UTC -07:00)
tags: []
source: https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933
author: 
---

# SEC Enforcement: 2022 Year in Review | Paul, Weiss

**Proposed Amendments to Rule 3b-16**

In addition to enforcement activity, the SEC proposed amendments to Rule 3b-16 that would expand the definition of an “exchange” to include “systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities,” which the SEC terms “Communication Protocol Systems.”[\[29\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn29) Communication Protocol Systems function similarly to registered exchanges and Alternative Trading Systems (“ATS”), and have increased in popularity as trading venues.[\[30\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn30) However, they are not currently subject to the same requirements as registered exchanges and ATS, and do not fall within the definition of exchange under the statute.[\[31\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn31) While the SEC does not specifically mention cryptocurrencies, blockchain or DeFi in its proposed amendments, it states that it includes Communication Protocol Systems that “make available for trading _any type of security_,” and there has been much speculation that this could be a powerful tool to expand regulation over digital assets (emphasis added).[\[32\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn32)

Under the proposed amendments, Communication Protocol Systems would have two options for registration. First, they could choose to register as an exchange and be subject to the requirements of Section 6 of the Exchange Act.[\[33\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn33) Second, they could choose instead “to comply with the conditions of the Regulation ATS exemption, which includes registering as a broker-dealer.”[\[34\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn34) The latter option requires “establish\[ing\] written safeguards and procedures to protect confidential subscriber trading information,” compliance with the Fair Access Rule and oversight by the Financial Industry Regulatory Authority.[\[35\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn35) This is an area that will be worth monitoring in 2023.



**Payment for Order Flow**

As we previewed in our 2021 Year in Review, the SEC continued to focus on Payment for Order Flow (“PFOF”) in 2022. While it appears unlikely that it will ban the practice outright, the Commission has considered several proposals which could significantly impact the way in which National Market System (NMS) orders are executed and reported, as well as PFOF.[\[61\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn61) For example, the “Order Competition Rule” requires certain retail investor orders for NMS stocks to be exposed to competition in a “qualified auction” prior to being executed internally by a trading center, potentially limiting or preventing PFOF. And the proposed “Regulation Best Execution” would also apply heightened standards on broker-dealers to use reasonable diligence to secure the most favorable price for customer orders, and require those broker-dealers that engage in “conflicted transactions,” including those where it provides or receives PFOF, to document their compliance with the best execution standard.[\[62\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftn62) These proposals are currently open for public comment until March 31, 2023.


[\[25\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref25)       SEC Press Release, SEC Charges Former Coinbase Manager, Two Others in Crypto Asset Insider Trading Action (July 21, 2022), [https://www.sec.gov/news/press-release/2022-127](https://www.sec.gov/news/press-release/2022-127). 

[\[26\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref26)       _Id_.

[\[27\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref27)       _See_ SEC Press Release, SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security (Oct. 3, 2022), [https://www.sec.gov/news/press-release/2022-183](https://www.sec.gov/news/press-release/2022-183).

[\[28\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref28)       _See_ SEC Press Release, SEC Charges Caroline Ellison and Gary Wang with Defrauding Investors in Crypto Asset Trading Platform FTC (Dec. 21, 2022), [https://www.sec.gov/news/press-release/2022-234](https://www.sec.gov/news/press-release/2022-234).  

[\[29\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref29)       Amendments Regarding the Definition of “Exchange” and Alternative Trading Systems (ATSs) that Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities, 87 Fed. Reg. 15,496 (proposed Mar. 18, 2022) (to be codified at 17 C.F.R. pts. 232, 240, 242, 249) at 15,496-97.

[\[30\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref30)       _Id._

[\[31\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref31)       _Id._

[\[32\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref32)       _Id._ at 15,498.

[\[33\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref33)       _Id._ at 15,502.

[\[34\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref34)       _Id._

[\[35\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref35)       _Id._

[\[60\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref60)       SEC Press Release, Morgan Stanley Smith Barney to Pay $35 Million for Extensive Failures to Safeguard Personal Information of Millions of Customers (Sept. 20, 2022), [https://www.sec.gov/news/press-release/2022-168](https://www.sec.gov/news/press-release/2022-168).

[\[61\]](https://www.paulweiss.com/practices/litigation/white-collar-regulatory-defense/publications/sec-enforcement-2022-year-in-review?id=45933#_ftnref61)       Katherine Doherty and Lydia Beyoud, _Wall Street Stock Trading Set for Overhaul in New SEC Plan_, Bloomberg, (Dec. 14, 2022), [https://www.bloomberg.com/news/articles/2022-12-14/wall-street-stock-trading-set-for-major-overhaul-in-new-sec-plan](https://www.bloomberg.com/news/articles/2022-12-14/wall-street-stock-trading-set-for-major-overhaul-in-new-sec-plan).
