This is going to put a dent into the classic Bitcoin exchange business models of "claim we were hacked", "front run the customers", and "speculate with the funds on deposit".
I really wish the SEC or FinRA would supercede the state level money transmitter regulations. It makes little sense for a money transmitter that transmits money across state borders to be regulated by the whims of both states instead of the government that has regulation of interstate commerce as part of its constitution. And it would give regulatory evaders like Kraken an all or nothing choice instead of their current practice of only doing business where there's no regulation.
Bitfinex and Bitmex are two of the largest exchanges and it certainly seems like there's frequent incredibly shady activity with frequent large flash crashes presumably as insider trading to liquidate margin calls and/or stop loss orders.
I don't think this is true. Apart from Bitmex, I'm not aware of other major exchanges being registered there. Bitstamp (Europe), Coinbase (US), Kraken (US), Bitfinex (HK), Binance (HK?).
Would all of this not also remove the ability to create those 'free exchanges'?
You will still have the ability to start an anonymous exchange, it just wont necessarily be legal in all countries.
Since the MtGox fiasco, I've never bothered trying to liquidate any more of my Bitcoin, and instead just occasionally use it to pay for things which accept direct Bitcoin payment.
I'd be a lot happier with a trustworthy, audited exchange.
If there are smaller exchanges that couldn't deal with the regulation, they probably also can't deal with security, keeping enough secure reserves to be able to pay out in the case of losses, auditing both their security and finances to ensure that they stay healthy and liquidate gracefully if they ever run into financial trouble.