The United States Court of Appeals for the Third Circuit has ordered the U.S. Securities and Exchange Commission (SEC) to clarify its position on a rulemaking request from cryptocurrency exchange Coinbase (COIN). In April, Coinbase filed an Administrative Procedure Act challenge, asking the court to force the SEC to respond to its 2022 petition for formal rulemaking on the digital asset sector, as current requirements are deemed unsuitable.

The SEC has been given 7 days to explain whether it intends to decline Coinbase’s request, and if so, to provide the reasons for such a decision and a timeline for when a decision is expected. Paul Grewal, Coinbase’s Chief Legal Officer, highlighted the importance of the request in a tweet thread, saying: “Rules of the road, from legislation or rulemaking or both, must come before enforcement actions. That is why we petitioned the SEC for rulemaking nearly a year ago in the first place.”

The SEC has sued Coinbase, accusing it of operating an unregistered stock exchange. In response, Grewal stated: “We continue to believe that the SEC could not be proceeding with litigation against our industry, like the case filed against us today, if the SEC had not already decided to deny our petition for rulemaking.”

The SEC also needs to explain why the court shouldn’t keep overseeing the case, and why the SEC shouldn’t provide Coinbase with regular updates on the rulemaking process, as requested. Grewal concluded: “If the SEC’s answer to our petition for rulemaking is “no,” the law requires that they tell us because we are entitled to ask questions. This is why “no” is being pursued in court, and there are serious questions to be asked.”