- TXT
-
PDF (1MB)
(PDF provides a complete and accurate display of this text.)
Tip
?
118th Congress } { Rept. 118-484
HOUSE OF REPRESENTATIVES
2d Session } { Part 2
======================================================================
FINANCIAL INNOVATION AND TECHNOLOGY FOR THE 21ST CENTURY ACT
_______
May 6, 2024.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. McHenry, from the Committee on Financial Services, submitted the
following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 4763]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4763) to provide for a system of regulation of
digital assets by the Commodity Futures Trading Commission and
the Securities and Exchange Commission, and for other purposes,
having considered the same, reports favorably thereon with an
amendment and recommends that the bill as amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 56
Background and Need for Legislation.............................. 56
Related Hearings................................................. 72
Committee Consideration.......................................... 73
Committee Votes.................................................. 73
Committee Oversight Findings..................................... 77
Performance Goals and Objectives................................. 77
Congressional Budget Office Estimates............................ 77
New Budget Authority, Entitlement Authority, and Tax Expenditures 77
Federal Mandates Statement....................................... 77
Advisory Committee Statement..................................... 77
Applicability to Legislative Branch.............................. 78
Earmark Identification........................................... 78
Duplication of Federal Programs.................................. 78
Section-by-Section Analysis of the Legislation................... 78
Changes in Existing Law Made by the Bill, as Reported............ 85
Minority Views................................................... 332
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Financial Innovation
and Technology for the 21st Century Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--DEFINITIONS; RULEMAKING; NOTICE OF INTENT TO REGISTER
Sec. 101. Definitions under the Securities Act of 1933.
Sec. 102. Definitions under the Securities Exchange Act of 1934.
Sec. 103. Definitions under the Commodity Exchange Act.
Sec. 104. Definitions under this Act.
Sec. 105. Joint rulemakings.
Sec. 106. Notice of intent to register for digital commodity exchanges,
brokers, and dealers.
Sec. 107. Notice of intent to register for digital asset brokers,
dealers, and trading systems.
Sec. 108. Commodity Exchange Act savings provisions.
Sec. 109. International harmonization.
Sec. 110. Implementation.
TITLE II-- OFFERS AND SALES OF DIGITAL ASSETS
Sec. 201. Exempted transactions in digital assets.
Sec. 202. Requirements for offers and sales of certain digital assets.
Sec. 203. Enhanced disclosure requirements.
Sec. 204. Certification of certain digital assets.
Sec. 205. Effective date.
TITLE III--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
SECURITIES AND EXCHANGE COMMISSION
Sec. 301. Treatment of digital commodities and other digital assets.
Sec. 302. Anti-fraud authority over permitted payment stablecoins.
Sec. 303. Registration of digital asset trading systems.
Sec. 304. Requirements for digital asset trading systems.
Sec. 305. Registration of digital asset brokers and digital asset
dealers.
Sec. 306. Requirements of digital asset brokers and digital asset
dealers.
Sec. 307. Rules related to conflicts of interest.
Sec. 308. Treatment of certain digital assets in connection with
federally regulated intermediaries.
Sec. 309. Exclusion for ancillary activities.
Sec. 310. Registration and requirements for notice-registered digital
asset clearing agencies.
Sec. 311. Treatment of custody activities by banking institutions.
Sec. 312. Effective date; administration.
TITLE IV--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
COMMODITY FUTURES TRADING COMMISSION
Sec. 401. Commission jurisdiction over digital commodity transactions.
Sec. 402. Requiring futures commission merchants to use qualified
digital commodity custodians.
Sec. 403. Trading certification and approval for digital commodities.
Sec. 404. Registration of digital commodity exchanges.
Sec. 405. Qualified digital commodity custodians.
Sec. 406. Registration and regulation of digital commodity brokers and
dealers.
Sec. 407. Registration of associated persons.
Sec. 408. Registration of commodity pool operators and commodity
trading advisors.
Sec. 409. Exclusion for ancillary activities.
Sec. 410. Effective date.
TITLE V--INNOVATION AND TECHNOLOGY IMPROVEMENTS
Sec. 501. Codification of the SEC Strategic Hub for Innovation and
Financial Technology.
Sec. 502. Codification of LabCFTC.
Sec. 503. CFTC-SEC Joint Advisory Committee on Digital Assets.
Sec. 504. Study on decentralized finance.
Sec. 505. Study on non-fungible digital assets.
Sec. 506. Study on expanding financial literacy amongst digital asset
holders.
Sec. 507. Study on financial market infrastructure improvements.
TITLE VI--MISCELLANEOUS
Sec. 601. Findings; sense of Congress.
TITLE I--DEFINITIONS; RULEMAKING; NOTICE OF INTENT TO REGISTER
SEC. 101. DEFINITIONS UNDER THE SECURITIES ACT OF 1933.
Section 2(a) of the Securities Act of 1933 (15 U.S.C. 77b(a)) is
amended by adding at the end the following:
``(20) Affiliated person.--The term `affiliated person' means
a person (including a related person) that--
``(A) with respect to a digital asset issuer--
``(i) directly, or indirectly through one or
more intermediaries, controls, or is controlled
by, or is under common control with, such
digital asset issuer; and
``(ii) was described under clause (i) at any
point in the previous 3-month period; or
``(B) with respect to any digital asset--
``(i) beneficially owns 5 percent or more of
the units of such digital asset that are then
outstanding; and
``(ii) was described under clause (i) at any
point in the previous 3-month period.
``(21) Blockchain.--The term `blockchain' means any
technology--
``(A) where data is--
``(i) shared across a network to create a
public ledger of verified transactions or
information among network participants;
``(ii) linked using cryptography to maintain
the integrity of the public ledger and to
execute other functions; and
``(iii) distributed among network
participants in an automated fashion to
concurrently update network participants on the
state of the public ledger and any other
functions; and
``(B) composed of source code that is publicly
available.
``(22) Blockchain protocol.--The term `blockchain protocol'
means any executable software deployed to a blockchain composed
of source code that is publicly available and accessible,
including a smart contract or any network of smart contracts.
``(23) Blockchain system.--The term `blockchain system' means
any blockchain or blockchain protocol.
``(24) Decentralized network.--With respect to a blockchain
system to which a digital asset relates, the term
`decentralized network' means the following conditions are met:
``(A) During the previous 12-month period, no
person--
``(i) had the unilateral authority, directly
or indirectly, through any contract,
arrangement, understanding, relationship, or
otherwise, to control or materially alter the
functionality or operation of the blockchain
system; or
``(ii) had the unilateral authority to
restrict or prohibit any person who is not a
digital asset issuer, related person, or an
affiliated person from--
``(I) using, earning, or transmitting
the digital asset;
``(II) deploying software that uses
or integrates with the blockchain
system;
``(III) participating in a
decentralized governance system with
respect to the blockchain system; or
``(IV) operating a node, validator,
or other form of computational
infrastructure with respect to the
blockchain system.
``(B) During the previous 12-month period--
``(i) no digital asset issuer or affiliated
person beneficially owned, in the aggregate, 20
percent or more of the total amount of units of
such digital asset that--
``(I) can be created, issued, or
distributed in such blockchain system;
and
``(II) were freely transferrable or
otherwise used or available to be used
for the purposes of such blockchain
system;
``(ii) no digital asset issuer or affiliated
person had the unilateral authority to direct
the voting, in the aggregate, of 20 percent or
more of the outstanding voting power of such
digital asset or related decentralized
governance system; or
``(iii) the digital asset did not include
voting power with respect to any decentralized
governance system of the blockchain system.
``(C) During the previous 3-month period, the digital
asset issuer, any affiliated person, or any related
person has not implemented or contributed any
intellectual property to the source code of the
blockchain system that materially alters the
functionality or operation of the blockchain system,
unless such implementation or contribution to the
source code--
``(i) addressed vulnerabilities, errors,
regular maintenance, cybersecurity risks, or
other technical changes to the blockchain
system; or
``(ii) were adopted through the consensus or
agreement of a decentralized governance system.
``(D) During the previous 3-month period, neither any
digital asset issuer nor any affiliated person
described under paragraph (20)(A) has marketed to the
public the digital assets as an investment.
``(E) During the previous 12-month period, all
issuances of units of such digital asset through the
programmatic functioning of the blockchain system were
end user distributions.
``(25) Decentralized governance system.--
``(A) In general.--The term `decentralized governance
system' means, with respect to a blockchain system, any
rules-based system permitting persons using the
blockchain system or the digital assets related to such
blockchain system to form consensus or reach agreement
in the development, provision, publication, management,
or administration of such blockchain system.
``(B) Relationship of persons to decentralized
governance systems.--Persons acting through a
decentralized governance system shall be treated as
separate persons unless such persons are under common
control.
``(C) Exclusion.--The term `decentralized governance
system' does not include a system in which--
``(i) a person or group of persons under
common control have the ability to--
``(I) unilaterally alter the rules of
consensus or agreement for the
blockchain system; or
``(II) determine the final outcome of
decisions related to the development,
provision, publication, management, or
administration of such blockchain
system;
``(ii) a person or group of persons is
directly engaging in an activity that requires
registration with the Commission or the
Commodity Futures Trading Commission other
than--
``(I) developing, providing,
publishing, managing, or administering
a blockchain system; or
``(II) an activity with respect to
which the organization is exempt from
such registration; or
``(iii) a person or group of persons seeking
to knowingly evade the requirements imposed on
a digital asset issuer, a related person, an
affiliated person, or any other person
registered (or required to be registered) under
the securities laws, the Financial Innovation
and Technology for the 21st Century Act, or the
Commodity Exchange Act.
``(26) Digital asset.--
``(A) In general.--The term `digital asset' means any
fungible digital representation of value that can be
exclusively possessed and transferred, person to
person, without necessary reliance on an intermediary,
and is recorded on a cryptographically secured public
distributed ledger.
``(B) Exclusions.--The term `digital asset' does not
include--
``(i) any note, stock, treasury stock,
security future, security-based swap, bond,
debenture, evidence of indebtedness,
certificate of interest or participation in any
profit-sharing agreement, collateral-trust
certificate, preorganization certificate or
subscription, or transferable share; or
``(ii) any asset, which based on its terms
and other characteristics, is, represents, or
is functionally equivalent to an agreement,
contract, or transaction that is--
``(I) a contract of sale of a
commodity (as defined under section 1a
of the Commodity Exchange Act) for
future delivery or an option thereon;
``(II) a security futures product;
``(III) a swap;
``(IV) an agreement, contract, or
transaction described in section
2(c)(2)(C)(i) or 2(c)(2)(D)(i) of the
Commodity Exchange Act;
``(V) a commodity option authorized
under section 4c of the Commodity
Exchange Act; or
``(VI) a leverage transaction
authorized under section 19 of the
Commodity Exchange Act.
``(C) Rule of construction.--Nothing in this
paragraph shall be construed to create a presumption
that a digital asset is a representation of any type of
security not excluded from the definition of digital
asset.
``(D) Relationship to a blockchain system.--A digital
asset is considered to relate to a blockchain system if
the digital asset is intrinsically linked to the
blockchain system, including--
``(i) where the digital asset's value is
reasonably expected to be generated by the
programmatic functioning of the blockchain
system;
``(ii) where the digital asset has voting
rights with respect to the decentralized
governance system of the blockchain system; or
``(iii) where the digital asset is issued
through the programmatic functioning of the
blockchain system.
``(E) Treatment of certain digital assets sold
pursuant to an investment contract.--A digital asset
offered or sold or intended to be offered or sold
pursuant to an investment contract is not and does not
become a security as a result of being sold or
otherwise transferred pursuant to that investment
contract.
``(27) Digital asset issuer.--
``(A) In general.--With respect to a digital asset,
the term `digital asset issuer' means any person that,
in exchange for any consideration--
``(i) issues or causes to be issued a unit of
such digital asset to a person; or
``(ii) offers or sells a right to a future
issuance of a unit of such digital asset to a
person.
``(B) Exclusion.--The term `digital asset issuer'
does not include any person solely because such person
deploys source code that creates or issues units of a
digital asset that are only distributed in end user
distributions.
``(C) Prohibition on evasion.--It shall be unlawful
for any person to knowingly evade classification as a
`digital asset issuer' and facilitate an arrangement
for the primary purpose of effecting a sale,
distribution, or other issuance of a digital asset.
``(28) Digital asset maturity date.--The term `digital asset
maturity date' means, with respect to any digital asset, the
first date on which 20 percent or more of the total units of
such digital asset that are then outstanding as of such date
are--
``(A) digital commodities; or
``(B) digital assets that have been registered with
the Commission.
``(29) Digital commodity.--The term `digital commodity' has
the meaning given that term under section 1a of the Commodity
Exchange Act (7 U.S.C. 1a).
``(30) End user distribution.--
``(A) In general.--The term `end user distribution'
means an issuance of a unit of a digital asset that--
``(i) does not involve an exchange of more
than a nominal value of cash, property, or
other assets; and
``(ii) is distributed in a broad, equitable,
and non-discretionary manner based on
conditions capable of being satisfied by any
participant in the blockchain system, including
as incentive-based rewards--
``(I) to users of the digital asset
or any blockchain system to which the
digital asset relates;
``(II) for activities directly
related to the operation of the
blockchain system, such as mining,
validating, staking, or other activity
directly tied to the operation of the
blockchain system; or
``(III) to the existing holders of
another digital asset, in proportion to
the total units of such other digital
asset as are held by each person.
``(B) Prohibition on evasion.--It shall be unlawful
for any person to facilitate an end user distribution
to knowingly evade classification as a digital asset
issuer, related person, or an affiliated person, or the
requirements related to a digital asset issuance.
``(31) Functional network.--With respect to a blockchain
system to which a digital asset relates, the term `functional
network' means the network allows network participants to use
such digital asset for--
``(A) the transmission and storage of value on the
blockchain system;
``(B) the participation in services provided by or an
application running on the blockchain system; or
``(C) the participation in the decentralized
governance system of the blockchain system.
``(32) Permitted payment stablecoin.--The term `permitted
payment stablecoin'--
``(A) means a digital asset--
``(i) that is or is designed to be used as a
means of payment or settlement;
``(ii) the issuer of which--
``(I) is obligated to convert,
redeem, or repurchase for a fixed
amount of monetary value; or
``(II) represents will maintain or
creates the reasonable expectation that
it will maintain a stable value
relative to the value of a fixed amount
of monetary value; and
``(iii) that is subject to regulation by a
Federal or State regulator with authority over
entities that issue payment stablecoins; and
``(B) that is not--
``(i) a national currency; or
``(ii) a security issued by an investment
company registered under section 8(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-
8(a)).
``(33) Related person.--With respect to a digital asset
issuer, the term `related person' means--
``(A) a founder, promoter, employee, consultant,
advisor, or person serving in a similar capacity;
``(B) any person that is or was in the previous 6-
month period an executive officer, director, trustee,
general partner, advisory board member, or person
serving in a similar capacity;
``(C) any equity holder or other security holder; or
``(D) any other person that received a unit of
digital asset from such digital asset issuer through--
``(i) an exempt offering, other than an
offering made in reliance on section 4(a)(8);
or
``(ii) a distribution that is not an end user
distribution described under section 42(d)(1)
of the Securities Exchange Act of 1934.
``(34) Restricted digital asset.--
``(A) In general.--The term `restricted digital
asset' means--
``(i) any unit of a digital asset held by a
person, other than the digital asset issuer, a
related person, or an affiliated person, prior
to the first date on which each blockchain
system to which the digital asset relates is a
functional network and certified to be a
decentralized network under section 44 of the
Securities Exchange Act of 1934, that was--
``(I) issued to such person through a
distribution, other than an end user
distribution described under section
42(d)(1) of the Securities Exchange Act
of 1934; or
``(II) acquired by such person in a
transaction that was not executed on a
digital commodity exchange;
``(ii) any digital asset held by a related
person or an affiliated person during any
period when any blockchain system to which the
digital asset relates is not a functional
network or not certified to be a decentralized
network under section 44 of the Securities
Exchange Act of 1934; or
``(iii) any unit of a digital asset held by
the digital asset issuer.
``(B) Exclusion.--The term `restricted digital asset'
does not include a permitted payment stablecoin.
``(35) Securities laws.--The term `securities laws' has the
meaning given that term under section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)).
``(36) Source code.--With respect to a blockchain system, the
term `source code' means a listing of commands to be compiled
or assembled into an executable computer program.''.
SEC. 102. DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF 1934.
Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)) is amended--
(8) by redesignating the second paragraph (80) (relating to
funding portals) as paragraph (81); and
(9) by adding at the end the following:
``(82) Bank secrecy act.--The term `Bank Secrecy Act' means--
``(A) section 21 of the Federal Deposit Insurance Act
(12 U.S.C. 1829b);
``(B) chapter 2 of title I of Public Law 91-508 (12
U.S.C. 1951 et seq.); and
``(C) subchapter II of chapter 53 of title 31, United
States Code.
``(83) Digital asset broker.--The term `digital asset
broker'--
``(A) means any person engaged in the business of
effecting transactions in restricted digital assets for
the account of others; and
``(B) does not include a blockchain protocol or a
person or group of persons solely because of their
development of a blockchain protocol.
``(84) Digital asset custodian.--The term `digital asset
custodian' means an entity in the business of providing
custodial or safekeeping services for restricted digital
assets.
``(85) Digital asset dealer.--The term `digital asset
dealer'--
``(A) means any person engaged in the business of
buying and selling restricted digital assets for such
person's own account through a broker or otherwise; and
``(B) does not include--
``(i) a person that buys or sells restricted
digital assets for such person's own account,
either individually or in a fiduciary capacity,
but not as a part of a regular business; or
``(ii) a blockchain protocol or a person or
group of persons solely because of their
development of a blockchain protocol.
``(86) Digital asset trading system.--The term `digital asset
trading system'--
``(A) means any organization, association, person, or
group of persons, whether incorporated or
unincorporated, that constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of restricted digital
assets or for otherwise performing with respect to
digital assets the functions commonly performed by a
stock exchange within the meaning of section 240.3b-16
of title 17, Code of Federal Regulations, as in effect
on the date of enactment of this paragraph; and
``(B) does not include a blockchain protocol or a
person or group of persons solely because of their
development of a blockchain protocol.
``(87) Mixed digital asset transaction.--The term `mixed
digital asset transaction' means an agreement, contract, or
transaction involving a restricted digital asset and a digital
commodity.
``(88) Notice-registered digital asset clearing agency.--The
term `notice-registered digital asset clearing agency' means a
clearing agency that has registered with the Commission
pursuant to section 17A(b)(9).
``(89) Additional digital asset-related terms.--
``(A) Securities act of 1933.--The terms `affiliated
person', `blockchain system', `decentralized governance
system', `decentralized network', `digital asset',
`digital asset issuer', `digital asset maturity date',
`end user distribution', `functional network', `mixed
digital asset transaction', `permitted payment
stablecoin', `related person', `restricted digital
asset', and `source code' have the meaning given those
terms, respectively, under section 2(a) of the
Securities Act of 1933 (15 U.S.C. 77b(a)).
``(B) Commodity exchange act.--The terms `digital
commodity', `digital commodity broker', `digital
commodity dealer', and `digital commodity exchange'
have the meaning given those terms, respectively, under
section 1a of the Commodity Exchange Act (7 U.S.C.
1a).''.
SEC. 103. DEFINITIONS UNDER THE COMMODITY EXCHANGE ACT.
Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended--
(1) in paragraph (10)(A)--
(A) by redesignating clauses (iii) and (iv) as
clauses (iv) and (v), respectively; and
(B) by inserting after clause (ii) the following:
``(iii) digital commodity;'';
(2) in paragraph (11)--
(A) in subparagraph (A)(i)--
(i) by redesignating subclauses (III) and
(IV) as subclauses (IV) and (V), respectively;
and
(ii) by inserting after subclause (II) the
following:
``(III) digital commodity;''; and
(B) by redesignating subparagraph (B) as subparagraph
(C) and inserting after subparagraph (A) the following:
``(B) Exclusion.--The term `commodity pool operator'
does not include--
``(i) a decentralized governance system; or
``(ii) ancillary activities, as defined in
section 4v.'';
(3) in paragraph (12)(A)(i)--
(A) in subclause (II), by adding at the end a
semicolon;
(B) by redesignating subclauses (III) and (IV) as
subclauses (IV) and (V), respectively; and
(C) by inserting after subclause (II) the following:
``(III) a digital commodity;'';
(4) in paragraph (40)--
(A) by striking ``and'' at the end of subparagraph
(E);
(B) by striking the period at the end of subparagraph
(F) and inserting ``; and''; and
(C) by adding at the end the following:
``(G) a digital commodity exchange registered under
section 5i.''; and
(5) by adding at the end the following:
``(52) Associated person of a digital commodity broker.--
``(A) In general.--Except as provided in subparagraph
(B), the term `associated person of a digital commodity
broker' means a person who is associated with a digital
commodity broker as a partner, officer, employee, or
agent (or any person occupying a similar status or
performing similar functions) in any capacity that
involves--
``(i) the solicitation or acceptance of a
contract for sale of a digital commodity; or
``(ii) the supervision of any person engaged
in the solicitation or acceptance of a contract
for sale of a digital commodity.
``(B) Exclusion.--The term `associated person of a
digital commodity broker' does not include any person
associated with a digital commodity broker the
functions of which are solely clerical or ministerial.
``(53) Associated person of a digital commodity dealer.--
``(A) In general.--Except as provided in subparagraph
(B), the term `associated person of a digital commodity
dealer' means a person who is associated with a digital
commodity dealer as a partner, officer, employee, or
agent (or any person occupying a similar status or
performing similar functions) in any capacity that
involves--
``(i) the solicitation or acceptance of a
contract for sale of a digital commodity; or
``(ii) the supervision of any person engaged
in the solicitation or acceptance of a contract
for sale of a digital commodity.
``(B) Exclusion.--The term `associated person of a
digital commodity dealer' does not include any person
associated with a digital commodity dealer the
functions of which are solely clerical or ministerial.
``(54) Bank secrecy act.--The term `Bank Secrecy Act' means--
``(A) section 21 of the Federal Deposit Insurance Act
(12 U.S.C. 1829b);
``(B) chapter 2 of title I of Public Law 91-508 (12
U.S.C. 1951 et seq.); and
``(C) subchapter II of chapter 53 of title 31, United
States Code.
``(55) Digital commodity.--
``(A) In general.--The term `digital commodity'
means--
``(i) any unit of a digital asset held by a
person, other than a digital asset issuer, a
related person, or an affiliated person, before
the first date on which each blockchain system
to which the digital asset relates is a
functional network and certified to be a
decentralized network under section 44 of the
Securities Exchange Act of 1934, that was--
``(I) issued to the person through an
end user distribution described under
section 42(d)(1) of the Securities
Exchange Act of 1934; or
``(II) acquired by such person in a
transaction that was executed on a
digital commodity exchange; or
``(ii) any unit of a digital asset held by a
person, other than a digital asset issuer, a
related person, or an affiliated person, after
the first date on which each blockchain system
to which the digital asset relates is a
functional network and certified to be a
decentralized network under section 44 of the
Securities Exchange Act of 1934; and
``(iii) any unit of a digital asset held by a
related person or an affiliated person during
any period when any blockchain system to which
the digital asset relates is a functional
network and certified to be a decentralized
network under section 44 of the Securities
Exchange Act of 1934.
``(B) Exclusion.--The term `digital commodity' does
not include a permitted payment stablecoin.
``(56) Digital commodity broker.--
``(A) In general.--The term `digital commodity
broker' means any person who, in a digital commodity
cash or spot market, is--
``(i) engaged in soliciting or accepting
orders for the purchase or sale of a unit of a
digital commodity from a customer that is not
an eligible contract participant;
``(ii) engaged in soliciting or accepting
orders for the purchase or sale of a unit of a
digital commodity from a customer on or subject
to the rules of a registered entity; or
``(iii) registered with the Commission as a
digital commodity broker.
``(B) Exceptions.--The term `digital commodity
broker' does not include a person solely because the
person--
``(i) enters into a digital commodity
transaction the primary purpose of which is to
make, send, receive, or facilitate payments,
whether involving a payment service provider or
on a peer-to-peer basis; or
``(ii) validates a digital commodity
transaction, operates a node, or engages in
similar activity to participate in
facilitating, operating, or securing a
blockchain system.
``(57) Digital commodity custodian.--The term `digital
commodity custodian' means a bank or trust company in the
business of holding, maintaining, or safeguarding digital
commodities.
``(58) Digital commodity dealer.--
``(A) In general.--The term `digital commodity
dealer' means any person who--
``(i) in digital commodity cash or spot
markets--
``(I) holds itself out as a dealer in
a digital commodity;
``(II) makes a market in a digital
commodity;
``(III) regularly enters into digital
commodity transactions with
counterparties as an ordinary course of
business for its own account; or
``(IV) engages in any activity
causing the person to be commonly known
in the trade as a dealer or market
maker in a digital commodity;
``(ii) regularly enters into any agreement,
contract, or transaction described in
subsection (c)(2)(D)(i) involving a digital
commodity; or
``(iii) is registered with the Commission as
a digital commodity dealer.
``(B) Exception.--The term `digital commodity dealer'
does not include a person solely because the person--
``(i) enters into a digital commodity
transaction with an eligible contract
participant;
``(ii) enters into a digital commodity
transaction on or through a registered digital
commodity exchange;
``(iii) enters into a digital commodity
transaction for the person's own account,
either individually or in a fiduciary capacity,
but not as a part of a regular business;
``(iv) enters into a digital commodity
transaction the primary purpose of which is to
make, send, receive, or facilitate payments,
whether involving a payment service provider or
on a peer-to-peer basis; or
``(v) validates a digital commodity
transaction, operates a node, or engages in
similar activity to participate in
facilitating, operating, or securing a
blockchain system.
``(59) Digital commodity exchange.--The term `digital
commodity exchange' means a trading facility that offers or
seeks to offer a cash or spot market in at least 1 digital
commodity.
``(60) Digital asset-related definitions.--
``(A) Securities act of 1933.--The terms `affiliated
person', `blockchain system', `decentralized governance
system', `decentralized network', `digital asset',
`digital asset issuer', `end user distribution',
`functional network', `permitted payment stablecoin',
`related person', and `restricted digital asset' have
the meaning given the terms, respectively, under
section 2(a) of the Securities Act of 1933 (15 U.S.C.
77b(a)).
``(B) Securities exchange act of 1934.--The terms
`digital asset broker' and `digital asset dealer' have
the meaning given those terms, respectively, under
section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)).
``(61) Mixed digital asset transaction.--The term `mixed
digital asset transaction' has the meaning given that term
under section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)).''.
SEC. 104. DEFINITIONS UNDER THIS ACT.
In this Act:
(1) Definitions under the commodity exchange act.--The terms
``digital commodity'', ``digital commodity broker'', ``digital
commodity dealer'', and ``digital commodity exchange'' have the
meaning given those terms, respectively, under section 1a of
the Commodity Exchange Act (7 U.S.C. 1a).
(2) Definitions under the securities act of 1933.--The terms
``affiliated person'', ``blockchain'', ``blockchain system'',
``blockchain protocol'', ``decentralized network'', ``digital
asset'', ``digital asset issuer'', ``digital asset maturity
date'', ``digital asset trading system'', ``end user
distribution'', ``functional network'', ``permitted payment
stablecoin'', ``restricted digital asset'', ``securities
laws'', and ``source code'' have the meaning given those terms,
respectively, under section 2(a) of the Securities Act of 1933
(15 U.S.C. 77b(a)).
(3) Definitions under the securities exchange act of 1934.--
The terms ``Bank Secrecy Act'', ``digital asset broker'',
``digital asset dealer'', ``digital asset trading system'',
``mixed digital asset transaction'', and ``self-regulatory
organization'' have the meaning given those terms,
respectively, under section 3(a) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)).
SEC. 105. JOINT RULEMAKINGS.
(a) Definitions.--The Commodity Futures Trading Commission and the
Securities and Exchange Commission shall jointly issue rules to further
define the following terms:
(1) The terms ``affiliated person'', ``blockchain'',
``blockchain system'', ``blockchain protocol'', ``decentralized
network'', ``decentralized governance system'', ``digital
asset'', ``digital asset issuer'', ``digital asset maturity
date'', ``end user distribution'', ``functional network'',
``related person'', ``restricted digital asset'', and ``source
code'', as defined under section 2(a) of the Securities Act of
1933.
(2) The term ``mixed digital asset transaction'', as defined
under section 3(a) of the Securities Exchange Act of 1934.
(3) The term ``digital commodity'', as defined under section
1a of the Commodity Exchange Act.
(b) Joint Rulemaking for Exchanges.--The Commodity Futures Trading
Commission and the Securities and Exchange Commission shall jointly
issue rules to exempt persons dually registered with the Commodity
Futures Trading Commission as a digital commodity exchange and with the
Securities and Exchange Commission as a digital asset trading system
from duplicative, conflicting, or unduly burdensome provisions of this
Act, the securities laws, and the Commodity Exchange Act and the rules
thereunder, to the extent such exemption would foster the development
of fair and orderly markets in digital assets, be necessary or
appropriate in the public interest, and be consistent with the
protection of investors.
(c) Joint Rulemaking for Mixed Digital Asset Transactions.--The
Commodity Futures Trading Commission and the Securities and Exchange
Commission shall jointly issue rules applicable to mixed digital asset
transactions under this Act and the amendments made by this Act.
(d) Protection of Self-custody.--
(1) In general.--The Financial Crimes Enforcement Network may
not issue any rule or order that would prohibit a U.S.
individual from--
(A) maintaining a hardware wallet, software wallet,
or other means to facilitate such individual's own
custody of digital assets; or
(B) conducting transactions and self-custody digital
assets for any lawful purpose.
(2) Rule of construction.--Paragraph (1) may not be construed
to limit the ability of Financial Crimes Enforcement Network to
carry out any enforcement authority.
(e) Joint Rulemaking, Procedures, or Guidance for Delisting.--Not
later than 30 days after the date of the enactment of this Act, the
Commodity Futures Trading Commission and the Securities and Exchange
Commission shall jointly issue rules, procedures, or guidance (as
determined appropriate by the Commissions) regarding the process to
delist an asset for trading under sections 106 and 107 of this Act if
the Commissions determine that the listing is inconsistent with the
Commodity Exchange Act, the securities laws (including regulations
under those laws), or this Act.
SEC. 106. NOTICE OF INTENT TO REGISTER FOR DIGITAL COMMODITY EXCHANGES,
BROKERS, AND DEALERS.
(a) In General.--
(1) Notice of intent to register.--Any person may file a
notice of intent to register with the Commodity Futures Trading
Commission (in this subsection referred to as the
``Commission'') as a--
(A) digital commodity exchange, for a person
intending to register as a digital commodity exchange
under section 5i of the Commodity Exchange Act;
(B) digital commodity broker, for a person intending
to register as a digital commodity broker under section
4u of such Act; or
(C) digital commodity dealer, for a person intending
to register as a digital commodity dealer under section
4u of such Act.
(2) Filing.--A person desiring to file a notice of intent to
register under paragraph (1) shall be in compliance with this
section if the person submits to the Commission--
(A) a statement of the nature of the registrations
the filer intends to pursue;
(B) the information required by subsections (b) and
(c).
(b) Disclosure of General Information.--A person filing a notice of
intent to register under subsection (a) shall disclose to the
Commission the following:
(1) Information concerning the management of the person,
including information describing--
(A) the ownership and management of the person;
(B) the financial condition of the person;
(C) affiliated entities; and
(D) potential conflicts of interest.
(2) Information concerning the operations of the person,
including--
(A) any rulebook or other customer order fulfilment
rules;
(B) risk management procedures; and
(C) a description of the product listing process.
(c) Listing Information.--A person filing a notice of intent to
register under subsection (a) shall provide to the Commission and the
Securities and Exchange Commission a detailed description of the
product listing determination made by the person for each asset listed
or offered for trading by the person.
(d) Requirements.--A person filing a notice of intent to register
under subsection (a) shall comply with the following requirements:
(1) Books and records.--The person shall keep their books and
records open to inspection and examination by the Commission.
(2) Customer disclosures.--The person shall disclose to
consumers--
(A) information about the material risks and
characteristics of the assets listed for trading on the
person; and
(B) information about the material risks and
characteristics of the transactions facilitated by the
person.
(3) Customer assets.--
(A) In general.--The person shall--
(i) hold customer money, assets, and property
in a manner to minimize the risk of loss to the
customer or unreasonable delay in customer
access to money, assets, and property of the
customer;
(ii) treat and deal with all money, assets,
and property, including any rights associated
with any such money, assets, or property, of
any customer received as belonging to the
customer;
(iii) segregate all money, assets, and
property received from any customer of the
person from the funds of the person, except
that--
(I) the money, assets, and property
of any customer may be commingled with
that of any other customer, if
separately accounted for; and
(II) the share of the money, assets,
and property, as in the normal course
of business are necessary to margin,
guarantee, secure, transfer, adjust, or
settle a contract of sale of a
commodity asset, may be withdrawn and
applied to do so, including the payment
of commissions, brokerage, interest,
taxes, storage, and other charges
lawfully accruing in connection with
the contract of sale of a digital
commodity.
(B) Additional resources.--
(i) In general.--This section shall not
prevent or be construed to prevent the person
from adding to the customer money, assets, and
property required to be segregated under
subparagraph (A), additional amounts of money,
assets, or property from the account of the
person as the person determines necessary to
prevent the account of a customer from becoming
under-segregated.
(ii) Treatment as customer funds.--Any money,
assets, or property deposited pursuant to
clause (i) shall be considered customer
property within the meaning of this subsection.
(e) Compliance and Enforcement.--
(1) In general.--A person who has filed a notice of intent to
register under this section and is in compliance with this
section shall not be subject to an enforcement action by the
Securities and Exchange Commission for--
(A) listing or offering a digital asset deemed a
security; or
(B) failing to register as a national securities
exchange, broker, dealer, or clearing agency, for
activities related to digital assets deemed a security.
(2) Noncompliance.--Paragraph (1) shall not apply if, after
notice from the Commission and a reasonable opportunity to
correct the deficiency, a person who has submitted a notice of
intent to register is not in compliance with this section.
(3) Anti-fraud and anti-manipulation.--Paragraph (1) shall
not be construed to limit any anti-manipulation, anti-fraud, or
false reporting enforcement authority of the Commission or the
Securities and Exchange Commission.
(4) Delisting.--Paragraph (1) shall not be construed to limit
the authority of the Commission or the Securities and Exchange
Commission to require a person to delist an asset for trading
if the Commission or the Securities and Exchange Commission
determines that the listing is inconsistent with the Commodity
Exchange Act, the securities laws (including regulations under
those laws), or this Act.
(f) Final Registration.--
(1) In general.--A person may not file a notice of intent to
register with the Commission after the Commission has finalized
its rules for the registration of digital commodity exchanges,
digital commodity brokers, or digital commodity dealers, as
appropriate.
(2) Transition to final registration.--
(A) Ongoing deferral for entities registered with the
commission.--Subsection (e)(1) shall continue to apply
to a person who has submitted a notice of intent to
register while the person is registered with the
Commission as a digital commodity exchange, a digital
commodity broker, or a digital commodity dealer, as
appropriate.
(B) End of deferral.--Subsection (e)(1) shall not
apply to a person who has submitted a notice of intent
to register if--
(i) the Commission--
(I) determines that the person has
failed to comply with the requirements
of this section; or
(II) denies the application of the
person to register; or
(ii) the digital commodity exchange, digital
commodity broker, or digital commodity dealer
that filed a notice of intent to register
failed to register as such with the Commission
within 180 days after the Commission finalized
the rules of the Commission for the
registration of digital commodity exchanges,
digital commodity brokers, or digital commodity
dealers, as appropriate.
(g) Liability of the Filer.--It shall be unlawful for any person to
provide false information in support of a filing under this section if
the person knowingly or reasonably should have known that the
information was false.
SEC. 107. NOTICE OF INTENT TO REGISTER FOR DIGITAL ASSET BROKERS,
DEALERS, AND TRADING SYSTEMS.
(a) In General.--
(1) Notice of intent to register.--Any person may file a
notice of intent to register with the Securities and Exchange
Commission (in this section referred to as the ``Commission'')
as--
(A) a digital asset trading system, for a person
intending to register as a digital asset trading system
under section 6(m) of the Securities Exchange Act of
1934;
(B) a digital asset broker, for a person intending to
register as a digital asset broker under section 15H of
the Securities Exchange Act of 1934; or
(C) a digital asset dealer, for a person intending to
register as a digital asset dealer under section 15H of
the Securities Exchange Act of 1934.
(2) Filing.--A person desiring to file a notice of intent to
register under paragraph (1) shall be in compliance with this
section if the person submits to the Commission--
(A) a statement of the nature of the registrations
the filer intends to pursue; and
(B) the information required by subsections (b) and
(c).
(b) Disclosure of General Information.--A person filing a notice of
intent to register under subsection (a) shall disclose to the
Commission the following:
(1) Information concerning the management of the person,
including information describing--
(A) the ownership and management of the person;
(B) the financial condition of the person;
(C) affiliated entities; and
(D) potential conflicts of interest.
(2) Information concerning the operations of the person,
including--
(A) any rulebook or other customer order fulfilment
rules;
(B) risk management procedures; and
(C) a description of the product listing process.
(c) Listing Information.--A person filing a notice of intent to
register under subsection (a) shall provide to the Commission and the
Commodity Futures Trading Commission a detailed description of the
product listing determination made by the person for each asset listed
or offered for trading by the person.
(d) Requirements.--A person filing a notice of intent to register
under subsection (a) shall comply with the following requirements:
(1) National securities association.--The person shall be a
member of a national securities association registered under
section 15A of the Securities Exchange Act of 1934 (15 U.S.C.
78o-3), and shall comply with the rules of the association,
including the rules of the association pertaining to customer
disclosures and protection of customer assets.
(2) Books and records.--The person shall keep their books and
records open to inspection and examination by the Commission.
(3) Customer disclosures.--The person shall disclose to
customers--
(A) information about the material risks and
characteristics of the assets listed for trading on the
person;
(B) information about the material risks and
characteristics of the transactions facilitated by the
person; and
(C) in their disclosure documents, offering
documents, and promotional material, in a prominent
manner, that they are not registered with or regulated
by the Commission.
(4) Customer assets.--
(A) In general.--The person shall--
(i) hold customer money, assets, and property
in a manner to minimize the risk of loss to the
customer or unreasonable delay in customer
access to money, assets, and property of the
customer;
(ii) treat and deal with all money, assets,
and property, including any rights associated
with any such money, assets, or property, of
any customer received as belonging to the
customer;
(iii) segregate all money, assets, and
property received from any customer of the
person from the funds of the person, except
that--
(I) the money, assets, and property
of any customer may be commingled with
that of any other customer, if
separately accounted for; and
(II) the share of the money, assets,
and property, as in the normal course
of business are necessary to margin,
guarantee, secure, transfer, adjust, or
settle a contract of sale of a digital
asset, may be withdrawn and applied to
do so, including the payment of
commissions, brokerage, interest,
taxes, storage, and other charges
lawfully accruing in connection with
the contract of sale of a digital
asset.
(B) Additional resources.--
(i) In general.--This section shall not
prevent or be construed to prevent the person
from adding to the customer money, assets, and
property required to be segregated under
subparagraph (A) additional amounts of money,
assets, or property from the account of the
person as the person determines necessary to
hold money, assets, or property equal to or in
excess of the total digital asset obligation of
the person.
(ii) Treatment as customer funds.--Any money,
assets, or property deposited pursuant to
clause (i) shall be considered customer
property within the meaning of this subsection.
(e) Compliance.--
(1) In general.--A person who has filed a notice of intent to
register under this section and is in compliance with this
section shall be exempt from Commission rules and regulations
pertaining to registering as a national securities exchange,
broker, dealer, or clearing agency, for activities related to a
digital asset deemed a security.
(2) Noncompliance.--Paragraph (1) shall not apply if, after
notice from the Commission and a reasonable opportunity to
correct the deficiency, a person who has submitted a notice of
intent to register is not in compliance with this section.
(3) Anti-fraud and anti-manipulation.--Paragraph (1) shall
not be construed to limit any fraud, anti-manipulation, or
false reporting enforcement authority of the Commission or the
Commodity Futures Trading Commission.
(4) Delisting.--Paragraph (1) shall not be construed to limit
the authority of the Commission and the Commodity Futures
Trading Commission to jointly require a person to delist an
asset for trading if the Commission and the Commodity Futures
Trading Commission determines that the listing is inconsistent
with the Commodity Exchange Act, the securities laws (including
regulations under those laws), or this Act.
(f) Final Registration.--
(1) In general.--A person may not file a notice of intent to
register with the Commission after the Commission has finalized
its rules for the registration of digital asset brokers,
digital asset dealers, digital asset trading systems, and
notice-registered clearing agencies, as appropriate.
(2) Transition to final registration.--Subsection (e)(1)
shall not apply to a person who has submitted a notice of
intent to register if--
(A) the Commission--
(i) determines that the person has failed to
comply with the requirements of this section;
or
(ii) denies the application of the person to
register; or
(B) the digital asset broker, digital asset dealer,
or digital asset trading system that filed a notice of
intent to register failed to apply for registration as
such with the Commission within 180 days after the
effective date of the Commission's final rules for the
registration of digital asset brokers, digital asset
dealers, and digital asset trading systems, as
appropriate.
(g) Liability of the Filer.--It shall be unlawful for any person to
provide false information in support of a filing under this section if
the person knew or reasonably should have known that the information
was false.
(h) National Securities Association.--A national securities
association shall adopt rules for membership with such association for
persons required to be members of such association under subsection
(d)(1) within 180 days after the date of enactment of this Act.
SEC. 108. COMMODITY EXCHANGE ACT SAVINGS PROVISIONS.
(a) In General.--Nothing in this Act shall affect or apply to, or be
interpreted to affect or apply to--
(1) any agreement, contract, or transaction that is subject
to regulation under the Commodity Exchange Act as--
(A) a contract of sale of a commodity for future
delivery or an option on such a contract;
(B) a swap;
(C) a security futures product;
(D) an option authorized under section 4c of such
Act;
(E) an agreement, contract, or transaction described
in section 2(c)(2)(C)(i) of such Act; or
(F) a leverage transaction authorized under section
19 of such Act; or
(2) the activities of any person with respect to any such
agreement, contract, or transaction.
(b) Prohibitions on Spot Digital Commodity Entities.--Nothing in this
Act authorizes, or shall be interpreted to authorize, a digital
commodity exchange, digital commodity broker, or digital commodity
dealer to engage in any activities involving any transaction, contract,
or agreement described in subsection (a)(1), solely by virtue of being
registered or filing notice of intent to register as a digital
commodity exchange, digital commodity broker, or digital commodity
dealer.
(c) Definitions.--In this section, each term shall have the meaning
provided in the Commodity Exchange Act or the regulations prescribed
under such Act.
SEC. 109. INTERNATIONAL HARMONIZATION.
In order to promote effective and consistent global regulation of
digital assets, the Commodity Futures Trading Commission and the
Securities and Exchange Commission, as appropriate--
(1) shall consult and coordinate with foreign regulatory
authorities on the establishment of consistent international
standards with respect to the regulation of digital assets,
restricted digital assets, and digital commodities; and
(2) may agree to such information-sharing arrangements as may
be deemed to be necessary or appropriate in the public interest
or for the protection of investors, customers, and users of
digital assets.
SEC. 110. IMPLEMENTATION.
(a) Global Rulemaking Timeframe.--Unless otherwise provided in this
Act or an amendment made by this Act, the Commodity Futures Trading
Commission and the Securities and Exchange Commission, or both, shall
individually, and jointly where required, promulgate rules and
regulations required of each Commission under this Act or an amendment
made by this Act not later than 360 days after the date of enactment of
this Act.
(b) Rules and Registration Before Final Effective Dates.--
(1) In general.--In order to prepare for the implementation
of this Act, the Commodity Futures Trading Commission and the
Securities and Exchange Commission may, before any effective
date provided in this Act--
(A) promulgate rules, regulations, or orders
permitted or required by this Act;
(B) conduct studies and prepare reports and
recommendations required by this Act;
(C) register persons under this Act; and
(D) exempt persons, agreements, contracts, or
transactions from provisions of this Act, under the
terms contained in this Act.
(2) Limitation on effectiveness.--An action by the Commodity
Futures Trading Commission or the Securities and Exchange
Commission under paragraph (1) shall not become effective
before the effective date otherwise applicable to the action
under this Act.
TITLE II-- OFFERS AND SALES OF DIGITAL ASSETS
SEC. 201. EXEMPTED TRANSACTIONS IN DIGITAL ASSETS.
(a) In General.--The Securities Act of 1933 (15 U.S.C. 77a et seq.)
is amended--
(1) in section 4(a), by adding at the end the following:
``(8) transactions involving the offer or sale of units of a
digital asset by a digital asset issuer, if--
``(A) the aggregate amount of units of the digital
asset sold by the digital asset issuer in reliance on
the exemption provided under this paragraph, during the
12-month period preceding the date of such transaction,
including the amount sold in such transaction, is not
more than $75,000,000 (as such amount is annually
adjusted by the Commission to reflect the change in the
Consumer Price Index for All Urban Consumers published
by the Bureau of Labor Statistics of the Department of
Labor);
``(B) with respect to a transaction involving the
purchase of units of a digital asset by a person who is
not an accredited investor, the aggregate amount of all
units of digital assets purchased by such person during
the 12-month period preceding the date of such
transaction, including the unit of a digital asset
purchased in such transaction, does not exceed the
greater of--
``(i) 10 percent of the person's annual
income or joint income with that person's
spouse or spousal equivalent; or
``(ii) 10 percent of the person's net worth
or joint net worth with the person's spouse or
spousal equivalent;
``(C) after the completion of the transaction, the
purchaser does not own more than 10 percent of the
total amount of the units of the digital asset sold in
reliance on the exemption under this paragraph;
``(D) the transaction does not involve the offer or
sale of any digital asset not offered as part of an
investment contract;
``(E) the transaction does not involve the offer or
sale of a unit of a digital asset by a digital asset
issuer that--
``(i) is not organized under the laws of a
State, a territory of the United States, or the
District of Columbia;
``(ii) is a development stage company that
either--
``(I) has no specific business plan
or purpose; or
``(II) has indicated that the
business plan of the company is to
merge with or acquire an unidentified
company;
``(iii) is an investment company, as defined
in section 3 of the Investment Company Act of
1940 (15 U.S.C. 80a-3), or is excluded from the
definition of investment company by section
3(b) or section 3(c) of that Act (15 U.S.C.
80a-3(b) or 80a-3(c));
``(iv) is issuing fractional undivided
interests in oil or gas rights, or a similar
interest in other mineral rights;
``(v) is, or has been, subject to any order
of the Commission entered pursuant to section
12(j) of the Securities Exchange Act of 1934
during the 5-year period before the filing of
the offering statement; or
``(vi) is disqualified pursuant to section
230.262 of title 17, Code of Federal
Regulations; and
``(F) the issuer meets the requirements of section
4B(a).''; and
(2) by inserting after section 4A the following:
``SEC. 4B. REQUIREMENTS WITH RESPECT TO CERTAIN DIGITAL ASSET
TRANSACTIONS.
``(a) Requirements for Digital Asset Issuers.--
``(1) Information required in statement.--A digital asset
issuer offering or selling a unit of digital asset in reliance
on section 4(a)(8) shall file with the Commission a statement
containing the following information:
``(A) The name, legal status (including the
jurisdiction in which the issuer is organized and the
date of organization), and website of the digital asset
issuer.
``(B) The address and telephone number of the issuer
or a legal representative of the issuer.
``(C) A certification that the digital asset issuer
meets the relevant requirements described under section
4(a)(8).
``(D) An overview of the material aspects of the
offering.
``(E) A description of the purpose and intended use
of the offering proceeds.
``(F) A description of the plan of distribution of
any unit of a digital asset that is to be offered.
``(G) A description of the material risks surrounding
ownership of a unit of a digital asset.
``(H) A description of the material aspects of the
digital asset issuer's business.
``(I) A description of exempt offerings conducted
within the past three years by the digital asset
issuer.
``(J) A description of the digital asset issuer and
the current number of employees of the digital asset
issuer.
``(K) A description of any material transactions or
relationships between the digital asset issuer and
affiliated persons.
``(L) A description of exempt offerings conducted
within the past three years.
``(2) Information required for purchasers.--A digital asset
issuer shall disclose the information described under section
43 of the Securities Exchange Act of 1934 on a freely
accessible public website.
``(3) Ongoing disclosure requirements.--A digital asset
issuer that has filed a statement under paragraph (1) to offer
and sell a unit of a digital asset in reliance on section
4(a)(8) shall file the following with the Commission:
``(A) Annual reports.--An annual report that includes
any material changes to the information described under
paragraph (2) for the current fiscal year and for any
fiscal year thereafter, unless the issuer is no longer
obligated to file such annual report pursuant to
paragraph (4).
``(B) Semiannual reports.--Along with each annual
report required under subparagraph (A), and separately
six months thereafter, a report containing--
``(i) an updated description of the current
state and timeline for the development of the
blockchain system to which the digital asset
relates, showing how and when the blockchain
system intends or intended to be considered a
functional network and a decentralized network;
``(ii) the amount of money raised by the
digital asset issuer in reliance on section
4(a)(8), how much of that money has been spent,
and the general categories and amounts on which
that money has been spent; and
``(iii) any material changes to the
information in the most recent annual report.
``(C) Current reports.--A current report shall be
filed with the Commission reflecting any material
changes to the information previously reported to the
Commission by the digital asset issuer.
``(4) Termination of reporting requirements.--
``(A) In general.--The ongoing reporting requirements
under paragraph (3) shall not apply to a digital asset
issuer 180 days after the end of the covered fiscal
year.
``(B) Covered fiscal year defined.--In this
paragraph, the term `covered fiscal year' means the
first fiscal year of an issuer in which the blockchain
system to which the digital asset relates is a
functional network and certified to be a decentralized
network under section 44 of the Securities Exchange Act
of 1934.
``(b) Requirements for Intermediaries.--
``(1) In general.--A person acting as an intermediary in a
transaction involving the offer or sale of a unit of a digital
asset in reliance on section 4(a)(8) shall--
``(A) register with the Commission as a digital asset
broker; and
``(B) be a member of a national securities
association registered under section 15A of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3).
``(2) Purchaser qualification.--
``(A) In general.--Each time, before accepting any
commitment (including any additional commitment from
the same person), an intermediary or digital asset
issuer shall have a reasonable basis for believing that
the purchaser satisfies the requirements of section
4(a)(8).
``(B) Reliance on purchaser's representations.--For
purposes of subparagraph (A), an intermediary or
digital asset issuer may rely on a purchaser's
representations concerning the purchaser's annual
income and net worth and the amount of the purchaser's
other investments made, unless the intermediary or
digital asset issuer has reason to question the
reliability of the representation.
``(C) Reliance on intermediary.--For purposes of
determining whether a transaction meets the
requirements described under subparagraph (A) through
(C) of section 4(a)(8), a digital asset issuer may rely
on the efforts of an intermediary.
``(c) Additional Provisions.--
``(1) Acceptance of written offers; sales.--After an issuer
files a statement under paragraph (1) to offer and sell a
digital asset in reliance on section 4(a)(8)--
``(A) written offers of the digital asset may be
made; and
``(B) the issuer may sell the digital assets in
reliance on section 4(a)(8), if such sales meet all
other requirements.
``(2) Solicitation of interest.--
``(A) In general.--At any time before the filing of a
statement under paragraph (1), a digital asset issuer
may communicate orally or in writing to determine
whether there is any interest in a contemplated
offering. Such communications are deemed to be an offer
of a unit of a digital asset for sale for purposes of
the anti-fraud provisions of the Federal securities
laws. No solicitation or acceptance of money or other
consideration, nor of any commitment, binding or
otherwise, from any person is permitted until the
statement is filed.
``(B) Conditions.--In any communication described
under subparagraph (A), the digital asset issuer
shall--
``(i) state that no money or other
consideration is being solicited, and if sent
in response, will not be accepted;
``(ii) state that no offer to buy a unit of a
digital asset can be accepted and no part of
the purchase price can be received until the
statement is filed and then only through an
intermediary; and
``(iii) state that a person's indication of
interest involves no obligation or commitment
of any kind.
``(C) Indications of interest.--Any written
communication described under subparagraph (A) may
include a means by which a person may indicate to the
digital asset issuer that such person is interested in
a potential offering. A digital asset issuer may
require a name, address, telephone number, or email
address in any response form included with a
communication described under subparagraph (A).
``(3) Disqualification provisions.--The Commission shall
issue rules to apply the disqualification provisions under
section 230.262 of title 17, Code of Federal Regulations, to
the exemption provided under section 4(a)(8).
``(4) Digital assets deemed restricted digital asset.--A unit
of a digital asset acquired directly or indirectly from the
digital asset issuer in reliance on the exemption provided
under section 4(a)(8) is deemed a restricted digital asset.''.
(b) Additional Exemptions.--
(1) Certain registration requirements.--Section 12(g)(6) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(6)) is
amended by striking ``under section 4(6)'' and inserting
``under section 4(a)(6) or 4(a)(8)''.
(2) Exemption from state regulation.--Section 18(b)(4) of the
Securities Act of 1933 (15 U.S.C. 77r(b)(4)) is amended--
(A) in section (B), by striking ``section 4(4)'' and
inserting ``section 4(a)(4)'';
(B) in section (C), by striking ``section 4(6)'' and
inserting ``section 4(a)(6)'';
(C) in subparagraph (F)--
(i) by striking ``section 4(2)'' each place
such term appears and inserting ``section
4(a)(2)'';
(ii) by striking ``or'' at the end;
(D) in subparagraph (G), by striking the period and
inserting ``; or''; and
(E) by adding at the end the following:
``(H) section 4(a)(8).''.
SEC. 202. REQUIREMENTS FOR OFFERS AND SALES OF CERTAIN DIGITAL ASSETS.
Title I of the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.) is amended by adding at the end the following:
``SEC. 42. REQUIREMENTS FOR OFFERS AND SALES OF CERTAIN DIGITAL ASSETS.
``(a) Offers and Sales of Certain Restricted Digital Assets.--
``(1) In general.--Notwithstanding any other provision of
law, subject to paragraph (2), a restricted digital asset may
be offered and sold on a digital asset trading system by any
person other than a digital asset issuer if, at the time of
such offer or sale, any blockchain system to which the
restricted digital asset relates is a functional network and
the information described in section 43 has been certified and
made publicly available for any blockchain system to which the
restricted digital asset relates.
``(2) Additional rules for related persons and affiliated
persons.--Except as provided under subsection (c), a restricted
digital asset owned by a related person or an affiliated person
may only be offered or sold after 12 months after the later
of--
``(A) the date on which such restricted digital asset
was acquired; or
``(B) the digital asset maturity date.
``(b) Offers and Sales of Certain Digital Commodities.--
``(1) In general.--Subject to paragraph (2), a digital
commodity may be offered and sold by any person.
``(2) Rules for related and affiliated persons.--Except as
provided under subsection (c), a digital commodity may only be
offered or sold by a related person or an affiliated person
if--
``(A) the holder of the digital commodity owned the
digital commodity while it was a restricted digital
asset for 12 months after the later of--
``(i) the date on which such restricted
digital asset was acquired; or
``(ii) the digital asset maturity date;
``(B) any blockchain system to which the digital
commodity relates is certified to be a decentralized
network under section 44; and
``(C) the digital commodity is offered or sold on or
subject to the rules of a digital commodity exchange
registered under section 5i of the Commodity Exchange
Act.
``(3) Not an investment contract.--For purposes of the
securities laws, an offer or sale of a digital commodity that
does not violate paragraph (2) shall not be a transaction in an
investment contract.
``(c) Sales Restrictions for Affiliated Persons.--A digital asset may
be offered and sold by an affiliated person under subsection (a) or (b)
if--
``(1) the aggregate amount of such digital assets sold in any
3-month period by the affiliated person is not greater than one
percent of the digital assets then outstanding; or
``(2) the affiliated person promptly, following the placement
of an order to sell one percent or more of the digital assets
then outstanding during any 3-month period, reports the sale
to--
``(A) the Commodity Futures Trading Commission, in
the case of an order to sell a digital commodity on or
subject to the rules of a digital commodity exchange;
or
``(B) the Securities and Exchange Commission, in the
case of a sell order for a restricted digital asset
placed with a digital asset trading system.
``(d) Treatment of Certain End User Distributions Under the
Securities Laws.--
``(1) In general.--With respect to a digital asset, an end
user distribution is described under this paragraph if--
``(A) each blockchain system to which such digital
asset relates is a functional network; and
``(B) with respect to the digital asset and each
blockchain system to which such digital asset relates,
the information described in section 43 has been
certified and made publicly available.
``(2) Not an investment contract.--For purposes of the
securities laws, an end user distribution described under
paragraph (1) shall not be a transaction in an investment
contract.
``(3) Exemption.--Section 5 of the Securities Act of 1933 (15
U.S.C. 77e) shall not apply to an end user distribution
described under paragraph (1) or a transaction in a unit of
digital asset issued in such a distribution.''.
SEC. 203. ENHANCED DISCLOSURE REQUIREMENTS.
Title I of the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.), as amended by section 202, is further amended by adding at the
end the following:
``SEC. 43. ENHANCED DISCLOSURE REQUIREMENTS WITH RESPECT TO DIGITAL
ASSETS.
``(a) Disclosure Information.--With respect to a digital asset and
any blockchain system to which the digital asset relates, the
information described under this section is as follows:
``(1) Source code.--The source code for any blockchain system
to which the digital asset relates.
``(2) Transaction history.--A description of the steps
necessary to independently access, search, and verify the
transaction history of any blockchain system to which the
digital asset relates.
``(3) Digital asset economics.--A description of the purpose
of any blockchain system to which the digital asset relates and
the operation of any such blockchain system, including--
``(A) information explaining the launch and supply
process, including the number of digital assets to be
issued in an initial allocation, the total number of
digital assets to be created, the release schedule for
the digital assets, and the total number of digital
assets then outstanding;
``(B) information on any applicable consensus
mechanism or process for validating transactions,
method of generating or mining digital assets, and any
process for burning or destroying digital assets on the
blockchain system;
``(C) an explanation of governance mechanisms for
implementing changes to the blockchain system or
forming consensus among holders of such digital assets;
and
``(D) sufficient information for a third party to
create a tool for verifying the transaction history of
the digital asset.
``(4) Plan of development.--The current state and timeline
for the development of any blockchain system to which the
digital asset relates, showing how and when the blockchain
system intends or intended to be considered a functional
network and decentralized network.
``(5) Development disclosures.--A list of all persons who are
related persons or affiliated persons who have been issued a
unit of a digital asset by a digital asset issuer or have a
right to a unit of a digital asset from a digital asset issuer.
``(6) Risk factor disclosures.--Where appropriate, provide
under the caption `Risk Factors' a description of the material
risks surrounding ownership of a unit of a digital asset. This
discussion shall be organized logically with relevant headings
and each risk factor shall be set forth under a subcaption that
adequately describes the risk.
``(b) Certification.--With respect to a digital asset and any
blockchain system to which the digital asset relates, the information
required to be made available under this section has been certified if
the digital asset issuer, an affiliated person, a decentralized
governance system, or a digital commodity exchange certifies on a
quarterly basis to the Commodity Futures Trading Commission and the
Securities and Exchange Commission that the information is true and
correct.''.
SEC. 204. CERTIFICATION OF CERTAIN DIGITAL ASSETS.
Title I of the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.), as amended by section 203, is further amended by adding at the
end the following:
``SEC. 44. CERTIFICATION OF CERTAIN DIGITAL ASSETS.
``(a) Certification.--Any person may certify to the Securities and
Exchange Commission that the blockchain system to which a digital asset
relates is a decentralized network.
``(b) Filing Requirements.--A certification described under
subsection (a) shall be filed with the Commission, and include--
``(1) information regarding the person making the
certification;
``(2) a description of the blockchain system and the digital
asset which relates to such blockchain system, including--
``(A) the operation of the blockchain system;
``(B) the functionality of the related digital asset;
``(C) any decentralized governance system which
relates to the blockchain system; and
``(D) the process to develop consensus or agreement
within such decentralized governance system;
``(3) a description of the development of the blockchain
system and the digital asset which relates to the blockchain
system, including--
``(A) a history of the development of the blockchain
system and the digital asset which relates to such
blockchain system;
``(B) a description of the issuance process for the
digital asset which relates to the blockchain system;
``(C) information identifying the digital asset
issuer of the digital asset which relates to the
blockchain system; and
``(D) a list of any affiliated person related to the
digital asset issuer;
``(4) an analysis of the factors on which such person based
the certification that the blockchain system is a decentralized
network, including--
``(A) an explanation of the protections and
prohibitions available during the previous 12 months
against any one person being able to--
``(i) control or materially alter the
blockchain system;
``(ii) exclude any other person from using or
participating on the blockchain system; and
``(iii) exclude any other person from
participating in a decentralized governance
system;
``(B) information regarding the beneficial ownership
of the digital asset which relates to such blockchain
system and the distribution of voting power in any
decentralized governance system during the previous 12
months;
``(C) information regarding the history of upgrades
to the source code for such blockchain system during
the previous 3 months, including--
``(i) a description of any consensus or
agreement process utilized to process or
approve changes to the source code;
``(ii) a list of any material changes to the
source code, the purpose and effect of the
changes, and the contributor of the changes, if
known; and
``(iii) any changes to the source code made
by the digital asset issuer, a related person,
or an affiliated person;
``(D) information regarding any activities conducted
to market the digital asset which relates to the
blockchain system during the previous 3 months by the
digital asset issuer or an affiliated person of the
digital asset issuer; and
``(E) information regarding any issuance of a unit of
the digital asset which relates to such blockchain
system during the previous 12 months; and
``(5) with respect to a blockchain system for which a
certification has previously been rebutted under this section
or withdrawn under section 5i(m) of the Commodity Exchange Act,
specific information relating to the analysis provided in
subsection (f)(2) in connection with such rebuttal or such
section 5i(m)(1)(C) in connection with such withdrawal.
``(c) Rebuttable Presumption.--The Commission may rebut a
certification described under subsection (a) with respect to a
blockchain system if the Commission, within 60 days of receiving such
certification, determines that the blockchain system is not a
decentralized network.
``(d) Certification Review.--
``(1) In general.--Any blockchain system that relates to a
digital asset for which a certification has been made under
subsection (a) shall be considered a decentralized network 60
days after the date on which the Commission receives a
certification under subsection (a), unless the Commission
notifies the person who made the certification within such time
that the Commission is staying the certification due to--
``(A) an inadequate explanation by the person making
the certification; or
``(B) any novel or complex issues which require
additional time to consider.
``(2) Public notice.--The Commission shall make the following
available to the public and provide a copy to the Commodity
Futures Trading Commission:
``(A) Each certification received under subsection
(a).
``(B) Each stay of the Commission under this section,
and the reasons therefore.
``(C) Any response from a person making a
certification under subsection (a) to a stay of the
certification by the Commission.
``(3) Consolidation.--The Commission may consolidate and
treat as one submission multiple certifications made under
subsection (a) for the same blockchain system which relates to
a digital asset which are received during the review period
provided under this subsection.
``(e) Stay of Certification.--
``(1) In general.--A notification by the Commission pursuant
to subsection (d)(1) shall stay the certification once for up
to an additional 120 days from the date of the notification.
``(2) Public comment period.--Before the end of the 60-day
period described under subsection (d)(1), the Commission may
begin a public comment period of at least 30 days in
conjunction with a stay under this section.
``(f) Disposition of Certification.--
``(1) In general.--A certification made under subsection (a)
shall--
``(A) become effective--
``(i) upon the publication of a notification
from the Commission to the person who made the
certification that the Commission does not
object to the certification; or
``(ii) at the expiration of the certification
review period; and
``(B) not become effective upon the publication of a
notification from the Commission to the person who made
the certification that the Commission has rebutted the
certification.
``(2) Detailed analysis included with rebuttal.--The
Commission shall include, with each publication of a
notification of rebuttal described under paragraph (1)(B), a
detailed analysis of the factors on which the decision was
based.
``(g) Recertification.--With respect to a blockchain system for which
a certification has been rebutted under this section, no person may
make a certification under subsection (a) with respect to such
blockchain system during the 90-day period beginning on the date of
such rebuttal.
``(h) Appeal of Rebuttal.--
``(1) In general.--If a certification is rebutted under this
section, the person making such certification may appeal the
decision to the United States Court of Appeals for the District
of Columbia, not later than 60 days after the notice of
rebuttal is made.
``(2) Review.--In an appeal under paragraph (1), the court
shall have de novo review of the determination to rebut the
certification.
``(i) Liability for Providing False Information.--It shall be
unlawful for any person to provide false information in support of a
certification under this section if such person knew or reasonably
should have known such information was false.''.
SEC. 205. EFFECTIVE DATE.
Unless otherwise provided in this title, this title and the
amendments made by this title shall take effect 360 days after the date
of enactment of this Act, except that, to the extent a provision of
this title requires a rulemaking, the provision shall take effect on
the later of--
(1) 360 days after the date of enactment of this Act; or
(2) 60 days after the publication in the Federal Register of
the final rule implementing the provision.
TITLE III--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
SECURITIES AND EXCHANGE COMMISSION
SEC. 301. TREATMENT OF DIGITAL COMMODITIES AND OTHER DIGITAL ASSETS.
(a) Securities Act of 1933.--Section 2(a)(1) of the Securities Act of
1933 (15 U.S.C. 77b(a)(1)) is amended by adding at the end the
following: ``The term does not include a digital commodity or permitted
payment stablecoin.''.
(b) Securities Exchange Act of 1934.--Section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended--
(1) in paragraph (1), by adding at the end the following:
``The term `exchange' does not include a digital asset trading
system, blockchain protocol, or any person or group of persons
solely because of their development of a blockchain
protocol.'';
(2) in paragraph (2), by adding at the end the following: ``A
digital asset trading system is not a `facility' of an
exchange.'';
(3) in paragraph (4)(A), by inserting ``, other than
restricted digital assets,'' after ``securities'';
(4) in paragraph (5)(A), by inserting ``restricted digital
assets or'' after ``not including'';
(5) in paragraph (26) by inserting ``(other than a notice-
registered digital asset clearing agency)'' after ``or
registered clearing agency'';
(6) in paragraph (28) by inserting ``(other than a notice-
registered digital asset clearing agency)'' after ``registered
clearing agency''; and
(7) in paragraph (10), by adding at the end the following:
``Subject to subsection (i), the term does not include a
digital commodity or permitted payment stablecoin.''.
(c) Investment Advisers Act of 1940.--Section 202(a) of the
Investment Advisers Act of 1940 (15 U.S.C. 80b-2) is amended--
(1) in paragraph (18), by adding at the end the following:
``The term does not include a digital commodity or permitted
payment stablecoin.'';
(2) by redesignating the second paragraph (29) (relating to
commodity pools) as paragraph (31);
(3) by adding at the end, the following:
``(32) Digital asset-related terms.--The terms `digital
commodity' and `permitted payment stablecoin' have the meaning
given those terms, respectively, under section 2(a) of the
Securities Act of 1933 (15 U.S.C. 77b(a)).''.
(d) Investment Company Act of 1940.--Section 2(a) of the Investment
Company Act of 1940 (15 U.S.C. 80a-2) is amended--
(1) in paragraph (36), by adding at the end the following:
``The term does not include a digital commodity or permitted
payment stablecoin.''; and
(2) by adding at the end, the following:
``(55) Digital asset-related terms.--The terms `digital
commodity' and `permitted payment stablecoin' have the meaning
given those terms, respectively, under section 2(a) of the
Securities Act of 1933 (15 U.S.C. 77b(a)).''.
SEC. 302. ANTI-FRAUD AUTHORITY OVER PERMITTED PAYMENT STABLECOINS.
(a) In General.--Section 10 of the Securities Exchange Act of 1934
(15 U.S.C. 78j) is amended--
(1) by moving subsection (c) so as to appear after subsection
(b);
(2) by designating the undesignated matter at the end of that
section as subsection (d); and
(3) by adding at the end the following:
``(e)(1) Rules promulgated under subsection (b) that prohibit fraud,
manipulation, or insider trading (but not rules imposing or specifying
reporting or recordkeeping requirements, procedures, or standards as
prophylactic measures against fraud, manipulation, or insider trading),
and judicial precedents decided under subsection (b) and rules
promulgated thereunder that prohibit fraud, manipulation, or insider
trading, shall apply to permitted payment stablecoins with respect to
those circumstances in which the permitted payment stablecoins are
brokered, traded, or custodied by a broker, dealer, digital asset
broker, or digital asset dealer or through an alternative trading
system or digital asset trading platform to the same extent as they
apply to securities.
``(2) Judicial precedents decided under section 17(a) of the
Securities Act of 1933 and sections 9, 15, 16, 20, and 21A of this
title, and judicial precedents decided under applicable rules
promulgated under such sections, shall apply to permitted payment
stablecoins with respect to those circumstances in which the permitted
payment stablecoins are brokered, traded, or custodied by a digital
asset broker, digital asset dealer, or digital asset trading system to
the same extent as they apply to securities.
``(3) Nothing in this subsection may be construed to provide the
Commission authority to make any rule, regulation, requirement, or
obligation on a permitted payment stablecoin issuer regarding the
operations of a permitted payment stablecoin issuer or a permitted
payment stablecoin, including any aspect of the operation of a
permitted payment stablecoin issuer or permitted payment stablecoin.''.
(b) Treatment of Permitted Payment Stablecoins.--Title I of the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), as amended by
section 304, is amended by inserting after section 6B the following
``SEC. 6C. TREATMENT OF TRANSACTIONS IN PERMITTED PAYMENT STABLECOINS.
``(a) Authority to Broker, Trade, and Custody Permitted Payment
Stablecoins.--Permitted payment stablecoins may be brokered, traded, or
custodied by a broker, dealer, digital asset broker, or digital asset
dealer or through an alternative trading system or digital asset
trading platform.
``(b) Commission Jurisdiction.--The Commission shall have
jurisdiction over a transaction in a permitted payment stablecoin with
respect to those circumstances in which a permitted payment stablecoin
is brokered, traded, or custodied--
``(1) by a broker, dealer, digital asset broker, or digital
asset dealer; or
``(2) through an alternative trading system or digital asset
trading system.
``(c) Limitation.--Subsection (b) shall only apply to a transaction
described in subsection (b) for the purposes of regulating the offer,
execution, solicitation, or acceptance of a permitted payment
stablecoin in those circumstances in which the permitted payment
stablecoin is brokered, traded, or custodied--
``(1) by a broker, dealer, digital asset broker, or digital
asset dealer; or
``(2) through an alternative trading system or digital asset
trading system.''.
SEC. 303. REGISTRATION OF DIGITAL ASSET TRADING SYSTEMS.
Section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) is
amended by adding at the end the following:
``(m) Digital Asset Trading System.--
``(1) In general.--It shall be unlawful for any digital asset
trading system to make use of the mails or any means or
instrumentality of interstate commerce within or subject to the
jurisdiction of the United States to effect any transaction in
a restricted digital asset, unless such digital asset trading
system is registered with the Commission.
``(2) Application.--A person desiring to register as a
digital asset trading system shall submit to the Commission an
application in such form and containing such information as the
Commission may require for the purpose of making the
determinations required for approval.
``(3) Exemptions.--A digital asset trading system that offers
or seeks to offer at least one restricted digital asset shall
not be required to register under this section (and
subparagraph (A) shall not apply to such digital asset trading
system) if the trading system satisfies any exemption contained
on a list of exemptions prepared by the Commission to be as
close as practicable to those exemptions set forth in section
240.3b-16(b) of title 17, Code of Federal Regulations,
applicable to the definition of an exchange.
``(4) Additional registrations.--
``(A) With the commission.--
``(i) In general.--A registered digital asset
trading system shall be permitted to maintain
any other registration with the Commission
relating to the other activities of the
registered digital asset trading system,
including as a--
``(I) national securities exchange;
``(II) broker;
``(III) dealer;
``(IV) alternative trading system,
pursuant to part 242 of title 17, Code
of Federal Regulations, as in effect on
the date of enactment of this
subsection;
``(V) digital asset broker; or
``(VI) digital asset dealer.
``(ii) Rulemaking.--The Commission shall
prescribe rules for an entity with multiple
registrations described under subparagraph (A)
to exempt the entity from duplicative,
conflicting, or unduly burdensome provisions of
this Act and the rules under this Act, to the
extent such an exemption would protect
investors, maintain fair, orderly, and
efficient markets, and facilitate capital
formation.
``(B) With the commodity futures trading
commission.--A registered digital asset trading system
shall be permitted to maintain a registration with the
Commodity Futures Trading Commission as a digital
commodity exchange to offer contracts of sale for
digital commodities.''.
SEC. 304. REQUIREMENTS FOR DIGITAL ASSET TRADING SYSTEMS.
Title I of the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.) is amended by inserting after section 6 the following:
``SEC. 6A. REQUIREMENTS FOR DIGITAL ASSET TRADING SYSTEMS.
``(a) Holding of Customer Assets.--
``(1) In general.--A digital asset trading system shall hold
customer money, assets, and property in a manner to minimize
the risk of loss to the customer or unreasonable delay in the
access to the money, assets, and property of the customer.
``(2) Qualified digital asset custodian required.--A digital
asset trading system shall hold customer restricted digital
assets described in paragraph (1) with a qualified digital
asset custodian described under section 6B.
``(3) Custody prohibited.--A digital asset trading system, in
its capacity as such, may not hold custody of customer money,
assets, or property.
``(b) Rulemaking.--The Commission shall prescribe rules for digital
asset trading systems relating to the following:
``(1) Notice.--Notice to the Commission of the initial
operation of a digital asset trading system or any material
change to the operation of the digital asset trading system.
``(2) Order display.--The thresholds at which a digital asset
trading system is required to display the orders of the digital
asset trading system, and the manner of such display.
``(3) Fair access.--The thresholds at which a digital asset
trading system is required to have policies regarding providing
fair access to the digital asset trading system.
``(4) Capacity, integrity, and security of automated
systems.--Policies and procedures reasonably designed to ensure
the capacity, integrity, and security of the digital asset
trading system, taking into account the particular nature of
digital asset trading systems.
``(5) Examinations, inspections, and investigations.--The
examination and inspection of the premises, systems, and
records of the digital asset trading system by the Commission
or by a self-regulatory organization of which such digital
asset trading system is a member.
``(6) Recordkeeping.--The making, keeping current, and
preservation of records related to trading activity on the
digital asset trading system.
``(7) Reporting.--The reporting of transactions in digital
assets that occur through the digital asset trading system.
``(8) Procedures.--The establishment of adequate written
safeguards and written procedures to protect confidential
trading information.
``(c) Name Requirement.--A digital asset trading system may not use
the word `exchange' in the name of the digital asset trading system,
unless the digital asset trading system--
``(1) is operated by a registered national securities
exchange; and
``(2) is clearly indicated as being provided outside of the
system's capacity as a national securities exchange.
``(d) Treatment Under the Bank Secrecy Act.--A digital asset trading
system shall be treated as a financial institution for purposes of the
Bank Secrecy Act.
``SEC. 6B. REQUIREMENTS FOR QUALIFIED DIGITAL ASSET CUSTODIANS.
``(a) In General.--A digital asset custodian is a qualified digital
asset custodian if the digital asset custodian complies with the
requirements of this section.
``(b) Supervision Requirement.--
``(1) In general.--A digital asset custodian shall--
``(A) be subject to adequate supervision and
appropriate regulation by--
``(i) the Board of Governors of the Federal
Reserve System;
``(ii) the Comptroller of the Currency;
``(iii) the Federal Deposit Insurance
Corporation;
``(iv) the Commodity Futures Trading
Commission;
``(v) the Securities and Exchange Commission;
``(vi) a State bank supervisor (within the
meaning of section 3 of the Federal Deposit
Insurance Act); or
``(vii) an appropriate foreign governmental
authority in the home country of the digital
asset custodian; and
``(B) not be prohibited by the applicable supervisor
from engaging in an activity with respect to the
custody and safekeeping of digital assets.
``(2) Adequate supervision and appropriate regulation.--For
purposes of paragraph (1), the terms `adequate supervision' and
`appropriate regulation' mean such minimum standards for
supervision and regulation as are reasonably necessary to
protect the digital assets of customers of an entity registered
with the Commission, including minimum standards relating to--
``(A) accessibility of customer assets;
``(B) financial resources;
``(C) risk management requirements;
``(D) governance arrangements;
``(E) fitness standards for officers and directors;
``(F) recordkeeping;
``(G) information sharing; and
``(H) conflicts of interest.
``(3) Deemed compliance.--A digital asset custodian shall be
deemed to be subject to adequate supervision and appropriate
regulation, if--
``(A) it is supervised by an agency described under
any of clauses (i) through (v) of paragraph (1)(A); or
``(B) it is a bank supervised by a State bank
supervisor (within the meaning of section 3 of the
Federal Deposit Insurance Act).
``(4) Rulemaking with respect to definitions.--For purposes
of this subsection, the Commission may, by rule, further define
the terms `adequate supervision' and `appropriate regulation'
as necessary in the public interest, as appropriate for the
protection of investors, and consistent with the purposes of
this Act.
``(c) Information Sharing.--Each digital asset custodian shall
periodically share of information with the Commission, as the
Commission determines by rule to be reasonably necessary to effectuate
any of the provisions, or to accomplish any of the purposes, of this
Act.''.
SEC. 305. REGISTRATION OF DIGITAL ASSET BROKERS AND DIGITAL ASSET
DEALERS.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting after section 15G the following:
``SEC. 15H. REGISTRATION OF DIGITAL ASSET BROKERS AND DIGITAL ASSET
DEALERS.
``(a) Registration.--
``(1) In general.--It shall be unlawful for any digital asset
broker or digital asset dealer (other than a natural person
associated with a digital asset broker or digital asset dealer,
and other than such a digital asset broker or digital asset
dealer whose business is exclusively intrastate and who does
not make use of any facility of a digital asset trading
platform) to make use of the mails or any means or
instrumentality of interstate commerce to effect any
transactions in, or to induce or attempt to induce the purchase
or sale of, any restricted digital asset unless such digital
asset broker or digital asset dealer is registered in
accordance with this section.
``(2) Application.--A person desiring to register as a
digital asset broker or digital asset dealer shall submit to
the Commission an application in such form and containing such
information as the Commission may require for the purpose of
making the determinations required for approval.
``(b) National Securities Association Membership.--
``(1) In general.--A digital asset broker or digital asset
dealer may not register or maintain registration under this
section unless such digital asset broker or digital asset
dealer is a member of a national securities association
registered under section 15A.
``(2) Treatment under section 15a.--
``(A) In general.--For purposes of section 15A--
``(i) the term `broker' includes a digital
asset broker;
``(ii) the term `dealer' includes a digital
asset dealer; and
``(iii) the term `security' includes a
restricted digital asset.
``(B) Clarification.--Notwithstanding subparagraph
(A), a national securities association shall only
examine for and enforce against a digital asset broker
and digital asset dealer rules of such national
securities association written specifically for digital
asset brokers and a digital asset dealers.
``(3) Exception.--A digital asset broker or digital asset
dealer may register under this section without obtaining
membership in a national securities association until the end
of the 360-day period beginning on the date the first national
securities association adopts rules to admit digital asset
brokers or digital asset dealers as members.
``(c) Additional Registrations With the Commission.--
``(1) In general.--A registered digital asset broker or
registered digital asset dealer shall be permitted to maintain
any other registration with the Commission relating to the
other activities of the registered digital asset broker or
registered digital asset dealer, including as--
``(A) a national securities exchange;
``(B) a broker;
``(C) a dealer;
``(D) an alternative trading system, pursuant to part
242 of title 17, Code of Federal Regulations, as in
effect on the date of enactment of this section; or
``(E) a digital asset trading system.
``(2) Rulemaking.--The Commission shall prescribe rules for
an entity with multiple registrations described under paragraph
(1) to exempt the entity from duplicative, conflicting, or
unduly burdensome provisions of this Act and the rules under
this Act, to the extent such an exemption would protect
investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation.
``(3) Self-regulatory organizations.--The Commission shall
require any self-regulatory organization with a registered
digital asset broker or registered digital asset dealer as a
member to provide such rules as may be necessary to further
compliance with this section, protect investors, maintain fair,
orderly, and efficient markets, and facilitate capital
formation.
``(d) Additional Registrations With the Commodity Futures Trading
Commission.--A registered digital asset broker or registered digital
asset dealer shall be permitted to maintain a registration with the
Commodity Futures Trading Commission as a digital commodity broker or
digital commodity dealer, to list or trade contracts of sale for
digital commodities.''.
SEC. 306. REQUIREMENTS OF DIGITAL ASSET BROKERS AND DIGITAL ASSET
DEALERS.
Section 15H of the Securities Exchange Act of 1934, as added by
section 305, is amended by adding at the end the following:
``(e) Anti-fraud.--No digital asset broker or digital asset dealer
shall make use of the mails or any means or instrumentality of
interstate commerce to effect any transaction in, or to induce or
attempt to induce the purchase or sale of, any restricted digital asset
by means of any manipulative, deceptive, or other fraudulent device or
contrivance.
``(f) Holding of Customer Assets.--
``(1) In general.--A digital asset broker or digital asset
dealer shall hold customer money, assets, and property in a
manner to minimize the risk of loss to the customer or
unreasonable delay in the access to the money, assets, and
property of the customer.
``(2) Qualified digital asset custodian required.--A digital
asset broker or digital asset dealer shall hold customer
restricted digital assets described in paragraph (1) with a
qualified digital asset custodian described under section 6B.
``(3) Segregation of funds.--
``(A) In general.--A digital asset broker or digital
asset dealer shall treat and deal with all money,
assets, and property held for a customer of the digital
asset broker or digital asset dealer, or that accrues
to a customer as a result of trading in restricted
digital assets, as belonging to the customer.
``(B) Commingling prohibited.--Money, assets, and
property of a customer described in subparagraph (A)
shall be separately accounted for and shall not be
commingled with the funds of the digital asset broker
or digital asset dealer or be used to margin, secure,
or guarantee any trades of any person other than the
customer of the digital asset broker or digital asset
dealer for whom the same are held.
``(4) Exceptions.--
``(A) Use of funds.--
``(i) In general.--Notwithstanding paragraph
(3), money, assets, and property of customers
of a digital asset broker or digital asset
dealer described in paragraph (3) may be
maintained and deposited in the same account or
accounts with any bank, trust company, or
qualified digital asset custodian described
under section 6B, if the money, assets, and
property remain segregated from the money,
assets, and property of the digital asset
broker or digital asset dealer.
``(ii) Withdrawal.--Notwithstanding paragraph
(3), such share of the money, assets, and
property described in paragraph (3) as in the
normal course of business shall be necessary to
transfer, adjust, or settle a restricted
digital asset transaction pursuant to a
customer's instruction (standing or otherwise)
may be withdrawn and applied to such purposes,
including the withdrawal and payment of
commissions, brokerage, interest, taxes,
storage, and other charges lawfully accruing in
connection with a restricted digital asset
transaction.
``(iii) Commission action.--In accordance
with such terms and conditions as the
Commission may prescribe by rule, regulation,
or order, any money, assets, or property of a
customer of a digital asset broker or digital
asset dealer described in paragraph (3) may be
commingled and deposited as provided in this
section with any other money, assets, or
property received by the digital asset broker
or digital asset dealer and required by the
Commission to be separately accounted for and
treated and dealt with as belonging to the
customer of the digital asset broker or digital
asset dealer.
``(B) Participation in blockchain services.--
``(i) In general.--A customer shall have the
right to waive the restrictions in paragraph
(3) for any unit of a digital asset to be used
under clause (ii), by affirmatively electing,
in writing to the digital asset broker or
digital asset dealer, to waive the
restrictions.
``(ii) Use of funds.--Customer digital assets
removed from segregation under clause (i) may
be pooled and used by the digital asset broker
or digital asset dealer or its designee to
provide a blockchain service for a blockchain
system to which the unit of the digital asset
removed from segregation under clause (i)
relates.
``(iii) Limitations.--The Commission may, by
rule, establish notice and disclosure
requirements, and any other limitations and
rules related to the waiving of any
restrictions under this subparagraph that are
reasonably necessary to protect customers.
``(iv) Blockchain service defined.--In this
subparagraph, the term `blockchain service'
means any activity relating to validating
transactions on a blockchain system, providing
security for a blockchain system, or other
similar activity required for the ongoing
operation of a blockchain system.
``(5) Further limitations.--No person shall treat or deal
with a restricted digital asset held on behalf of any customer
pursuant to paragraph (3) by utilizing any unit of such
restricted digital asset to participate in a blockchain service
(as defined in paragraph (4)(B)(iv) or a decentralized
governance system associated with the restricted digital asset
or the blockchain system to which the restricted digital asset
relates in any manner other than that which is expressly
directed by the customer from which such unit of a restricted
digital asset was received.
``(g) Capital Requirements.--
``(1) In general.--Each registered digital asset broker and
registered digital asset dealer shall meet such minimum capital
requirements as the Commission may prescribe to ensure that the
digital asset broker or digital asset dealer is able to--
``(A) conduct an orderly wind-down of the activities
of the digital asset broker or digital asset dealer;
and
``(B) fulfill the customer obligations of the digital
asset broker or digital asset dealer.
``(2) Calculation.--For purposes of any Commission rule or
order adopted under this section or any interpretation thereof
regulating a digital asset broker or digital asset dealer's
financial responsibility obligations and capital requirements,
a registered digital asset broker or digital asset dealer that
maintains control of customer digital assets in a manner that
satisfies the rules issued by the Commission under subsection
(f)(2) shall not be required to include the value of such
digital assets as assets or liabilities of the digital asset
broker or digital asset dealer.
``(3) Coordination of capital requirements.--
``(A) Commission rule.--The Commission shall, by
rule, provide appropriate offsets to any applicable
capital requirement for a person with multiple
registrations, including as a broker, dealer, digital
asset broker, or digital asset dealer.
``(B) Joint rule.--The Commission and the Commodity
Futures Trading Commission shall jointly, by rule,
provide appropriate offsets to any applicable capital
requirement for a person with multiple registrations,
including as a digital asset broker, digital asset
dealer, digital asset trading system, digital commodity
broker, digital commodity dealer, or digital commodity
exchange.
``(h) Reporting and Recordkeeping.--Each registered digital asset
broker and digital asset dealer--
``(1) shall make such reports as are required by the
Commission by rule or regulation regarding the transactions,
positions, and financial condition of the digital asset broker
or digital asset dealer;
``(2) shall keep books and records in such form and manner
and for such period as may be prescribed by the Commission by
rule or regulation; and
``(3) shall keep the books and records open to inspection and
examination by any representative of the Commission.
``(i) Treatment Under the Bank Secrecy Act.--A digital asset broker
and a digital asset dealer shall be treated as a financial institution
for purposes of the Bank Secrecy Act.''.
SEC. 307. RULES RELATED TO CONFLICTS OF INTEREST.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is
amended by inserting after section 10D the following:
``SEC. 10E. CONFLICTS OF INTEREST RELATED TO DIGITAL ASSETS.
``Each registered digital asset trading system, registered digital
asset broker, registered digital asset dealer, and notice-registered
digital asset clearing agency shall establish, maintain, and enforce
written policies and procedures reasonably designed, taking into
consideration the nature of such person's business, to mitigate any
conflicts of interest and transactions or arrangements with
affiliates.''.
SEC. 308. TREATMENT OF CERTAIN DIGITAL ASSETS IN CONNECTION WITH
FEDERALLY REGULATED INTERMEDIARIES.
Section 18(b) of the Securities Act of 1933 (15 U.S.C. 77r(b)) is
amended by adding at the end the following:
``(5) Exemption for certain digital assets in connection with
federally regulated intermediaries.--A restricted digital asset
is a covered security with respect to a transaction that is
exempt from registration under this Act when--
``(A) it is brokered, traded, custodied, or cleared
by a digital asset broker or digital asset dealer
registered under section 15H of the Securities Exchange
Act of 1934; or
``(B) traded through a digital asset trading
system.''.
SEC. 309. EXCLUSION FOR ANCILLARY ACTIVITIES.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), as
amended by section 305, is further amended by inserting after section
15H the following:
``SEC. 15I. EXCLUSION FOR ANCILLARY ACTIVITIES.
``(a) In General.--Notwithstanding any other provision of this Act, a
person shall not be subject to this Act and the regulations thereunder
solely based on the person undertaking any ancillary activities.
``(b) Exceptions.--Subsection (a) shall not be construed to apply to
the anti-fraud and anti-manipulation authorities of the Commission.
``(c) Ancillary Activities Defined.--In this section, the term
`ancillary activities' means any of the following activities related to
the operation of a blockchain system:
``(1) Compiling network transactions, operating or
participating in a liquidity pool, relaying, searching,
sequencing, validating, or acting in a similar capacity with
respect to a digital asset.
``(2) Providing computational work, operating a node, or
procuring, offering, or utilizing network bandwidth, or other
similar incidental services with respect to a digital asset.
``(3) Providing a user-interface that enables a user to read
and access data about a blockchain system, send messages, or
otherwise interact with a blockchain system.
``(4) Developing, publishing, constituting, administering,
maintaining, or otherwise distributing a blockchain system.
``(5) Developing, publishing, constituting, administering,
maintaining, or otherwise distributing software or systems that
create or deploy a hardware or software wallet or other system
facilitating an individual user's own personal ability to keep,
safeguard, or custody the user's digital assets or related
private keys.''.
SEC. 310. REGISTRATION AND REQUIREMENTS FOR NOTICE-REGISTERED DIGITAL
ASSET CLEARING AGENCIES.
Section 17A(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78q-
1(b)) is amended--
(1) in subsection (1), by inserting ``(other than a notice-
registered digital asset clearing agency)'' after ``unlawful
for any clearing agency''; and
(2) by adding at the end the following:
``(9) Registration and requirements for notice-registered
digital asset clearing agency.--
``(A) Eligibility.--A person may register with the
Commission as a notice-registered digital asset
clearing agency if the person--
``(i) is otherwise registered as a digital
asset broker or digital asset dealer with the
Commission and is engaging in a business
involving restricted digital assets, in
compliance with Commission rules pursuant to
section 15H(f); or
``(ii) is a bank engaging in a business
involving digital assets, in compliance with
applicable banking law and regulation relating
to the custody and safekeeping of such assets.
``(B) Registration.--A person may register with the
Commission as a notice-registered digital asset
clearing agency by providing the Commission with notice
of the activities of the person or planned activities
in such form as the Commission determines appropriate.
Such notice shall include information describing the
person's policies and procedures relating to the
holding of customer assets.
``(C) Rulemaking.--The Commission may adopt rules,
which may not take effect until at least 360 days
following the date of enactment of this paragraph, with
regard to the activities of notice-registered digital
asset clearing agencies, taking into account the nature
of restricted digital assets.''.
SEC. 311. TREATMENT OF CUSTODY ACTIVITIES BY BANKING INSTITUTIONS.
(a) Treatment of Custody Activities.--The appropriate Federal banking
agency (as defined under section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813)), the National Credit Union Administration (in the
case of a credit union), and the Securities and Exchange Commission may
not require, or take supervisory action that would cause, a depository
institution, national bank, Federal credit union, State credit union,
or trust company, or any affiliate (as such term is defined under
section 2 of the Bank Holding Company Act of 1956) thereof--
(1) to include assets held in custody or safekeeping, or the
assets associated with a cryptographic key held in custody or
safekeeping, as a liability on such institution's financial
statement or balance sheet, except that cash held for a third
party by such institution that is commingled with the general
assets of such institution may be reflected as a liability on a
financial statement or balance sheet;
(2) to hold additional regulatory capital against assets in
custody or safekeeping, or the assets associated with a
cryptographic key held in custody or safekeeping, except as
necessary to mitigate against operational risks inherent with
the custody or safekeeping services, as determined by--
(A) the appropriate Federal banking agency;
(B) the National Credit Union Administration (in the
case of a credit union);
(C) a State bank supervisor (as defined under section
3 of the Federal Deposit Insurance Act (12 U.S.C.
1813)); or
(D) a State credit union supervisor (as defined under
section 6003 of the Anti-Money Laundering Act of 2020);
(3) to recognize a liability for any obligations related to
activities or services performed for digital assets with
respect to which such institution does not have beneficial
ownership if that liability would exceed the expense recognized
in the income statement as a result of the corresponding
obligation.
(b) Definitions.--In this section:
(1) Depository institution.--The term ``depository
institution'' has the meaning given that term under section 3
of the Federal Deposit Insurance Act.
(2) Credit union terms.--The terms ``Federal credit union''
and ``State credit union'' have the meaning given those terms,
respectively, under section 101 of the Federal Credit Union
Act.
SEC. 312. EFFECTIVE DATE; ADMINISTRATION.
(a) In General.--Except as otherwise provided under this title, this
title and the amendments made by this title shall take effect 360 days
after the date of enactment of this Act, except that, to the extent a
provision of this title requires a rulemaking, the provision shall take
effect on the later of--
(1) 360 days after the date of enactment of this Act; or
(2) 60 days after the publication in the Federal Register of
the final rule implementing the provision.
(b) Limitation.--During fiscal years 2024, 2025, and 2026,
registration fees collected by the Securities and Exchange Commission
shall not be deposited in the Securities and Exchange Commission
Reserve Fund.
TITLE IV--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
COMMODITY FUTURES TRADING COMMISSION
SEC. 401. COMMISSION JURISDICTION OVER DIGITAL COMMODITY TRANSACTIONS.
(a) In General.--Section 2(a)(1) of the Commodity Exchange Act (7
U.S.C. 2(a)(1)) is amended by adding at the end the following:
``(J) Except as expressly provided in this Act,
nothing in the Financial Innovation and Technology for
the 21st Century Act shall affect or apply to, or be
interpreted to affect or apply to--
``(i) any agreement, contract, or transaction
that is subject to regulation under this Act
as--
``(I) a contract of sale of a
commodity for future delivery or an
option on such a contract;
``(II) a swap;
``(III) a security futures product;
``(IV) an option authorized under
section 4c of this Act;
``(V) an agreement, contract, or
transaction described in subparagraph
(C)(i) or (D)(i) of subsection (c)(2)
of this section; or
``(VI) a leverage transaction
authorized under section 19 of this
Act; or
``(ii) the activities of any person with
respect to any such an agreement, contract, or
transaction.''.
(b) In General.--Section 2(c)(1) of the Commodity Exchange Act (7
U.S.C. 2(c)(1)) is amended--
(1) in subparagraph (F), by striking ``or'' at the end;
(2) in subparagraph (G), by striking the period and inserting
``; or''; and
(3) by adding at the end the following:
``(H) permitted payment stablecoins.''.
(c) In General.--Section 2(c)(2) of the Commodity Exchange Act (7
U.S.C. 2(c)(2)) is amended--
(1) in subparagraph (D)(ii)--
(A) in subclause (III), in the matter that precedes
item (aa), by inserting ``of a commodity, other than a
digital commodity,'' before ``that''; and
(B) by redesignating subclauses (IV) and (V) as
subclauses (V) and (VI) and inserting after subclause
(III) the following:
``(IV) a contract of sale of a
digital commodity that--
``(aa) results in actual
delivery, as the Commission
shall by rule determine, within
2 days or such other period as
the Commission may determine by
rule or regulation based upon
the typical commercial practice
in cash or spot markets for the
digital commodity involved; or
``(bb) is executed with a
registered digital commodity
dealer--
``(AA) directly;
``(BB) through a
registered digital
commodity broker; or
``(CC) on or subject
to the rules of a
registered digital
commodity exchange;'';
and
(2) by adding at the end the following:
``(F) Commission Jurisdiction With Respect to Digital Commodity
Transactions.--
``(i) In general.--Subject to sections 6d and 12(e), the
Commission shall have exclusive jurisdiction with respect to
any account, agreement, contract, or transaction involving a
contract of sale of a digital commodity in interstate commerce,
including in a digital commodity cash or spot market, that is
offered, solicited, traded, facilitated, executed, cleared,
reported, or otherwise dealt in--
``(I) on or subject to the rules of a registered
entity or an entity that is required to be registered
as a registered entity; or
``(II) by any other entity registered, or required to
be registered, with the Commission.
``(ii) Limitations.--Clause (i) shall not apply with respect
to custodial or depository activities for a digital commodity,
or custodial or depository activities for any promise or right
to a future digital commodity, of an entity regulated by an
appropriate Federal banking agency or a State bank supervisor
(within the meaning of section 3 of the Federal Deposit
Insurance Act).
``(iii) Mixed digital asset transactions.--
``(I) In general.--Clause (i) shall not apply to a
mixed digital asset transaction.
``(II) Oversight of mixed digital asset
transactions.--
``(aa) On a cftc regulated platform.--A mixed
digital asset transaction that occurs on or
subject to the rules of a registered entity or
by any other entity registered with the
Commission--
``(AA) shall not occur except on or
subject to the rules of a registered
entity or by any other entity that is
dually registered with the Commission
and the Securities and Exchange
Commission; and
``(BB) shall be subject to the
jurisdiction of the Commission and the
Securities and Exchange Commission.
``(bb) Off exchange.--A mixed digital asset
transaction that does not occur on or subject
to the rules of a registered entity or by any
other entity registered with the Commission
shall be subject to the exclusive jurisdiction
of the Securities and Exchange Commission.
``(III) Reports on mixed digital asset
transactions.--A digital asset issuer, related person,
affiliated person, or other person registered with the
Securities and Exchange Commission that engages in a
mixed digital asset transaction, shall, on request,
open to inspection and examination by the Commodity
Futures Trading Commission all books and records
relating to the mixed digital asset transaction,
subject to the confidentiality and disclosure
requirements of section 8.
``(G) Agreements, Contracts, and Transactions in Stablecoins.--
``(i) Treatment of permitted payment stablecoins on
commission-registered entities.--Except as provided in clauses
(ii) and (iii), the Commission shall only have jurisdiction
over a cash or spot agreement, contract, or transaction in a
permitted payment stablecoin that is offered, offered to enter
into, entered into, executed, confirmed the execution of,
solicited, or accepted--
``(I) on or subject to the rules of a registered
entity; or
``(II) by any other entity registered by the
Commission.
``(ii) Permitted payment stablecoin transaction rules.--This
Act shall only apply to a transaction described in clause (i)
for the purposes of regulating the offer, execution,
solicitation, or acceptance of a cash or spot permitted payment
stablecoin transaction on a registered entity or other entity
registered by the Commission with respect to requirements
imposed with respect to--
``(I) recordkeeping;
``(II) custody;
``(III) segregation;
``(IV) reporting;
``(V) trading procedures and trade processing
requirements;
``(VI) information sharing;
``(VII) conflicts of interest;
``(VIII) antifraud, antimanipulation, or false
reporting; or
``(IX) any other transaction level requirement
imposed on the registered entity or other entity
registered by the Commission that the Commission by
rule determines would foster the development of fair
and orderly cash or spot markets in digital
commodities, be necessary or appropriate in the public
interest, and be consistent with the protection of
customers.
``(iii) No authority over permitted payment stablecoins.--
Notwithstanding clause (ii), the Commission shall not make a
rule or regulation, impose a requirement or obligation on a
registered entity or other entity registered by the Commission,
or impose a requirement or obligation on a permitted payment
stablecoin issuer, regarding the operation of a permitted
payment stablecoin issuer or a permitted payment stablecoin,
including a requirement or obligation regarding--
``(I) design;
``(II) structure;
``(III) issuance;
``(IV) redemption;
``(V) financial resources;
``(VI) collateral; or
``(VII) any other aspect of such an operation or such
a stablecoin.''.
(d) Conforming Amendment.--Section 2(a)(1)(A) of such Act (7 U.S.C.
2(a)(1)(A)) is amended in the 1st sentence by inserting ``subsection
(c)(2)(F) of this section or'' before ``section 19''.
SEC. 402. REQUIRING FUTURES COMMISSION MERCHANTS TO USE QUALIFIED
DIGITAL COMMODITY CUSTODIANS.
Section 4d of the Commodity Exchange Act (7 U.S.C. 6d) is amended--
(1) in subsection (a)(2)--
(A) in the 1st proviso, by striking ``any bank or
trust company'' and inserting ``any bank, trust
company, or qualified digital commodity custodian'';
and
(B) by inserting ``: Provided further, That any such
property that is a digital commodity shall be held in a
qualified digital commodity custodian'' before the
period at the end; and
(2) in subsection (f)(3)(A)(i), by striking ``any bank or
trust company'' and inserting ``any bank, trust company, or
qualified digital commodity custodian''.
SEC. 403. TRADING CERTIFICATION AND APPROVAL FOR DIGITAL COMMODITIES.
Section 5c of the Commodity Exchange Act (7 U.S.C. 7a-2) is amended--
(1) in subsection (a), by striking ``5(d) and 5b(c)(2)'' and
inserting ``5(d), 5b(c)(2), and 5i(c)'';
(2) in subsection (b)--
(A) in each of paragraphs (1) and (2), by inserting
``digital commodity exchange,'' before ``derivatives'';
and
(B) in paragraph (3), by inserting ``digital
commodity exchange,'' before ``derivatives'' each place
it appears;
(3) in subsection (c)--
(A) in paragraph (2), by inserting ``or
participants'' before ``(in'';
(B) in paragraph (4)(B), by striking ``1a(10)'' and
inserting ``1a(9)''; and
(C) in paragraph (5), by adding at the end the
following:
``(D) Special rules for digital commodity
contracts.--In certifying any new rule or rule
amendment, or listing any new contract or instrument,
in connection with a contract of sale of a commodity
for future delivery, option, swap, or other agreement,
contract, or transaction, that is based on or
references a digital commodity, a registered entity
shall make or rely on a certification under subsection
(d) for the digital commodity.''; and
(4) by inserting after subsection (c) the following:
``(d) Certifications for Digital Commodity Trading.--
``(1) In general.--Notwithstanding subsection (c), for the
purposes of listing or offering a digital commodity for trading
in a digital commodity cash or spot market, an eligible entity
shall issue a written certification that the digital commodity
meets the requirements of this Act (including regulations
thereunder).
``(2) Contents of the certification.--
``(A) In general.--In making a written certification
under this paragraph, the eligible entity shall furnish
to the Commission--
``(i) an analysis of how the digital
commodity meets the requirements of section
5i(c)(3);
``(ii) information about the digital
commodity regarding--
``(I) its purpose and use;
``(II) its unit creation or release
process;
``(III) its consensus mechanism;
``(IV) its governance structure;
``(V) its participation and
distribution; and
``(VI) its current and proposed
functionality; and
``(iii) any other information, analysis, or
documentation the Commission may, by rule,
require.
``(B) Reliance on prior disclosures.--In making a
certification under this subsection, an eligible entity
may rely on the records and disclosures of any relevant
person registered with the Securities and Exchange
Commission or other State or Federal agency.
``(3) Modifications.--
``(A) In general.--An eligible entity shall modify a
certification made under paragraph (1) to--
``(i) account for significant changes in any
information provided to the Commission under
paragraph (2)(A)(ii); or
``(ii) permit or restrict trading in units of
a digital commodity asset held by a related
person or an affiliated person.
``(B) Recertification.--Modifications required by
this subsection shall be subject to the same
disapproval and review process as a new certification
under paragraphs (4) and (5).
``(4) Disapproval.--
``(A) In general.--The written certification
described in paragraph (1) shall become effective
unless the Commission finds that the digital asset does
not meet the requirements of this Act or the rules and
regulations thereunder.
``(B) Analysis required.--The Commission shall
include, with any findings referred to in subparagraph
(A), a detailed analysis of the factors on which the
decision was based.
``(C) Public findings.--The Commission shall make
public any disapproval decision, and any related
findings and analysis, made under this paragraph.
``(5) Review.--
``(A) In general.--Unless the Commission makes a
disapproval decision under paragraph (4), the written
certification described in paragraph (1) shall become
effective, pursuant to the certification by the
eligible entity and notice of the certification to the
public (in a manner determined by the Commission) on
the date that is--
``(i) 20 business days after the date the
Commission receives the certification (or such
shorter period as determined by the Commission
by rule or regulation), in the case of a
digital commodity that has not been certified
under this section or for which a certification
is being modified under paragraph (3); or
``(ii) 2 business days after the date the
Commission receives the certification (or such
shorter period as determined by the Commission
by rule or regulation) for any digital
commodity that has been certified under this
section.
``(B) Extensions.--The time for consideration under
subparagraph (A) may be extended through notice to the
eligible entity that there are novel or complex issues
that require additional time to analyze, that the
explanation by the submitting eligible entity is
inadequate, or of a potential inconsistency with this
Act--
``(i) once, for 30 business days, through
written notice to the eligible entity by the
Chairman; and
``(ii) once, for an additional 30 business
days, through written notice to the digital
commodity exchange from the Commission that
includes a description of any deficiencies with
the certification, including any--
``(I) novel or complex issues which
require additional time to analyze;
``(II) missing information or
inadequate explanations; or
``(III) potential inconsistencies
with this Act.
``(6) Certification required.--Notwithstanding any other
requirement of this Act, a registered entity or other entity
registered with the Commission shall not list for trading,
accept for clearing, offer to enter into, enter into, execute,
confirm the execution of, or conduct any office or business
anywhere in the United States, its territories or possessions,
for the purpose of soliciting, or accepting any order for, or
otherwise dealing in, any transaction in, or in connection
with, a digital asset, unless a certification has been made
under this section for the digital asset.
``(7) Eligible entity defined.--In this subsection, the term
`eligible entity' means a registered entity or group of
registered entities acting jointly.''.
SEC. 404. REGISTRATION OF DIGITAL COMMODITY EXCHANGES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5h the following:
``SEC. 5I. REGISTRATION OF DIGITAL COMMODITY EXCHANGES.
``(a) In General.--
``(1) Registration.--
``(A) In general.--A trading facility that offers or
seeks to offer a cash or spot market in at least 1
digital commodity shall register with the Commission as
a digital commodity exchange.
``(B) Application.--A person desiring to register as
a digital commodity exchange shall submit to the
Commission an application in such form and containing
such information as the Commission may require for the
purpose of making the determinations required for
approval.
``(C) Exemptions.--A trading facility that offers or
seeks to offer a cash or spot market in at least 1
digital commodity shall not be required to register
under this section if the trading facility--
``(i) permits no more than a de minimis
amount of trading activity; or
``(ii) serves only customers in a single
State or territory.
``(2) Additional registrations.--
``(A) With the commission.--
``(i) In general.--A registered digital
commodity exchange may also register as--
``(I) a designated contract market;
or
``(II) a swap execution facility.
``(ii) Rules.--For an entity with multiple
registrations under clause (i), the
Commission--
``(I) shall prescribe rules to exempt
the entity from duplicative,
conflicting, or unduly burdensome
provisions of this Act and the rules
under this Act, to the extent such an
exemption would foster the development
of fair and orderly cash or spot
markets in digital commodities, be
necessary or appropriate in the public
interest, and be consistent with the
protection of customers; and
``(II) may, after an analysis of the
risks and benefits, prescribe rules to
provide for portfolio margining, as may
be necessary to protect market
participants, promote fair and
equitable trading in digital commodity
markets, and promote responsible
economic or financial innovation.
``(B) With the securities and exchange commission.--A
registered digital commodity exchange may register with
the Securities and Exchange Commission as a digital
asset trading system to list or trade contracts of sale
for digital assets deemed securities.
``(C) With a registered futures association.--
``(i) In general.--A registered digital
commodity exchange shall also be a member of a
registered futures association and comply with
rules related to such activity, if the
registered digital commodity exchange accepts
customer funds required to be segregated under
subsection (d).
``(ii) Rulemaking required.--The Commission
shall require any registered futures
association with a digital commodity exchange
as a member to provide such rules as may be
necessary to further compliance with subsection
(d), protect customers, and promote the public
interest.
``(D) Registration required.--A person required to be
registered as a digital commodity exchange under this
section shall register with the Commission as such
regardless of whether the person is registered as such
with another State or Federal regulator.
``(b) Trading.--
``(1) Prohibition on certain trading practices.--
``(A) Section 4b shall apply to any agreement,
contract, or transaction in a digital commodity as if
the agreement, contract, or transaction were a contract
of sale of a commodity for future delivery.
``(B) Section 4c shall apply to any agreement,
contract, or transaction in a digital commodity as if
the agreement, contract, or transaction were a
transaction involving the purchase or sale of a
commodity for future delivery.
``(2) Prohibition on acting as a counterparty.--A registered
digital commodity exchange or any affiliate of such an exchange
shall not act as counterparty to any transaction executed on or
subject to the rules of the registered digital commodity
exchange.
``(3) Trading securities.--A registered digital commodity
exchange that is also registered with the Securities and
Exchange Commission may offer a contract of sale of a digital
asset deemed a security.
``(4) Rules for certain digital asset sales.--The digital
commodity exchange shall have in place such rules as may be
necessary to reasonably ensure the orderly sale of any unit of
a digital commodity sold by a related person or an affiliated
person.
``(c) Core Principles for Digital Commodity Exchanges.--
``(1) Compliance with core principles.--
``(A) In general.--To be registered, and maintain
registration, as a digital commodity exchange, a
digital commodity exchange shall comply with--
``(i) the core principles described in this
subsection; and
``(ii) any requirement that the Commission
may impose by rule or regulation pursuant to
section 8a(5).
``(B) Reasonable discretion of a digital commodity
exchange.--Unless otherwise determined by the
Commission by rule or regulation, a digital commodity
exchange described in subparagraph (A) shall have
reasonable discretion in establishing the manner in
which the digital commodity exchange complies with the
core principles described in this subsection.
``(2) Compliance with rules.--A digital commodity exchange
shall--
``(A) establish and enforce compliance with any rule
of the digital commodity exchange, including--
``(i) the terms and conditions of the trades
traded or processed on or through the digital
commodity exchange; and
``(ii) any limitation on access to the
digital commodity exchange;
``(B) establish and enforce trading, trade
processing, and participation rules that will deter
abuses and have the capacity to detect, investigate,
and enforce those rules, including means--
``(i) to provide market participants with
impartial access to the market; and
``(ii) to capture information that may be
used in establishing whether rule violations
have occurred; and
``(C) establish rules governing the operation of the
exchange, including rules specifying trading procedures
to be used in entering and executing orders traded or
posted on the facility.
``(3) Listing standards for digital commodities.--
``(A) In general.--A digital commodity exchange shall
permit trading only in a digital commodity that is not
readily susceptible to manipulation.
``(B) Public information requirements.--
``(i) In general.--A digital commodity
exchange shall permit trading only in a digital
commodity if the information required in clause
(ii) is correct, current, and available to the
public.
``(ii) Required information.-- With respect
to a digital commodity and each blockchain
system to which the digital commodity relates
for which the digital commodity exchange will
make the digital commodity available to the
customers of the digital commodity exchange,
the information required in this clause is as
follows:
``(I) Source code.--The source code
for any blockchain system to which the
digital commodity relates.
``(II) Transaction history.--A
narrative description of the steps
necessary to independently access,
search, and verify the transaction
history of any blockchain system to
which the digital commodity relates.
``(III) Digital asset economics.--A
narrative description of the purpose of
any blockchain system to which the
digital asset relates and the operation
of any such blockchain system,
including--
``(aa) information explaining
the launch and supply process,
including the number of digital
assets to be issued in an
initial allocation, the total
number of digital assets to be
created, the release schedule
for the digital assets, and the
total number of digital assets
then outstanding;
``(bb) information detailing
any applicable consensus
mechanism or process for
validating transactions, method
of generating or mining digital
assets, and any process for
burning or destroying digital
assets on the blockchain
system;
``(cc) an explanation of
governance mechanisms for
implementing changes to the
blockchain system or forming
consensus among holders of the
digital assets; and
``(dd) sufficient information
for a third party to create a
tool for verifying the
transaction history of the
digital asset.
``(IV) Additional information.--Such
additional information as the
Commission may, by rule, determine to
be necessary for a customer to
understand the financial and
operational risks of a digital
commodity, and to be in the public
interest or in furtherance of the
requirements of this Act.
``(C) Additional listing considerations.--In addition
to the requirements of subparagraphs (A) and (B), a
digital commodity exchange shall consider--
``(i) if a sufficient percentage of the units
of the digital asset are units of a digital
commodity to permit robust price discovery;
``(ii) if it is reasonably unlikely that the
transaction history can be fraudulently altered
by any person or group of persons acting
collectively;
``(iii) if the operating structure and system
of the digital commodity is secure from
cybersecurity threats;
``(iv) if the functionality of the digital
commodity will protect holders from operational
failures;
``(v) if sufficient public information about
the operation, functionality, and use of the
digital commodity is available; and
``(vi) any other factor which the Commission
has, by rule, determined to be in the public
interest or in furtherance of the requirements
of this Act.
``(D) Restricted digital assets.--A digital commodity
exchange shall not permit the trading of a unit of a
digital asset that is a restricted digital asset.
``(4) Treatment of customer assets.--A digital commodity
exchange shall establish standards and procedures that are
designed to protect and ensure the safety of customer money,
assets, and property.
``(5) Monitoring of trading and trade processing.--
``(A) In general.--A digital commodity exchange shall
provide a competitive, open, and efficient market and
mechanism for executing transactions that protects the
price discovery process of trading on the exchange.
``(B) Protection of markets and market
participants.--A digital commodity exchange shall
establish and enforce rules--
``(i) to protect markets and market
participants from abusive practices committed
by any party, including abusive practices
committed by a party acting as an agent for a
participant; and
``(ii) to promote fair and equitable trading
on the exchange.
``(C) Trading procedures.--A digital commodity
exchange shall--
``(i) establish and enforce rules or terms
and conditions defining, or specifications
detailing--
``(I) trading procedures to be used
in entering and executing orders traded
on or through the facilities of the
digital commodity exchange; and
``(II) procedures for trade
processing of digital commodities on or
through the facilities of the digital
commodity exchange; and
``(ii) monitor trading in digital commodities
to prevent manipulation, price distortion, and
disruptions of the delivery or cash settlement
process through surveillance, compliance, and
disciplinary practices and procedures,
including methods for conducting real-time
monitoring of trading and comprehensive and
accurate trade reconstructions.
``(6) Ability to obtain information.--A digital commodity
exchange shall--
``(A) establish and enforce rules that will allow the
facility to obtain any necessary information to perform
any of the functions described in this section;
``(B) provide the information to the Commission on
request; and
``(C) have the capacity to carry out such
international information-sharing agreements as the
Commission may require.
``(7) Emergency authority.--A digital commodity exchange
shall adopt rules to provide for the exercise of emergency
authority, in consultation or cooperation with the Commission
or a registered entity, as is necessary and appropriate,
including the authority to facilitate the liquidation or
transfer of open positions in any digital commodity or to
suspend or curtail trading in a digital commodity.
``(8) Timely publication of trading information.--
``(A) In general.--A digital commodity exchange shall
make public timely information on price, trading
volume, and other trading data on digital commodities
to the extent prescribed by the Commission.
``(B) Capacity of digital commodity exchange.--A
digital commodity exchange shall have the capacity to
electronically capture and transmit trade information
with respect to transactions executed on the exchange.
``(9) Recordkeeping and reporting.--
``(A) In general.--A digital commodity exchange
shall--
``(i) maintain records of all activities
relating to the business of the facility,
including a complete audit trail, in a form and
manner acceptable to the Commission for a
period of 5 years;
``(ii) report to the Commission, in a form
and manner acceptable to the Commission, such
information as the Commission determines to be
necessary or appropriate for the Commission to
perform the duties of the Commission under this
Act; and
``(iii) keep any such records of digital
commodities which relate to a security open to
inspection and examination by the Securities
and Exchange Commission.
``(B) Information sharing.--Subject to section 8, and
on request, the Commission shall share information
collected under subparagraph (A) with--
``(i) the Board;
``(ii) the Securities and Exchange
Commission;
``(iii) each appropriate Federal banking
agency;
``(iv) each appropriate State bank supervisor
(within the meaning of section 3 of the Federal
Deposit Insurance Act);
``(v) the Financial Stability Oversight
Council;
``(vi) the Department of Justice; and
``(vii) any other person that the Commission
determines to be appropriate, including--
``(I) foreign financial supervisors
(including foreign futures
authorities);
``(II) foreign central banks; and
``(III) foreign ministries.
``(C) Confidentiality agreement.--Before the
Commission may share information with any entity
described in subparagraph (B), the Commission shall
receive a written agreement from the entity stating
that the entity shall abide by the confidentiality
requirements described in section 8 relating to the
information on digital commodities that is provided.
``(D) Providing information.--A digital commodity
exchange shall provide to the Commission (including any
designee of the Commission) information under
subparagraph (A) in such form and at such frequency as
is required by the Commission.
``(10) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, a digital
commodity exchange shall not--
``(A) adopt any rules or take any actions that result
in any unreasonable restraint of trade; or
``(B) impose any material anticompetitive burden on
trading.
``(11) Conflicts of interest.--A registered digital commodity
exchange shall implement conflict-of-interest systems and
procedures that--
``(A) establish structural and institutional
safeguards--
``(i) to minimize conflicts of interest that
might potentially bias the judgment or
supervision of the digital commodity exchange
and contravene the principles of fair and
equitable trading and the business conduct
standards described in this Act, including
conflicts arising out of transactions or
arrangements with affiliates (including
affiliates engaging in digital commodity
activities) which may include information
partitions and the legal separation of
different persons or entities involved in
digital commodity activities; and
``(ii) to ensure that the activities of any
person within the digital commodity exchange or
any affiliated entity relating to research or
analysis of the price or market for any digital
commodity or acting in a role of providing
dealing, brokering, or advising activities are
separated by appropriate informational
partitions within the digital commodity
exchange or any affiliated entity from the
review, pressure, or oversight of persons whose
involvement in pricing, trading, exchange, or
clearing activities might potentially bias
their judgment or supervision and contravene
the core principles of open access and the
business conduct standards described in this
Act; and
``(B) address such other issues as the Commission
determines to be appropriate.
``(12) Financial resources.--
``(A) In general.--A digital commodity exchange shall
have adequate financial, operational, and managerial
resources, as determined by the Commission, to
discharge each responsibility of the digital commodity
exchange.
``(B) Minimum amount of financial resources.--A
digital commodity exchange shall possess financial
resources that, at a minimum, exceed the total amount
that would enable the digital commodity exchange to
conduct an orderly wind-down of its activities.
``(13) Disciplinary procedures.--A digital commodity exchange
shall establish and enforce disciplinary procedures that
authorize the digital commodity exchange to discipline,
suspend, or expel members or market participants that violate
the rules of the digital commodity exchange, or similar methods
for performing the same functions, including delegation of the
functions to third parties.
``(14) Governance fitness standards.--
``(A) Governance arrangements.--A digital commodity
exchange shall establish governance arrangements that
are transparent to fulfill public interest
requirements.
``(B) Fitness standards.--A digital commodity
exchange shall establish and enforce appropriate
fitness standards for--
``(i) directors; and
``(ii) any individual or entity with direct
access to, or control of, customer assets.
``(15) System safeguards.--A digital commodity exchange
shall--
``(A) establish and maintain a program of risk
analysis and oversight to identify and minimize sources
of operational and security risks, through the
development of appropriate controls and procedures, and
automated systems, that--
``(i) are reliable and secure; and
``(ii) have adequate scalable capacity;
``(B) establish and maintain emergency procedures,
backup facilities, and a plan for disaster recovery
that allow for--
``(i) the timely recovery and resumption of
operations; and
``(ii) the fulfillment of the
responsibilities and obligations of the digital
commodity exchange; and
``(C) periodically conduct tests to verify that the
backup resources of the digital commodity exchange are
sufficient to ensure continued--
``(i) order processing and trade matching;
``(ii) price reporting;
``(iii) market surveillance; and
``(iv) maintenance of a comprehensive and
accurate audit trail.
``(d) Holding of Customer Assets.--
``(1) In general.--A digital commodity exchange shall hold
customer money, assets, and property in a manner to minimize
the risk of loss to the customer or unreasonable delay in the
access to the money, assets, and property of the customer.
``(A) Segregation of funds.--
``(i) In general.--A digital commodity
exchange shall treat and deal with all money,
assets, and property that is received by the
digital commodity exchange, or accrues to a
customer as the result of trading in digital
commodities, as belonging to the customer.
``(ii) Commingling prohibited.--Money,
assets, and property of a customer described in
clause (i) shall be separately accounted for
and shall not be commingled with the funds of
the digital commodity exchange or be used to
margin, secure, or guarantee any trades or
accounts of any customer or person other than
the person for whom the same are held.
``(B) Exceptions.--
``(i) Use of funds.--
``(I) In general.--Notwithstanding
subparagraph (A), money, assets, and
property of customers of a digital
commodity exchange described in
subparagraph (A) may, for convenience,
be commingled and deposited in the same
account or accounts with any bank,
trust company, derivatives clearing
organization, or qualified digital
commodity custodian.
``(II) Withdrawal.--Notwithstanding
subparagraph (A), such share of the
money, assets, and property described
in item (aa) as in the normal course of
business shall be necessary to margin,
guarantee, secure, transfer, adjust, or
settle a contract of sale of a digital
commodity with a registered entity may
be withdrawn and applied to such
purposes, including the payment of
commissions, brokerage, interest,
taxes, storage, and other charges,
lawfully accruing in connection with
the contract of sale of a digital
commodity.
``(ii) Commission action.--Notwithstanding
subparagraph (A), in accordance with such terms
and conditions as the Commission may prescribe
by rule, regulation, or order, any money,
assets, or property of the customers of a
digital commodity exchange described in
subparagraph (A) may be commingled and
deposited in customer accounts with any other
money, assets, or property received by the
digital commodity exchange and required by the
Commission to be separately accounted for and
treated and dealt with as belonging to the
customer of the digital commodity exchange.
``(2) Permitted investments.--Money described in subparagraph
(A) may be invested in obligations of the United States, in
general obligations of any State or of any political
subdivision of a State, and in obligations fully guaranteed as
to principal and interest by the United States, or in any other
investment that the Commission may by rule or regulation
prescribe, and such investments shall be made in accordance
with such rules and regulations and subject to such conditions
as the Commission may prescribe.
``(3) Customer protection during bankruptcy.--
``(A) Customer property.--All assets held on behalf
of a customer by a digital commodity exchange, and all
money, assets, and property of any customer received by
a digital commodity exchange registered under section
5i of this Act for trading or custody, or to
facilitate, margin, guarantee, or secure contracts of
sale of a digital commodity (including money, assets,
or property accruing to the customer as the result of
the transactions), shall be considered customer
property for purposes of section 761 of title 11,
United States Code.
``(B) Transactions.--A transaction involving a unit
of a digital commodity occurring on or subject to the
rules of a digital commodity exchange shall be
considered a `contract for the purchase or sale of a
commodity for future delivery, on or subject to the
rules of, a contract market or board of trade' for the
purposes of the definition of a `commodity contract' in
section 761 of title 11, United States Code.
``(C) Exchanges.--A digital commodity exchange shall
be considered a futures commission merchant for
purposes of section 761 of title 11, United States
Code.
``(4) Misuse of customer property.--
``(A) In general.--It shall be unlawful--
``(i) for any digital commodity exchange that
has received any customer money, assets, or
property for custody to dispose of, or use any
such money, assets, or property as belonging to
the digital commodity exchange; or
``(ii) for any other person, including any
depository, other digital commodity exchange,
or digital commodity custodian that has
received any customer money, assets, or
property for deposit, to hold, dispose of, or
use any such money, assets, or property, or
property, as belonging to the depositing
digital commodity exchange or any person other
than the customers of the digital commodity
exchange.
``(B) Use further defined.--For purposes of this
section, `use' of a digital commodity includes
utilizing any unit of a digital asset to participate in
a blockchain service defined in paragraph (5) or a
decentralized governance system associated with the
digital commodity or the blockchain system to which the
digital commodity relates in any manner other than that
expressly directed by the customer from whom the unit
of a digital commodity was received.
``(5) Participation in blockchain services.--
``(A) In general.--A customer shall have the right to
waive the restrictions in paragraph (1) for any unit of
a digital commodity, by affirmatively electing, in
writing to the digital commodity exchange, to waive the
restrictions.
``(B) Use of funds.--Customer digital commodities
removed from segregation under subparagraph (A) may be
pooled and used by the digital commodity exchange or
its designee to provide a blockchain service for a
blockchain system to which the unit of the digital
asset removed from segregation in subparagraph (A)
relates.
``(C) Limitations.--The Commission may, by rule,
establish notice and disclosure requirements, and any
other limitations and rules related to the waiving of
any restrictions under this paragraph that are
reasonably necessary to protect customers, including
eligible contract participants, non-eligible contract
participants, or any other class of customers.
``(D) Blockchain service defined.--In this
subparagraph, the term `blockchain service' means any
activity relating to validating transactions on a
blockchain system, providing security for a blockchain
system, or other similar activity required for the
ongoing operation of a blockchain system.
``(e) Market Access Requirements.--
``(1) In general.--A digital commodity exchange shall require
any person who is not an eligible contract participant to
access trading on the exchange through a digital commodity
broker.
``(2) Affiliated commodity brokers.--A registered digital
commodity exchange may maintain an affiliated digital commodity
broker to facilitate access to the digital commodity exchange,
if--
``(A) no other digital commodity brokers are
permitted to facilitate access to the exchange;
``(B) the affiliated digital commodity broker limits
its activities only to providing customer access to the
digital commodity exchange; and
``(C) the affiliated digital commodity broker is not
also registered as a digital commodity dealer.
``(3) Direct access for eligible contract participants.--
Nothing in this section shall prohibit a digital commodity
exchange in compliance with this section from permitting direct
access for eligible contract participants.
``(4) Additional requirements.--
``(A) In general.--The Commission may, by rule,
impose any additional requirements related to the
operations and activities of the digital commodity
exchange and the affiliated digital commodity broker
necessary to protect market participants, promote fair
and equitable trading on the digital commodity
exchange, and promote responsible economic or financial
innovation.
``(B) Delegation of authority.--The Commission may
delegate to a registered futures association such
oversight and regulatory requirements as the Commission
determines are necessary to--
``(i) supervise the activities of the digital
commodity exchange and an affiliated digital
commodity broker; and
``(ii) protect market participants, promote
fair and equitable trading on the digital
commodity exchange, and promote responsible
economic or financial innovation.
``(f) Designation of Chief Compliance Officer.--
``(1) In general.--A digital commodity exchange shall
designate an individual to serve as a chief compliance officer.
``(2) Duties.--The chief compliance officer shall--
``(A) report directly to the board or to the senior
officer of the exchange;
``(B) review compliance with the core principles in
this subsection;
``(C) in consultation with the board of the exchange,
a body performing a function similar to that of a
board, or the senior officer of the exchange, resolve
any conflicts of interest that may arise;
``(D) establish and administer the policies and
procedures required to be established pursuant to this
section;
``(E) ensure compliance with this Act and the rules
and regulations issued under this Act, including rules
prescribed by the Commission pursuant to this section;
and
``(F) establish procedures for the remediation of
noncompliance issues found during compliance office
reviews, look backs, internal or external audit
findings, self-reported errors, or through validated
complaints.
``(3) Requirements for procedures.--In establishing
procedures under paragraph (2)(F), the chief compliance officer
shall design the procedures to establish the handling,
management response, remediation, retesting, and closing of
noncompliance issues.
``(4) Annual reports.--
``(A) In general.--In accordance with rules
prescribed by the Commission, the chief compliance
officer shall annually prepare and sign a report that
contains a description of--
``(i) the compliance of the digital commodity
exchange with this Act; and
``(ii) the policies and procedures, including
the code of ethics and conflict of interest
policies, of the digital commodity exchange.
``(B) Requirements.--The chief compliance officer
shall--
``(i) submit each report described in
subparagraph (A) with the appropriate financial
report of the digital commodity exchange that
is required to be submitted to the Commission
pursuant to this section; and
``(ii) include in the report a certification
that, under penalty of law, the report is
accurate and complete.
``(g) Appointment of Trustee.--
``(1) In general.--If a proceeding under section 5e results
in the suspension or revocation of the registration of a
digital commodity exchange, or if a digital commodity exchange
withdraws from registration, the Commission, on notice to the
digital commodity exchange, may apply to the appropriate United
States district court where the digital commodity exchange is
located for the appointment of a trustee.
``(2) Assumption of jurisdiction.--If the Commission applies
for appointment of a trustee under paragraph (1)--
``(A) the court may take exclusive jurisdiction over
the digital commodity exchange and the records and
assets of the digital commodity exchange, wherever
located; and
``(B) if the court takes jurisdiction under
subparagraph (A), the court shall appoint the
Commission, or a person designated by the Commission,
as trustee with power to take possession and continue
to operate or terminate the operations of the digital
commodity exchange in an orderly manner for the
protection of customers subject to such terms and
conditions as the court may prescribe.
``(h) Qualified Digital Commodity Custodian.--A digital commodity
exchange shall hold in a qualified digital commodity custodian each
unit of a digital commodity that is--
``(1) the property of a customer of the digital commodity
exchange;
``(2) required to be held by the digital commodity exchange
under subsection (c)(12) of this section; or
``(3) otherwise so required by the Commission to reasonably
protect customers or promote the public interest.
``(i) Exemptions.--In order to promote responsible economic or
financial innovation and fair competition, or protect customers, the
Commission may (on its own initiative or on application of the
registered digital commodity exchange) exempt, either unconditionally
or on stated terms or conditions or for stated periods and either
retroactively or prospectively, or both, a registered digital commodity
exchange from the requirements of this section, if the Commission
determines that--
``(1)(A) the exemption would be consistent with the public
interest and the purposes of this Act; and
``(B) the exemption will not have a material adverse effect
on the ability of the Commission or the digital commodity
exchange to discharge regulatory or self-regulatory duties
under this Act; or
``(2) the digital commodity exchange is subject to
comparable, comprehensive supervision and regulation by the
appropriate government authorities in the home country of the
exchange.
``(j) Customer Defined.--In this section, the term `customer' means
any person that maintains an account for the trading of digital
commodities directly with a digital commodity exchange (other than a
person that is owned or controlled, directly or indirectly, by the
digital commodity exchange) for its own behalf or on behalf of other
any person.
``(k) Federal Preemption.--Notwithstanding any other provision of
law, the Commission shall have exclusive jurisdiction over any digital
commodity exchange registered under this section.
``(l) Treatment Under the Bank Secrecy Act.--A registered digital
commodity exchange shall be treated as a financial institution for
purposes of the Bank Secrecy Act.''.
SEC. 405. QUALIFIED DIGITAL COMMODITY CUSTODIANS.
The Commodity Exchange Act (7 U.S.C. 1 et seq.), as amended by the
preceding provisions of this Act, is amended by inserting after section
5i the following:
``SEC. 5J. QUALIFIED DIGITAL COMMODITY CUSTODIANS.
``(a) In General.--For purposes of this Act, a qualified digital
commodity custodian is a digital commodity custodian who meets the
following conditions:
``(1) Supervision.--The digital commodity custodian is
subject to adequate supervision and appropriate regulation.
``(2) No prohibition.--The digital commodity custodian is--
``(A) subject to the supervision of--
``(i) an appropriate Federal banking agency;
``(ii) a State bank supervisor (within the
meaning of section 3 of the Federal Deposit
Insurance Act); or
``(iii) an appropriate foreign governmental
authority in the home country of the digital
commodity custodian; and
``(B) not prohibited by the applicable supervisor
referred to in subparagraph (A) from engaging in any
activity with respect to the holding of digital
commodities.
``(3) Information sharing.--
``(A) In general.--The digital commodity custodian
agrees to such periodic sharing of information
regarding customer accounts the digital commodity
custodian holds on behalf of an entity registered with
the Commission, as the Commission determines by rule
shall be reasonably necessary to effectuate any of the
provisions, or to accomplish any of the purposes, of
this Act.
``(B) Provision of information.--Any person that is
subject to regulation and examination by a prudential
regulator may satisfy any information request described
in subparagraph (A), by providing the Commission with a
detailed listing, in writing, of the digital
commodities of a customer within the custody or use of
the person.
``(b) Adequate Supervision and Appropriate Regulation Further
Defined.--
``(1) In general.--In subsection (a), the terms `adequate
supervision' and `appropriate regulation' mean such minimum
standards for supervision and regulation as are reasonably
necessary to protect the digital commodities of customers of an
entity registered with the Commission, including minimum
standards relating to--
``(A) accessibility of customer assets;
``(B) financial resources;
``(C) risk management requirements;
``(D) governance arrangements;
``(E) fitness standards;
``(F) recordkeeping;
``(G) information sharing; and
``(H) conflicts of interest.
``(2) Deemed compliance.--For purposes of subsection (a), a
bank subject to the supervision of an appropriate Federal
banking agency or a State bank supervisor (within the meaning
of section 3 of the Federal Deposit Insurance Act) is deemed to
be subject to adequate supervision and appropriate regulation.
``(3) Rulemaking authority.--For purposes of subsection (a),
the Commission, by rule or order, may further define the terms
`adequate supervision' and `appropriate regulation' as
necessary in the public interest, as appropriate for the
protection of customers, and consistent with the purposes of
this Act.
``(c) Authority To Temporarily Suspend Standards.--The Commission
may, by rule or order, temporarily suspend, in whole or in part, any
requirement imposed under, or any standard referred to in, this section
if the Commission determines that the suspension would be consistent
with the public interest and the purposes of this Act.''.
SEC. 406. REGISTRATION AND REGULATION OF DIGITAL COMMODITY BROKERS AND
DEALERS.
The Commodity Exchange Act (7 U.S.C. 1 et seq.), as amended by the
preceding provisions of this Act, is amended by inserting after section
4t the following:
``SEC. 4U. REGISTRATION AND REGULATION OF DIGITAL COMMODITY BROKERS AND
DEALERS.
``(a) Registration.--It shall be unlawful for any person to act as a
digital commodity broker or digital commodity dealer unless the person
is registered as such with the Commission.
``(b) Requirements.--
``(1) In general.--A person shall register as a digital
commodity broker or digital commodity dealer by filing a
registration application with the Commission.
``(2) Contents.--
``(A) In general.--The application shall be made in
such form and manner as is prescribed by the
Commission, and shall contain such information as the
Commission considers necessary concerning the business
in which the applicant is or will be engaged.
``(B) Continual reporting.--A person that is
registered as a digital commodity broker or digital
commodity dealer shall continue to submit to the
Commission reports that contain such information
pertaining to the business of the person as the
Commission may require.
``(3) Transition.--Within 180 days after the date of the
enactment of this section, the Commission shall prescribe rules
providing for the registration of digital commodity brokers and
digital commodity dealers under this section.
``(4) Statutory disqualification.--Except to the extent
otherwise specifically provided by rule, regulation, or order,
it shall be unlawful for a digital commodity broker or digital
commodity dealer to permit any person who is associated with a
digital commodity broker or a digital commodity dealer and who
is subject to a statutory disqualification to effect or be
involved in effecting a contract for sale of a digital
commodity on behalf of the digital commodity broker or the
digital commodity dealer, respectively, if the digital
commodity broker or digital commodity dealer, respectively,
knew, or in the exercise of reasonable care should have known,
of the statutory disqualification.
``(5) Limitations on certain assets.--A registered digital
commodity broker or registered digital commodity dealer shall
not offer, offer to enter into, enter into, or facilitate any
contract for sale of a digital commodity that has not been
certified under section 5c(d).
``(c) Additional Registrations.--
``(1) With the commission.--Any person required to be
registered as a digital commodity broker or digital commodity
dealer may also be registered as a futures commission merchant,
introducing broker, or swap dealer.
``(2) With the securities and exchange commission.--Any
person required to be registered as a digital commodity broker
or digital commodity dealer under this section may register
with the Securities and Exchange Commission as a digital asset
broker or digital asset dealer, pursuant to section 15(b) of
the Securities Exchange Act of 1934, as applicable, if the
digital asset broker or digital asset dealer limits its
solicitation of orders, acceptance of orders, or execution of
orders, or placing of orders on behalf of others involving any
contract of sale of digital assets.
``(3) With membership in a registered futures association.--
Any person required to be registered as a digital commodity
broker or digital commodity dealer under this section shall be
a member of a registered futures association.
``(4) Registration required.--Any person required to be
registered as a digital commodity broker or digital commodity
dealer under this section shall register with the Commission as
such regardless of whether the person is registered as such
with another State or Federal regulator.
``(d) Rulemaking.--
``(1) In general.--The Commission shall prescribe such rules
applicable to registered digital commodity brokers and
registered digital commodity dealers as are appropriate to
carry out this section, including rules in the public interest
that limit the activities of digital commodity brokers and
digital commodity dealers.
``(2) Multiple registrants.--The Commission shall prescribe
rules or regulations permitting, or may otherwise authorize,
exemptions or additional requirements applicable to persons
with multiple registrations under this Act, including as
futures commission merchants, introducing brokers, digital
commodity brokers, digital commodity dealers, or swap dealers,
as may be in the public interest to reduce compliance costs and
promote customer protection.
``(e) Capital Requirements.--
``(1) In general.--Each registered digital commodity broker
and registered digital commodity dealer shall meet such minimum
capital requirements as the Commission may prescribe to ensure
that the digital commodity broker or digital commodity dealer,
respectively, is able to--
``(A) meet, and continue to meet, at all times, the
obligations of such a registrant;
``(B) conduct an orderly wind-down of the activities
of the digital commodity broker or digital commodity
dealer, respectively; and
``(C) in the case of a digital commodity dealer,
fulfill the customer obligations of the digital
commodity dealer for any margined, leveraged, or
financed transactions.
``(2) Rule of construction.--Nothing in this section shall
limit, or be construed to limit, the authority of the
Securities and Exchange Commission to set financial
responsibility rules for a broker or dealer registered pursuant
to section 15(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78o(b)) (except for section 15(b)(11) of such Act (15
U.S.C. 78o(b)(11)) in accordance with section 15(c)(3) of such
Act (15 U.S.C. 78o(c)(3)).
``(3) Futures commission merchants and other dealers.--
``(A) In general.--Each futures commission merchant,
introducing broker, digital commodity broker, digital
commodity dealer, broker, and dealer shall maintain
sufficient capital to comply with the stricter of any
applicable capital requirements to which the futures
commission merchant, introducing broker, digital
commodity broker, digital commodity dealer, broker, or
dealer, respectively, is subject under this Act or the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.).
``(B) Coordination of capital requirements.--
``(i) Commission rule.--The Commission shall,
by rule, provide appropriate offsets to any
applicable capital requirement for a person
with multiple registrations as a digital
commodity dealer, digital commodity broker,
futures commission merchant, or introducing
broker.
``(ii) Joint rule.--The Commission and the
Securities and Exchange Commission shall
jointly, by rule, provide appropriate offsets
to any applicable capital requirement for a
person with multiple registrations as a digital
commodity dealer, digital commodity broker,
futures commission merchant, introducing
broker, broker, or dealer.
``(f) Reporting and Recordkeeping.--Each registered digital commodity
broker and registered digital commodity dealer--
``(1) shall make such reports as are required by the
Commission by rule or regulation regarding the transactions,
positions, and financial condition of the digital commodity
broker or digital commodity dealer, respectively;
``(2) shall keep books and records in such form and manner
and for such period as may be prescribed by the Commission by
rule or regulation; and
``(3) shall keep the books and records open to inspection and
examination by any representative of the Commission.
``(g) Daily Trading Records.--
``(1) In general.--Each registered digital commodity broker
and registered digital commodity dealer shall maintain daily
trading records of the transactions of the digital commodity
broker or digital commodity dealer, respectively, and all
related records (including related forward or derivatives
transactions) and recorded communications, including electronic
mail, instant messages, and recordings of telephone calls, for
such period as the Commission may require by rule or
regulation.
``(2) Information requirements.--The daily trading records
shall include such information as the Commission shall require
by rule or regulation.
``(3) Counterparty records.--Each registered digital
commodity broker and registered digital commodity dealer shall
maintain daily trading records for each customer or
counterparty in a manner and form that is identifiable with
each digital commodity transaction.
``(4) Audit trail.--Each registered digital commodity broker
and registered digital commodity dealer shall maintain a
complete audit trail for conducting comprehensive and accurate
trade reconstructions.
``(h) Business Conduct Standards.--
``(1) In general.--Each registered digital commodity broker
and registered digital commodity dealer shall conform with such
business conduct standards as the Commission, by rule or
regulation, prescribes related to--
``(A) fraud, manipulation, and other abusive
practices involving spot or margined, leveraged, or
financed digital commodity transactions (including
transactions that are offered but not entered into);
``(B) diligent supervision of the business of the
registered digital commodity broker or digital
commodity dealer, respectively; and
``(C) such other matters as the Commission deems
appropriate.
``(2) Business conduct requirements.--The Commission shall,
by rule, prescribe business conduct requirements which--
``(A) require disclosure by a registered digital
commodity broker and registered digital commodity
dealer to any counterparty to the transaction (other
than an eligible contract participant) of--
``(i) information about the material risks
and characteristics of the digital commodity;
and
``(ii) information about the material risks
and characteristics of the transaction;
``(B) establish a duty for such a digital commodity
broker and such a digital commodity dealer to
communicate in a fair and balanced manner based on
principles of fair dealing and good faith;
``(C) establish standards governing digital commodity
platform marketing and advertising, including
testimonials and endorsements; and
``(D) establish such other standards and requirements
as the Commission may determine are--
``(i) in the public interest;
``(ii) appropriate for the protection of
customers; or
``(iii) otherwise in furtherance of the
purposes of this Act.
``(3) Prohibition on fraudulent practices.--It shall be
unlawful for a registered digital commodity broker or
registered digital commodity dealer to--
``(A) employ any device, scheme, or artifice to
defraud any customer or counterparty;
``(B) engage in any transaction, practice, or course
of business that operates as a fraud or deceit on any
customer or counterparty; or
``(C) engage in any act, practice, or course of
business that is fraudulent, deceptive, or
manipulative.
``(i) Duties.--
``(1) Risk management procedures.--Each registered digital
commodity broker and registered digital commodity dealer shall
establish robust and professional risk management systems
adequate for managing the day-to-day business of the digital
commodity broker or digital commodity dealer, respectively.
``(2) Disclosure of general information.--Each registered
digital commodity broker and registered digital commodity
dealer shall disclose to the Commission information
concerning--
``(A) the terms and conditions of the transactions of
the digital commodity broker or digital commodity
dealer, respectively;
``(B) the trading operations, mechanisms, and
practices of the digital commodity broker or digital
commodity dealer, respectively;
``(C) financial integrity protections relating to the
activities of the digital commodity broker or digital
commodity dealer, respectively; and
``(D) other information relevant to trading in
digital commodities by the digital commodity broker or
digital commodity dealer, respectively.
``(3) Ability to obtain information.--Each registered digital
commodity broker and registered digital commodity dealer
shall--
``(A) establish and enforce internal systems and
procedures to obtain any necessary information to
perform any of the functions described in this section;
and
``(B) provide the information to the Commission, on
request.
``(4) Conflicts of interest.--Each registered digital
commodity broker and digital commodity dealer shall implement
conflict-of-interest systems and procedures that--
``(A) establish structural and institutional
safeguards--
``(i) to minimize conflicts of interest that
might potentially bias the judgment or
supervision of the digital commodity broker or
digital commodity dealer, respectively, and
contravene the principles of fair and equitable
trading and the business conduct standards
described in this Act, including conflicts
arising out of transactions or arrangements
with affiliates (including affiliates acting as
digital asset issuers, digital commodity
dealers, or qualified digital commodity
custodians), which may include information
partitions and the legal separation of
different digital commodity transaction
intermediaries; and
``(ii) to ensure that the activities of any
person within the digital commodity broker or
digital commodity dealer relating to research
or analysis of the price or market for any
digital commodity or acting in a role of
providing exchange activities or making
determinations as to accepting exchange
customers are separated by appropriate
informational partitions within the digital
commodity broker or digital commodity dealer
from the review, pressure, or oversight of
persons whose involvement in pricing, trading,
exchange, or clearing activities might
potentially bias their judgment or supervision
and contravene the core principles of open
access and the business conduct standards
described in this Act; and
``(B) address such other issues as the Commission
determines to be appropriate.
``(5) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, a digital
commodity broker or digital commodity dealer shall not--
``(A) adopt any process or take any action that
results in any unreasonable restraint of trade; or
``(B) impose any material anticompetitive burden on
trading or clearing.
``(j) Designation of Chief Compliance Officer.--
``(1) In general.--Each registered digital commodity broker
and registered digital commodity dealer shall designate an
individual to serve as a chief compliance officer.
``(2) Duties.--The chief compliance officer shall--
``(A) report directly to the board or to the senior
officer of the registered digital commodity broker or
registered digital commodity dealer;
``(B) review the compliance of the registered digital
commodity broker or registered digital commodity dealer
with respect to the registered digital commodity broker
and registered digital commodity dealer requirements
described in this section;
``(C) in consultation with the board of directors, a
body performing a function similar to the board, or the
senior officer of the organization, resolve any
conflicts of interest that may arise;
``(D) be responsible for administering each policy
and procedure that is required to be established
pursuant to this section;
``(E) ensure compliance with this Act (including
regulations), including each rule prescribed by the
Commission under this section;
``(F) establish procedures for the remediation of
noncompliance issues identified by the chief compliance
officer through any--
``(i) compliance office review;
``(ii) look-back;
``(iii) internal or external audit finding;
``(iv) self-reported error; or
``(v) validated complaint; and
``(G) establish and follow appropriate procedures for
the handling, management response, remediation,
retesting, and closing of noncompliance issues.
``(3) Annual reports.--
``(A) In general.--In accordance with rules
prescribed by the Commission, the chief compliance
officer shall annually prepare and sign a report that
contains a description of--
``(i) the compliance of the registered
digital commodity broker or registered digital
commodity dealer with respect to this Act
(including regulations); and
``(ii) each policy and procedure of the
registered digital commodity broker or
registered digital commodity dealer of the
chief compliance officer (including the code of
ethics and conflict of interest policies).
``(B) Requirements.--The chief compliance officer
shall ensure that a compliance report under
subparagraph (A)--
``(i) accompanies each appropriate financial
report of the registered digital commodity
broker or registered digital commodity dealer
that is required to be furnished to the
Commission pursuant to this section; and
``(ii) includes a certification that, under
penalty of law, the compliance report is
accurate and complete.
``(k) Segregation of Digital Commodities.--
``(1) Holding of customer assets.--
``(A) In general.--Each registered digital commodity
broker and registered digital commodity dealer shall
hold customer money, assets, and property in a manner
to minimize the risk of loss to the customer or
unreasonable delay in customer access to the money,
assets, and property of the customer.
``(B) Qualified digital commodity custodian.--Each
registered digital commodity broker and registered
digital commodity dealer shall hold in a qualified
digital commodity custodian each unit of a digital
commodity that is--
``(i) the property of a customer or
counterparty of the digital commodity broker or
digital commodity dealer, respectively; or
``(ii) otherwise so required by the
Commission to reasonably protect customers or
promote the public interest.
``(2) Segregation of funds.--
``(A) In general.--Each registered digital commodity
broker and registered digital commodity dealer shall
treat and deal with all money, assets, and property
that is received by the registered digital commodity
broker or registered digital commodity dealer, or
accrues to a customer as the result of trading in
digital commodities, as belonging to the customer.
``(B) Commingling prohibited.--
``(i) In general.--Except as provided in
clause (ii), each registered digital commodity
broker and registered digital commodity dealer
shall separately account for money, assets, and
property of a digital commodity customer, and
shall not commingle any such money, assets, or
property with the funds of the digital
commodity broker or digital commodity dealer,
respectively, or use any such money, assets, or
property to margin, secure, or guarantee any
trades or accounts of any customer or person
other than the person for whom the money,
assets, or property are held.
``(ii) Exceptions.--
``(I) Use of funds.--
``(aa) In general.--A
registered digital commodity
broker or registered digital
commodity dealer may, for
convenience, commingle and
deposit in the same account or
accounts with any bank, trust
company, derivatives clearing
organization, or qualified
digital commodity custodian
money, assets, and property of
customers.
``(bb) Withdrawal.--The share
of the money, assets, and
property described in item (aa)
as in the normal course of
business shall be necessary to
margin, guarantee, secure,
transfer, adjust, or settle a
contract for sale of a digital
commodity with a registered
entity may be withdrawn and
applied to such purposes,
including the payment of
commissions, brokerage,
interest, taxes, storage, and
other charges, lawfully
accruing in connection with the
contract.
``(II) Commission action.--In
accordance with such terms and
conditions as the Commission may
prescribe by rule, regulation, or
order, any money, assets, or property
of the customers of a registered
digital commodity broker or registered
digital commodity dealer may be
commingled and deposited in customer
accounts with any other money, assets,
or property received by the digital
commodity broker or digital commodity
dealer, respectively, and required by
the Commission to be separately
accounted for and treated and dealt
with as belonging to the customer of
the digital commodity broker or digital
commodity dealer, respectively.
``(3) Permitted investments.--Money described in paragraph
(2) may be invested in obligations of the United States, in
general obligations of any State or of any political
subdivision of a State, in obligations fully guaranteed as to
principal and interest by the United States, or in any other
investment that the Commission may by rule or regulation allow.
``(4) Customer protection during bankruptcy.--
``(A) Customer property.--All money, assets, or
property described in paragraph (2) shall be considered
customer property for purposes of section 761 of title
11, United States Code.
``(B) Transactions.--A transaction involving a unit
of a digital commodity occurring with a digital
commodity dealer shall be considered a `contract for
the purchase or sale of a commodity for future
delivery, on or subject to the rules of, a contract
market or board of trade' for purposes of the
definition of a `commodity contract' in section 761 of
title 11, United States Code.
``(C) Brokers and dealers.--A registered digital
commodity dealer and a registered digital commodity
broker shall be considered a futures commission
merchant for purposes of section 761 of title 11,
United States Code.
``(D) Assets removed from segregation.--Assets
removed from segregation due to a customer election
under paragraph (5) shall not be considered customer
property for purposes of section 761 of title 11,
United States Code.
``(5) Misuse of customer property.--
``(A) In general.--It shall be unlawful--
``(i) for any digital commodity broker or
digital commodity dealer that has received any
customer money, assets, or property for custody
to dispose of, or use any such money, assets,
or property as belonging to the digital
commodity broker or digital commodity dealer,
respectively; or
``(ii) for any other person, including any
depository, digital commodity exchange, other
digital commodity broker, other digital
commodity dealer, or digital commodity
custodian that has received any customer money,
assets, or property for deposit, to hold,
dispose of, or use any such money, assets, or
property, as belonging to the depositing
digital commodity broker or digital commodity
dealer or any person other than the customers
of the digital commodity broker or digital
commodity dealer, respectively.
``(B) Use further defined.--For purposes of this
section, `use' of a digital commodity includes
utilizing any unit of a digital asset to participate in
a blockchain service defined in paragraph (5) or a
decentralized governance system associated with the
digital commodity or the blockchain system to which the
digital commodity relates in any manner other than that
expressly directed by the customer from whom the unit
of a digital commodity was received.
``(6) Participation in blockchain services.--
``(A) In general.--A customer shall have the right to
waive the restrictions in paragraph (1) for any unit of
a digital commodity, by affirmatively electing, in
writing to the digital commodity broker or digital
commodity dealer, to waive the restrictions.
``(B) Use of funds.--Customer digital commodities
removed from segregation under subparagraph (A) may be
pooled and used by the digital commodity broker or
digital commodity dealer, or one of their designees, to
provide a blockchain service for a blockchain system to
which the unit of the digital asset removed from
segregation in subparagraph (A) relates.
``(C) Limitations.--The Commission may, by rule,
establish notice and disclosure requirements, and any
other limitations and rules related to the waiving of
any restrictions under this paragraph that are
reasonably necessary to protect customers, including
eligible contract participants, non-eligible contract
participants, or any other class of customers.
``(D) Blockchain service defined.--In this
subparagraph, the term `blockchain service' means any
activity relating to validating transactions on a
blockchain system, providing security for a blockchain
system, or other similar activity required for the
ongoing operation of a blockchain system.
``(l) Federal Preemption.--Notwithstanding any other provision of
law, the Commission shall have exclusive jurisdiction over any digital
commodity broker or digital commodity dealer registered under this
section.
``(m) Exemptions.--In order to promote responsible economic or
financial innovation and fair competition, or protect customers, the
Commission may (on its own initiative or on application of the
registered digital commodity broker or registered digital commodity
dealer) exempt, unconditionally or on stated terms or conditions, or
for stated periods, and retroactively or prospectively, or both, a
registered digital commodity broker or registered digital commodity
dealer from the requirements of this section, if the Commission
determines that--
``(1)(A) the exemption would be consistent with the public
interest and the purposes of this Act; and
``(B) the exemption will not have a material adverse effect
on the ability of the Commission or the digital commodity
broker or digital commodity dealer to discharge regulatory
duties under this Act; or
``(2) the registered digital commodity broker or registered
digital commodity dealer is subject to comparable,
comprehensive supervision and regulation by the appropriate
government authorities in the home country of the registered
digital commodity broker or registered digital commodity
dealer, respectively.
``(n) Treatment Under the Bank Secrecy Act.--A registered digital
commodity broker and a registered digital commodity dealer shall be
treated as a financial institution for purposes of the Bank Secrecy
Act.''.
SEC. 407. REGISTRATION OF ASSOCIATED PERSONS.
(a) In General.--Section 4k of the Commodity Exchange Act (7 U.S.C.
6k) is amended--
(1) by redesignating subsections (4) through (6) as
subsections (5) through (7), respectively; and
(2) by inserting after subsection (3) the following:
``(4) It shall be unlawful for any person to act as an associated
person of a digital commodity broker or an associated person of a
digital commodity dealer unless the person is registered with the
Commission under this Act and such registration shall not have expired,
been suspended (and the period of suspension has not expired), or been
revoked. It shall be unlawful for a digital commodity broker or a
digital commodity dealer to permit such a person to become or remain
associated with the digital commodity broker or digital commodity
dealer if the digital commodity broker or digital commodity dealer knew
or should have known that the person was not so registered or that the
registration had expired, been suspended (and the period of suspension
has not expired), or been revoked.''; and
(3) in subsection (5) (as so redesignated), by striking ``or
of a commodity trading advisor'' and inserting ``of a commodity
trading advisor, of a digital commodity broker, or of a digital
commodity dealer''.
(b) Conforming Amendments.--The Commodity Exchange Act (7 U.S.C. 1a
et seq.) is amended by striking ``section 4k(6)'' each place it appears
and inserting ``section 4k(7)''.
SEC. 408. REGISTRATION OF COMMODITY POOL OPERATORS AND COMMODITY
TRADING ADVISORS.
Section 4m(3) of the Commodity Exchange Act (7 U.S.C. 6m(3)) is
amended--
(1) in subparagraph (A)--
(A) by striking ``any commodity trading advisor'' and
inserting ``a commodity pool operator or commodity
trading advisor''; and
(B) by striking ``acting as a commodity trading
advisor'' and inserting ``acting as a commodity pool
operator or commodity trading advisor''; and
(2) in subparagraph (C), by inserting ``digital
commodities,'' after ``physical commodities,''.
SEC. 409. EXCLUSION FOR ANCILLARY ACTIVITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.), as amended by the
preceding provisions of this Act, is amended by inserting after section
4u the following:
``SEC. 4V. EXCLUSION FOR ANCILLARY ACTIVITIES.
``(a) In General.--Notwithstanding any other provision of this Act, a
person shall not be subject to this Act and the regulations promulgated
under this Act solely based on the person undertaking any ancillary
activities.
``(b) Exceptions.--Subsection (a) shall not be construed to apply to
the antimanipulation, antifraud, or false reporting enforcement
authorities of the Commission.
``(c) Ancillary Activities Defined.--In this section, the term
`ancillary activities' means any of the following activities related to
the operation of a blockchain system:
``(1) Compiling network transactions, operating a pool,
relaying, searching, sequencing, validating, or acting in a
similar capacity with respect to a digital commodity
transaction.
``(2) Providing computational work, operating a node, or
procuring, offering, or utilizing network bandwidth, or other
similar incidental services with respect to a digital commodity
transaction.
``(3) Providing a user interface that enables a user to read,
and access data about a blockchain system, send messages, or
otherwise interact with a blockchain system.
``(4) Developing, publishing, constituting, administering,
maintaining, or otherwise distributing a blockchain system.
``(5) Developing, publishing, constituting, administering,
maintaining, or otherwise distributing software or systems that
create or deploy hardware or software, including wallets or
other systems, facilitating an individual user's own personal
ability to keep, safeguard, or custody a user's digital
commodities or related private keys.''.
SEC. 410. EFFECTIVE DATE.
Unless otherwise provided in this title, this title and the
amendments made by this title shall take effect 360 days after the date
of enactment of this Act, except that, to the extent a provision of
this title requires a rulemaking, the provision shall take effect on
the later of--
(1) 360 days after the date of enactment of this Act; or
(2) 60 days after the publication in the Federal Register of
the final rule implementing the provision.
TITLE V--INNOVATION AND TECHNOLOGY IMPROVEMENTS
SEC. 501. CODIFICATION OF THE SEC STRATEGIC HUB FOR INNOVATION AND
FINANCIAL TECHNOLOGY.
Section 4 of the Securities Exchange Act of 1934 (15 U.S.C. 78d) is
amended by adding at the end the following:
``(l) Strategic Hub for Innovation and Financial Technology.--
``(1) Office established.--There is established within the
Commission the Strategic Hub for Innovation and Financial
Technology (referred to in this section as the `FinHub').
``(2) Purposes.--The purposes of FinHub are as follows:
``(A) To assist in shaping the approach of the
Commission to technological advancements in the
financial industry.
``(B) To examine financial technology innovations
within capital markets, market participants, and
investors.
``(C) To coordinate the response of the Commission to
emerging technologies in financial, regulatory, and
supervisory systems.
``(3) Director of finhub.--FinHub shall have a Director who
shall be appointed by the Commission, from among individuals
having experience in both emerging technologies and Federal
securities law and serve at the pleasure of the Commission. The
Director shall report directly to the Commission and perform
such functions and duties as the Commission may prescribe.
``(4) Responsibilities.--FinHub shall--
``(A) foster responsible technological innovation and
fair competition within the Commission, including
around financial technology, regulatory technology, and
supervisory technology;
``(B) provide internal education and training to the
Commission regarding financial technology;
``(C) advise the Commission regarding financial
technology that would serve the Commission's oversight
functions;
``(D) analyze technological advancements and the
impact of regulatory requirements on financial
technology companies;
``(E) advise the Commission with respect to
rulemakings or other agency or staff action regarding
financial technology;
``(F) provide businesses working in emerging
financial technology fields with information on the
Commission, its rules and regulations; and
``(G) encourage firms working in emerging technology
fields to engage with the Commission and obtain
feedback from the Commission on potential regulatory
issues.
``(5) Access to documents.--The Commission shall ensure that
FinHub has full access to the documents and information of the
Commission and any self-regulatory organization, as necessary
to carry out the functions of FinHub.
``(6) Report to congress.--
``(A) In general.--Not later than October 31 of each
year after 2024, FinHub shall submit to the Committee
on Banking, Housing, and Urban Affairs of the Senate
and the Committee on Financial Services of the House of
Representatives a report on the activities of FinHub
during the immediately preceding fiscal year.
``(B) Contents.--Each report required under
subparagraph (A) shall include--
``(i) the total number of persons that met
with FinHub;
``(ii) the total number of market
participants FinHub met with, including the
classification of those participants;
``(iii) a summary of general issues discussed
during meetings with persons;
``(iv) information on steps FinHub has taken
to improve Commission services, including
responsiveness to the concerns of persons;
``(v) recommendations--
``(I) with respect to the regulations
of the Commission and the guidance and
orders of the Commission; and
``(II) for such legislative actions
as the FinHub determines appropriate;
and
``(vi) any other information, as determined
appropriate by the Director of FinHub.
``(C) Confidentiality.--A report under subparagraph
(A) may not contain confidential information.
``(7) Systems of records.--
``(A) In general.--The Commission shall establish a
detailed system of records (as defined under section
552a of title 5, United States Code) to assist FinHub
in communicating with interested parties.
``(B) Entities covered by the system.--Entities
covered by the system required under subparagraph (A)
include entities or persons submitting requests or
inquiries and other information to Commission through
FinHub.
``(C) Security and storage of records.--FinHub shall
store--
``(i) electronic records--
``(I) in the system required under
subparagraph (A); or
``(II) on the secure network or other
electronic medium, such as encrypted
hard drives or back-up media, of the
Commission; and
``(ii) paper records in secure facilities.
``(8) Effective date.--This subsection shall take effect on
the date that is 180 days after the date of the enactment of
this subsection.''.
SEC. 502. CODIFICATION OF LABCFTC.
(a) In General.--Section 18 of the Commodity Exchange Act (7 U.S.C.
22) is amended by adding at the end the following:
``(c) LabCFTC.--
``(1) Establishment.--There is established in the Commission
LabCFTC.
``(2) Purpose.--The purposes of LabCFTC are to--
``(A) promote responsible financial technology
innovation and fair competition for the benefit of the
American public;
``(B) serve as an information platform to inform the
Commission about new financial technology innovation;
and
``(C) provide outreach to financial technology
innovators to discuss their innovations and the
regulatory framework established by this Act and the
regulations promulgated thereunder.
``(3) Director.--LabCFTC shall have a Director, who shall be
appointed by the Commission and serve at the pleasure of the
Commission. Notwithstanding section 2(a)(6)(A), the Director
shall report directly to the Commission and perform such
functions and duties as the Commission may prescribe.
``(4) Duties.--LabCFTC shall--
``(A) advise the Commission with respect to
rulemakings or other agency or staff action regarding
financial technology;
``(B) provide internal education and training to the
Commission regarding financial technology;
``(C) advise the Commission regarding financial
technology that would bolster the Commission's
oversight functions;
``(D) engage with academia, students, and
professionals on financial technology issues, ideas,
and technology relevant to activities under this Act;
``(E) provide persons working in emerging technology
fields with information on the Commission, its rules
and regulations, and the role of a registered futures
association; and
``(F) encourage persons working in emerging
technology fields to engage with the Commission and
obtain feedback from the Commission on potential
regulatory issues.
``(5) Access to documents.--The Commission shall ensure that
LabCFTC has full access to the documents and information of the
Commission and any self-regulatory organization or registered
futures association, as necessary to carry out the functions of
LabCFTC.
``(6) Report to congress.--
``(A) In general.--Not later than October 31 of each
year after 2024, LabCFTC shall submit to the Committee
on Agriculture of the House of Representatives and the
Committee on Agriculture, Nutrition, and Forestry of
the Senate a report on its activities.
``(B) Contents.--Each report required under paragraph
(1) shall include--
``(i) the total number of persons that met
with LabCFTC;
``(ii) a summary of general issues discussed
during meetings with the person;
``(iii) information on steps LabCFTC has
taken to improve Commission services, including
responsiveness to the concerns of persons;
``(iv) recommendations made to the Commission
with respect to the regulations, guidance, and
orders of the Commission and such legislative
actions as may be appropriate; and
``(v) any other information determined
appropriate by the Director of LabCFTC.
``(C) Confidentiality.--A report under paragraph (A)
shall abide by the confidentiality requirements in
section 8.
``(7) Systems of records.--
``(A) In general.--The Commission shall establish a
detailed system of records (as defined in section 552a
of title 5, United States Code) to assist LabCFTC in
communicating with interested parties.
``(B) Persons covered by the system.--The persons
covered by the system of records shall include persons
submitting requests or inquiries and other information
to the Commission through LabCFTC.
``(C) Security and storage of records.--The system of
records shall store records electronically or on paper
in secure facilities, and shall store electronic
records on the secure network of the Commission and on
other electronic media, such as encrypted hard drives
and back-up media, as needed.''.
(b) Conforming Amendments.--Section 2(a)(6)(A) of such Act (7 U.S.C.
2(a)(6)(A)) is amended--
(1) by striking ``paragraph and in'' and inserting
``paragraph,''; and
(2) by inserting ``and section 18(c)(3),'' before ``the
executive''.
(c) Effective Date.--The Commodity Futures Trading Commission shall
implement the amendments made by this section (including complying with
section 18(c)(7) of the Commodity Exchange Act) within 180 days after
the date of the enactment of this Act.
SEC. 503. CFTC-SEC JOINT ADVISORY COMMITTEE ON DIGITAL ASSETS.
(a) Establishment.--The Commodity Futures Trading Commission and the
Securities and Exchange Commission (in this section referred to as the
``Commissions'') shall jointly establish the Joint Advisory Committee
on Digital Assets (in this section referred to as the ``Committee'').
(b) Purpose.--
(1) In general.--The Committee shall--
(A) provide the Commissions with advice on the rules,
regulations, and policies of the Commissions related to
digital assets;
(B) further the regulatory harmonization of digital
asset policy between the Commissions;
(C) examine and disseminate methods for describing,
measuring, and quantifying digital asset--
(i) decentralization;
(ii) functionality;
(iii) information asymmetries; and
(iv) transaction and network security;
(D) examine the potential for digital assets,
blockchain systems, and distributed ledger technology
to improve efficiency in the operation of financial
market infrastructure and better protect financial
market participants, including services and systems
which provide--
(i) improved customer protections;
(ii) public availability of information;
(iii) greater transparency regarding customer
funds;
(iv) reduced transaction cost; and
(v) increased access to financial market
services; and
(E) discuss the implementation by the Commissions of
this Act and the amendments made by this Act.
(2) Review by agencies.--Each Commission shall--
(A) review the findings and recommendations of the
Committee;
(B) promptly issue a public statement each time the
Committee submits a finding or recommendation to a
Commission--
(i) assessing the finding or recommendation
of the Committee;
(ii) disclosing the action or decision not to
take action made by the Commission in response
to a finding or recommendation; and
(iii) explaining the reasons for the action
or decision not to take action; and
(C) each time the Committee submits a finding or
recommendation to a Commission, provide the Committee
with a formal response to the finding or recommendation
not later than 3 months after the date of the
submission of the finding or recommendation.
(c) Membership and Leadership.--
(1) Non-federal members.--
(A) In general.--The Commissions shall appoint at
least 20 nongovernmental stakeholders with a wide
diversity of opinion and who represent a broad spectrum
of interests representing the digital asset ecosystem,
equally divided between the Commissions, to serve as
members of the Committee. The appointees shall
include--
(i) digital asset issuers;
(ii) persons registered with the Commissions
and engaged in digital asset related
activities;
(iii) individuals engaged in academic
research relating to digital assets; and
(iv) digital asset users.
(B) Members not commission employees.--Members
appointed under subparagraph (A) shall not be deemed to
be employees or agents of a Commission solely by reason
of membership on the Committee.
(2) Co-designated federal officers.--
(A) Number; appointment.--There shall be 2 co-
designated Federal officers of the Committee, as
follows:
(i) The Director of LabCFTC of the Commodity
Futures Trading Commission.
(ii) The Director of the Strategic Hub for
Innovation and Financial Technology of the
Securities and Exchange Commission.
(B) Duties.--The duties required by chapter 10 of
title 5, United States Code, to be carried out by a
designated Federal officer with respect to the
Committee shall be shared by the co-designated Federal
officers of the Committee.
(3) Committee leadership.--
(A) Composition; election.--The Committee members
shall elect, from among the Committee members--
(i) a chair;
(ii) a vice chair;
(iii) a secretary; and
(iv) an assistant secretary.
(B) Term of office.--Each member elected under
subparagraph (A) in a 2-year period referred to in
section 1013(b)(2) of title 5, United States Code,
shall serve in the capacity for which the member was so
elected, until the end of the 2-year period.
(d) No Compensation for Committee Members.--
(1) Non-federal members.--All Committee members appointed
under subsection (c)(1) shall--
(A) serve without compensation; and
(B) while away from the home or regular place of
business of the member in the performance of services
for the Committee, be allowed travel expenses,
including per diem in lieu of subsistence, in the same
manner as persons employed intermittently in the
Government service are allowed expenses under section
5703(b) of title 5, United States Code.
(2) No compensation for co-designated federal officers.--The
co-designated Federal officers shall serve without compensation
in addition to that received for their services as officers or
employees of the United States.
(e) Frequency of Meetings.--The Committee shall meet--
(1) not less frequently than twice annually; and
(2) at such other times as either Commission may request.
(f) Duration.--Section 1013(a)(2) of title 5, United States Code,
shall not apply to the Committee.
(g) Time Limits.--The Commissions shall--
(1) adopt a joint charter for the Committee within 90 days
after the date of the enactment of this section;
(2) appoint members to the Committee within 120 days after
such date of enactment; and
(3) hold the initial meeting of the Committee within 180 days
after such date of enactment.
(h) Funding.--The Commissions shall jointly fund the Committee.
SEC. 504. STUDY ON DECENTRALIZED FINANCE.
(a) In General.--The Commodity Futures Trading Commission and the
Securities and Exchange Commission shall jointly carry out a study on
decentralized finance that analyzes--
(1) the nature, size, role, and use of decentralized finance
blockchain protocols;
(2) the operation of blockchain protocols that comprise
decentralized finance;
(3) the interoperability of blockchain protocols and
blockchain systems;
(4) the interoperability of blockchain protocols and
software-based systems, including websites and wallets;
(5) the decentralized governance systems through which
blockchain protocols may be developed, published, constituted,
administered, maintained, or otherwise distributed, including--
(A) whether the systems enhance or detract from--
(i) the decentralization of the decentralized
finance; and
(ii) the inherent risks of the decentralized
governance system; and
(B) any procedures or requirements that would
mitigate the risks identified in subparagraph (A)(ii);
(6) the benefits of decentralized finance, including--
(A) operational resilience and interoperability of
blockchain-based systems;
(B) market competition and innovation;
(C) transaction efficiency;
(D) transparency and traceability of transactions;
and
(E) disintermediation;
(7) the risks of decentralized finance, including--
(A) pseudonymity of users and transactions;
(B) disintermediation; and
(C) cybersecurity vulnerabilities;
(8) the extent to which decentralized finance has integrated
with the traditional financial markets and any potential risks
to stability of the markets;
(9) how the levels of illicit activity in decentralized
finance compare with the levels of illicit activity in
traditional financial markets;
(10) how decentralized finance may increase the accessibility
of cross-border transactions; and
(11) the feasibility of embedding self-executing compliance
and risk controls into decentralized finance.
(b) Report.--Not later than 1 year after the date of enactment of
this Act, the Commodity Futures Trading Commission and the Securities
and Exchange Commission shall jointly submit to the relevant
congressional committees a report that includes the results of the
study required by subsection (a).
(c) GAO Study.--The Comptroller General of the United States shall--
(1) carry out a study on decentralized finance that analyzes
the information described under paragraphs (1) through (11) of
subsection (a); and
(2) not later than 1 year after the date of enactment of this
Act, submit to the relevant congressional committees a report
that includes the results of the study required by paragraph
(1).
(d) Definitions.--In this section:
(1) Decentralized finance.--
(A) In general.--The term ``decentralized finance''
means blockchain protocols that allow users to engage
in financial transactions in a self-directed manner so
that a third-party intermediary does not effectuate the
transactions or take custody of digital assets of a
user during any part of the transactions.
(B) Relationship to ancillary activities.--The term
``decentralized finance'' shall not be interpreted to
limit or exclude any activity from the meaning of
``ancillary activities'', as defined in section 15H(c)
of the Securities Exchange Act of 1934 or section 4v(c)
of the Commodity Exchange Act.
(2) Relevant congressional committees.--The term ``relevant
congressional committees'' means--
(A) the Committees on Financial Services and
Agriculture of the House of Representatives; and
(B) the Committees on Banking, Housing, and Urban
Affairs and Agriculture, Nutrition, and Forestry of the
Senate.
SEC. 505. STUDY ON NON-FUNGIBLE DIGITAL ASSETS.
(a) The Comptroller General of the United States shall carry out a
study of non-fungible digital assets that analyzes--
(1) the nature, size, role, purpose, and use of non-fungible
digital assets;
(2) the similarities and differences between non-fungible
digital assets and other digital assets, including digital
commodities and payment stablecoins, and how the markets for
those digital assets intersect with each other;
(3) how non-fungible digital assets are minted by issuers and
subsequently administered to purchasers;
(4) how non-fungible digital assets are stored after being
purchased by a consumer;
(5) the interoperability of non-fungible digital assets
between different blockchain systems;
(6) the scalability of different non-fungible digital asset
marketplaces;
(7) the benefits of non-fungible digital assets, including
verifiable digital ownership;
(8) the risks of non-fungible tokens, including--
(A) intellectual property rights;
(B) cybersecurity risks; and
(C) market risks;
(9) whether and how non-fungible digital assets have
integrated with traditional marketplaces, including those for
music, real estate, gaming, events, and travel;
(10) whether non-fungible tokens can be used to facilitate
commerce or other activities through the representation of
documents, identification, contracts, licenses, and other
commercial, government, or personal records;
(11) any potential risks to traditional markets from such
integration; and
(12) the levels and types of illicit activity in non-fungible
digital asset markets.
(b) Report.--Not later than 1 year after the date of the enactment of
this Act, the Secretary of Commerce, shall make publicly available a
report that includes the results of the study required by subsection
(a).
SEC. 506. STUDY ON EXPANDING FINANCIAL LITERACY AMONGST DIGITAL ASSET
HOLDERS.
(a) In General.-- The Commodity Futures Trading Commission with the
Securities and Exchange Commission shall jointly conduct a study to
identify--
(1) the existing level of financial literacy among retail
digital asset holders, including subgroups of investors
identified by the Commodity Futures Trading Commission with the
Securities and Exchange Commission;
(2) methods to improve the timing, content, and format of
financial literacy materials regarding digital assets provided
by the Commodity Futures Trading Commission and the Securities
and Exchange Commission;
(3) methods to improve coordination between the Securities
and Exchange Commission and the Commodity Futures Trading
Commission with other agencies, including the Financial
Literacy and Education Commission as well as nonprofit
organizations and State and local jurisdictions, to better
disseminate financial literacy materials;
(4) the efficacy of current financial literacy efforts with a
focus on rural communities and communities with majority
minority populations;
(5) the most useful and understandable relevant information
that retail digital asset holders need to make informed
financial decisions before engaging with or purchasing a
digital asset or service that is typically sold to retail
investors of digital assets;
(6) the most effective public-private partnerships in
providing financial literacy regarding digital assets to
consumers;
(7) the most relevant metrics to measure successful
improvement of the financial literacy of an individual after
engaging with financial literacy efforts; and
(8) in consultation with the Financial Literacy and Education
Commission, a strategy (including to the extent practicable,
measurable goals and objectives) to increase financial literacy
of investors regarding digital assets.
(b) Report.--Not later than 1 year after the date of the enactment of
this Act, the Commodity Futures Trading Commission and the Securities
and Exchange Commission shall jointly submit a written report on the
study required by subsection (a) to the Committees on Financial
Services and on Agriculture of the House of Representatives and the
Committees on Banking, Housing, and Urban Affairs and on Agriculture,
Nutrition, and Forestry of the Senate.
SEC. 507. STUDY ON FINANCIAL MARKET INFRASTRUCTURE IMPROVEMENTS.
(a) In General.--The Commodity Futures Trading Commission and the
Securities and Exchange Commission shall jointly conduct a study to
assess whether additional guidance or rules are necessary to facilitate
the development of tokenized securities and derivatives products, and
to the extent such guidance or rules would foster the development of
fair and orderly financial markets, be necessary or appropriate in the
public interest, and be consistent with the protection of investors and
customers.
(b) Report.--
(1) Time limit.--Not later than 1 year after the date of
enactment of this Act, the Commodity Futures Trading Commission
and the Securities and Exchange Commission shall jointly submit
to the relevant congressional committees a report that includes
the results of the study required by subsection (a).
(2) Relevant congressional committees defined.--In this
section, the term ``relevant congressional committees'' means--
(A) the Committees on Financial Services and on
Agriculture of the House of Representatives; and
(B) the Committees on Banking, Housing, and Urban
Affairs and on Agriculture, Nutrition, and Forestry of
the Senate.
TITLE VI--MISCELLANEOUS
SEC. 601. FINDINGS; SENSE OF CONGRESS.
(a) Findings.--Congress finds the following:
(1) Entrepreneurs and innovators are building and deploying
this next generation of the internet.
(2) Digital asset networks represent a new way for people to
join together and cooperate with one another to undertake
certain activities.
(3) Digital assets have the potential to be the foundational
building blocks of these networks, aligning the economic
incentive for individuals to cooperate with one another to
achieve a common purpose.
(4) The digital asset ecosystem has the potential to grow our
economy and improve everyday lives of Americans by facilitating
collaboration through the use of technology to manage
activities, allocate resources, and facilitate decision making.
(5) Blockchain networks and the digital assets they empower
provide creator control, enhance transparency, reduce
transaction costs, and increase efficiency if proper
protections are put in place for investors, consumers, our
financial system, and our national security.
(6) Blockchain technology facilitates new types of network
participation which businesses in the United States may utilize
in innovative ways.
(7) Other digital asset companies are setting up their
operations outside of the United States, where countries are
establishing frameworks to embrace the potential of blockchain
technology and digital assets and provide safeguards for
consumers.
(8) Digital assets, despite the purported anonymity, provide
law enforcement with an exceptional tracing tool to identify
illicit activity and bring criminals to justice.
(9) The Financial Services Committee of the House of
Representatives has held multiple hearings highlighting various
risks that digital assets can pose to the financial markets,
consumers, and investors that must be addressed as we seek to
harness the benefits of these innovations.
(b) Sense of Congress.--It is the sense of Congress that--
(1) the United States should seek to prioritize understanding
the potential opportunities of the next generation of the
internet;
(2) the United States should seek to foster advances in
technology that have robust evidence indicating they can
improve our financial system and create more fair and equitable
access to financial services for everyday Americans while
protecting our financial system, investors, and consumers;
(3) the United States must support the responsible
development of digital assets and the underlying technology in
the United States or risk the shifting of the development of
such assets and technology outside of the United States, to
less regulated countries;
(4) Congress should consult with public and private sector
stakeholders to understand how to enact a functional framework
tailored to the specific risks and unique benefits of different
digital asset-related activities, distributed ledger
technology, distributed networks, and decentralized systems;
and
(5) enact a functional framework tailored to the specific
risks of different digital asset-related activities and unique
benefits of distributed ledger technology, distributed
networks, and decentralized systems; and
(6) consumers and market participants will benefit from a
framework for digital assets consistent with longstanding
investor protections in securities and commodities markets, yet
tailored to the unique benefits and risks of the digital asset
ecosystem.
Purpose and Summary
Introduced on July 20, 2023, by Representative Glenn ``GT''
Thompson with Representatives French Hill, Dusty Johnson, Tom
Emmer, and Warren Davidson as original cosponsors, H.R. 4763,
the Financial Innovation and Technology for the 21st Century
Act, provides the Commodity Futures Trading Commission (CFTC)
with new jurisdiction over digital commodities and clarifies
the Securities and Exchange Commission's (SEC) jurisdiction
over digital assets offered as part of an investment contract.
Additionally, the Act establishes a process to permit the
secondary market trading of digital commodities if they were
initially offered as part of an investment contract. Finally,
the Act imposes robust customer protections on all entities
required to be registered with the CFTC and the SEC. Additional
cosponsors include Representatives Marcus Molinaro, Henry
Cuellar, Wiley Nickel, John Curtis, Jim Banks, Patrick McHenry,
and Ritchie Torres.
Background and Need for Legislation
H.R. 4763, as marked up, establishes a digital asset market
structure framework that is consistent with existing regulatory
financial market requirements, but recognizes the unique
characteristics of digital assets. This functional framework
provides digital asset firms with regulatory certainty and
reduces the regulatory turbulence created by jurisdictional
infighting and regulation-by-enforcement. The reported
legislation will ensure the next generation of financial
innovation develops in the United States.
Innovation
Digital assets have the potential to make our financial
system more efficient and accessible to consumers. At a June 6,
2023, hearing before the Committee on Agriculture (June 2023
HAC Hearing), former CFTC Chairman Chris Giancarlo
characterized the existing financial architecture, which stores
value on the balance sheets of proprietary commercial firms, as
slow, expensive, unstable, and exclusive. He testified that
blockchain technology and digital assets provide a new
architecture of value, finance, banking, and money that is more
reliable and inclusive. At the same hearing, Coinbase Global,
Inc. Chief Legal Officer Paul Grewal testified that ``digital
assets are creating new ways to store and transfer value while
making existing systems--like the financial system--better,''
including providing a means for ``cheaper, faster, and more
reliable international payments.'' Former CFTC Commissioner Dan
Berkovitz also testified that ``[d]igital assets and the
associated blockchain technologies have the potential to
transform the availability, scope, and efficiency of financial
services to American consumers and businesses and across the
globe.''
As the House Committee on Financial Services (HFSC) and
House Committee on Agriculture (HAC) heard in testimony across
multiple hearings, digital assets are changing the way we
conduct business globally. Digital assets serve as the
foundation for developments in blockchain systems that can in
turn facilitate improvements in supply chain management,
identity verification, file storage, and numerous other
industries.
In testimony before HFSC on June 13, 2023 (June 2023 HFSC
Hearing), Dr. Emin G. Gun Sirer underscored the stakes of
failing to allow digital assets to flourish in the United
States, stating:
As we move towards a more digitally-native world,
aided by AI, virtual reality, and a work-from-home
society, we will have to rely increasingly on
digitally-native transfer and programmability of value.
He further testified:
Blockchains are the clear technological answer to
these needs and are definitively synergistic with the
global economy. The addressable market for digitizing
the world's assets and transferring value safely across
the internet is greater than the sum of all the value
of all existing assets. Failure to see the power of
blockchain technology--whether due to a lack of
understanding or misplaced fears of the technology--
will have disastrous consequences. Failure to rapidly
provide sensible regulatory frameworks will not only
undermine economic growth but also make it easier for
bad actors to conduct illicit activities.
Further, when Dr. Tonya Evans, a professor at Penn State
Dickinson Law, testified before the House Financial Services
Subcommittee on Digital Assets, Financial Technology and
Inclusion on March 9, 2023, she underscored how far the United
States is from ``a sensible regulatory framework.'' Dr. Evans
explained:
It remains unclear how responsible builders and
market participants in the future of money, work, and
creativity can operate confidently, efficiently, and
with clarity. Without such a foundation, private
industry development will be left in a holding pattern
or will simply move valuable tax dollars and
opportunities to jurisdictions with clearer rules and
policies that encourage, rather than stifle,
innovation.
At an April 27, 2023, hearing before the Committee on
Agriculture's Subcommittee on Commodity Markets, Digital
Assets, and Rural Development (April 2023 HAC Hearing), Hedera
Head of Global Policy Nilmini Rubin testified:
[T]he ability of blockchains to provide immutable,
auditable, and order-based records enables businesses
and organizations to store, track and monitor data in
new and powerful ways.
Ms. Rubin testified further that blockchains can provide
new tools to more effectively and efficiently ``store, track,
and monitor data to reduce waste, fraud, and abuse, and provide
economic, social, and environmental benefits.'' She described
examples of these initiatives, including data storage and
provenance verification to support human rights reporting,
value exchange supporting rural development, transparent
platforms supporting the environment, supply chain traceability
supporting waste reduction, supply chain monitoring supporting
vaccine safety, and supply chain tracking supporting
pharmaceutical safety.
At a May 10, 2023, joint hearing of the Financial Services
Committee's Subcommittee on Digital Assets, Financial
Technology and Inclusion and the Committee on Agriculture's
Subcommittee on Commodity Markets, Digital Assets, and Rural
Development (May 2023 Joint Hearing), Kraken Chief Legal
Officer Marco Santori testified:
[T]his discussion is not just about people using
tokens or people using digital assets. This discussion
is about people using the product of those digital
assets, the functional use cases that exist today, and
this Congress has heard from witnesses who have laid
bare some of those uses.
I can add a couple to that pile, but maybe one in
particular that I think illustrates that distinction
between the use case and the coin. Today, when you
watch a video on your phone, and we all probably watch
videos on our phone from time to time, those videos are
recorded in far-off places using different standards,
resolutions, color schemes, et cetera. Transforming
that into a version that fits on your phone takes
computing and processing power. It takes time and
effort. And it is expensive. There are blockchain-based
networks now that coordinate and incentivize that
process, it is called transcoding, so that end-users
can see that video that is being recorded in a
different resolution on their phone, on their screen,
on a big screen, on IMAX, right?
People are using that technology today to view videos
of all kinds, mundane use cases that have nothing to do
with blockchain technology. But those use cases are
being provisioned and delivered because of functional
networks in digital assets.
Economic Impact
The lack of a comprehensive federal regulatory framework
for digital assets has led to many digital asset innovators
moving offshore to pursue development overseas, at the expense
of U.S. economic growth. Other countries are rushing to build
frameworks and become developmental hubs for the digital asset
ecosystem. Currently, the largest trading platform and the
largest stablecoin issuer are based outside of the United
States. Many entrepreneurs are warning against doing business
in the United States and advocating for digital asset companies
to move offshore.
Many jurisdictions are successfully building digital asset
regulatory frameworks and incorporating distributed ledger
technology into their economies. For example, the European
Union recently approved its Markets in Crypto-Assets (MiCA)
regulation, and the United Kingdom will soon finalize its own
digital asset regulatory proposal. To emphasize this impact,
Coy Garrison, former counsel to SEC Commissioner Hester Peirce,
testified at the June 2023 HFSC Hearing about the economic
impact resulting from other countries regulating digital assets
while the U.S. remains inactive:
The status quo puts the U.S. at a competitive
disadvantage. The European Union, Canada, Dubai, and
Hong Kong are examples of jurisdictions that in recent
months have implemented new legislation or regulations
for digital assets, which create attractive
destinations for entities that are made to feel
increasingly unwelcome by regulators here in the U.S.
This is not empty rhetoric: I have travelled to two of
these jurisdictions in the past six months to explore
business opportunities under these new foreign
regulatory regimes, and I have regular conversations
with industry participants in the U.S. actively
considering moving to new jurisdictions.
At the June 2023 HAC Hearing, Robinhood Markets, Inc. Chief
Legal, Compliance and Corporate Affairs Officer Daniel M.
Gallagher testified:
The current environment is bad for American consumers
who want greater access to digital assets, bad for
innovation in the blockchain and digital asset
industries, and bad for the already-eroding competitive
position of the U.S. with regard to digital asset
markets. Regulatory clarity for digital assets is,
therefore, critical: it would allow token issuers,
exchanges, intermediaries, and other market
participants to provide products and services their
customers want without the constant threat of crippling
enforcement actions, and would help ensure that the
U.S. remains the global leader in responsible
blockchain and digital asset innovation, as well as
vibrant, appropriately regulated digital asset markets.
Customer Risk
The current regulatory framework for digital assets fails
to provide adequate consumer protection. At the June 2023 HFSC
Hearing, Mr. Garrison, testified that:
The status quo fails to protect people who trade or
hold digital assets on centralized exchanges. [ . . . ]
The status quo also creates a business environment
where responsible actors in the digital asset industry
are hindered in their potential to innovate, add jobs
to the economy, and realize the benefits of their
technology. They are also limited in their ability to
compete against traditional institutions.
Digital commodities account for approximately 70% of the
digital assets traded today. Because there is no federal
oversight of the digital commodity marketplace, there are no
federally mandated customer protections for at least 70% of the
digital asset market today, including requirements pertaining
to customer disclosures, segregation of customer funds, and
conflicts of interest. Additionally, without registration and
oversight of digital commodity intermediaries and trading
platforms, customers are unable to discern reputable entities
from the disreputable ones. Consequently, customers face
significant risks with respect to the digital commodities they
purchase, how they purchase those commodities, how an
intermediary or trading platform custodies their commodities,
and their ability to access those commodities, especially if
the intermediary or trading platform holding their commodities
dissolves. At the May 2023 Joint Hearing, Former CFTC Chairman
Timothy Massad testified that:
[I]nvestor protection on crypto trading and lending
platforms is woefully inadequate. These platforms do
not observe standards common in our financial markets
that ensure protection of customer assets, prohibition
of conflicts of interest, prevention of fraud and
manipulation, and adequate transparency, among other
things. That was made painfully obvious last year by
the failures of trading platform FTX, crypto lender
Celsius, the Terra/Luna stablecoin and others,
resulting in hundreds of thousands of investors
suffering losses.
At the June 2023 HAC Hearing, CFTC Chairman Rostin Behnam
testified:
The bankruptcy of several large digital asset
platforms erased billions of dollars in customer funds.
Multiple large market participants allegedly engaged in
manipulative and abusive trading activity, including
through opaque arrangements with affiliated trading
platforms, undermining confidence in these nascent
markets. Cybersecurity vulnerabilities continue to be
exploited in weekly hacks, resulting in billions of
dollars in lost funds.
These customer protection failures highlight the urgent
need for legislation to provide robust customer protections for
U.S. citizens trading digital commodities. At the June 2023 HAC
Hearing, Mr. Gallagher testified:
[M]illions of Americans--including millions of
Robinhood customers--want to participate and are
participating responsibly in the digital asset economy,
and they will continue to do so whether in the U.S. or
through foreign platforms. We believe policymakers
should support policy solutions that encourage
Americans to engage in digital asset markets through
responsible, appropriately regulated U.S. firms, rather
than incentivizing people to participate through often
unregulated or lightly regulated foreign platforms.
Regulatory Gap
Currently, there is no comprehensive federal regulatory
regime for the cash or spot digital commodity markets. The
Commodity Exchange Act (CEA) and the CFTC regulations
promulgated thereunder provide a comprehensive regulatory
regime for the trading of commodity derivatives, including
digital commodity derivatives (e.g., buying or selling Bitcoin
futures contracts). This includes registration and regulatory
requirements for exchanges and intermediaries. Under the CEA,
the CFTC also has ``after-the-fact'' enforcement jurisdiction
over fraud and manipulation in the cash or spot commodity
markets (e.g., buying or selling a commodity, including digital
commodities, like Bitcoin). However, the CFTC has no power to
impose registration and regulatory requirements for exchanges
or intermediaries, or on market participants in the cash or
spot digital commodity markets. This lack of a comprehensive
federal regulatory framework for digital commodity cash or spot
transactions is referred to as the ``spot market regulatory
gap.''
Daniel Gorfine, former Chief Innovation Officer at the
CFTC, testified at the House Financial Services Subcommittee on
Digital Assets, Financial Technology and Inclusion's hearing on
April 27, 2023 (April 27 HFSC Hearing), stating:
The overall regulatory landscape for digital assets
has not changed significantly since Bitcoin first
traded in 2009--which means that there is no
comprehensive market oversight framework.''
At the May 2023 Joint Hearing, Former CFTC Chair Massad
testified:
Four years ago, I wrote a paper published by the
Brookings Institute that began with the following
sentence: ``There is a gap in the regulation of crypto
assets that Congress needs to fix.''
The gap I talked about then was the absence of a
federal regulator for the spot market in crypto tokens
that are not securities, such as bitcoin. It still
exists, and it is made more complicated by the ongoing
debate we have had about how to classify digital
assets: are they securities or commodities, or
something else?
At the June 2023 HAC Hearing, CFTC Chairman Behnam
testified about the need for legislation to fill the regulatory
gap. Chair Behnam testified:
I have consistently highlighted the need for
Congressional action to address the lack of federal
regulation over the digital commodity market.
Chair Behnam added that the Financial Stability Oversight
Council's (FSOC) Report on Digital Asset Financial Stability
Risks and Regulation (Oct. 2022) (FSOC Report) called on
Congress to enact legislation to fill the clear regulatory gap
over the spot market for digital assets that are not
securities.
The FSOC Report succinctly summarized the spot-market gap:
U.S. law provides for limited direct federal
oversight of spot markets for crypto-assets that are
not securities . . . As a result, those markets may not
feature robust rules and regulations designed to ensure
orderly and transparent trading, to prevent conflicts
of interest and market manipulation, and to protect
investors and the economy more broadly. Indeed, U.S.
regulators have found possible sources of fraud and
manipulation in the spot Bitcoin market.
The spot markets for crypto-assets that are not
securities provide relatively fewer protections for
retail investors compared to other financial markets
that have significant retail participation. In
addition, crypto-asset platforms in the spot market for
non-security crypto-assets engage in practices that are
commonly subjected to greater regulation in other
financial markets. In similarly structured financial
markets, trading rules apply related to practices of
trade execution and settlement to ensure fairness and
transparency and to limit abusive trading practices
more generally.
* * * * * * *
Significant market integrity and investor protection
issues may persist because of the limited direct
federal oversight of these spot markets, due to abusive
trading practices, inadequate protections for custodied
assets, or other practices. Increased interconnections
between this market and traditional financial
institutions could pose financial stability
vulnerabilities. In addition, if the scale of crypto-
asset activities were to increase rapidly, these issues
could pose financial stability issues regardless of
interconnections with the traditional financial system.
In the light of these gaps, the FSOC Report recommended
that Congress pass legislation to address their concerns:
To address this regulatory gap, the Council
recommends that Congress pass legislation that provides
for explicit rulemaking authority for federal financial
regulators over the spot market for crypto-assets that
are not securities. The Council recommends that this
rulemaking authority should not interfere with or
weaken market regulators' current jurisdictional
remits. The rulemaking authority should cover a range
of subjects, including but not limited to conflicts of
interest; abusive trading practices; public trade
reporting requirements; recordkeeping; governance
standards; cybersecurity requirements; customer asset
segregation; capital and margin; custody, settlement,
and clearing; orderly trading; transparency; any
further anti-fraud authorities that may be necessary;
investor protection; dispute resolution; operating
norms; and a general authority to address unanticipated
additional issues that may arise. Legislation should
provide for enforcement and examination authority to
ensure compliance with these rules.
Commodity v. Security
SEC Chair Gary Gensler has opined on numerous occasions
that the ``test to determine whether a crypto asset is a
security is clear.'' However, SEC Commissioner Hester Peirce
and former SEC Commissioner Elad Roisman disagree, citing
requests the SEC receives for clarity and the consistent
outreach to the Commission staff for no-action and other
relief. Commissioner Peirce has repeatedly emphasized her
concerns with the SEC's enforcement-centric approach and
highlighted the importance of regulatory clarity for the
digital asset markets.
Under the Securities Act of 1933 (Securities Act) and the
Securities Exchange Act of 1934 (Exchange Act), the SEC has
full regulatory authority over the offer, sale, and the trading
of securities, including investment contracts, and security
derivatives. Under the federal securities laws, every offer and
sale of securities must be either registered with the SEC or
conducted pursuant to an exemption to registration.
Both the term ``security'' and the term ``commodity'' are
defined in statute in ways that are broader than one might
expect:
The federal securities laws define the term
``security'' to include not only specific types of
financial instruments such as stocks and bonds, but
also several undefined terms, notably ``investment
contract.'' The term ``investment contract'' captures
unique or novel instruments and arrangements including
many utilized by digital asset projects which raised
funds.
The Commodity Exchange Act (CEA) defines
``commodity'' broadly to include all ``goods and
articles and all services, rights, and interests . . .
in which contracts for future delivery are presently or
in the future dealt in.'' In 2015, the CFTC clarified
that bitcoin and certain other virtual currencies are
commodities under the CEA.
Because of these broad definitions, the line between a
security and a commodity can be somewhat blurred. At a very
basic level securities are commodities. That is to say
``securities'' are a ``good, article, service, right, or
interest'' in which contracts for future delivery are presently
dealt, so they meet the definition of a ``commodity.'' This
would imply that the CFTC would have regulatory authority over
security derivatives and enforcement authority over security
spot market transactions. However, the CEA does not grant the
CFTC any authority which would supersede or limit the
jurisdiction of the SEC or restrict the SEC from carrying out
their duties and responsibilities. Since the SEC is provided
with jurisdiction over transactions in securities, in the
instances in which an asset, transaction, or arrangement is
determined to be a security, CFTC jurisdiction does not apply.
It is difficult to determine whether a digital asset is
offered as part of an investment contract or falls under the
definition of commodity in the CEA. Until there is a
consistent, clear framework in place, market participants,
consumers, and investors will continue to seek regulatory
clarity given the requirements that stem from the
classification of a particular digital asset.
Witnesses who have testified before both HFSC and HAC have
further asserted that there is no legal clarity or bright line
test to ascertain whether a digital asset is a commodity or a
security. At the April 2023 HFSC Hearing, Zachary Zweihorn, a
partner at Davis Polk & Wardwell LLP, testified:
Most digital assets are not simply the digital
equivalent of conventional stocks or bonds, but
something different in kind--an instrument with both
functional and speculative uses. Indeed, the Commission
staff's ``framework'' for analyzing the security-status
of a digital asset consists of a non-exclusive list of
over 60 characteristics to be considered and weighed to
analyze how likely a digital asset is to be a security.
This is not a formula that results in any level of
certainty.
Regulation by Enforcement
Rather than develop comprehensive regulations to address
how digital asset intermediaries and trading platforms can
register and comply with SEC regulations, the SEC has instead
sought to ``regulate'' the digital asset marketplace by
pursuing enforcement actions against these entities.
At the April 2023 HFSC Hearing, Mr. Zweihorn summarized the
quandary that exists for market participants when he testified:
The result is a Catch-22: It is unlawful for a firm
to intermediate trading in a digital asset that is a
security unless the firm is appropriately registered.
But if registered, it is unlawful for the firm to
facilitate trading in a digital asset security, unless
the purported issuer of the security has taken some
other action to register or otherwise make information
available. A firm is required to register to facilitate
trading, but if registered, it is prohibited from
facilitating trading--unless the issuer of the security
takes steps that are entirely outside the control of
the intermediary.
Incompatibility of Securities Laws
The SEC has failed to provide a viable path for the
registration of digital asset intermediaries and the offering
of securities. Moreover, the SEC's regulations are heavily
dependent on the roles of intermediaries and therefore directly
at odds with transactions based on decentralized blockchain
technology.
At the April 2023 HAC Hearing, FalconX Deputy General
Counsel Purvi Maniar testified that:
[T]he securities regulatory architecture . . . is
ill-suited for most digital assets. Securities have no
independent utility other than profit participation. As
a result, securities regulations focus on robust
disclosure of facts affecting the profit movement, such
as earnings, cash flow, or material events affecting
earnings. However, most securities law-mandated
financial disclosures have little applicability to
digital assets. Moreover, the requirement under the
securities laws that spot securities must be traded on
regulated exchange[s] [sic] using third-party
intermediaries eliminates the benefits of peer-to peer
transactions. The ability to transfer spot assets
instantly and safely on a peer-to-peer basis, one of
the key benefits of digital assets, does not exist if
one is required to place an order with a broker-dealer
intermediary on a third-party exchange subject to a
multi-day settlement cycle. As a result, few digital
asset companies have sought registration or exemption
under the securities laws; presumably, it is why few of
those applications have been granted, given the
difficulties of shoehorning digital assets into the
securities law framework.
At the May 2023 Joint Hearing, Kraken Chief Legal Officer
Marco Santori testified that:
A fundamental goal of the U.S. securities laws is to
provide the public with truthful disclosure about
material risks that may impact their investment,
thereby empowering citizens to make their own
decisions. The disclosure requirements and standards
for traditional securities under the Securities Act of
1933 do not work well for digital assets. For example,
what is ``material'' information related to a publicly
traded company is likely to be very different than what
is material for a decentralized, blockchain-based
asset. The value of a digital asset--unlike the value
of stocks and bonds--is often not dependent on the
issuer's operations or financial condition. Forcing
digital assets into the existing corporate disclosure
regime deprives consumers of the most valuable
information while overwhelming them with the least
valuable.
Mr. Santori further testified that:
Extensive evidence in the public record that illustrates
the practical barriers to NSE registration for digital asset
platforms, including:
Digital asset trading platforms interact
directly with retail clients. NSEs, by contrast, permit
only broker-dealers to participate.
Securities exchanges are not set up for
global, 24x7 trading. Stocks listed on NSEs trade only
during regular market hours. Digital assets trade 24x7,
with no pressures on price or volume created by opening
and closing times. Digital asset prices and volumes are
subject to market forces at all times.
U.S. securities exchanges form part of a
National Market System (NMS) and they trade exclusively
NMS securities. Digital asset trading platforms trade a
variety of assets that will fall under the CFTC's
jurisdiction, such as Bitcoin (BTC), Ethereum (ETH),
and other digital asset commodities.
SEC-Registered ATSs function like exchanges, but are
regulated by FINRA and the SEC as broker-dealers.
Currently, there are very few broker-dealers, and even
fewer ATSs that are registered with FINRA to trade
digital assets. These ATSs are currently only permitted
to trade digital assets that are securities. ATSs
cannot trade non-securities such as BTC, ETH, or
stablecoins.
Today, any digital asset trading platform that is
registered as an ATS would have to immediately stop
trading all digital assets they currently trade, either
on the SEC's theory that such assets are unregistered
securities, or because such assets are non-securities.
This would create significant market disruption. For
example, BTC and ETH, which are commodities, account
for more than 60% of the digital asset market
capitalization.
Mr. Santori recommended:
To resolve these gaps, Congress can create a new
registration category for centralized digital asset markets
that:
Remains open to direct retail participation,
as ATSs are, and not be limited to requirements that
customers are registered broker-dealers (as with NSEs).
Reduce friction by being open to the trading
of non-security digital assets (such as BTC, ETH or
stablecoins) side-by-side with digital assets that are
determined to be securities.
Have in place a rulebook that has been
reviewed and approved by the SEC or CFTC.
The Committee-Reported Legislation
The Committees have worked towards establishing a workable
framework for digital assets over several Congresses by
introducing bills, sending letters to regulators, and holding
hearings and roundtables. The Committees worked together
throughout the 118th Congress to establish a common approach
for digital asset regulation, given the issues that digital
assets raise implicate the jurisdictions of both the SEC and
CFTC. This work includes two hearings in the Agriculture
Committee and three hearings in the Financial Services
Committee on digital assets market structure, as well as a
historic joint hearing of both Committees to examine the
regulatory gaps with respect to digital assets.
The Committees have heard testimony regarding digital asset
market structure from SEC Chair Gensler, CFTC Chairman Benham,
the Chief Executive Officer of the National Futures
Association, the Chief Operating Officer of the New York Stock
Exchange, legal experts in securities and commodities law, and
various digital asset market participants, including trading
platforms, broker-dealers, digital asset projects, and
blockchain developers. Almost all witnesses testified that
there is a regulatory gap for digital assets between the SEC's
jurisdiction over securities and the CFTC's jurisdiction over
commodity derivatives that must be addressed through
legislation. Indeed, rather than shun regulation, the market
participants are calling on Congress to resolve the regulatory
gap.
At the May 2023 Joint Hearing, Kraken Chief Legal Officer
Marco Santori proposed a legislative framework similar in
nature to that established by the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act) that provided the
CFTC with jurisdiction over the swaps markets and the SEC with
jurisdiction over the security-based swaps markets:
With clear jurisdictional lines drawn, regulated
digital asset platforms should have a clear path to
registration at the CFTC and SEC. Each agency, where
appropriate, should have inspection and examination
authority over platforms that make digital assets
available to trade. This is consistent with the
approach adopted for swaps regulation.
At the June 2023 HAC Hearing, CFTC Chairman Behnam called
upon the Committee to follow the path it took to enact the
Dodd-Frank Act:
Following the 2008 financial crisis, this Committee--
working on a bipartisan basis--responded with reforms
to the previously unregulated swaps market that were
anchored in core principles of sound market regulation:
transparency, reporting, and registration, to name just
a few.
The work of both Committees culminated in the release of
draft legislation on digital asset market structure in June
2023. The Committees revised the bill to respond to feedback
from federal agencies, market participants, and members from
both sides of the aisle and introduced the bill on July 20,
2023. Finally, changes were made to the bill through
amendments, including comprehensive amendments in the nature of
a substitute, during each mark-up, which are reflected in this
Report.
The Committee-reported bill seeks to resolve the issues
that have plagued the digital asset market and answer the calls
for regulation from FSOC, the CFTC, and stakeholders by
establishing a comprehensive regulatory framework for the
United States' digital asset markets.
TITLE I--DEFINITIONS; RULEMAKING; NOTICE OF INTENT TO REGISTER
Title I provides definitions for new entities, products,
and assets specific to the digital asset marketplace. The
definitions are similar to and build on existing definitions of
products, processes, and registration categories in the
commodities and securities markets but are tailored for the
digital asset marketplace. The most significant definitions
include those for ``digital asset,'' which excludes commodity
derivatives, securities, and securities derivatives products,
and ``decentralized network,'' which is the primary threshold
that must be met before a restricted digital asset can be
traded as a digital commodity.
Title I also requires the SEC and CFTC to engage in joint
rulemakings to further define many of the key terms in the Act
including ``digital asset,'' ``decentralized network,'' and
``digital commodity.'' The agencies will also be required to
issue a joint rulemaking to address the oversight of dually
registered digital commodity exchanges (with the CFTC) and
digital asset trading systems (with the SEC). Section 712 of
the Dodd-Frank Act required similar joint rulemakings over
definitions and other cooperative oversight activities.
Title I also prohibits the Financial Crimes Enforcement
Network (FinCEN) from rulemaking with respect to an
individual's ability to self-custody digital assets.
This Title also seeks to address the gap in oversight that
will occur between enactment and effective date. Before the SEC
and CFTC can register and regulate entities and activities
under the Act, they will need to engage in rulemakings. In the
interim, there will be no comprehensive federal oversight of
the digital asset markets, leaving consumers at risk of
suffering losses due to mismanagement or fraud. Additionally,
before the effective date of the Act and the regulations it
requires, the SEC may seek to aggressively regulate the digital
commodity marketplace in a manner inconsistent with the Act's
intent, which could exacerbate the flight of digital asset
innovation and growth out of the United States.
At the May 2023 Joint Hearing, Kraken Chief Legal Officer
Marco Santori testified:
[T]he creation of new, regulated trading platforms,
the allocation of jurisdiction, and the establishment
of inter-agency mechanisms for cooperation will take
time. Until these new mechanisms can be firmly
established, transitional arrangements should be put in
place to allow digital asset markets to continue to
operate with minimal disruption, and as little harm as
possible to retail investors.
In addition to bringing necessary customer protections to
customers as soon as possible through interim measures, the
Committees want to ensure that the SEC does not act contrary to
the intent of the reported bill's digital asset market
structure framework during the period from the bill's enactment
to its effective date.
To address these issues, Title I provides entities with the
ability to file a notice of intent to register and comply with
certain conditions including making their books and records
available for inspection, making certain customer disclosures,
and protecting customer assets. Without these requirements,
regulators would remain in the dark as to the operations of
these entities until they were registered, which may not occur
until several years after enactment. These noticed entities
would also be required to become members of a federally
registered self-regulatory organization (SRO) and comply with
that organization's rules. SROs have historically brought
regulation and oversight to markets before federal regulations
can be finalized.
At the May 2023 Joint Hearing, Matthew Kulkin, former
Director of the CFTC's Division of Swap Dealer and Intermediary
Oversight (DSIO), testified:
[F]or several decades, [the CFTC SRO for the
derivatives markets, the National Futures Association
(NFA)], has exercised its authority to protect
customers, particularly retail customers, from fraud,
abuse, and misconduct.
By requiring membership with a federally registered SRO and
requiring compliance with its rules during the notice period,
the reported legislation can bring customer protections to the
digital asset marketplace in a much more expeditious manner
than the SEC and CFTC's joint rulemaking efforts.
In exchange for compliance with these requirements, the
noticed entities will be exempt from certain current SEC
registration requirements. These provisions do not impact the
agencies' anti-fraud or anti-manipulation authorities or
preclude the agencies from jointly requiring a noticed entity
to delist an asset that is inconsistent with the securities or
commodities laws. Section 712(f) of the Dodd-Frank Act provided
similar authority to the CFTC and SEC to exempt persons from
the Act's requirements while rulemakings were being finalized.
Title I directs the SEC and CFTC to consult with foreign
regulatory agencies on international standards on digital
assets. Section 752 of the Dodd-Frank Act provided similar
authority to encourage cooperation with foreign regulators.
Finally, this Title requires rulemakings under the Act to
be issued within one year from the date of enactment. Section
712(e) and (f) of the Dodd-Frank Act provided similar
implantation and transition authorities to the SEC and CFTC.
TITLE II--OFFERS AND SALES OF DIGITAL ASSETS
Title II provides a new exemption for digital asset issuers
to issue digital assets. The new exemption incorporates
requirements from existing exemptions that are used by start-
ups and entrepreneurs, including the SEC's Regulation A and
Regulation Crowdfunding. Under the new exemption, innovators
will be able to raise up to $75 million in a 12-month period
through the sale of digital assets if they comply with certain
conditions. Digital assets issued under this exemption are
restricted digital assets.
The Title establishes the framework through which certain
persons are permitted to engage in restricted digital asset
transactions. Generally, restricted digital assets are
permitted to be offered or sold on a digital asset trading
system (DATS) under the supervision of the SEC. Persons closely
related to the digital asset issuer (``related persons'' and
``affiliated persons'') are subject to additional restrictions
on their sale of those digital assets. This Title also exempts
end user distributions, broad, non-discretionary distributions
issued for no more than nominal consideration (e.g., air drops
and validation rewards), from being considered transactions in
a security.
Title II provides a new disclosure framework specific to
the new exemption for the issuance of restricted digital
assets. The new, enhanced disclosure mandated under Title II
ensures that disclosures for digital assets provide investors
with information that is relevant to this unique asset class.
The enhanced disclosures include the digital asset's source
code, transaction history, network specifications, launch and
supply process, governance regime, development plan, and
material risks.
This Title also provides the process by which a restricted
digital asset is no longer restricted and can be traded as a
digital commodity if the associated blockchain network has been
certified as decentralized. The certification process builds in
several controls that prevent the SEC from abusing its position
as a gatekeeper. The SEC is provided with an opportunity to
rebut the assertion that the network meets the decentralization
test within a certain period of time. The rebuttal may be
appealed to the U.S. Court of Appeals for the D.C. Circuit.
TITLE III--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
SECURITIES AND EXCHANGE COMMISSION
The Title provides the SEC with jurisdiction over
restricted digital asset transactions and limited authority
over permitted payment stablecoin transactions, to the extent
such transactions occur on, with, or through a person or entity
registered with the SEC.
Title III creates a framework for DATS, digital asset
brokers (DAB), and digital asset dealers (DAD). The
registration and compliance frameworks for these entities were
drawn from existing structures for brokers, dealers, and
alternative trading systems.
Under Title III, intermediaries must follow longstanding
segregation requirements, including prohibiting the commingling
of customer funds with the funds of the intermediary. The Title
provides customers with the right to opt out of the segregation
provisions to allow the DAB or DAD to pool and use their funds
for blockchain services.
Title III specifies that a DATS must hold customer digital
assets in a qualified digital asset custodian (QDAC), which
would be an entity regulated by a Federal banking agency, a
State bank supervisor, the CFTC, the SEC, or a foreign banking
regulator. The SEC is responsible for establishing minimum
standards for supervision and regulation that regulators must
implement for an entity to be deemed ``qualified.'' The QDAC
must share information with the SEC regarding customer
accounts. The Title also sets forth registration and
requirements for digital asset clearing agencies (DACA). Under
this Title, digital asset intermediaries and exchanges would be
required to implement policies to mitigate conflicts of
interest.
To ensure that market participants are eligible to trade
restricted digital assets and digital commodities on the same
platform, Title III allows a DATS, DAB, and DAD to register
with the CFTC as a digital commodity exchange, digital
commodity broker, and a digital commodity dealer, respectively,
and thereafter, list digital commodities for trading.
Title III exempts certain ``ancillary activities'' from
direct regulation by the SEC. Ancillary activities are defined
as validating or providing incidental services with respect to
a digital commodity, providing user-interfaces for a blockchain
network, publishing and updating software, and developing
wallets for blockchain networks. This exemption does not impact
the SEC's anti-fraud and anti-manipulation authority over these
activities.
This Title also reverses the SEC's Staff Accounting
Bulletin 121, which alters the way custodians treat digital
assets on their balance sheets.
Lastly, the Title prohibits fees collected by the SEC to be
deposited in the SEC Reserve Fund for three years. The
effective date of the Title is the later of 360 days from
enactment or 60 days after publication of the final rule
implementing this Title.
TITLE IV--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
COMMODITY FUTURES TRADING COMMISSION
Title IV provides the CFTC with exclusive jurisdiction over
cash or spot digital commodity transactions and limited
authority over permitted payment stablecoin transactions, to
the extent such transactions occur on, with, or through a
person or entity registered with the CFTC. The CFTC is granted
limited authority over the trading of permitted payment
stablecoins to ensure there is no duplication of oversight
between the CFTC and prudential regulators pertaining to off-
exchange transactions.
Title IV establishes three new registration categories at
the CFTC: digital commodity exchange (DCE), digital commodity
broker (DCB), and digital commodity dealer (DCD). The
registration and compliance frameworks for these entities were
drawn from existing structures in the CEA for derivatives
exchanges, introducing brokers, futures commission merchants
(FCMs), and swap dealers.
Title IV's compliance framework for DCEs is largely drawn
from the core principle requirements imposed on derivatives
exchanges under the CEA. Under the Title, a registered DCE
would be required to comply with longstanding CEA core
principles, including the monitoring of trading activity,
prohibition of abusive trading practices, minimum capital
requirements, public reporting of trading information,
conflicts of interest, governance standards, and cybersecurity.
Title IV requires registered DCBs and DCDs to become
members of a registered futures association, comply with its
rules, and comply with several prescriptive requirements
similar to those imposed on derivatives intermediaries under
the CEA. These include minimum capital, fair dealing, risk
disclosures, advertising limitations, conflicts of interest,
recordkeeping and reporting, daily trading records, and
employee fitness standards. The Title also provides similar
customer segregation requirements and customer asset
protections for DCBs and DCDs as are provided for DCEs. Title
IV specifies that a registered DCE, DCB, and DCD must hold
customer digital commodities in a qualified digital commodity
custodian (QDCC) to ensure that customer assets deposited with
a CFTC-registered entity are held in a safe and appropriate
manner, separate from the independent control of the DCE, DCB,
or DCD. This approach is consistent with Section 4d of the CEA
which provides that an FCM shall hold all customer money,
securities, and property in a bank, trust company, or
clearinghouse organization.
A QDCC must be regulated by a Federal banking agency, a
State bank supervisor, the CFTC, the SEC, or foreign banking
regulator in the home country of the QDCC. The CFTC is
permitted to establish minimum standards for supervision and
regulation for an entity to be deemed ``qualified.'' The QDCC
must share information with the CFTC regarding customer
accounts. Additionally, Title IV requires DCEs, DCBs, and DCDs
to follow longstanding CEA segregation requirements imposed on
CFTC regulated entities, including prohibiting the commingling
of customer funds with firm funds but allowing the comingling
of multiple customers' funds in an omnibus customer account.
Title IV also extends the bankruptcy protections provided
to customers of FCMs to customers of DCEs, DCBs, and DCDs. As
with FCMs under the CEA, customer funds in segregation have a
bankruptcy preference in the event of a DCE, DCB, or DCD
insolvency. Identical to the bankruptcy protections under the
CEA for customers of FCMs, to the extent that DCE, DCB or DCD
customer funds are insufficient to pay customer claims, the
remainder of what customers are owed will participate pro rata
in the distributions to unsecured creditors of the bankrupt
DCE, DCB, or DCD.
To provide market participants with the flexibility to
trade restricted digital assets and digital commodities on the
same exchange, Title IV allows a DCE, DCB, and DCD to register
with the SEC as a DATS, DAB, and DAD, respectively, and
thereafter, offer restricted digital assets for trading.
Similar to Title III, Title IV exempts certain ``ancillary
activities'' from direct regulation by the CFTC. Ancillary
activities are defined as validating or providing incidental
services with respect to a digital commodity, providing user-
interfaces for a blockchain network, publishing and updating
software, or developing wallets for blockchain networks. This
exemption does not impact the CFTC's anti-fraud, anti-
manipulation, or false reporting authority over these
activities.
TITLE V--INNOVATION AND TECHNOLOGY IMPROVEMENTS
Title V consists of a variety of provisions intended to
improve the CFTC's and SEC's approach to innovation and digital
asset regulation and study sectors of the digital asset
marketplace not addressed in the legislation. Specifically,
Title V codifies both the CFTC's LabCFTC and the SEC's
Strategic Hub for Innovation and Financial Technology (FinHub),
and structures both as an independent office that reports to
their respective full Commission.
This change ensures that both offices will assist their
respective agencies with their approach to technological
advancements, examine the impact that financial technology
innovations have on market participants, and coordinate the
CFTC and SEC's response to emerging technologies in financial,
regulatory, and supervisory systems. This legislation also
requires LabCFTC and FinHub to each separately report annually
to Congress on their activities.
The Title also requires the SEC and CFTC to form a Joint
Advisory Committee on Digital Assets comprised of digital asset
market participants. This Committee will be tasked with
providing recommendations to the SEC and CFTC regarding the
promulgation of rules required by this Act. This approach is
similar to the joint CFTC SEC Advisory Committee on Emerging
Regulatory Issues that was established by the CFTC and SEC in
response to the 2010 Flash Crash. That joint advisory committee
met five times in 2010 and 2011 and published a report and
recommendations. It has been dormant since 2014.
Title V also requires studies on decentralized finance
(DeFi), non-fungible digital assets, tokenized securities and
derivative products, and financial literacy among digital asset
holders.
The study on DeFi is required to be conducted by the CFTC
and the SEC. The agencies must study the size, scope, role,
nature, and use of DeFi protocols, the benefits and risks of
DeFi, how DeFi has integrated into the traditional financial
markets (including the risks of DeFi integration), and the
levels and types of illicit activities in DeFi compared to
traditional financial markets.
GAO is required to conduct a study on non-fungible digital
assets. This study must include an analysis of the size, scope,
role, nature, and use of non-fungible digital assets, the
similarities and differences between non-fungible digital
assets and other digital assets, the benefits and risks of non-
fungible digital assets, how non-fungible digital assets have
integrated into traditional marketplaces, including the risks
of such integration, and the levels and types of illicit
activities in non-fungible digital asset markets.
CFTC and SEC are jointly required to study whether
additional guidance or rules are necessary to facilitate the
development of tokenized securities and derivatives products.
The study will also examine if further rules would foster the
development of fair and orderly financial markets, be
appropriate for the public interest, and provide further
investor protections.
TITLE VI--MISCELLANEOUS
Title VI includes findings related to the benefits of
digital assets and expresses Congress' support for blockchain
technology and digital assets.
Related Hearings
118TH CONGRESS
Pursuant to clause 3(c)(6) of rule XIII, the following
hearings were used to develop H.R. 4763: The Committee on
Financial Services held a hearing on June 13, 2023, titled
``The Future of Digital Assets: Providing Clarity for the
Digital Asset Ecosystem.''
The Subcommittee on Digital Assets, Financial Technology
and Inclusion of the Committee on Financial Services and the
Subcommittee on Commodity Markets, Digital Assets, and Rural
Development of the Committee on Agriculture held a joint
hearing on May 10, 2023, titled ``The Future of Digital Assets:
Measuring the Regulatory Gaps in the Digital Asset Markets.''
The Subcommittee on Digital Assets, Financial Technology
and Inclusion of the Committee on Financial Services held a
hearing on April 27, 2023, titled ``The Future of Digital
Assets: Identifying the Regulatory Gaps in Digital Asset Market
Structure.''
The Committee on Financial Services held a hearing on April
18, 2023, titled ``Oversight of the Securities and Exchange
Commission.''
The Subcommittee on Digital Assets, Financial Technology
and Inclusion of the Committee on Financial Services held a
hearing on March 9, 2023, titled ``Coincidence or Coordinated?
The Administration's Attack on the Digital Asset Ecosystem.''
117TH CONGRESS
Pursuant to clause 3(c)(6) of rule XIII, the following
hearings were used to develop H.R. 4763: The Committee on
Financial Services held a hearing on December 13, 2022, titled
``Investigating the Collapse of FTX.''
The Committee on Financial Services held a hearing on
December 8, 2021, titled ``Digital Assets and the Feature of
Finance: Understanding the Challenges and Benefits of Financial
Innovation in the United States.''
The Committee on Financial Services held a hearing on
October 5, 2021, titled ``Oversight of the U.S. Securities and
Exchange Commission: Wall Street's Cop Is Finally Back on the
Beat.''
The Subcommittee on Oversight and Investigations held a
hearing on June 30, 2021, titled ``Will the Crypto Frenzy Lead
to Financial Independence and Early Retirement or Financial
Ruin?''
115TH CONGRESS
Pursuant to clause 3(c)(6) of rule XIII, the following
hearing was used to develop H.R. 4763: The Subcommittee on
Capital Markets held a hearing on March 14, 2018, titled
``Examining the Cryptocurrencies and ICO Markets;''
Committee Consideration
The Committee on Financial Services met in open session on
July 26, 2023, and ordered H.R. 4763 to be reported favorably
to the House as amended by a recorded vote of 35 ayes to 15
nays (Record vote no. FC-76), a quorum being present. Before
the question was called to order the bill favorably reported,
the Committee adopted an amendment in the nature of a
substitute offered by Mr. Hill by voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the order to report legislation and amendments thereto. H.R.
4763 was ordered reported favorably to the House as amended by
a recorded vote of 35 ayes to 15 nays (Record vote no. FC-76),
a quorum being present.
An amendment offered by Mr. Foster, no. 1, was not agreed
to by voice vote, a quorum being present.
An amendment offered by Mr. Sherman, no. 2, was not agreed
to by voice vote, a quorum being present.
An en bloc vote for amendments offered by Ms. Waters, no.
3, Mr. Lynch, no. 11, and Mr. Lynch, no. 13, was not agreed to
by a recorded vote of 19 ayes to 29 nays, a quorum being
present (Record vote no. FC-75).
An amendment by Mr. Gottheimer, no. 4, was agreed to by
voice vote, a quorum being present.
An amendment by Mr. Lynch, no. 6, was agreed to by voice
vote, a quorum being present.
An amendment by Mr. Himes, no. 7, was agreed to by voice
vote, a quorum being present.
An amendment by Mr. Nickel, no. 8, was agreed to by voice
vote, a quorum being present.
An amendment by Mr. Horsford, no. 9, was agreed to by voice
vote, a quorum being present.
An amendment by Mr. Lynch, no. 12, was not agreed to by
voice vote, a quorum being present.
Committee Overisght Findings
Pursuant to clause 3(c) of rule XIII of the Rules of the
House of Representatives, the findings and recommendations of
the Committee based on oversight activities under clause
2(b)(1) of rule X of the Rules of the House of Representatives,
are incorporated in the descriptive portions of this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the goal of H.R. 4763 is to ensure
that the Commodity Futures Trading Commission (CFTC) has
jurisdiction over digital commodities and clarifies the
Securities and Exchange Commission's (SEC) jurisdiction over
digital assets offered as part of an investment contract,
including imposing robust customer protections on all entities
required to be registered with the CFTC and the SEC.
Congressional Budget Office Estimates
The Committee has requested but not received a cost
estimate from the Director of the Congressional Budget Office.
However, pursuant to clause 3(d)(1) of House rule XIII, the
Committee will adopt as its own the cost estimate by the
Director of the Congressional Budget Office once it has been
prepared.
New Budget Authority, Entitlement Authority, and Tax Expenditures
The Committee has requested but not received an estimate
from the Director of the Congressional Budget Office. However,
pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives, once an estimate has been prepared by
the Director of the Congressional Budget Office, as required by
section 402 of the Congressional Budget Act of 1973, the
Committee will adopt as its own the estimate of new budget
authority, entitlement authority, or tax expenditures or
revenues contained in the cost estimate.
Federal Mandates Statement
The Committee has requested but not received an estimate
from the Director of the Congressional Budget Office of the
Federal mandates pursuant to section 423 of the Unfunded
Mandates Reform Act. The Committee will adopt the estimate once
it has been prepared by the Director.
Advisory Committee Statement
Pursuant to 5 U.S.C. 1004(b), H.R. 4763 requires the CFTC
and the SEC to form a Joint Advisory Committee on Digital
Assets comprised of digital asset marketplace stakeholders. The
functions of the proposed Joint Advisory Committee on Digital
Assets could not be performed by an agency or advisory
committee already in existence.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any Congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
Duplication of Federal Programs
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
Federal program, including any program that was included in a
report to Congress pursuant to section 21 of the Public Law
111-139 or the most recent Catalog of Federal Domestic
Assistance.
Section-by-Section Analysis of the Legislation
TITLE I--DEFINITIONS; RULEMAKING; NOTICE OF INTENT TO REGISTER
Sec. 101. Definitions under the Securities Act of 1933
Section 101 provides for definitions under the Securities
Act of 1933.
Sec. 102. Definitions under the Securities Exchange Act of 1934
Section 102 provides for definitions under the Securities
Exchange Act of 1934.
Sec. 103. Definitions under the Commodity Exchange Act
Section 103 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 104. Definitions under this Act
Section 104 provides for definitions under this Act.
Sec. 105. Joint rulemakings
Section 105 provides for joint rulemakings between the
Securities and Exchange Commission (SEC) and the Commodity
Futures Trading Commission (CFTC), including joint rulemakings
related to defining key terms in the Act, the oversight of
dually registered exchanges, and the oversight of mixed digital
asset transactions. Section 105 requires a joint rulemaking
related to mixed digital asset transactions and prohibits the
Financial Crimes Enforcement Network from issuing any rule that
would limit self-custody by an individual. Additionally,
Section 105 requires the SEC and CFTC to jointly issue
rulemakings regarding the process to delist an asset for
trading under the notice of intent to register period.
Sec. 106. Notice of intent to register for CFTC intermediaries
Section 106 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 107. Notice of intent to register for SEC intermediaries
Section 107 permits a digital asset broker (DAB), digital
asset dealer (DAD), or digital asset trading system (DATS) to
file a notice of intent to register with the SEC. The filer
must submit information regarding its operations to the
Commission, submit to inspection by the Commission, and be a
member of FINRA. As a member of FINRA, it must also apply with
all applicable membership requirements, including risk
disclosures for customers and segregation of customer assets.
Filing a notice provides the filer with an exemption from
registration as an intermediary with the SEC with respect to
digital asset transactions, until such time as the rules are
written and permanent registration commences. It does not limit
the authority of the CFTC or SEC to bring anti-fraud or anti-
manipulation enforcement actions or to require a filer to
delist a digital asset. Finally, Section 107 provides that it
is unlawful for a filer to knowingly provide a false statement
to the SEC.
Sec. 108. Commodity Exchange Act savings provisions
Section 108 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 109. International harmonization
Section 109 requires the CFTC and the SEC to work with
foreign regulators to establish consistent international
standards for the regulation of digital asset markets.
Sec. 110. Implementation
Section 110 requires the CFTC and the SEC to promulgate all
rules required by the Act no later than 360 days after
enactment of the Act.
TITLE II--OFFERS AND SALES OF DIGITAL ASSETS
Sec. 201. Exempted transactions in digital assets
Section 201 establishes an exemption from the securities
laws for a digital asset issuer's sale of digital assets that
meet the following conditions: (1) the issuer's total sales of
the digital asset over the prior 12 months does not exceed $75
million; (2) a non-accredited investor's purchases of the
digital asset from the issuer over the prior 12 months are less
than the greater of 10% of the purchaser's annual income or 10%
of their net worth; (3) the purchaser does not own more than
10% of the units of the digital asset after the completion of
the transaction; and (4) the transaction involves the sale of a
digital asset as part of an investment contract.
The digital asset issuer must file information with the
Commission as prescribed by the Act. The digital asset issuer
must file annual and semiannual reports until a defined period
after the blockchain system is certified as decentralized. Any
intermediaries involved in the offer or sale of a unit of a
digital asset under this exemption must be registered with the
SEC. A unit of a digital asset acquired from the digital asset
issuer in reliance on this exemption is a restricted digital
asset.
Sec. 202. Requirements for offers and sales of certain digital assets
Section 202 sets out the conditions under which certain
persons are permitted to engage in restricted digital asset
transactions and digital commodity transactions. Generally,
restricted digital assets are permitted to trade on a DATS
under the supervision of the SEC and digital commodities are
permitted to trade on a DCE under the supervision of the CFTC.
Related and affiliated persons are subject to more restrictions
on when they may sell digital assets that they hold. This
section also exempts end user distributions--broad, non-
discretionary distributions issued for no more than nominal
consideration--from the securities laws.
Sec. 203. Enhanced disclosure requirements
Section 203 provides for a new disclosure regime for
digital assets. The information required to be disclosed is
focused on the nature of the risks surrounding digital assets,
including source code, project economics, development plan,
related and affiliated persons, and material risk factors.
Sec. 204. Certification of certain digital assets
Section 204 provides for a process for a blockchain
relating to a digital asset to be certified as decentralized.
The certification process permits any person to certify to the
SEC that the blockchain network meets the requirements of the
Act. As part of this process, an individual will submit general
information pertaining to the blockchain network and an
analysis of the factors on which decentralization is based. The
certification is considered automatically approved after 60
days unless the Commission issues a stay. The SEC may rebut the
certification, which may be appealed by the party making the
certification to the U.S. Court of Appeals for the D.C.
Circuit.
Sec. 205. Effective date
Section 205 provides that the provisions under this Title
will take effect one year after enactment or, in the case of
rulemakings under the Title, not less than 60 days after
publication of the final rule.
TITLE III--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
SECURITIES AND EXCHANGE COMMISSION
Sec. 301. Treatment of digital commodities and other digital assets
Section 301 excludes digital commodities and permitted
payment stablecoins from the definition of a security under the
securities laws. It also specifies that DATS shall not be
deemed a ``facility'' of an exchange.
Sec. 302. Antifraud authority over payment stablecoins
Section 302 provides the SEC with anti-fraud and anti-
manipulation authority over transactions with or involving
permitted payment stablecoins that occur on or with a SEC
registered entity. It also provides the SEC with limited
authority to transactions in permitted payment stablecoins,
when transacted by or through an entity registered with the
Commission. Finally, section 302 specifies that the SEC shall
have no authority over the design, structure, issuance,
redemption, financial resources, collateral, or any other
aspect of a payment stablecoin's operation.
Sec. 303. Registration of Digital Asset Trading Systems
Section 303 establishes a registration framework for DATS.
It also provides for the dual registration of a DATS as a DCE
registered with the CFTC.
Section 304. Requirements for Digital Asset Trading Systems
Section 304 establishes the requirements for DATS. The SEC
is instructed to prescribe rules in various areas including
order display, fair access, security of automated systems,
examinations, and reporting. DATS may not act as custodians and
are required to hold customer restricted digital assets in a
qualified digital asset custodian.
Section 304 also sets out the rules for qualified digital
asset custodians, including requirements that it be adequately
supervised and appropriately regulated by a federal, state, or
foreign banking regulator.
Section 305. Registration of Digital Asset Brokers and Digital Asset
Dealers
Section 305 establishes a registration framework for DAB
and DAD. It requires digital asset brokers and dealers to be
members of FINRA. Digital asset brokers and dealers may
register with the CFTC as digital commodity brokers and
dealers.
Section 306. Requirements of Digital Asset Brokers and Digital Asset
Dealers
Section 306 subjects digital asset brokers and dealers to
the same antifraud authorities that currently exist within
securities laws. The section also requires digital asset
brokers and dealers to comply with requirements including
capital, recordkeeping, segregation of customer funds, and use
of a qualified digital asset custodian. Customers may waive
customer segregation requirements so that digital asset brokers
and dealers may use their digital assets to participate in a
blockchain service. Digital asset brokers and digital asset
dealers under this section are treated as financial
institutions, requiring their compliance with the Bank Secrecy
Act.
Sec. 307. Rules related to conflicts of interest
Section 307 amends securities laws to ensure that each
digital asset trading system, digital asset broker, digital
asset dealer, and notice-registered digital asset clearing
agency reasonably implement policies that mitigate any
conflicts of interest and transactions or arrangements with
affiliates.
Sec. 308. Treatment of certain digital assets in connection with
federally regulated intermediaries
Section 308 adds digital assets to ``covered securities''
which are exempt from state blue sky law registration
requirements.
Sec. 309. Exclusion for ancillary activities
Section 309 exempts certain ancillary activities related to
the operation and maintenance of blockchain networks from SEC
regulation, although not from the Commission's anti-fraud or
anti-manipulation enforcement authorities.
Ancillary activities include validating or providing
incidental services with respect to a restricted digital asset,
providing user-interfaces for a blockchain network, publishing
and updating software, or developing wallets for blockchain
networks.
Sec. 310. Registration and requirements for notice-registered digital
asset clearing agencies
Section 310 permits digital asset brokers and dealers whose
operations do not involve digital commodities and banks
providing custody of digital assets to register as a notice-
registered digital asset clearing agency. SEC rules regarding
this section shall not take effect until at least a year after
enactment.
Sec. 311. Treatment of custody activities by banking institutions
Section 311 prevents federal regulators from imposing
requirements on financial institutions to include customers'
assets as liabilities on their balance sheets or from holding
additional capital against these assets, except as necessary to
mitigate against operational risks as determined by the
appropriate federal banking agency.
Section 312. Effective date; administration
Section 312 provides that the provisions under this Title
will take effect one year after enactment or, in the case of
rulemakings under the Title, not less than 60 days after
publication of the final rule. Further, it limits, for three
years, the deposit of registration fees in the SEC's Reserve
Fund.
TITLE IV--REGISTRATION FOR DIGITAL ASSET INTERMEDIARIES AT THE
COMMODITY FUTURES TRADING COMMISSION
Sec. 401. Commission jurisdiction over digital commodity transactions
Section 401 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 402. Requiring futures commission merchants to use qualified
digital commodity custodians
Section 402 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 403. Trading certification and approval for digital commodities
Section 403 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 404. Registration of digital commodity exchanges
Section 404 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 405. Qualified digital commodity custodians
Section 405 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 406. Registration and regulation of digital commodity brokers and
dealers
Section 406 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 407. Registration of associated persons
Section 407 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 408. Registration of commodity pool operators and commodity
trading advisors
Section 408 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 409. Exclusion for ancillary activities
Section 409 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 410. Effective date
Section 410 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
TITLE V--INNOVATION AND TECHNOLOGY IMPROVEMENTS
Sec. 501. Codification of the SEC Strategic Hub for Innovation and
Financial Technology (FinHub)
Section 501 establishes the SEC Strategic Hub for
Innovation and Financial Technology (FinHub), which will assist
the SEC with its approach to technological advancements,
examine the impact that FinTech innovations have on capital
markets, market participants, and investors, and coordinate the
SEC's response to emerging technologies in financial,
regulatory, and supervisory systems. FinHub will be managed and
overseen by a Director who will be appointed by the Commission.
The Director will report to the Commission to ensure that each
Commissioner can avail themselves of the expertise of the
office. FinHub shall submit an annual report to Congress on its
activity.
Sec. 502. Codification of LabCFTC
Section 502 is within the House Committee on Agriculture's
jurisdiction pursuant to rule X. The House Committee on
Agriculture's Report of H.R. 4763 includes a summary of this
section.
Sec. 503. CFTC SEC Joint Advisory Committee on Digital Assets
Section 503 establishes a Joint CFTC-SEC Advisory Committee
on Digital Assets composed of digital asset marketplace
stakeholders. Among its many duties, the Joint Advisory
Committee will provide recommendations to the CFTC and the SEC
regarding their respective promulgation of rules under the Act.
The section also requires the CFTC and the SEC to publicly
respond to any recommendations made by the Joint Advisory
Committee.
Sec. 504. Study on decentralized finance
Section 504 requires the CFTC and the SEC to conduct a
study on DeFi, which will include an analysis of the size,
scope, role, nature, and use of DeFi protocols, the benefits
and risks of DeFi, how DeFi has integrated into the traditional
financial markets (including the risks of DeFi integration),
and the levels and types of illicit activities in DeFi compared
to traditional financial markets. The agencies must submit a
report to Congress one year after enactment. GAO shall also
conduct a report on DeFi and submit it to Congress one year
after enactment.
DeFi is defined as a system of software applications that:
(1) are created through smart contracts deployed to
permissionless blockchain technology; and (2) allow users to
engage in financial transactions in a self-directed manner such
that no third-party intermediary effectuates such transactions
or takes custody of a user's digital assets during any part of
such transaction.
Sec. 505. Study on non-fungible digital assets
Section 506 requires the Government Accountability Office
(GAO) to conduct a study on non-fungible digital assets (NFT),
which will include an analysis of the size, scope, role,
nature, and use of NFTs, the similarities and differences
between NFTs and other digital assets, the benefits and risks
of NFTs, how NFTs have integrated into traditional
marketplaces, including the risks of such integration, and the
levels and types of illicit activities in NFT markets. GAO must
make the report publicly available one year after enactment.
Sec. 506. Study on expanding financial literacy amongst digital asset
holders
Section 506 requires the CFTC and SEC to conduct a study on
the level of financial literacy among retail digital asset
holders; methods to improve coordination between the SEC and
CFTC to better disseminate financial literacy materials; and
effective public-private partnerships in providing financial
literacy regarding digital assets; and a strategy to increase
financial literacy regarding digital assets.
Sec. 507. Study on financial market infrastructure improvements
Section 507 requires the CFTC and the SEC to conduct a
study on whether additional guidance or rules are necessary to
facilitate the development of tokenized securities and
derivatives products. The study will also examine if further
rules would foster the development of fair and orderly
financial markets, be appropriate for the public interest, and
provide further investor protections. The agencies must submit
the report to Congress one year after enactment.
TITLE VI--MISCELLANEOUS
Section 601. Findings; sense of Congress
Section 601 expresses support for digital asset markets and
blockchain technology. It also highlights both Committee's work
to bridge the gap between the CFTC and SEC and establish a
functional framework for digital asset markets in the United
States.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
SECURITIES ACT OF 1933
* * * * * * *
TITLE I--
* * * * * * *
definitions
Sec. 2. (a) Definitions.--When used in this title, unless the
context otherwise requires--
(1) The term ``security'' means any note, stock,
treasury stock, security future, security-based swap,
bond, debenture, evidence of indebtedness, certificate
of interest or participation in any profit-sharing
agreement, collateral-trust certificate,
preorganization certificate or subscription,
transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security,
fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option, or
privilege on any security, certificate of deposit, or
group or index of securities (including any interest
therein or based on the value thereof), or any put,
call, straddle, option, or privilege entered into on a
national securities exchange relating to foreign
currency, or, in general, any interest or instrument
commonly known as a ``security'', or any certificate of
interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, or warrant
or right to subscribe to or purchase, any of the
foregoing. The term does not include a digital
commodity or permitted payment stablecoin.
(2) The term ``person'' means an individual, a
corporation, a partnership, an association, a joint-
stock company, a trust, any unincorporated
organization, or a government or political subdivision
thereof. As used in this paragraph the term ``trust''
shall include only a trust where the interest or
interests of the beneficiary or beneficiaries are
evidenced by a security.
(3) The term ``sale'' or ``sell'' shall include every
contract of sale or disposition of a security or
interest in a security, for value. The term ``offer to
sell'', ``offer for sale'', or ``offer'' shall include
every attempt or offer to dispose of, or solicitation
of an offer to buy, a security or interest in a
security, for value. The terms defined in this
paragraph and the term ``offer to buy'' as used in
subsection (c) of section 5 shall not include
preliminary negotiations or agreements between an
issuer (or any person directly or indirectly
controlling or controlled by an issuer, or under direct
or indirect common control with an issuer) and any
underwriter or among underwriters who are or are to be
in privity of contract with an issuer (or any person
directly or indirectly controlling or controlled by an
issuer, or under direct or indirect common control with
an issuer). Any security given or delivered with, or as
a bonus on account of, any purchase of securities or
any other thing, shall be conclusively presumed to
constitute a part of the subject of such purchase and
to have been offered and sold for value. The issue or
transfer of a right or privilege, when originally
issued or transferred with a security, giving the
holder of such security the right to convert such
security into another security of the same issuer or of
another person, or giving a right to subscribe to
another security of the same issuer or of another
person, which right cannot be exercised until some
future date, shall not be deemed to be an offer or sale
of such other security; but the issue or transfer of
such other security upon the exercise of such right of
conversion or subscription shall be deemed a sale of
such other security. Any offer or sale of a security
futures product by or on behalf of the issuer of the
securities underlying the security futures product, an
affiliate of the issuer, or an underwriter, shall
constitute a contract for sale of, sale of, offer for
sale, or offer to sell the underlying securities. Any
offer or sale of a security-based swap by or on behalf
of the issuer of the securities upon which such
security-based swap is based or is referenced, an
affiliate of the issuer, or an underwriter, shall
constitute a contract for sale of, sale of, offer for
sale, or offer to sell such securities. The publication
or distribution by a broker or dealer of a research
report about an emerging growth company that is the
subject of a proposed public offering of the common
equity securities of such emerging growth company
pursuant to a registration statement that the issuer
proposes to file, or has filed, or that is effective
shall be deemed for purposes of paragraph (10) of this
subsection and section 5(c) not to constitute an offer
for sale or offer to sell a security, even if the
broker or dealer is participating or will participate
in the registered offering of the securities of the
issuer. As used in this paragraph, the term ``research
report'' means a written, electronic, or oral
communication that includes information, opinions, or
recommendations with respect to securities of an issuer
or an analysis of a security or an issuer, whether or
not it provides information reasonably sufficient upon
which to base an investment decision.
(4) The term ``issuer'' means every person who issues
or proposes to issue any security; except that with
respect to certificates of deposit, voting-trust
certificates, or collateral-trust certificates, or with
respect to certificates of interest or shares in an
unincorporated investment trust not having a board of
directors (or persons performing similar functions) or
of the fixed, restricted management, or unit type, the
term ``issuer'' means the person or persons performing
the acts and assuming the duties of depositor or
manager pursuant to the provisions of the trust or
other agreement or instrument under which such
securities are issued; except that in the case of an
unincorporated association which provides by its
articles for limited liability of any or all of its
members, or in the case of a trust, committee, or other
legal entity, the trustees or members thereof shall not
be individually liable as issuers of any security
issued by the association, trust, committee, or other
legal entity; except that with respect to equipment-
trust certificates or like securities, the term
``issuer'' means the person by whom the equipment or
property is or is to be used; and except that with
respect to fractional undivided interests in oil, gas,
or other mineral rights, the term ``issuer'' means the
owner of any such right or of any interest in such
right (whether whole or fractional) who creates
fractional interests therein for the purpose of public
offering.
(5) The term ``Commission'' means the Securities and
Exchange Commission.
(6) The term ``Territory'' means Puerto Rico, the
Virgin Islands, and the insular possessions of the
United States.
(7) The term ``interstate commerce'' means trade or
commerce in securities or any transportation or
communication relating thereto among the several States
or between the District of Columbia or any Territory of
the United States and any State or other Territory, or
between any foreign country and any State, Territory,
or the District of Columbia, or within the District of
Columbia.
(8) The term ``registration statement'' means the
statement provided for in section 6, and includes any
amendment thereto and any report, document, or
memorandum filed as part of such statement or
incorporated therein by reference.
(9) The term ``write'' or ``written'' shall include
printed, lithographed, or any means of graphic
communication.
(10) The term ``prospectus'' means any prospectus,
notice, circular, advertisement, letter, or
communication, written or by radio or television, which
offers any security for sale or confirms the sale of
any security; except that (a) a communication sent or
given after the effective date of the registration
statement (other than a prospectus permitted under
subsection (b) of section 10) shall not be deemed a
prospectus if it is proved that prior to or at the same
time with such communication a written prospectus
meeting the requirements of subsection (a) of section
10 at the time of such communication was sent or given
to the person to whom the communication was made, and
(b) a notice, circular, advertisement, letter, or
communication in respect of a security shall not be
deemed to be a prospectus if it states from whom a
written prospectus meeting the requirements of section
10 may be obtained and, in addition, does no more than
identify the security, state the price thereof, state
by whom orders will be executed, and contain such other
information as the Commission, by rules or regulations
deemed necessary or appropriate in the public interest
and for the protection of investors, and subject to
such terms and conditions as may be prescribed therein,
may permit.
(11) The term ``underwriter'' means any person who
has purchased from an issuer with a view to, or offers
or sells for an issuer in connection with, the
distribution of any security, or participates or has a
direct or indirect participation in any such
undertaking, or participates or has a participation in
the direct or indirect underwriting of any such
undertaking; but such term shall not include a person
whose interest is limited to a commission from an
underwriter or dealer not in excess of the usual and
customary distributors' or sellers' commission. As used
in this paragraph the term ``issuer'' shall include, in
addition to an issuer, any person directly or
indirectly controlling or controlled by the issuer, or
any person under direct or indirect common control with
the issuer.
(12) The term ``dealer'' means any person who engages
either for all or part of his time, directly or
indirectly, as agent, broker, or principal, in the
business of offering, buying, selling, or otherwise
dealing or trading in securities issued by another
person.
(13) The term ``insurance company'' means a company
which is organized as an insurance company, whose
primary and predominant business activity is the
writing of insurance or the reinsuring of risks
underwritten by insurance companies, and which is
subject to supervision by the insurance commissioner,
or a similar official or agency, of a State or
territory or the District of Columbia; or any receiver
or similar official or any liquidating agent for such
company, in his capacity as such.
(14) The term ``separate account'' means an account
established and maintained by an insurance company
pursuant to the laws of any State or territory of the
United States, the District of Columbia, or of Canada
or any province thereof, under which income, gains and
losses, whether or not realized, from assets allocated
to such account, are, in accordance with the applicable
contract, credited to or charged against such account
without regard to other income, gains, or losses of the
insurance company.
(15) The term ``accredited investor'' shall mean--
(i) a bank as defined in section 3(a)(2)
whether acting in its individual or fiduciary
capacity; an insurance company as defined in
paragraph (13) of this subsection; an
investment company registered under the
Investment Company Act of 1940 or a business
development company as defined in section
2(a)(48) of that Act; a Small Business
Investment Company licensed by the Small
Business Administration; or an employee benefit
plan, including an individual retirement
account, which is subject to the provisions of
the Employee Retirement Income Security Act of
1974, if the investment decision is made by a
plan fiduciary, as defined in section 3(21) of
such Act, which is either a bank, insurance
company, or registered investment adviser; or
(ii) any person who, on the basis of such
factors as financial sophistication, net worth,
knowledge, and experience in financial matters,
or amount of assets under management qualifies
as an accredited investor under rules and
regulations which the Commission shall
prescribe.
(16) The terms ``security future'', ``narrow-based
security index'', and ``security futures product'' have
the same meanings as provided in section 3(a)(55) of
the Securities Exchange Act of 1934.
(17) The terms ``swap'' and ``security-based swap''
have the same meanings as in section 1a of the
Commodity Exchange Act (7 U.S.C. 1a).
(18) The terms ``purchase'' or ``sale'' of a
security-based swap shall be deemed to mean the
execution, termination (prior to its scheduled maturity
date), assignment, exchange, or similar transfer or
conveyance of, or extinguishing of rights or
obligations under, a security-based swap, as the
context may require.
(19) The term ``emerging growth company'' means an
issuer that had total annual gross revenues of less
than $1,000,000,000 (as such amount is indexed for
inflation every 5 years by the Commission to reflect
the change in the Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics,
setting the threshold to the nearest 1,000,000) during
its most recently completed fiscal year. An issuer that
is an emerging growth company as of the first day of
that fiscal year shall continue to be deemed an
emerging growth company until the earliest of--
(A) the last day of the fiscal year of the
issuer during which it had total annual gross
revenues of $1,000,000,000 (as such amount is
indexed for inflation every 5 years by the
Commission to reflect the change in the
Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics,
setting the threshold to the nearest 1,000,000)
or more;
(B) the last day of the fiscal year of the
issuer following the fifth anniversary of the
date of the first sale of common equity
securities of the issuer pursuant to an
effective registration statement under this
title;
(C) the date on which such issuer has, during
the previous 3-year period, issued more than
$1,000,000,000 in non-convertible debt; or
(D) the date on which such issuer is deemed
to be a ``large accelerated filer'', as defined
in section 240.12b-2 of title 17, Code of
Federal Regulations, or any successor thereto.
(20) Affiliated person.--The term ``affiliated
person'' means a person (including a related person)
that--
(A) with respect to a digital asset issuer--
(i) directly, or indirectly through
one or more intermediaries, controls,
or is controlled by, or is under common
control with, such digital asset
issuer; and
(ii) was described under clause (i)
at any point in the previous 3-month
period; or
(B) with respect to any digital asset--
(i) beneficially owns 5 percent or
more of the units of such digital asset
that are then outstanding; and
(ii) was described under clause (i)
at any point in the previous 3-month
period.
(21) Blockchain.--The term ``blockchain'' means any
technology--
(A) where data is--
(i) shared across a network to create
a public ledger of verified
transactions or information among
network participants;
(ii) linked using cryptography to
maintain the integrity of the public
ledger and to execute other functions;
and
(iii) distributed among network
participants in an automated fashion to
concurrently update network
participants on the state of the public
ledger and any other functions; and
(B) composed of source code that is publicly
available.
(22) Blockchain protocol.--The term ``blockchain
protocol'' means any executable software deployed to a
blockchain composed of source code that is publicly
available and accessible, including a smart contract or
any network of smart contracts.
(23) Blockchain system.--The term ``blockchain
system'' means any blockchain or blockchain protocol.
(24) Decentralized network.--With respect to a
blockchain system to which a digital asset relates, the
term ``decentralized network'' means the following
conditions are met:
(A) During the previous 12-month period, no
person--
(i) had the unilateral authority,
directly or indirectly, through any
contract, arrangement, understanding,
relationship, or otherwise, to control
or materially alter the functionality
or operation of the blockchain system;
or
(ii) had the unilateral authority to
restrict or prohibit any person who is
not a digital asset issuer, related
person, or an affiliated person from--
(I) using, earning, or
transmitting the digital asset;
(II) deploying software that
uses or integrates with the
blockchain system;
(III) participating in a
decentralized governance system
with respect to the blockchain
system; or
(IV) operating a node,
validator, or other form of
computational infrastructure
with respect to the blockchain
system.
(B) During the previous 12-month period--
(i) no digital asset issuer or
affiliated person beneficially owned,
in the aggregate, 20 percent or more of
the total amount of units of such
digital asset that--
(I) can be created, issued,
or distributed in such
blockchain system; and
(II) were freely
transferrable or otherwise used
or available to be used for the
purposes of such blockchain
system;
(ii) no digital asset issuer or
affiliated person had the unilateral
authority to direct the voting, in the
aggregate, of 20 percent or more of the
outstanding voting power of such
digital asset or related decentralized
governance system; or
(iii) the digital asset did not
include voting power with respect to
any decentralized governance system of
the blockchain system.
(C) During the previous 3-month period, the
digital asset issuer, any affiliated person, or
any related person has not implemented or
contributed any intellectual property to the
source code of the blockchain system that
materially alters the functionality or
operation of the blockchain system, unless such
implementation or contribution to the source
code--
(i) addressed vulnerabilities,
errors, regular maintenance,
cybersecurity risks, or other technical
changes to the blockchain system; or
(ii) were adopted through the
consensus or agreement of a
decentralized governance system.
(D) During the previous 3-month period,
neither any digital asset issuer nor any
affiliated person described under paragraph
(20)(A) has marketed to the public the digital
assets as an investment.
(E) During the previous 12-month period, all
issuances of units of such digital asset
through the programmatic functioning of the
blockchain system were end user distributions.
(25) Decentralized governance system.--
(A) In general.--The term ``decentralized
governance system'' means, with respect to a
blockchain system, any rules-based system
permitting persons using the blockchain system
or the digital assets related to such
blockchain system to form consensus or reach
agreement in the development, provision,
publication, management, or administration of
such blockchain system.
(B) Relationship of persons to decentralized
governance systems.--Persons acting through a
decentralized governance system shall be
treated as separate persons unless such persons
are under common control.
(C) Exclusion.--The term ``decentralized
governance system'' does not include a system
in which--
(i) a person or group of persons
under common control have the ability
to--
(I) unilaterally alter the
rules of consensus or agreement
for the blockchain system; or
(II) determine the final
outcome of decisions related to
the development, provision,
publication, management, or
administration of such
blockchain system;
(ii) a person or group of persons is
directly engaging in an activity that
requires registration with the
Commission or the Commodity Futures
Trading Commission other than--
(I) developing, providing,
publishing, managing, or
administering a blockchain
system; or
(II) an activity with respect
to which the organization is
exempt from such registration;
or
(iii) a person or group of persons
seeking to knowingly evade the
requirements imposed on a digital asset
issuer, a related person, an affiliated
person, or any other person registered
(or required to be registered) under
the securities laws, the Financial
Innovation and Technology for the 21st
Century Act, or the Commodity Exchange
Act.
(26) Digital asset.--
(A) In general.--The term ``digital asset''
means any fungible digital representation of
value that can be exclusively possessed and
transferred, person to person, without
necessary reliance on an intermediary, and is
recorded on a cryptographically secured public
distributed ledger.
(B) Exclusions.--The term ``digital asset''
does not include--
(i) any note, stock, treasury stock,
security future, security-based swap,
bond, debenture, evidence of
indebtedness, certificate of interest
or participation in any profit-sharing
agreement, collateral-trust
certificate, preorganization
certificate or subscription, or
transferable share; or
(ii) any asset, which based on its
terms and other characteristics, is,
represents, or is functionally
equivalent to an agreement, contract,
or transaction that is--
(I) a contract of sale of a
commodity (as defined under
section 1a of the Commodity
Exchange Act) for future
delivery or an option thereon;
(II) a security futures
product;
(III) a swap;
(IV) an agreement, contract,
or transaction described in
section 2(c)(2)(C)(i) or
2(c)(2)(D)(i) of the Commodity
Exchange Act;
(V) a commodity option
authorized under section 4c of
the Commodity Exchange Act; or
(VI) a leverage transaction
authorized under section 19 of
the Commodity Exchange Act.
(C) Rule of construction.--Nothing in this
paragraph shall be construed to create a
presumption that a digital asset is a
representation of any type of security not
excluded from the definition of digital asset.
(D) Relationship to a blockchain system.--A
digital asset is considered to relate to a
blockchain system if the digital asset is
intrinsically linked to the blockchain system,
including--
(i) where the digital asset's value
is reasonably expected to be generated
by the programmatic functioning of the
blockchain system;
(ii) where the digital asset has
voting rights with respect to the
decentralized governance system of the
blockchain system; or
(iii) where the digital asset is
issued through the programmatic
functioning of the blockchain system.
(E) Treatment of certain digital assets sold
pursuant to an investment contract.--A digital
asset offered or sold or intended to be offered
or sold pursuant to an investment contract is
not and does not become a security as a result
of being sold or otherwise transferred pursuant
to that investment contract.
(27) Digital asset issuer.--
(A) In general.--With respect to a digital
asset, the term ``digital asset issuer'' means
any person that, in exchange for any
consideration--
(i) issues or causes to be issued a
unit of such digital asset to a person;
or
(ii) offers or sells a right to a
future issuance of a unit of such
digital asset to a person.
(B) Exclusion.--The term ``digital asset
issuer'' does not include any person solely
because such person deploys source code that
creates or issues units of a digital asset that
are only distributed in end user distributions.
(C) Prohibition on evasion.--It shall be
unlawful for any person to knowingly evade
classification as a ``digital asset issuer''
and facilitate an arrangement for the primary
purpose of effecting a sale, distribution, or
other issuance of a digital asset.
(28) Digital asset maturity date.--The term ``digital
asset maturity date'' means, with respect to any
digital asset, the first date on which 20 percent or
more of the total units of such digital asset that are
then outstanding as of such date are--
(A) digital commodities; or
(B) digital assets that have been registered
with the Commission.
(29) Digital commodity.--The term ``digital
commodity'' has the meaning given that term under
section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
(30) End user distribution.--
(A) In general.--The term ``end user
distribution'' means an issuance of a unit of a
digital asset that--
(i) does not involve an exchange of
more than a nominal value of cash,
property, or other assets; and
(ii) is distributed in a broad,
equitable, and non-discretionary manner
based on conditions capable of being
satisfied by any participant in the
blockchain system, including as
incentive-based rewards--
(I) to users of the digital
asset or any blockchain system
to which the digital asset
relates;
(II) for activities directly
related to the operation of the
blockchain system, such as
mining, validating, staking, or
other activity directly tied to
the operation of the blockchain
system; or
(III) to the existing holders
of another digital asset, in
proportion to the total units
of such other digital asset as
are held by each person.
(B) Prohibition on evasion.--It shall be
unlawful for any person to facilitate an end
user distribution to knowingly evade
classification as a digital asset issuer,
related person, or an affiliated person, or the
requirements related to a digital asset
issuance.
(31) Functional network.--With respect to a
blockchain system to which a digital asset relates, the
term ``functional network'' means the network allows
network participants to use such digital asset for--
(A) the transmission and storage of value on
the blockchain system;
(B) the participation in services provided by
or an application running on the blockchain
system; or
(C) the participation in the decentralized
governance system of the blockchain system.
(32) Permitted payment stablecoin.--The term
``permitted payment stablecoin''--
(A) means a digital asset--
(i) that is or is designed to be used
as a means of payment or settlement;
(ii) the issuer of which--
(I) is obligated to convert,
redeem, or repurchase for a
fixed amount of monetary value;
or
(II) represents will maintain
or creates the reasonable
expectation that it will
maintain a stable value
relative to the value of a
fixed amount of monetary value;
and
(iii) that is subject to regulation
by a Federal or State regulator with
authority over entities that issue
payment stablecoins; and
(B) that is not--
(i) a national currency; or
(ii) a security issued by an
investment company registered under
section 8(a) of the Investment Company
Act of 1940 (15 U.S.C. 80a-8(a)).
(33) Related person.--With respect to a digital asset
issuer, the term ``related person'' means--
(A) a founder, promoter, employee,
consultant, advisor, or person serving in a
similar capacity;
(B) any person that is or was in the previous
6-month period an executive officer, director,
trustee, general partner, advisory board
member, or person serving in a similar
capacity;
(C) any equity holder or other security
holder; or
(D) any other person that received a unit of
digital asset from such digital asset issuer
through--
(i) an exempt offering, other than an
offering made in reliance on section
4(a)(8); or
(ii) a distribution that is not an
end user distribution described under
section 42(d)(1) of the Securities
Exchange Act of 1934.
(34) Restricted digital asset.--
(A) In general.--The term ``restricted
digital asset'' means--
(i) any unit of a digital asset held
by a person, other than the digital
asset issuer, a related person, or an
affiliated person, prior to the first
date on which each blockchain system to
which the digital asset relates is a
functional network and certified to be
a decentralized network under section
44 of the Securities Exchange Act of
1934, that was--
(I) issued to such person
through a distribution, other
than an end user distribution
described under section
42(d)(1) of the Securities
Exchange Act of 1934; or
(II) acquired by such person
in a transaction that was not
executed on a digital commodity
exchange;
(ii) any digital asset held by a
related person or an affiliated person
during any period when any blockchain
system to which the digital asset
relates is not a functional network or
not certified to be a decentralized
network under section 44 of the
Securities Exchange Act of 1934; or
(iii) any unit of a digital asset
held by the digital asset issuer.
(B) Exclusion.--The term ``restricted digital
asset'' does not include a permitted payment
stablecoin.
(35) Securities laws.--The term ``securities laws''
has the meaning given that term under section 3(a) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
(36) Source code.--With respect to a blockchain
system, the term ``source code'' means a listing of
commands to be compiled or assembled into an executable
computer program.
(b) Consideration of Promotion of Efficiency, Competition,
and Capital Formation.--Whenever pursuant to this title the
Commission is engaged in rulemaking and is required to
consider or determine whether an action is necessary or
appropriate in the public interest, the Commission shall also
consider, in addition to the protection of investors, whether
the action will promote efficiency, competition, and capital
formation.
* * * * * * *
exempted transactions
Sec. 4. (a) The provisions of section 5 shall not apply to--
(1) transactions by any person other than an issuer,
underwriter, or dealer.
(2) transactions by an issuer not involving any
public offering.
(3) transactions by a dealer (including an
underwriter no longer acting as an underwriter in
respect of the security involved in such transaction),
except--
(A) transactions taking place prior to the
expiration of forty days after the first date
upon which the security was bona fide offered
to the public by the issuer or by or through an
underwriter,
(B) transactions in a security as to which a
registration statement has been filed taking
place prior to the expiration of forty days
after the effective date of such registration
statement or prior to the expiration of forty
days after the first date upon which the
security was bona fide offered to the public by
the issuer or by or through an underwriter
after such effective date, whichever is later
(excluding in the computation of such forty
days any time during which a stop order issued
under section 8 is in effect as to the
security), or such shorter period as the
Commission may specify by rules and regulations
or order, and
(C) transactions as to securities
constituting the whole or a part of an unsold
allotment to or subscription by such dealer as
a participant in the distribution of such
securities by the issuer or by or through an
underwriter.
With respect to transactions referred to in clause (B),
if securities of the issuer have not previously been
sold pursuant to an earlier effective registration
statement the applicable period, instead of forty days,
shall be ninety days, or such shorter period as the
Commission may specify by rules and regulations or
order.
(4) brokers' transactions executed upon customers'
orders on any exchange or in the over-the-counter
market but not the solicitation of such orders.
(5) transactions involving offers or sales by an
issuer solely to one or more accredited investors, if
the aggregate offering price of an issue of securities
offered in reliance on this paragraph does not exceed
the amount allowed under section 3(b)(1) of this title,
if there is no advertising or public solicitation in
connection with the transaction by the issuer or anyone
acting on the issuer's behalf, and if the issuer files
such notice with the Commission as the Commission shall
prescribe.
(6) transactions involving the offer or sale of
securities by an issuer (including all entities
controlled by or under common control with the issuer),
provided that--
(A) the aggregate amount sold to all
investors by the issuer, including any amount
sold in reliance on the exemption provided
under this paragraph during the 12-month period
preceding the date of such transaction, is not
more than $1,000,000;
(B) the aggregate amount sold to any investor
by an issuer, including any amount sold in
reliance on the exemption provided under this
paragraph during the 12-month period preceding
the date of such transaction, does not exceed--
(i) the greater of $2,000 or 5
percent of the annual income or net
worth of such investor, as applicable,
if either the annual income or the net
worth of the investor is less than
$100,000; and
(ii) 10 percent of the annual income
or net worth of such investor, as
applicable, not to exceed a maximum
aggregate amount sold of $100,000, if
either the annual income or net worth
of the investor is equal to or more
than $100,000;
(C) the transaction is conducted through a
broker or funding portal that complies with the
requirements of section 4A(a); and
(D) the issuer complies with the requirements
of section 4A(b).
(7) transactions meeting the requirements of
subsection (d).
(8) transactions involving the offer or sale of units
of a digital asset by a digital asset issuer, if--
(A) the aggregate amount of units of the
digital asset sold by the digital asset issuer
in reliance on the exemption provided under
this paragraph, during the 12-month period
preceding the date of such transaction,
including the amount sold in such transaction,
is not more than $75,000,000 (as such amount is
annually adjusted by the Commission to reflect
the change in the Consumer Price Index for All
Urban Consumers published by the Bureau of
Labor Statistics of the Department of Labor);
(B) with respect to a transaction involving
the purchase of units of a digital asset by a
person who is not an accredited investor, the
aggregate amount of all units of digital assets
purchased by such person during the 12-month
period preceding the date of such transaction,
including the unit of a digital asset purchased
in such transaction, does not exceed the
greater of--
(i) 10 percent of the person's annual
income or joint income with that
person's spouse or spousal equivalent;
or
(ii) 10 percent of the person's net
worth or joint net worth with the
person's spouse or spousal equivalent;
(C) after the completion of the transaction,
the purchaser does not own more than 10 percent
of the total amount of the units of the digital
asset sold in reliance on the exemption under
this paragraph;
(D) the transaction does not involve the
offer or sale of any digital asset not offered
as part of an investment contract;
(E) the transaction does not involve the
offer or sale of a unit of a digital asset by a
digital asset issuer that--
(i) is not organized under the laws
of a State, a territory of the United
States, or the District of Columbia;
(ii) is a development stage company
that either--
(I) has no specific business
plan or purpose; or
(II) has indicated that the
business plan of the company is
to merge with or acquire an
unidentified company;
(iii) is an investment company, as
defined in section 3 of the Investment
Company Act of 1940 (15 U.S.C. 80a-3),
or is excluded from the definition of
investment company by section 3(b) or
section 3(c) of that Act (15 U.S.C.
80a-3(b) or 80a-3(c));
(iv) is issuing fractional undivided
interests in oil or gas rights, or a
similar interest in other mineral
rights;
(v) is, or has been, subject to any
order of the Commission entered
pursuant to section 12(j) of the
Securities Exchange Act of 1934 during
the 5-year period before the filing of
the offering statement; or
(vi) is disqualified pursuant to
section 230.262 of title 17, Code of
Federal Regulations; and
(F) the issuer meets the requirements of
section 4B(a).
(b) Offers and sales exempt under section 230.506 of title
17, Code of Federal Regulations (as revised pursuant to section
201 of the Jumpstart Our Business Startups Act) shall not be
deemed public offerings under the Federal securities laws as a
result of general advertising or general solicitation.
(c)(1) With respect to securities offered and sold in
compliance with Rule 506 of Regulation D under this Act, no
person who meets the conditions set forth in paragraph (2)
shall be subject to registration as a broker or dealer pursuant
to section 15(a)(1) of this title, solely because--
(A) that person maintains a platform or
mechanism that permits the offer, sale,
purchase, or negotiation of or with respect to
securities, or permits general solicitations,
general advertisements, or similar or related
activities by issuers of such securities,
whether online, in person, or through any other
means;
(B) that person or any person associated with
that person co-invests in such securities; or
(C) that person or any person associated with
that person provides ancillary services with
respect to such securities.
(2) The exemption provided in paragraph (1) shall apply to
any person described in such paragraph if--
(A) such person and each person associated with that
person receives no compensation in connection with the
purchase or sale of such security;
(B) such person and each person associated with that
person does not have possession of customer funds or
securities in connection with the purchase or sale of
such security; and
(C) such person is not subject to a statutory
disqualification as defined in section 3(a)(39) of this
title and does not have any person associated with that
person subject to such a statutory disqualification.
(3) For the purposes of this subsection, the term ``ancillary
services'' means--
(A) the provision of due diligence services, in
connection with the offer, sale, purchase, or
negotiation of such security, so long as such services
do not include, for separate compensation, investment
advice or recommendations to issuers or investors; and
(B) the provision of standardized documents to the
issuers and investors, so long as such person or entity
does not negotiate the terms of the issuance for and on
behalf of third parties and issuers are not required to
use the standardized documents as a condition of using
the service.
(d) Certain Accredited Investor Transactions.--The
transactions referred to in subsection (a)(7) are transactions
meeting the following requirements:
(1) Accredited investor requirement.--Each purchaser
is an accredited investor, as that term is defined in
section 230.501(a) of title 17, Code of Federal
Regulations (or any successor regulation).
(2) Prohibition on general solicitation or
advertising.--Neither the seller, nor any person acting
on the seller's behalf, offers or sells securities by
any form of general solicitation or general
advertising.
(3) Information requirement.--In the case of a
transaction involving the securities of an issuer that
is neither subject to section 13 or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m;
78o(d)), nor exempt from reporting pursuant to section
240.12g3-2(b) of title 17, Code of Federal Regulations,
nor a foreign government (as defined in section 230.405
of title 17, Code of Federal Regulations) eligible to
register securities under Schedule B, the seller and a
prospective purchaser designated by the seller obtain
from the issuer, upon request of the seller, and the
seller in all cases makes available to a prospective
purchaser, the following information (which shall be
reasonably current in relation to the date of resale
under this section):
(A) The exact name of the issuer and the
issuer's predecessor (if any).
(B) The address of the issuer's principal
executive offices.
(C) The exact title and class of the
security.
(D) The par or stated value of the security.
(E) The number of shares or total amount of
the securities outstanding as of the end of the
issuer's most recent fiscal year.
(F) The name and address of the transfer
agent, corporate secretary, or other person
responsible for transferring shares and stock
certificates.
(G) A statement of the nature of the business
of the issuer and the products and services it
offers, which shall be presumed reasonably
current if the statement is as of 12 months
before the transaction date.
(H) The names of the officers and directors
of the issuer.
(I) The names of any persons registered as a
broker, dealer, or agent that shall be paid or
given, directly or indirectly, any commission
or remuneration for such person's participation
in the offer or sale of the securities.
(J) The issuer's most recent balance sheet
and profit and loss statement and similar
financial statements, which shall--
(i) be for such part of the 2
preceding fiscal years as the issuer
has been in operation;
(ii) be prepared in accordance with
generally accepted accounting
principles or, in the case of a foreign
private issuer, be prepared in
accordance with generally accepted
accounting principles or the
International Financial Reporting
Standards issued by the International
Accounting Standards Board;
(iii) be presumed reasonably current
if--
(I) with respect to the
balance sheet, the balance
sheet is as of a date less than
16 months before the
transaction date; and
(II) with respect to the
profit and loss statement, such
statement is for the 12 months
preceding the date of the
issuer's balance sheet; and
(iv) if the balance sheet is not as
of a date less than 6 months before the
transaction date, be accompanied by
additional statements of profit and
loss for the period from the date of
such balance sheet to a date less than
6 months before the transaction date.
(K) To the extent that the seller is a
control person with respect to the issuer, a
brief statement regarding the nature of the
affiliation, and a statement certified by such
seller that they have no reasonable grounds to
believe that the issuer is in violation of the
securities laws or regulations.
(4) Issuers disqualified.--The transaction is not for
the sale of a security where the seller is an issuer or
a subsidiary, either directly or indirectly, of the
issuer.
(5) Bad actor prohibition.--Neither the seller, nor
any person that has been or will be paid (directly or
indirectly) remuneration or a commission for their
participation in the offer or sale of the securities,
including solicitation of purchasers for the seller is
subject to an event that would disqualify an issuer or
other covered person under Rule 506(d)(1) of Regulation
D (17 CFR 230.506(d)(1)) or is subject to a statutory
disqualification described under section 3(a)(39) of
the Securities Exchange Act of 1934.
(6) Business requirement.--The issuer is engaged in
business, is not in the organizational stage or in
bankruptcy or receivership, and is not a blank check,
blind pool, or shell company that has no specific
business plan or purpose or has indicated that the
issuer's primary business plan is to engage in a merger
or combination of the business with, or an acquisition
of, an unidentified person.
(7) Underwriter prohibition.--The transaction is not
with respect to a security that constitutes the whole
or part of an unsold allotment to, or a subscription or
participation by, a broker or dealer as an underwriter
of the security or a redistribution.
(8) Outstanding class requirement.--The transaction
is with respect to a security of a class that has been
authorized and outstanding for at least 90 days prior
to the date of the transaction.
(e) Additional Requirements.--
(1) In general.--With respect to an exempted
transaction described under subsection (a)(7):
(A) Securities acquired in such transaction
shall be deemed to have been acquired in a
transaction not involving any public offering.
(B) Such transaction shall be deemed not to
be a distribution for purposes of section
2(a)(11).
(C) Securities involved in such transaction
shall be deemed to be restricted securities
within the meaning of Rule 144 (17 CFR
230.144).
(2) Rule of construction.--The exemption provided by
subsection (a)(7) shall not be the exclusive means for
establishing an exemption from the registration
requirements of section 5.
* * * * * * *
SEC. 4B. REQUIREMENTS WITH RESPECT TO CERTAIN DIGITAL ASSET
TRANSACTIONS.
(a) Requirements for Digital Asset Issuers.--
(1) Information required in statement.--A digital
asset issuer offering or selling a unit of digital
asset in reliance on section 4(a)(8) shall file with
the Commission a statement containing the following
information:
(A) The name, legal status (including the
jurisdiction in which the issuer is organized
and the date of organization), and website of
the digital asset issuer.
(B) The address and telephone number of the
issuer or a legal representative of the issuer.
(C) A certification that the digital asset
issuer meets the relevant requirements
described under section 4(a)(8).
(D) An overview of the material aspects of
the offering.
(E) A description of the purpose and intended
use of the offering proceeds.
(F) A description of the plan of distribution
of any unit of a digital asset that is to be
offered.
(G) A description of the material risks
surrounding ownership of a unit of a digital
asset.
(H) A description of the material aspects of
the digital asset issuer's business.
(I) A description of exempt offerings
conducted within the past three years by the
digital asset issuer.
(J) A description of the digital asset issuer
and the current number of employees of the
digital asset issuer.
(K) A description of any material
transactions or relationships between the
digital asset issuer and affiliated persons.
(L) A description of exempt offerings
conducted within the past three years.
(2) Information required for purchasers.--A digital
asset issuer shall disclose the information described
under section 43 of the Securities Exchange Act of 1934
on a freely accessible public website.
(3) Ongoing disclosure requirements.--A digital asset
issuer that has filed a statement under paragraph (1)
to offer and sell a unit of a digital asset in reliance
on section 4(a)(8) shall file the following with the
Commission:
(A) Annual reports.--An annual report that
includes any material changes to the
information described under paragraph (2) for
the current fiscal year and for any fiscal year
thereafter, unless the issuer is no longer
obligated to file such annual report pursuant
to paragraph (4).
(B) Semiannual reports.--Along with each
annual report required under subparagraph (A),
and separately six months thereafter, a report
containing--
(i) an updated description of the
current state and timeline for the
development of the blockchain system to
which the digital asset relates,
showing how and when the blockchain
system intends or intended to be
considered a functional network and a
decentralized network;
(ii) the amount of money raised by
the digital asset issuer in reliance on
section 4(a)(8), how much of that money
has been spent, and the general
categories and amounts on which that
money has been spent; and
(iii) any material changes to the
information in the most recent annual
report.
(C) Current reports.--A current report shall
be filed with the Commission reflecting any
material changes to the information previously
reported to the Commission by the digital asset
issuer.
(4) Termination of reporting requirements.--
(A) In general.--The ongoing reporting
requirements under paragraph (3) shall not
apply to a digital asset issuer 180 days after
the end of the covered fiscal year.
(B) Covered fiscal year defined.--In this
paragraph, the term ``covered fiscal year''
means the first fiscal year of an issuer in
which the blockchain system to which the
digital asset relates is a functional network
and certified to be a decentralized network
under section 44 of the Securities Exchange Act
of 1934.
(b) Requirements for Intermediaries.--
(1) In general.--A person acting as an intermediary
in a transaction involving the offer or sale of a unit
of a digital asset in reliance on section 4(a)(8)
shall--
(A) register with the Commission as a digital
asset broker; and
(B) be a member of a national securities
association registered under section 15A of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-
3).
(2) Purchaser qualification.--
(A) In general.--Each time, before accepting
any commitment (including any additional
commitment from the same person), an
intermediary or digital asset issuer shall have
a reasonable basis for believing that the
purchaser satisfies the requirements of section
4(a)(8).
(B) Reliance on purchaser's
representations.--For purposes of subparagraph
(A), an intermediary or digital asset issuer
may rely on a purchaser's representations
concerning the purchaser's annual income and
net worth and the amount of the purchaser's
other investments made, unless the intermediary
or digital asset issuer has reason to question
the reliability of the representation.
(C) Reliance on intermediary.--For purposes
of determining whether a transaction meets the
requirements described under subparagraph (A)
through (C) of section 4(a)(8), a digital asset
issuer may rely on the efforts of an
intermediary.
(c) Additional Provisions.--
(1) Acceptance of written offers; sales.--After an
issuer files a statement under paragraph (1) to offer
and sell a digital asset in reliance on section
4(a)(8)--
(A) written offers of the digital asset may
be made; and
(B) the issuer may sell the digital assets in
reliance on section 4(a)(8), if such sales meet
all other requirements.
(2) Solicitation of interest.--
(A) In general.--At any time before the
filing of a statement under paragraph (1), a
digital asset issuer may communicate orally or
in writing to determine whether there is any
interest in a contemplated offering. Such
communications are deemed to be an offer of a
unit of a digital asset for sale for purposes
of the anti-fraud provisions of the Federal
securities laws. No solicitation or acceptance
of money or other consideration, nor of any
commitment, binding or otherwise, from any
person is permitted until the statement is
filed.
(B) Conditions.--In any communication
described under subparagraph (A), the digital
asset issuer shall--
(i) state that no money or other
consideration is being solicited, and
if sent in response, will not be
accepted;
(ii) state that no offer to buy a
unit of a digital asset can be accepted
and no part of the purchase price can
be received until the statement is
filed and then only through an
intermediary; and
(iii) state that a person's
indication of interest involves no
obligation or commitment of any kind.
(C) Indications of interest.--Any written
communication described under subparagraph (A)
may include a means by which a person may
indicate to the digital asset issuer that such
person is interested in a potential offering. A
digital asset issuer may require a name,
address, telephone number, or email address in
any response form included with a communication
described under subparagraph (A).
(3) Disqualification provisions.--The Commission
shall issue rules to apply the disqualification
provisions under section 230.262 of title 17, Code of
Federal Regulations, to the exemption provided under
section 4(a)(8).
(4) Digital assets deemed restricted digital asset.--
A unit of a digital asset acquired directly or
indirectly from the digital asset issuer in reliance on
the exemption provided under section 4(a)(8) is deemed
a restricted digital asset.
* * * * * * *
SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OFFERINGS.
(a) Scope of Exemption.--Except as otherwise provided in this
section, no law, rule, regulation, or order, or other
administrative action of any State or any political subdivision
thereof--
(1) requiring, or with respect to, registration or
qualification of securities, or registration or
qualification of securities transactions, shall
directly or indirectly apply to a security that--
(A) is a covered security; or
(B) will be a covered security upon
completion of the transaction;
(2) shall directly or indirectly prohibit, limit, or
impose any conditions upon the use of--
(A) with respect to a covered security
described in subsection (b), any offering
document that is prepared by or on behalf of
the issuer; or
(B) any proxy statement, report to
shareholders, or other disclosure document
relating to a covered security or the issuer
thereof that is required to be and is filed
with the Commission or any national securities
organization registered under section 15A of
the Securities Exchange Act of 1934, except
that this subparagraph does not apply to the
laws, rules, regulations, or orders, or other
administrative actions of the State of
incorporation of the issuer; or
(3) shall directly or indirectly prohibit, limit, or
impose conditions, based on the merits of such offering
or issuer, upon the offer or sale of any security
described in paragraph (1).
(b) Covered Securities.--For purposes of this section, the
following are covered securities:
(1) Exclusive federal registration of nationally
traded securities.--A security is a covered security if
such security is--
(A) a security designated as qualified for
trading in the national market system pursuant
to section 11A(a)(2) of the Securities Exchange
Act of 1934 (15 U.S.C. 78k-1(a)(2)) that is
listed, or authorized for listing, on a
national securities exchange (or tier or
segment thereof); or
(B) a security of the same issuer that is
equal in seniority or that is a senior security
to a security described in subparagraph (A).
(2) Exclusive federal registration of investment
companies.--A security is a covered security if such
security is a security issued by an investment company
that is registered, or that has filed a registration
statement, under the Investment Company Act of 1940.
(3) Sales to qualified purchasers.--A security is a
covered security with respect to the offer or sale of
the security to qualified purchasers, as defined by the
Commission by rule. In prescribing such rule, the
Commission may define the term ``qualified purchaser''
differently with respect to different categories of
securities, consistent with the public interest and the
protection of investors.
(4) Exemption in connection with certain exempt
offerings.--A security is a covered security with
respect to a transaction that is exempt from
registration under this title pursuant to--
(A) paragraph (1) or (3) of section 4, and
the issuer of such security files reports with
the Commission pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934;
(B) [section 4(4)] section 4(a)(4);
(C) [section 4(6)] section 4(a)(6);
(D) a rule or regulation adopted pursuant to
section 3(b)(2) and such security is--
(i) offered or sold on a national
securities exchange; or
(ii) offered or sold to a qualified
purchaser, as defined by the Commission
pursuant to paragraph (3) with respect
to that purchase or sale;
(E) section 3(a), other than the offer or
sale of a security that is exempt from such
registration pursuant to paragraph (4), (10),
or (11) of such section, except that a
municipal security that is exempt from such
registration pursuant to paragraph (2) of such
section is not a covered security with respect
to the offer or sale of such security in the
State in which the issuer of such security is
located;
(F) Commission rules or regulations issued
under [section 4(2)] section 4(a)(2), except
that this subparagraph does not prohibit a
State from imposing notice filing requirements
that are substantially similar to those
required by rule or regulation under [section
4(2)] section 4(a)(2) that are in effect on
September 1, 1996; [or]
(G) section 4(a)(7)[.]; or
(H) section 4(a)(8).
(5) Exemption for certain digital assets in
connection with federally regulated intermediaries.--A
restricted digital asset is a covered security with
respect to a transaction that is exempt from
registration under this Act when--
(A) it is brokered, traded, custodied, or
cleared by a digital asset broker or digital
asset dealer registered under section 15H of
the Securities Exchange Act of 1934; or
(B) traded through a digital asset trading
system.
(c) Preservation of Authority.--
(1) Fraud authority.--Consistent with this section,
the securities commission (or any agency or office
performing like functions) of any State shall retain
jurisdiction under the laws of such State to
investigate and bring enforcement actions, in
connection with securities or securities transactions
(A) with respect to--
(i) fraud or deceit; or
(ii) unlawful conduct by a broker or
dealer; and
(B) in connection to a transaction described
under section 4(6), with respect to--
(i) fraud or deceit; or
(ii) unlawful conduct by a broker,
dealer, funding portal, or issuer.
(2) Preservation of filing requirements.--
(A) Notice filings permitted.--Nothing in
this
section prohibits the securities commission (or
any agency or office performing like functions)
of any State from requiring the filing of any
document filed with the Commission pursuant to
this title, together with annual or periodic
reports of the value of securities sold or
offered to be sold to persons located in the
State (if such sales data is not included in
documents filed with the Commission), solely
for notice purposes and the assessment of any
fee, together with a consent to service of
process and any required fee.
(B) Preservation of fees.--
(i) In general.--Until otherwise
provided by law, rule, regulation, or
order, or other administrative action
of any State or any political
subdivision thereof, adopted after the
date of enactment of the National
Securities Markets Improvement Act of
1996, filing or registration fees with
respect to securities or securities
transactions shall continue to be
collected in amounts determined
pursuant to State law as in effect on
the day before such date.
(ii) Schedule.--The fees required by
this subparagraph shall be paid, and
all necessary supporting data on sales
or offers for sales required under
subparagraph (A), shall be reported on
the same
schedule as would have been applicable
had the issuer not relied on the
exemption provided in subsection (a).
(C) Availability of preemption contingent on
payment of fees.--
(i) In general.--During the period
beginning on the date of enactment of
the National Securities
Markets Improvement Act of 1996 and
ending 3 years after that date of
enactment, the securities commission
(or any agency or office performing
like functions) of any State may
require the registration of securities
issued by any issuer who refuses to pay
the fees required by subparagraph (B).
(ii) Delays.--For purposes of this
subparagraph, delays in payment of fees
or underpayments of fees that are
promptly remedied shall not constitute
a refusal to pay fees.
(D) Fees not permitted on listed
securities.--Notwithstanding subparagraphs (A),
(B), and (C), no filing or fee may be required
with respect to any security that is a covered
security pursuant to subsection (b)(1), or will
be such a covered security upon completion of
the transaction, or is a security of the same
issuer that is equal in seniority or that is a
senior security to a security that is a covered
security pursuant to subsection (b)(1).
(F) Fees not permitted on crowdfunded
securities.--Notwithstanding subparagraphs (A),
(B), and (C), no filing or fee may be required
with respect to any security that is a covered
security pursuant to subsection (b)(4)(B), or
will be such a covered security upon completion
of the transaction, except for the securities
commission (or any agency or office performing
like functions) of the State of the principal
place of business of the issuer, or any State
in which purchasers of 50 percent or greater of
the aggregate amount of the issue are
residents, provided that for purposes of this
subparagraph, the term ``State'' includes the
District of Columbia and the territories of the
United States.
(3) Enforcement of requirements.--Nothing in this
section shall prohibit the securities commission (or
any agency or office performing like functions) of any
State from suspending the offer or sale of securities
within such State as a result of the failure to submit
any filing or fee required under law and permitted
under this section.
(d) Definitions.--For purposes of this section, the following
definitions shall apply:
(1) Offering document.--The term ``offering
document''--
(A) has the meaning given the term
``prospectus'' in section 2(a)(10), but without
regard to the provisions of subparagraphs (a)
and (b) of that section; and
(B) includes a communication that is not
deemed to offer a security pursuant to a rule
of the Commission.
(2) Prepared by or on behalf of the issuer.--Not
later than 6 months after the date of enactment of the
National Securities Markets Improvement Act of 1996,
the Commission shall, by rule, define the term
``prepared by or on behalf of the issuer'' for purposes
of this section.
(3) State.--The term ``State'' has the same meaning
as in section 3 of the Securities Exchange Act of 1934.
(4) Senior security.--The term ``senior security''
means any bond, debenture, note, or similar obligation
or instrument constituting a security and evidencing
indebtedness, and any stock of a class having priority
over any other class as to distribution of assets or
payment of dividends.
* * * * * * *
----------
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
definitions and application of title
Sec. 3. (a) When used in this title, unless the context
otherwise requires--
(1) The term ``exchange'' means any organization,
association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange as
that term is generally understood, and includes the
market place and the market facilities maintained by
such exchange. The term ``exchange'' does not include a
digital asset trading system, blockchain protocol, or
any person or group of persons solely because of their
development of a blockchain protocol.
(2) The term ``facility'' when used with respect to
an exchange includes its premises, tangible or
intangible property whether on the premises or not, any
right to the use of such premises or property or any
service thereof for the purpose of effecting or
reporting a transaction on an exchange (including,
among other things, any system of communication to or
from the exchange, by ticker or otherwise, maintained
by or with the consent of the exchange), and any right
of the exchange to the use of any property or service.
A digital asset trading system is not a ``facility'' of
an exchange.
(3)(A) The term ``member'' when used with respect to
a national securities exchange means (i) any natural
person permitted to effect transactions on the floor of
the exchange without the services of another person
acting as broker, (ii) any registered broker or dealer
with which such a natural person is associated, (iii)
any registered broker or dealer permitted to designate
as a representative such a natural person, and (iv) any
other registered broker or dealer which agrees to be
regulated by such exchange and with respect to which
the exchange undertakes to enforce compliance with the
provisions of this title, the rules and regulations
thereunder, and its own rules. For purposes of sections
6(b)(1), 6(b)(4), 6(b)(6), 6(b)(7), 6(d), 17(d), 19(d),
19(e), 19(g), 19(h), and 21 of this title, the term
``member'' when used with respect to a national
securities exchange also means, to the extent of the
rules of the exchange specified by the Commission, any
person required by the Commission to comply with such
rules pursuant to section 6(f) of this title.
(B) The term ``member'' when used with respect to a
registered securities association means any broker or
dealer who agrees to be regulated by such association
and with respect to whom the association undertakes to
enforce compliance with the provisions of this title,
the rules and regulations thereunder, and its own
rules.
(4) Broker.--
(A) In general.--The term ``broker'' means
any person engaged in the business of effecting
transactions in securities, other than
restricted digital assets, for the account of
others.
(B) Exception for certain bank activities.--A
bank shall not be considered to be a broker
because the bank engages in any one or more of
the following activities under the conditions
described:
(i) Third party brokerage
arrangements.--The bank enters into a
contractual or other written
arrangement with a broker or dealer
registered under this title under which
the broker or dealer offers brokerage
services on or off the premises of the
bank if--
(I) such broker or dealer is
clearly identified as the
person performing the brokerage
services;
(II) the broker or dealer
performs brokerage services in
an area that is clearly marked
and, to the extent practicable,
physically separate from the
routine deposit-taking
activities of the bank;
(III) any materials used by
the bank to advertise or
promote generally the
availability of brokerage
services under the arrangement
clearly indicate that the
brokerage services are being
provided by the broker or
dealer and not by the bank;
(IV) any materials used by
the bank to advertise or
promote generally the
availability of brokerage
services under the arrangement
are in compliance with the
Federal securities laws before
distribution;
(V) bank employees (other
than associated persons of a
broker or dealer who are
qualified pursuant to the rules
of a self-regulatory
organization) perform only
clerical or ministerial
functions in connection with
brokerage transactions
including scheduling
appointments with the
associated persons of a broker
or dealer, except that bank
employees may forward customer
funds or securities and may
describe in general terms the
types of investment vehicles
available from the bank and the
broker or dealer under the
arrangement;
(VI) bank employees do not
receive incentive compensation
for any brokerage transaction
unless such employees are
associated persons of a broker
or dealer and are qualified
pursuant to the rules of a
self-regulatory organization,
except that the bank employees
may receive compensation for
the referral of any customer if
the compensation is a nominal
one-time cash fee of a fixed
dollar amount and the payment
of the fee is not contingent on
whether the referral results in
a transaction;
(VII) such services are
provided by the broker or
dealer on a basis in which all
customers that receive any
services are fully disclosed to
the broker or dealer;
(VIII) the bank does not
carry a securities account of
the customer except as
permitted under clause (ii) or
(viii) of this subparagraph;
and
(IX) the bank, broker, or
dealer informs each customer
that the brokerage services are
provided by the broker or
dealer and not by the bank and
that the securities are not
deposits or other obligations
of the bank, are not guaranteed
by the bank, and are not
insured by the Federal Deposit
Insurance Corporation.
(ii) Trust activities.--The bank
effects transactions in a trustee
capacity, or effects transactions in a
fiduciary capacity in its trust
department or other department that is
regularly examined by bank examiners
for compliance with fiduciary
principles and standards, and--
(I) is chiefly compensated
for such transactions,
consistent with fiduciary
principles and standards, on
the basis of an administration
or annual fee (payable on a
monthly, quarterly, or other
basis), a percentage of assets
under management, or a flat or
capped per order processing fee
equal to not more than the cost
incurred by the bank in
connection with executing
securities transactions for
trustee and fiduciary
customers, or any combination
of such fees; and
(II) does not publicly
solicit brokerage business,
other than by advertising that
it effects transactions in
securities in conjunction with
advertising its other trust
activities.
(iii) Permissible securities
transactions.--The bank effects
transactions in--
(I) commercial paper, bankers
acceptances, or commercial
bills;
(II) exempted securities;
(III) qualified Canadian
government obligations as
defined in section 5136 of the
Revised Statutes, in conformity
with section 15C of this title
and the rules and regulations
thereunder, or obligations of
the North American Development
Bank; or
(IV) any standardized, credit
enhanced debt security issued
by a foreign government
pursuant to the March 1989 plan
of then Secretary of the
Treasury Brady, used by such
foreign government to retire
outstanding commercial bank
loans.
(iv) Certain stock purchase plans.--
(I) Employee benefit plans.--
The bank effects transactions,
as part of its transfer agency
activities, in the securities
of an issuer as part of any
pension, retirement, profit-
sharing, bonus, thrift,
savings, incentive, or other
similar benefit plan for the
employees of that issuer or its
affiliates (as defined in
section 2 of the Bank Holding
Company Act of 1956), if the
bank does not solicit
transactions or provide
investment advice with respect
to the purchase or sale of
securities in connection with
the plan.
(II) Dividend reinvestment
plans.--The bank effects
transactions, as part of its
transfer agency activities, in
the securities of an issuer as
part of that issuer's dividend
reinvestment plan, if--
(aa) the bank does
not solicit
transactions or provide
investment advice with
respect to the purchase
or sale of securities
in connection with the
plan; and
(bb) the bank does
not net shareholders'
buy and sell orders,
other than for programs
for odd-lot holders or
plans registered with
the Commission.
(III) Issuer plans.--The bank
effects transactions, as part
of its transfer agency
activities, in the securities
of an issuer as part of a plan
or program for the purchase or
sale of that issuer's shares,
if--
(aa) the bank does
not solicit
transactions or provide
investment advice with
respect to the purchase
or sale of securities
in connection with the
plan or program; and
(bb) the bank does
not net shareholders'
buy and sell orders,
other than for programs
for odd-lot holders or
plans registered with
the Commission.
(IV) Permissible delivery of
materials.--The exception to
being considered a broker for a
bank engaged in activities
described in subclauses (I),
(II), and (III) will not be
affected by delivery of written
or electronic plan materials by
a bank to employees of the
issuer, shareholders of the
issuer, or members of affinity
groups of the issuer, so long
as such materials are--
(aa) comparable in
scope or nature to that
permitted by the
Commission as of the
date of the enactment
of the Gramm-Leach-
Bliley Act; or
(bb) otherwise
permitted by the
Commission.
(v) Sweep accounts.--The bank effects
transactions as part of a program for
the investment or reinvestment of
deposit funds into any no-load, open-
end management investment company
registered under the Investment Company
Act of 1940 that holds itself out as a
money market fund.
(vi) Affiliate transactions.--The
bank effects transactions for the
account of any affiliate of the bank
(as defined in section 2 of the Bank
Holding Company Act of 1956) other
than--
(I) a registered broker or
dealer; or
(II) an affiliate that is
engaged in merchant banking, as
described in section 4(k)(4)(H)
of the Bank Holding Company Act
of 1956.
(vii) Private securities offerings.--
The bank--
(I) effects sales as part of
a primary offering of
securities not involving a
public offering, pursuant to
section 3(b), 4(2), or 4(5) of
the Securities Act of 1933 or
the rules and regulations
issued thereunder;
(II) at any time after the
date that is 1 year after the
date of the enactment of the
Gramm-Leach-Bliley Act, is not
affiliated with a broker or
dealer that has been registered
for more than 1 year in
accordance with this Act, and
engages in dealing, market
making, or underwriting
activities, other than with
respect to exempted securities;
and
(III) if the bank is not
affiliated with a broker or
dealer, does not effect any
primary offering described in
subclause (I) the aggregate
amount of which exceeds 25
percent of the capital of the
bank, except that the
limitation of this subclause
shall not apply with respect to
any sale of government
securities or municipal
securities.
(viii) Safekeeping and custody
activities.--
(I) In general.--The bank, as
part of customary banking
activities--
(aa) provides
safekeeping or custody
services with respect
to securities,
including the exercise
of warrants and other
rights on behalf of
customers;
(bb) facilitates the
transfer of funds or
securities, as a
custodian or a clearing
agency, in connection
with the clearance and
settlement of its
customers' transactions
in securities;
(cc) effects
securities lending or
borrowing transactions
with or on behalf of
customers as part of
services provided to
customers pursuant to
division (aa) or (bb)
or invests cash
collateral pledged in
connection with such
transactions;
(dd) holds securities
pledged by a customer
to another person or
securities subject to
purchase or resale
agreements involving a
customer, or
facilitates the
pledging or transfer of
such securities by book
entry or as otherwise
provided under
applicable law, if the
bank maintains records
separately identifying
the securities and the
customer; or
(ee) serves as a
custodian or provider
of other related
administrative services
to any individual
retirement account,
pension, retirement,
profit sharing, bonus,
thrift savings,
incentive, or other
similar benefit plan.
(II) Exception for carrying
broker activities.--The
exception to being considered a
broker for a bank engaged in
activities described in
subclause (I) shall not apply
if the bank, in connection with
such activities, acts in the
United States as a carrying
broker (as such term, and
different formulations thereof,
are used in section 15(c)(3) of
this title and the rules and
regulations thereunder) for any
broker or dealer, unless such
carrying broker activities are
engaged in with respect to
government securities (as
defined in paragraph (42) of
this subsection).
(ix) Identified banking products.--
The bank effects transactions in
identified banking products as defined
in section 206 of the Gramm-Leach-
Bliley Act.
(x) Municipal securities.--The bank
effects transactions in municipal
securities.
(xi) De minimis exception.--The bank
effects, other than in transactions
referred to in clauses (i) through (x),
not more than 500 transactions in
securities in any calendar year, and
such transactions are not effected by
an employee of the bank who is also an
employee of a broker or dealer.
(C) Execution by broker or dealer.--The
exception to being considered a broker for a
bank engaged in activities described in clauses
(ii), (iv), and (viii) of subparagraph (B)
shall not apply if the activities described in
such provisions result in the trade in the
United States of any security that is a
publicly traded security in the United States,
unless--
(i) the bank directs such trade to a
registered broker or dealer for
execution;
(ii) the trade is a cross trade or
other substantially similar trade of a
security that--
(I) is made by the bank or
between the bank and an
affiliated fiduciary; and
(II) is not in contravention
of fiduciary principles
established under applicable
Federal or State law; or
(iii) the trade is conducted in some
other manner permitted under rules,
regulations, or orders as the
Commission may prescribe or issue.
(D) Fiduciary capacity.--For purposes of
subparagraph (B)(ii), the term ``fiduciary
capacity'' means--
(i) in the capacity as trustee,
executor, administrator, registrar of
stocks and bonds, transfer agent,
guardian, assignee, receiver, or
custodian under a uniform gift to minor
act, or as an investment adviser if the
bank receives a fee for its investment
advice;
(ii) in any capacity in which the
bank possesses investment discretion on
behalf of another; or
(iii) in any other similar capacity.
(E) Exception for entities subject to section
15(e).--The term ``broker'' does not include a
bank that--
(i) was, on the day before the date
of enactment of the Gramm-Leach-Bliley
Act, subject to section 15(e); and
(ii) is subject to such restrictions
and requirements as the Commission
considers appropriate.
(F) Joint rulemaking required.--The
Commission and the Board of Governors of the
Federal Reserve System shall jointly adopt a
single set of rules or regulations to implement
the exceptions in subparagraph (B).
(5) Dealer.--
(A) In general.--The term ``dealer'' means
any person engaged in the business of buying
and selling securities (not including
restricted digital assets or security-based
swaps, other than security-based swaps with or
for persons that are not eligible contract
participants) for such person's own account
through a broker or otherwise.
(B) Exception for person not engaged in the
business of dealing.--The term ``dealer'' does
not include a person that buys or sells
securities (not including security-based swaps,
other than security-based swaps with or for
persons that are not eligible contract
participants) for such person's own account,
either individually or in a fiduciary capacity,
but not as a part of a regular business.
(C) Exception for certain bank activities.--A
bank shall not be considered to be a dealer
because the bank engages in any of the
following activities under the conditions
described:
(i) Permissible securities
transactions.--The bank buys or sells--
(I) commercial paper, bankers
acceptances, or commercial
bills;
(II) exempted securities;
(III) qualified Canadian
government obligations as
defined in section 5136 of the
Revised Statutes of the United
States, in conformity with
section 15C of this title and
the rules and regulations
thereunder, or obligations of
the North American Development
Bank; or
(IV) any standardized, credit
enhanced debt security issued
by a foreign government
pursuant to the March 1989 plan
of then Secretary of the
Treasury Brady, used by such
foreign government to retire
outstanding commercial bank
loans.
(ii) Investment, trustee, and
fiduciary transactions.--The bank buys
or sells securities for investment
purposes--
(I) for the bank; or
(II) for accounts for which
the bank acts as a trustee or
fiduciary.
(iii) Asset-backed transactions.--The
bank engages in the issuance or sale to
qualified investors, through a grantor
trust or other separate entity, of
securities backed by or representing an
interest in notes, drafts, acceptances,
loans, leases, receivables, other
obligations (other than securities of
which the bank is not the issuer), or
pools of any such obligations
predominantly originated by--
(I) the bank;
(II) an affiliate of any such
bank other than a broker or
dealer; or
(III) a syndicate of banks of
which the bank is a member, if
the obligations or pool of
obligations consists of
mortgage obligations or
consumer-related receivables.
(iv) Identified banking products.--
The bank buys or sells identified
banking products, as defined in section
206 of the Gramm-Leach-Bliley Act.
(6) The term ``bank'' means (A) a banking institution
organized under the laws of the United States or a
Federal savings association, as defined in section 2(5)
of the Home Owners' Loan Act, (B) a member bank of the
Federal Reserve System, (C) any other banking
institution or savings association, as defined in
section 2(4) of the Home Owners' Loan Act, whether
incorporated or not, doing business under the laws of
any State or of the United States, a substantial
portion of the business of which consists of receiving
deposits or exercising fiduciary powers similar to
those permitted to national banks under the authority
of the Comptroller of the Currency pursuant to the
first section of Public Law 87-722 (12 U.S.C. 92a), and
which is supervised and examined by State or Federal
authority having supervision over banks or savings
associations, and which is not operated for the purpose
of evading the provisions of this title, and (D) a
receiver, conservator, or other liquidating agent of
any institution or firm included in clauses (A), (B),
or (C) of this paragraph.
(7) The term ``director'' means any director of a
corporation or any person performing similar functions
with respect to any organization, whether incorporated
or unincorporated.
(8) The term ``issuer'' means any person who issues
or proposes to issue any security; except that with
respect to certificates of deposit for securities,
voting-trust certificates, or collateral-trust
certificates, or with respect to certificates of
interest or shares in an unincorporated investment
trust not having a board of directors or of the fixed,
restricted management, or unit type, the term
``issuer'' means the person or persons performing the
acts and assuming the duties of depositor or manager
pursuant to the provisions of the trust or other
agreement or instrument under which such securities are
issued; and except that with respect to equipment-trust
certificates or like securities, the term ``issuer''
means the person by whom the equipment or property is,
or is to be, used.
(9) The term ``person'' means a natural person,
company, government, or political subdivision, agency,
or instrumentality of a government.
(10) The term ``security'' means any note, stock,
treasury stock, security future, security-based
swap,bond, debenture, certificate of interest or
participation in any profit-sharing agreement or in any
oil, gas, or other mineral royalty or lease, any
collateral-trust certificate, preorganization
certificate or subscription, transferable share,
investment contract, voting-trust certificate,
certificate of deposit for a security, any put, call,
straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on a national securities
exchange relating to foreign currency, or in general,
any instrument commonly known as a ``security''; or any
certificate of interest or participation in, temporary
or interim certificate for, receipt for, or warrant or
right to subscribe to or purchase, any of the
foregoing; but shall not include currency or any note,
draft, bill of exchange, or banker's acceptance which
has a maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited.
Subject to subsection (i), the term does not include a
digital commodity or permitted payment stablecoin.
(11) The term ``equity security'' means any stock or
similar security; or any security future on any such
security; or any security convertible, with or without
consideration, into such a security, or carrying any
warrant or right to subscribe to or purchase such a
security; or any such warrant or right; or any other
security which the Commission shall deem to be of
similar nature and consider necessary or appropriate,
by such rules and regulations as it may prescribe in
the public interest or for the protection of investors,
to treat as an equity security.
(12)(A) The term ``exempted security'' or ``exempted
securities'' includes--
(i) government securities, as defined in
paragraph (42) of this subsection;
(ii) municipal securities, as defined in
paragraph (29) of this subsection;
(iii) any interest or participation in any
common trust fund or similar fund that is
excluded from the definition of the term
``investment company'' under section 3(c)(3) of
the Investment Company Act of 1940;
(iv) any interest or participation in a
single trust fund, or a collective trust fund
maintained by a bank, or any security arising
out of a contract issued by an insurance
company, which interest, participation, or
security is issued in connection with a
qualified plan as defined in subparagraph (C)
of this paragraph;
(v) any security issued by or any interest or
participation in any pooled income fund,
collective trust fund, collective investment
fund, or similar fund that is excluded from the
definition of an investment company under
section 3(c)(10)(B) of the Investment Company
Act of 1940;
(vi) solely for purposes of sections 12, 13,
14, and 16 of this title, any security issued
by or any interest or participation in any
church plan, company, or account that is
excluded from the definition of an investment
company under section 3(c)(14) of the
Investment Company Act of 1940; and
(vii) such other securities (which may
include, among others, unregistered securities,
the market in which is predominantly
intrastate) as the Commission may, by such
rules and regulations as it deems consistent
with the public interest and the protection of
investors, either unconditionally or upon
specified terms and conditions or for stated
periods, exempt from the operation of any one
or more provisions of this title which by their
terms do not apply to an ``exempted security''
or to ``exempted securities''.
(B)(i) Notwithstanding subparagraph (A)(i) of this
paragraph, government securities shall not be deemed to
be ``exempted securities'' for the purposes of section
17A of this title.
(ii) Notwithstanding subparagraph (A)(ii) of this
paragraph, municipal securities shall not be deemed to
be ``exempted securities'' for the purposes of sections
15 and 17A of this title.
(C) For purposes of subparagraph (A)(iv) of this
paragraph, the term ``qualified plan'' means (i) a
stock bonus, pension, or profit-sharing plan which
meets the requirements for qualification under section
401 of the Internal Revenue Code of 1954, (ii) an
annuity plan which meets the requirements for the
deduction of the employer's contribution under section
404(a)(2) of such Code, (iii) a governmental plan as
defined in section 414(d) of such Code which has been
established by an employer for the exclusive benefit of
its employees or their beneficiaries for the purpose of
distributing to such employees or their beneficiaries
the corpus and income of the funds accumulated under
such plan, if under such plan it is impossible, prior
to the satisfaction of all liabilities with respect to
such employees and their beneficiaries, for any part of
the corpus or income to be used for, or diverted to,
purposes other than the exclusive benefit of such
employees or their beneficiaries, or (iv) a church
plan, company, or account that is excluded from the
definition of an investment company under section
3(c)(14) of the Investment Company Act of 1940, other
than any plan described in clause (i), (ii), or (iii)
of this subparagraph which (I) covers employees some or
all of whom are employees within the meaning of section
401(c) of such Code, or (II) is a plan funded by an
annuity contract described in section 403(b) of such
Code.
(13) The terms ``buy'' and ``purchase'' each include
any contract to buy, purchase, or otherwise acquire.
For security futures products, such term includes any
contract, agreement, or transaction for future
delivery. For security-based swaps, such terms include
the execution, termination (prior to its scheduled
maturity date), assignment, exchange, or similar
transfer or conveyance of, or extinguishing of rights
or obligations under, a security-based swap, as the
context may require.
(14) The terms ``sale'' and ``sell'' each include any
contract to sell or otherwise dispose of. For security
futures products, such term includes any contract,
agreement, or transaction for future delivery. For
security-based swaps, such terms include the execution,
termination (prior to its scheduled maturity date),
assignment, exchange, or similar transfer or conveyance
of, or extinguishing of rights or obligations under, a
security-based swap, as the context may require.
(15) The term ``Commission'' means the Securities and
Exchange Commission established by section 4 of this
title.
(16) The term ``State'' means any State of the United
States, the District of Columbia, Puerto Rico, the
Virgin Islands, or any other possession of the United
States.
(17) The term ``interstate commerce'' means trade,
commerce, transportation, or communication among the
several States, or between any foreign country and any
State, or between any State and any place or ship
outside thereof. The term also includes intrastate use
of (A) any facility of a national securities exchange
or of a telephone or other interstate means of
communication, or (B) any other interstate
instrumentality.
(18) The term ``person associated with a broker or
dealer'' or ``associated person of a broker or dealer''
means any partner, officer, director, or branch manager
of such broker or dealer (or any person occupying a
similar status or performing similar functions), any
person directly or indirectly controlling, controlled
by, or under common control with such broker or dealer,
or any employee of such broker or dealer, except that
any person associated with a broker or dealer whose
functions are solely clerical or ministerial shall not
be included in the meaning of such term for purposes of
section 15(b) of this title (other than paragraph (6)
thereof).
(19) The terms ``investment company,''``affiliated
person,''``insurance company,''``separate account,''
and ``company'' have the same meanings as in the
Investment Company Act of 1940.
(20) The terms ``investment adviser'' and
``underwriter'' have the same meanings as in the
Investment Advisers Act of 1940.
(21) The term ``persons associated with a member'' or
``associated person of a member'' when used with
respect to a member of a national securities exchange
or registered securities association means any partner,
officer, director, or branch manager of such member (or
any person occupying a similar status or performing
similar functions), any person directly or indirectly
controlling, controlled by, or under common control
with such member, or any employee of such member.
(22)(A) The term ``securities information processor''
means any person engaged in the business of (i)
collecting, processing, or preparing for distribution
or publication, or assisting, participating in, or
coordinating the distribution or publication of,
information with respect to transactions in or
quotations for any security (other than an exempted
security) or (ii) distributing or publishing (whether
by means of a ticker tape, a communications network, a
terminal display device, or otherwise) on a current and
continuing basis, information with respect to such
transactions or quotations. The term ``securities
information processor'' does not include any bona fide
newspaper, news magazine, or business or financial
publication of general and regular circulation, any
self-regulatory organization, any bank, broker, dealer,
building and loan, savings and loan, or homestead
association, or cooperative bank, if such bank, broker,
dealer, association, or cooperative bank would be
deemed to be a securities information processor solely
by reason of functions performed by such institutions
as part of customary banking, brokerage, dealing,
association, or cooperative bank activities, or any
common carrier, as defined in section 3 of the
Communications Act of 1934, subject to the jurisdiction
of the Federal Communications Commission or a State
commission, as defined in section 3 of that Act, unless
the Commission determines that such carrier is engaged
in the business of collecting, processing, or preparing
for distribution or publication, information with
respect to transactions in or quotations for any
security.
(B) The term ``exclusive processor'' means any
securities information processor or self-regulatory
organization which, directly or indirectly, engages on
an exclusive basis on behalf of any national securities
exchange or registered securities association, or any
national securities exchange or registered securities
association which engages on an exclusive basis on its
own behalf, in collecting, processing, or preparing for
distribution or publication any information with
respect to (i) transactions or quotations on or
effected or made by means of any facility of such
exchange or (ii) quotations distributed or published by
means of any electronic system operated or controlled
by such association.
(23)(A) The term ``clearing agency'' means any person
who acts as an intermediary in making payments or
deliveries or both in connection with transactions in
securities or who provides facilities for comparison of
data respecting the terms of settlement of securities
transactions, to reduce the number of settlements of
securities transactions, or for the allocation of
securities settlement responsibilities. Such term also
means any person, such as a securities depository, who
(i) acts as a custodian of securities in connection
with a system for the central handling of securities
whereby all securities of a particular class or series
of any issuer deposited within the system are treated
as fungible and may be transferred, loaned, or pledged
by bookkeeping entry without physical delivery of
securities certificates, or (ii) otherwise permits or
facilitates the settlement of securities transactions
or the hypothecation or lending of securities without
physical delivery of securities certificates.
(B) The term ``clearing agency'' does not include (i)
any Federal Reserve bank, Federal home loan bank, or
Federal land bank; (ii) any national securities
exchange or registered securities association solely by
reason of its providing facilities for comparison of
data respecting the terms of settlement of securities
transactions effected on such exchange or by means of
any electronic system operated or controlled by such
association; (iii) any bank, broker, dealer, building
and loan, savings and loan, or homestead association,
or cooperative bank if such bank, broker, dealer,
association, or cooperative bank would be deemed to be
a clearing agency solely by reason of functions
performed by such institution as part of customary
banking, brokerage, dealing, association, or
cooperative banking activities, or solely by reason of
acting on behalf of a clearing agency or a participant
therein in connection with the furnishing by the
clearing agency of services to its participants or the
use of services of the clearing agency by its
participants, unless the Commission, by rule, otherwise
provides as necessary or appropriate to assure the
prompt and accurate clearance and settlement of
securities transactions or to prevent evasion of this
title; (iv) any life insurance company, its registered
separate accounts, or a subsidiary of such insurance
company solely by reason of functions commonly
performed by such entities in connection with variable
annuity contracts or variable life policies issued by
such insurance company or its separate accounts; (v)
any registered open-end investment company or unit
investment trust solely by reason of functions commonly
performed by it in connection with shares in such
registered open-end investment company or unit
investment trust, or (vi) any person solely by reason
of its performing functions described in paragraph
25(E) of this subsection.
(24) The term ``participant'' when used with respect
to a clearing agency means any person who uses a
clearing agency to clear or settle securities
transactions or to transfer, pledge, lend, or
hypothecate securities. Such term does not include a
person whose only use of a clearing agency is (A)
through another person who is a participant or (B) as a
pledgee of securities.
(25) The term ``transfer agent'' means any person who
engages on behalf of an issuer of securities or on
behalf of itself as an issuer of securities in (A)
countersigning such securities upon issuance; (B)
monitoring the issuance of such securities with a view
to preventing unauthorized issuance, a function
commonly performed by a person called a registrar; (C)
registering the transfer of such securities; (D)
exchanging or converting such securities; or (E)
transferring record ownership of securities by
bookkeeping entry without physical issuance of
securities certificates. The term ``transfer agent''
does not include any insurance company or separate
account which performs such functions solely with
respect to variable annuity contracts or variable life
policies which it issues or any registered clearing
agency which performs such functions solely with
respect to options contracts which it issues.
(26) The term ``self-regulatory organization'' means
any national securities exchange, registered securities
association, or registered clearing agency (other than
a notice-registered digital asset clearing agency), or
(solely for purposes of sections 19(b), 19(c), and
23(b) of this title) the Municipal Securities
Rulemaking Board established by section 15B of this
title.
(27) The term ``rules of an exchange'', ``rules of an
association'', or ``rules of a clearing agency'' means
the constitution, articles of incorporation, bylaws,
and rules, or instruments corresponding to the
foregoing, of an exchange, association of brokers and
dealers, or clearing agency, respectively, and such of
the stated policies, practices, and interpretations of
such exchange, association, or clearing agency as the
Commission, by rule, may determine to be necessary or
appropriate in the public interest or for the
protection of investors to be deemed to be rules of
such exchange, association, or clearing agency.
(28) The term ``rules of a self-regulatory
organization'' means the rules of an exchange which is
a national securities exchange, the rules of an
association of brokers and dealers which is a
registered securities association, the rules of a
clearing agency which is a registered clearing agency
(other than a notice-registered digital asset clearing
agency), or the rules of the Municipal Securities
Rulemaking Board.
(29) The term ``municipal securities'' means
securities which are direct obligations of, or
obligations guaranteed as to principal or interest by,
a State or any political subdivision thereof, or any
agency or instrumentality of a State or any political
subdivision thereof, or any municipal corporate
instrumentality of one or more States, or any security
which is an industrial development bond (as defined in
section 103(c)(2) of the Internal Revenue Code of 1954)
the interest on which is excludable from gross income
under section 103(a)(1) of such Code if, by reason of
the application of paragraph (4) or (6) of section
103(c) of such Code (determined as if paragraphs
(4)(A), (5), and (7) were not included in such section
103(c)), paragraph (1) of such section 103(c) does not
apply to such security.
(30) The term ``municipal securities dealer'' means
any person (including a separately identifiable
department or division of a bank) engaged in the
business of buying and selling municipal securities for
his own account, through a broker or otherwise, but
does not include--
(A) any person insofar as he buys or sells
such securities for his own account, either
individually or in some fiduciary capacity, but
not as a part of a regular business; or
(B) a bank, unless the bank is engaged in the
business of buying and selling municipal
securities for its own account other than in a
fiduciary capacity, through a broker or
otherwise; Provided, however, That if the bank
is engaged in such business through a
separately identifiable department or division
(as defined by the Municipal Securities
Rulemaking Board in accordance with section
15B(b)(2)(H) of this title), the department or
division and not the bank itself shall be
deemed to be the municipal securities dealer.
(31) The term ``municipal securities broker'' means a
broker engaged in the business of effecting
transactions in municipal securities for the account of
others.
(32) The term ``person associated with a municipal
securities dealer'' when used with respect to a
municipal securities dealer which is a bank or a
division or department of a bank means any person
directly engaged in the management, direction,
supervision, or performance of any of the municipal
securities dealer's activities with respect to
municipal securities, and any person directly or
indirectly controlling such activities or controlled by
the municipal securities dealer in connection with such
activities.
(33) The term ``municipal securities investment
portfolio'' means all municipal securities held for
investment and not for sale as part of a regular
business by a municipal securities dealer or by a
person, directly or indirectly, controlling, controlled
by, or under common control with a municipal securities
dealer.
(34) The term ``appropriate regulatory agency''
means--
(A) When used with respect to a municipal
securities dealer:
(i) the Comptroller of the Currency,
in the case of a national bank, a
subsidiary or a department or division
of any such bank, a Federal savings
association (as defined in section
3(b)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(2))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary or
department or division of any such
Federal savings association;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a subsidiary or a
department or division thereof, a bank
holding company, a subsidiary of a bank
holding company which is a bank other
than a bank specified in clause (i),
(iii), or (iv) of this subparagraph, a
subsidiary or a department or division
of such subsidiary, or a savings and
loan holding company;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System),
a subsidiary or department or division
of any such bank, a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary or a
department or division of any such
State savings association; and
(iv) the Commission in the case of
all other municipal securities dealers.
(B) When used with respect to a clearing
agency or transfer agent:
(i) the Comptroller of the Currency,
in the case of a national bank, a
subsidiary of any such bank, a Federal
savings association (as defined in
section 3(b)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(2))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary of any
such Federal savings association;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a subsidiary thereof, a
bank holding company, a subsidiary of a
bank holding company that is a bank
other than a bank specified in clause
(i) or (iii) of this subparagraph, or a
savings and loan holding company;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System),
a subsidiary of any such bank, a State
savings association (as defined in
section 3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary of any
such State savings association; and
(iv) the Commission in the case of
all other clearing agencies and
transfer agents.
(C) When used with respect to a participant
or applicant to become a participant in a
clearing agency or a person requesting or
having access to services offered by a clearing
agency:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation when the
appropriate regulatory agency for such
clearing agency is not the Commission;
(ii) the Board of Governors of the
Federal Reserve System in the case of a
State member bank of the Federal
Reserve System, a bank holding company,
or a subsidiary of a bank holding
company, a subsidiary of a bank holding
company that is a bank other than a
bank specified in clause (i) or (iii)
of this subparagraph, or a savings and
loan holding company when the
appropriate regulatory agency for such
clearing agency is not the Commission;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System)
or a State savings association (as
defined in section 3(b)(3) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(b)(3))), the deposits of
which are insured by the Federal
Deposit Insurance Corporation; and when
the appropriate regulatory agency for
such clearing agency is not the
Commission;
(iv) the Commission in all other
cases.
(D) When used with respect to an
institutional investment manager which is a
bank the deposits of which are insured in
accordance with the Federal Deposit Insurance
Act:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
any other member bank of the Federal
Reserve System; and
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
insured bank or a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation.
(E) When used with respect to a national
securities exchange or registered securities
association, member thereof, person associated
with a member thereof, applicant to become a
member thereof or to become associated with a
member thereof, or person requesting or having
access to services offered by such exchange or
association or member thereof, or the Municipal
Securities Rulemaking Board, the Commission.
(F) When used with respect to a person
exercising investment discretion with respect
to an account:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation;
(ii) the Board of Governors of the
Federal Reserve System in the case of
any other member bank of the Federal
Reserve System;
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
bank the deposits of which are insured
in accordance with the Federal Deposit
Insurance Act or a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation; and
(iv) the Commission in the case of
all other such persons.
(G) When used with respect to a government
securities broker or government securities
dealer, or person associated with a government
securities broker or government securities
dealer:
(i) the Comptroller of the Currency,
in the case of a national bank, a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act), the deposits of
which are insured by the Federal
Deposit Insurance Corporation, or a
Federal branch or Federal agency of a
foreign bank (as such terms are used in
the International Banking Act of 1978);
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a foreign bank, an
uninsured State branch or State agency
of a foreign bank, a commercial lending
company owned or controlled by a
foreign bank (as such terms are used in
the International Banking Act of 1978),
or a corporation organized or having an
agreement with the Board of Governors
of the Federal Reserve System pursuant
to section 25 or section 25A of the
Federal Reserve Act;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System or
a Federal savings bank), a State
savings association (as defined in
section 3(b)(3) of the Federal Deposit
Insurance Act), the deposits of which
are insured by the Federal Deposit
Insurance Corporation, or an insured
State branch of a foreign bank (as such
terms are used in the International
Banking Act of 1978); and
(iv) the Commission, in the case of
all other government securities brokers
and government securities dealers.
(H) When used with respect to an institution
described in subparagraph (D), (F), or (G) of
section 2(c)(2), or held under section 4(f), of
the Bank Holding Company Act of 1956--
(i) the Comptroller of the Currency,
in the case of a national bank;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System or any corporation
chartered under section 25A of the
Federal Reserve Act;
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
bank the deposits of which are insured
in accordance with the Federal Deposit
Insurance Act; or
(iv) the Commission in the case of
all other such institutions.
As used in this paragraph, the terms ``bank holding
company'' and ``subsidiary of a bank holding company''
have the meanings given them in section 2 of the Bank
Holding Company Act of 1956. As used in this paragraph,
the term ``savings and loan holding company'' has the
same meaning as in section 10(a) of the Home Owners'
Loan Act (12 U.S.C. 1467a(a)).
(35) A person exercises ``investment discretion''
with respect to an account if, directly or indirectly,
such person (A) is authorized to determine what
securities or other property shall be purchased or sold
by or for the account, (B) makes decisions as to what
securities or other property shall be purchased or sold
by or for the account even though some other person may
have responsibility for such investment decisions, or
(C) otherwise exercises such influence with respect to
the purchase and sale of securities or other property
by or for the account as the Commission, by rule,
determines, in the public interest or for the
protection of investors, should be subject to the
operation of the provisions of this title and rules and
regulations thereunder.
(36) A class of persons or markets is subject to
``equal regulation'' if no member of the class has a
competitive advantage over any other member thereof
resulting from a disparity in their regulation under
this title which the Commission determines is unfair
and not necessary or appropriate in furtherance of the
purposes of this title.
(37) The term ``records'' means accounts,
correspondence, memorandums, tapes, discs, papers,
books, and other documents or transcribed information
of any type, whether expressed in ordinary or machine
language.
(38) The term ``market maker'' means any specialist
permitted to act as a dealer, any dealer acting in the
capacity of block positioner, and any dealer who, with
respect to a security, holds himself out (by entering
quotations in an inter-dealer communications system or
otherwise) as being willing to buy and sell such
security for his own account on a regular or continuous
basis.
(39) A person is subject to a ``statutory
disqualification'' with respect to membership or
participation in, or association with a member of, a
self-regulatory organization, if such person--
(A) has been and is expelled or suspended
from membership or participation in, or barred
or suspended from being associated with a
member of, any self-regulatory organization,
foreign equivalent of a self-regulatory
organization, foreign or international
securities exchange, contract market designated
pursuant to section 5 of the Commodity Exchange
Act (7 U.S.C. 7), or any substantially
equivalent foreign statute or regulation, or
futures association registered under section 17
of such Act (7 U.S.C. 21), or any substantially
equivalent foreign statute or regulation, or
has been and is denied trading privileges on
any such contract market or foreign equivalent;
(B) is subject to--
(i) an order of the Commission, other
appropriate regulatory agency, or foreign
financial regulatory authority--
(I) denying, suspending for a period
not exceeding 12 months, or revoking
his registration as a broker, dealer,
municipal securities dealer, government
securities broker, government
securities dealer, security-based swap
dealer, or major security-based swap
participant or limiting his activities
as a foreign person performing a
function substantially equivalent to
any of the above; or
(II) barring or suspending for a
period not exceeding 12 months his
being associated with a broker, dealer,
municipal securities dealer, government
securities broker, government
securities dealer, security-based swap
dealer, major security-based swap
participant, or foreign person
performing a function substantially
equivalent to any of the above;
(ii) an order of the Commodity Futures
Trading Commission denying, suspending, or
revoking his registration under the Commodity
Exchange Act (7 U.S.C. 1 et seq.); or
(iii) an order by a foreign financial
regulatory authority denying, suspending, or
revoking the person's authority to engage in
transactions in contracts of sale of a
commodity for future delivery or other
instruments traded on or subject to the rules
of a contract market, board of trade, or
foreign equivalent thereof;
(C) by his conduct while associated with a
broker, dealer, municipal securities dealer,
government securities broker, government
securities dealer, security-based swap dealer,
or major security-based swap participant, or
while associated with an entity or person
required to be registered under the Commodity
Exchange Act, has been found to be a cause of
any effective suspension, expulsion, or order
of the character described in subparagraph (A)
or (B) of this paragraph, and in entering such
a suspension, expulsion, or order, the
Commission, an appropriate regulatory agency,
or any such self-regulatory organization shall
have jurisdiction to find whether or not any
person was a cause thereof;
(D) by his conduct while associated with any
broker, dealer, municipal securities dealer,
government securities broker, government
securities dealer, security-based swap dealer,
major security-based swap participant, or any
other entity engaged in transactions in
securities, or while associated with an entity
engaged in transactions in contracts of sale of
a commodity for future delivery or other
instruments traded on or subject to the rules
of a contract market, board of trade, or
foreign equivalent thereof, has been found to
be a cause of any effective suspension,
expulsion, or order by a foreign or
international securities exchange or foreign
financial regulatory authority empowered by a
foreign government to administer or enforce its
laws relating to financial transactions as
described in subparagraph (A) or (B) of this
paragraph;
(E) has associated with him any person who is
known, or in the exercise of reasonable care
should be known, to him to be a person
described by subparagraph (A), (B), (C), or (D)
of this paragraph; or
(F) has committed or omitted any act, or is
subject to an order or finding, enumerated in
subparagraph (D), (E), (H), or (G) of paragraph
(4) of section 15(b) of this title, has been
convicted of any offense specified in
subparagraph (B) of such paragraph (4) or any
other felony within ten years of the date of
the filing of an application for membership or
participation in, or to become associated with
a member of, such self-regulatory organization,
is enjoined from any action, conduct, or
practice specified in subparagraph (C) of such
paragraph (4), has willfully made or caused to
be made in any application for membership or
participation in, or to become associated with
a member of, a self-regulatory organization,
report required to be filed with a self-
regulatory organization, or proceeding before a
self-regulatory organization, any statement
which was at the time, and in the light of the
circumstances under which it was made, false or
misleading with respect to any material fact,
or has omitted to state in any such
application, report, or proceeding any material
fact which is required to be stated therein.
(40) The term ``financial responsibility rules''
means the rules and regulations of the Commission or
the rules and regulations prescribed by any self-
regulatory organization relating to financial
responsibility and related practices which are
designated by the Commission, by rule or regulation, to
be financial responsibility rules.
(41) The term ``mortgage related security'' means a
security that meets standards of credit-worthiness as
established by the Commission, and either:
(A) represents ownership of one or more
promissory notes or certificates of interest or
participation in such notes (including any
rights designed to assure servicing of, or the
receipt or timeliness of receipt by the holders
of such notes, certificates, or participations
of amounts payable under, such notes,
certificates, or participations), which notes:
(i) are directly secured by a first
lien on a single parcel of real estate,
including stock allocated to a dwelling
unit in a residential cooperative
housing corporation, upon which is
located a dwelling or mixed residential
and commercial structure, on a
residential manufactured home as
defined in section 603(6) of the
National Manufactured Housing
Construction and Safety Standards Act
of 1974, whether such manufactured home
is considered real or personal property
under the laws of the State in which it
is to be located, or on one or more
parcels of real estate upon which is
located one or more commercial
structures; and
(ii) were originated by a savings and
loan association, savings bank,
commercial bank, credit union,
insurance company, or similar
institution which is supervised and
examined by a Federal or State
authority, or by a mortgage approved by
the Secretary of Housing and Urban
Development pursuant to sections 203
and 211 of the National Housing Act,
or, where such notes involve a lien on
the manufactured home, by any such
institution or by any financial
institution approved for insurance by
the Secretary of Housing and Urban
Development pursuant to section 2 of
the National Housing Act; or
(B) is secured by one or more promissory
notes or certificates of interest or
participations in such notes (with or without
recourse to the issuer thereof) and, by its
terms, provides for payments of principal in
relation to payments, or reasonable projections
of payments, on notes meeting the requirements
of subparagraphs (A) (i) and (ii) or
certificates of interest or participations in
promissory notes meeting such requirements.
For the purpose of this paragraph, the term
``promissory note'', when used in connection with a
manufactured home, shall also include a loan, advance,
or credit sale as evidence by a retail installment
sales contract or other instrument.
(42) The term ``government securities'' means--
(A) securities which are direct obligations
of, or obligations guaranteed as to principal
or interest by, the United States;
(B) securities which are issued or guaranteed
by the Tennessee Valley Authority or by
corporations in which the United States has a
direct or indirect interest and which are
designated by the Secretary of the Treasury for
exemption as necessary or appropriate in the
public interest or for the protection of
investors;
(C) securities issued or guaranteed as to
principal or interest by any corporation the
securities of which are designated, by statute
specifically naming such corporation, to
constitute exempt securities within the meaning
of the laws administered by the Commission;
(D) for purposes of sections 15C and 17A, any
put, call, straddle, option, or privilege on a
security described in subparagraph (A), (B), or
(C) other than a put, call, straddle, option,
or privilege--
(i) that is traded on one or more
national securities exchanges; or
(ii) for which quotations are
disseminated through an automated
quotation system operated by a
registered securities association; or
(E) for purposes of sections 15, 15C, and 17A
as applied to a bank, a qualified Canadian
government obligation as defined in section
5136 of the Revised Statutes of the United
States.
(43) The term ``government securities broker'' means
any person regularly engaged in the business of
effecting transactions in government securities for the
account of others, but does not include--
(A) any corporation the securities of which
are government securities under subparagraph
(B) or (C) of paragraph (42) of this
subsection; or
(B) any person registered with the Commodity
Futures Trading Commission, any contract market
designated by the Commodity Futures Trading
Commission, such contract market's affiliated
clearing organization, or any floor trader on
such contract market, solely because such
person effects transactions in government
securities that the Commission, after
consultation with the Commodity Futures Trading
Commission, has determined by rule or order to
be incidental to such person's futures-related
business.
(44) The term ``government securities dealer'' means
any person engaged in the business of buying and
selling government securities for his own account,
through a broker or otherwise, but does not include--
(A) any person insofar as he buys or sells
such securities for his own account, either
individually or in some fiduciary capacity, but
not as a part of a regular business;
(B) any corporation the securities of which
are government securities under subparagraph
(B) or (C) of paragraph (42) of this
subsection;
(C) any bank, unless the bank is engaged in
the business of buying and selling government
securities for its own account other than in a
fiduciary capacity, through a broker or
otherwise; or
(D) any person registered with the Commodity
Futures Trading Commission, any contract market
designated by the Commodity Futures Trading
Commission, such contract market's affiliated
clearing organization, or any floor trader on
such contract market, solely because such
person effects transactions in government
securities that the Commission, after
consultation with the Commodity Futures Trading
Commission, has determined by rule or order to
be incidental to such person's futures-related
business.
(45) The term ``person associated with a government
securities broker or government securities dealer''
means any partner, officer, director, or branch manager
of such government securities broker or government
securities dealer (or any person occupying a similar
status or performing similar functions), and any other
employee of such government securities broker or
government securities dealer who is engaged in the
management, direction, supervision, or performance of
any activities relating to government securities, and
any person directly or indirectly controlling,
controlled by, or under common control with such
government securities broker or government securities
dealer.
(46) The term ``financial institution'' means--
(A) a bank (as defined in paragraph (6) of
this subsection);
(B) a foreign bank (as such term is used in
the International Banking Act of 1978); and
(C) a savings association (as defined in
section 3(b) of the Federal Deposit Insurance
Act) the deposits of which are insured by the
Federal Deposit Insurance Corporation.
(47) The term ``securities laws'' means the
Securities Act of 1933 (15 U.S.C. 77a et seq.), the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.), the Sarbanes-Oxley Act of 2002, the Trust
Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.), the Investment Advisers Act of 1940 (15 U.S.C.
80b et seq.), and the Securities Investor Protection
Act of 1970 (15 U.S.C. 78aaa et seq.).
(48) The term ``registered broker or dealer'' means a
broker or dealer registered or required to register
pursuant to section 15 or 15B of this title, except
that in paragraph (3) of this subsection and sections 6
and 15A the term means such a broker or dealer and a
government securities broker or government securities
dealer registered or required to register pursuant to
section 15C(a)(1)(A) of this title.
(49) The terms ``person associated with a transfer
agent'' and ``associated person of a transfer agent''
mean any person (except an employee whose functions are
solely clerical or ministerial) directly engaged in the
management, direction, supervision, or performance of
any of the transfer agent's activities with respect to
transfer agent functions, and any person directly or
indirectly controlling such activities or controlled by
the transfer agent in connection with such activities.
(50) The term ``foreign securities authority'' means
any foreign government, or any governmental body or
regulatory organization empowered by a foreign
government to administer or enforce its laws as they
relate to securities matters.
(51)(A) The term ``penny stock'' means any equity
security other than a security that is--
(i) registered or approved for registration
and traded on a national securities exchange
that meets such criteria as the Commission
shall prescribe by rule or regulation for
purposes of this paragraph;
(ii) authorized for quotation on an automated
quotation system sponsored by a registered
securities association, if such system (I) was
established and in operation before January 1,
1990, and (II) meets such criteria as the
Commission shall prescribe by rule or
regulation for purposes of this paragraph;
(iii) issued by an investment company
registered under the Investment Company Act of
1940;
(iv) excluded, on the basis of exceeding a
minimum price, net tangible assets of the
issuer, or other relevant criteria, from the
definition of such term by rule or regulation
which the Commission shall prescribe for
purposes of this paragraph; or
(v) exempted, in whole or in part,
conditionally or unconditionally, from the
definition of such term by rule, regulation, or
order prescribed by the Commission.
(B) The Commission may, by rule, regulation, or
order, designate any equity security or class of equity
securities described in clause (i) or (ii) of
subparagraph (A) as within the meaning of the term
``penny stock'' if such security or class of securities
is traded other than on a national securities exchange
or through an automated quotation system described in
clause (ii) of subparagraph (A).
(C) In exercising its authority under this paragraph
to prescribe rules, regulations, and orders, the
Commission shall determine that such rule, regulation,
or order is consistent with the public interest and the
protection of investors.
(52) The term ``foreign financial regulatory
authority'' means any (A) foreign securities authority,
(B) other governmental body or foreign equivalent of a
self-regulatory organization empowered by a foreign
government to administer or enforce its laws relating
to the regulation of fiduciaries, trusts, commercial
lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments
traded on or subject to the rules of a contract market,
board of trade, or foreign equivalent, or other
financial activities, or (C) membership organization a
function of which is to regulate participation of its
members in activities listed above.
(53)(A) The term ``small business related security''
means a security that meets standards of credit-
worthiness as established by the Commission, and
either--
(i) represents an interest in 1 or more
promissory notes or leases of personal property
evidencing the obligation of a small business
concern and originated by an insured depository
institution, insured credit union, insurance
company, or similar institution which is
supervised and examined by a Federal or State
authority, or a finance company or leasing
company; or
(ii) is secured by an interest in 1 or more
promissory notes or leases of personal property
(with or without recourse to the issuer or
lessee) and provides for payments of principal
in relation to payments, or reasonable
projections of payments, on notes or leases
described in clause (i).
(B) For purposes of this paragraph--
(i) an ``interest in a promissory note or a
lease of personal property'' includes ownership
rights, certificates of interest or
participation in such notes or leases, and
rights designed to assure servicing of such
notes or leases, or the receipt or timely
receipt of amounts payable under such notes or
leases;
(ii) the term ``small business concern''
means a business that meets the criteria for a
small business concern established by the Small
Business Administration under section 3(a) of
the Small Business Act;
(iii) the term ``insured depository
institution'' has the same meaning as in
section 3 of the Federal Deposit Insurance Act;
and
(iv) the term ``insured credit union'' has
the same meaning as in section 101 of the
Federal Credit Union Act.
(54) Qualified investor.--
(A) Definition.--Except as provided in
subparagraph (B), for purposes of this title,
the term ``qualified investor'' means--
(i) any investment company registered
with the Commission under section 8 of
the Investment Company Act of 1940;
(ii) any issuer eligible for an
exclusion from the definition of
investment company pursuant to section
3(c)(7) of the Investment Company Act
of 1940;
(iii) any bank (as defined in
paragraph (6) of this subsection),
savings association (as defined in
section 3(b) of the Federal Deposit
Insurance Act), broker, dealer,
insurance company (as defined in
section 2(a)(13) of the Securities Act
of 1933), or business development
company (as defined in section 2(a)(48)
of the Investment Company Act of 1940);
(iv) any small business investment
company licensed by the United States
Small Business Administration under
section 301 (c) or (d) of the Small
Business Investment Act of 1958;
(v) any State sponsored employee
benefit plan, or any other employee
benefit plan, within the meaning of the
Employee Retirement Income Security Act
of 1974, other than an individual
retirement account, if the investment
decisions are made by a plan fiduciary,
as defined in section 3(21) of that
Act, which is either a bank, savings
and loan association, insurance
company, or registered investment
adviser;
(vi) any trust whose purchases of
securities are directed by a person
described in clauses (i) through (v) of
this subparagraph;
(vii) any market intermediary exempt
under section 3(c)(2) of the Investment
Company Act of 1940;
(viii) any associated person of a
broker or dealer other than a natural
person;
(ix) any foreign bank (as defined in
section 1(b)(7) of the International
Banking Act of 1978);
(x) the government of any foreign
country;
(xi) any corporation, company, or
partnership that owns and invests on a
discretionary basis, not less than
$25,000,000 in investments;
(xii) any natural person who owns and
invests on a discretionary basis, not
less than $25,000,000 in investments;
(xiii) any government or political
subdivision, agency, or instrumentality
of a government who owns and invests on
a discretionary basis not less than
$50,000,000 in investments; or
(xiv) any multinational or
supranational entity or any agency or
instrumentality thereof.
(B) Altered thresholds for asset-backed
securities and loan participations.--For
purposes of section 3(a)(5)(C)(iii) of this
title and section 206(a)(5) of the Gramm-Leach-
Bliley Act, the term ``qualified investor'' has
the meaning given such term by subparagraph (A)
of this paragraph except that clauses (xi) and
(xii) shall be applied by substituting
``$10,000,000'' for ``$25,000,000''.
(C) Additional authority.--The Commission
may, by rule or order, define a ``qualified
investor'' as any other person, taking into
consideration such factors as the financial
sophistication of the person, net worth, and
knowledge and experience in financial matters.
(55)(A) The term ``security future'' means a contract
of sale for future delivery of a single security or of
a narrow-based security index, including any interest
therein or based on the value thereof, except an
exempted security under section 3(a)(12) of this title
as in effect on the date of the enactment of the
Futures Trading Act of 1982 (other than any municipal
security as defined in section 3(a)(29) as in effect on
the date of the enactment of the Futures Trading Act of
1982). The term ``security future'' does not include
any agreement, contract, or transaction excluded from
the Commodity Exchange Act under section 2(c), 2(d),
2(f), or 2(g) of the Commodity Exchange Act (as in
effect on the date of the enactment of the Commodity
Futures Modernization Act of 2000) or title IV of the
Commodity Futures Modernization Act of 2000.
(B) The term ``narrow-based security index'' means an
index--
(i) that has 9 or fewer component securities;
(ii) in which a component security comprises
more than 30 percent of the index's weighting;
(iii) in which the five highest weighted
component securities in the aggregate comprise
more than 60 percent of the index's weighting;
or
(iv) in which the lowest weighted component
securities comprising, in the aggregate, 25
percent of the index's weighting have an
aggregate dollar value of average daily trading
volume of less than $50,000,000 (or in the case
of an index with 15 or more component
securities, $30,000,000), except that if there
are two or more securities with equal weighting
that could be included in the calculation of
the lowest weighted component securities
comprising, in the aggregate, 25 percent of the
index's weighting, such securities shall be
ranked from lowest to highest dollar value of
average daily trading volume and shall be
included in the calculation based on their
ranking starting with the lowest ranked
security.
(C) Notwithstanding subparagraph (B), an index is not
a narrow-based security index if--
(i)(I) it has at least nine component
securities;
(II) no component security comprises more
than 30 percent of the index's weighting; and
(III) each component security is--
(aa) registered pursuant to section
12 of the Securities Exchange Act of
1934;
(bb) one of 750 securities with the
largest market capitalization; and
(cc) one of 675 securities with the
largest dollar value of average daily
trading volume;
(ii) a board of trade was designated as a
contract market by the Commodity Futures
Trading Commission with respect to a contract
of sale for future delivery on the index,
before the date of the enactment of the
Commodity Futures Modernization Act of 2000;
(iii)(I) a contract of sale for future
delivery on the index traded on a designated
contract market or registered derivatives
transaction execution facility for at least 30
days as a contract of sale for future delivery
on an index that was not a narrow-based
security index; and
(II) it has been a narrow-based security
index for no more than 45 business days over 3
consecutive calendar months;
(iv) a contract of sale for future delivery
on the index is traded on or subject to the
rules of a foreign board of trade and meets
such requirements as are jointly established by
rule or regulation by the Commission and the
Commodity Futures Trading Commission;
(v) no more than 18 months have passed since
the date of the enactment of the Commodity
Futures Modernization Act of 2000 and--
(I) it is traded on or subject to the
rules of a foreign board of trade;
(II) the offer and sale in the United
States of a contract of sale for future
delivery on the index was authorized
before the date of the enactment of the
Commodity Futures Modernization Act of
2000; and
(III) the conditions of such
authorization continue to be met; or
(vi) a contract of sale for future delivery
on the index is traded on or subject to the
rules of a board of trade and meets such
requirements as are jointly established by
rule, regulation, or order by the Commission
and the Commodity Futures Trading Commission.
(D) Within 1 year after the enactment of the
Commodity Futures Modernization Act of 2000, the
Commission and the Commodity Futures Trading Commission
jointly shall adopt rules or regulations that set forth
the requirements under clause (iv) of subparagraph (C).
(E) An index that is a narrow-based security index
solely because it was a narrow-based security index for
more than 45 business days over 3 consecutive calendar
months pursuant to clause (iii) of subparagraph (C)
shall not be a narrow-based security index for the 3
following calendar months.
(F) For purposes of subparagraphs (B) and (C) of this
paragraph--
(i) the dollar value of average daily trading
volume and the market capitalization shall be
calculated as of the preceding 6 full calendar
months; and
(ii) the Commission and the Commodity Futures
Trading Commission shall, by rule or
regulation, jointly specify the method to be
used to determine market capitalization and
dollar value of average daily trading volume.
(56) The term ``security futures product'' means a
security future or any put, call, straddle, option, or
privilege on any security future.
(57)(A) The term ``margin'', when used with respect
to a security futures product, means the amount, type,
and form of collateral required to secure any extension
or maintenance of credit, or the amount, type, and form
of collateral required as a performance bond related to
the purchase, sale, or carrying of a security futures
product.
(B) The terms ``margin level'' and ``level of
margin'', when used with respect to a security futures
product, mean the amount of margin required to secure
any extension or maintenance of credit, or the amount
of margin required as a performance bond related to the
purchase, sale, or carrying of a security futures
product.
(C) The terms ``higher margin level'' and ``higher
level of margin'', when used with respect to a security
futures product, mean a margin level established by a
national securities exchange registered pursuant to
section 6(g) that is higher than the minimum amount
established and in effect pursuant to section
7(c)(2)(B).
(58) Audit committee.--The term ``audit committee''
means--
(A) a committee (or equivalent body)
established by and amongst the board of
directors of an issuer for the purpose of
overseeing the accounting and financial
reporting processes of the issuer and audits of
the financial statements of the issuer; and
(B) if no such committee exists with respect
to an issuer, the entire board of directors of
the issuer.
(59) Registered public accounting firm.--The term
``registered public accounting firm'' has the same
meaning as in section 2 of the Sarbanes-Oxley Act of
2002.
(60) Credit rating.--The term ``credit rating'' means
an assessment of the creditworthiness of an obligor as
an entity or with respect to specific securities or
money market instruments.
(61) Credit rating agency.--The term ``credit rating
agency'' means any person--
(A) engaged in the business of issuing credit
ratings on the Internet or through another
readily accessible means, for free or for a
reasonable fee, but does not include a
commercial credit reporting company;
(B) employing either a quantitative or
qualitative model, or both, to determine credit
ratings; and
(C) receiving fees from either issuers,
investors, or other market participants, or a
combination thereof.
(62) Nationally recognized statistical rating
organization.--The term ``nationally recognized
statistical rating organization'' means a credit rating
agency that--
(A) issues credit ratings certified by
qualified institutional buyers, in accordance
with section 15E(a)(1)(B)(ix), with respect
to--
(i) financial institutions, brokers,
or dealers;
(ii) insurance companies;
(iii) corporate issuers;
(iv) issuers of asset-backed
securities (as that term is defined in
section 1101(c) of part 229 of title
17, Code of Federal Regulations, as in
effect on the date of enactment of this
paragraph);
(v) issuers of government securities,
municipal securities, or securities
issued by a foreign government; or
(vi) a combination of one or more
categories of obligors described in any
of clauses (i) through (v); and
(B) is registered under section 15E.
(63) Person associated with a nationally recognized
statistical rating organization.--The term ``person
associated with'' a nationally recognized statistical
rating organization means any partner, officer,
director, or branch manager of a nationally recognized
statistical rating organization (or any person
occupying a similar status or performing similar
functions), any person directly or indirectly
controlling, controlled by, or under common control
with a nationally recognized statistical rating
organization, or any employee of a nationally
recognized statistical rating organization.
(64) Qualified institutional buyer.--The term
``qualified institutional buyer'' has the meaning given
such term in section 230.144A(a) of title 17, Code of
Federal Regulations, or any successor thereto.
(79) Asset-backed security.--The term ``asset-backed
security''--
(A) means a fixed-income or other security
collateralized by any type of self-liquidating
financial asset (including a loan, a lease, a
mortgage, or a secured or unsecured receivable)
that allows the holder of the security to
receive payments that depend primarily on cash
flow from the asset, including--
(i) a collateralized mortgage
obligation;
(ii) a collateralized debt
obligation;
(iii) a collateralized bond
obligation;
(iv) a collateralized debt obligation
of asset-backed securities;
(v) a collateralized debt obligation
of collateralized debt obligations; and
(vi) a security that the Commission,
by rule, determines to be an asset-
backed security for purposes of this
section; and
(B) does not include a security issued by a
finance subsidiary held by the parent company
or a company controlled by the parent company,
if none of the securities issued by the finance
subsidiary are held by an entity that is not
controlled by the parent company.
(65) Eligible contract participant.--The term
``eligible contract participant'' has the same meaning
as in section 1a of the Commodity Exchange Act (7
U.S.C. 1a).
(66) Major swap participant.--The term ``major swap
participant'' has the same meaning as in section 1a of
the Commodity Exchange Act (7 U.S.C. 1a).
(67) Major security-based swap participant.--
(A) In general.--The term ``major security-
based swap participant'' means any person--
(i) who is not a security-based swap
dealer; and
(ii)(I) who maintains a substantial
position in security-based swaps for
any of the major security-based swap
categories, as such categories are
determined by the Commission, excluding
both positions held for hedging or
mitigating commercial risk and
positions maintained by any employee
benefit plan (or any contract held by
such a plan) as defined in paragraphs
(3) and (32) of section 3 of the
Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1002) for the
primary purpose of hedging or
mitigating any risk directly associated
with the operation of the plan;
(II) whose outstanding security-based
swaps create substantial counterparty
exposure that could have serious
adverse effects on the financial
stability of the United States banking
system or financial markets; or
(III) that is a financial entity
that--
(aa) is highly leveraged
relative to the amount of
capital such entity holds and
that is not subject to capital
requirements established by an
appropriate Federal banking
agency; and
(bb) maintains a substantial
position in outstanding
security-based swaps in any
major security-based swap
category, as such categories
are determined by the
Commission.
(B) Definition of substantial position.--For
purposes of subparagraph (A), the Commission
shall define, by rule or regulation, the term
``substantial position'' at the threshold that
the Commission determines to be prudent for the
effective monitoring, management, and oversight
of entities that are systemically important or
can significantly impact the financial system
of the United States. In setting the definition
under this subparagraph, the Commission shall
consider the person's relative position in
uncleared as opposed to cleared security-based
swaps and may take into consideration the value
and quality of collateral held against
counterparty exposures.
(C) Scope of designation.--For purposes of
subparagraph (A), a person may be designated as
a major security-based swap participant for 1
or more categories of security-based swaps
without being classified as a major security-
based swap participant for all classes of
security-based swaps.
(68) Security-based swap.--
(A) In general.--Except as provided in
subparagraph (B), the term ``security-based
swap'' means any agreement, contract, or
transaction that--
(i) is a swap, as that term is
defined under section 1a of the
Commodity Exchange Act (without regard
to paragraph (47)(B)(x) of such
section); and
(ii) is based on--
(I) an index that is a
narrow-based security index,
including any interest therein
or on the value thereof;
(II) a single security or
loan, including any interest
therein or on the value
thereof; or
(III) the occurrence,
nonoccurrence, or extent of the
occurrence of an event relating
to a single issuer of a
security or the issuers of
securities in a narrow-based
security index, provided that
such event directly affects the
financial statements, financial
condition, or financial
obligations of the issuer.
(B) Rule of construction regarding master
agreements.--The term ``security-based swap''
shall be construed to include a master
agreement that provides for an agreement,
contract, or transaction that is a security-
based swap pursuant to subparagraph (A),
together with all supplements to any such
master agreement, without regard to whether the
master agreement contains an agreement,
contract, or transaction that is not a
security-based swap pursuant to subparagraph
(A), except that the master agreement shall be
considered to be a security-based swap only
with respect to each agreement, contract, or
transaction under the master agreement that is
a security-based swap pursuant to subparagraph
(A).
(C) Exclusions.--The term ``security-based
swap'' does not include any agreement,
contract, or transaction that meets the
definition of a security-based swap only
because such agreement, contract, or
transaction references, is based upon, or
settles through the transfer, delivery, or
receipt of an exempted security under paragraph
(12), as in effect on the date of enactment of
the Futures Trading Act of 1982 (other than any
municipal security as defined in paragraph (29)
as in effect on the date of enactment of the
Futures Trading Act of 1982), unless such
agreement, contract, or transaction is of the
character of, or is commonly known in the trade
as, a put, call, or other option.
(D) Mixed swap.--The term ``security-based
swap'' includes any agreement, contract, or
transaction that is as described in
subparagraph (A) and also is based on the value
of 1 or more interest or other rates,
currencies, commodities, instruments of
indebtedness, indices, quantitative measures,
other financial or economic interest or
property of any kind (other than a single
security or a narrow-based security index), or
the occurrence, non-occurrence, or the extent
of the occurrence of an event or contingency
associated with a potential financial,
economic, or commercial consequence (other than
an event described in subparagraph
(A)(ii)(III)).
(E) Rule of construction regarding use of the
term index.--The term ``index'' means an index
or group of securities, including any interest
therein or based on the value thereof.
(69) Swap.--The term ``swap'' has the same meaning as
in section 1a of the Commodity Exchange Act (7 U.S.C.
1a).
(70) Person associated with a security-based swap
dealer or major security-based swap participant.--
(A) In general.--The term ``person associated
with a security-based swap dealer or major
security-based swap participant'' or
``associated person of a security-based swap
dealer or major security-based swap
participant'' means--
(i) any partner, officer, director,
or branch manager of such security-
based swap dealer or major security-
based swap participant (or any person
occupying a similar status or
performing similar functions);
(ii) any person directly or
indirectly controlling, controlled by,
or under common control with such
security-based swap dealer or major
security-based swap participant; or
(iii) any employee of such security-
based swap dealer or major security-
based swap participant.
(B) Exclusion.--Other than for purposes of
section 15F(l)(2), the term ``person associated
with a security-based swap dealer or major
security-based swap participant'' or
``associated person of a security-based swap
dealer or major security-based swap
participant'' does not include any person
associated with a security-based swap dealer or
major security-based swap participant whose
functions are solely clerical or ministerial.
(71) Security-based swap dealer.--
(A) In general.--The term ``security-based
swap dealer'' means any person who--
(i) holds themself out as a dealer in
security-based swaps;
(ii) makes a market in security-based
swaps;
(iii) regularly enters into security-
based swaps with counterparties as an
ordinary course of business for its own
account; or
(iv) engages in any activity causing
it to be commonly known in the trade as
a dealer or market maker in security-
based swaps.
(B) Designation by type or class.--A person
may be designated as a security-based swap
dealer for a single type or single class or
category of security-based swap or activities
and considered not to be a security-based swap
dealer for other types, classes, or categories
of security-based swaps or activities.
(C) Exception.--The term ``security-based
swap dealer'' does not include a person that
enters into security-based swaps for such
person's own account, either individually or in
a fiduciary capacity, but not as a part of
regular business.
(D) De minimis exception.--The Commission
shall exempt from designation as a security-
based swap dealer an entity that engages in a
de minimis quantity of security-based swap
dealing in connection with transactions with or
on behalf of its customers. The Commission
shall promulgate regulations to establish
factors with respect to the making of any
determination to exempt.
(72) Appropriate federal banking agency.--The term
``appropriate Federal banking agency'' has the same
meaning as in section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q)).
(73) Board.--The term ``Board'' means the Board of
Governors of the Federal Reserve System.
(74) Prudential regulator.--The term ``prudential
regulator'' has the same meaning as in section 1a of
the Commodity Exchange Act (7 U.S.C. 1a).
(75) Security-based swap data repository.--The term
``security-based swap data repository'' means any
person that collects and maintains information or
records with respect to transactions or positions in,
or the terms and conditions of, security-based swaps
entered into by third parties for the purpose of
providing a centralized recordkeeping facility for
security-based swaps.
(76) Swap dealer.--The term ``swap dealer'' has the
same meaning as in section 1a of the Commodity Exchange
Act (7 U.S.C. 1a).
(77) Security-based swap execution facility.--The
term ``security-based swap execution facility'' means a
trading system or platform in which multiple
participants have the ability to execute or trade
security-based swaps by accepting bids and offers made
by multiple participants in the facility or system,
through any means of interstate commerce, including any
trading facility, that--
(A) facilitates the execution of security-
based swaps between persons; and
(B) is not a national securities exchange.
(78) Security-based swap agreement.--
(A) In general.--For purposes of sections 9,
10, 16, 20, and 21A of this Act, and section 17
of the Securities Act of 1933 (15 U.S.C. 77q),
the term ``security-based swap agreement''
means a swap agreement as defined in section
206A of the Gramm-Leach-Bliley Act (15 U.S.C.
78c note) of which a material term is based on
the price, yield, value, or volatility of any
security or any group or index of securities,
or any interest therein.
(B) Exclusions.--The term ``security-based
swap agreement'' does not include any security-
based swap.
(80) Emerging growth company.--The term ``emerging
growth company'' means an issuer that had total annual
gross revenues of less than $1,000,000,000 (as such
amount is indexed for inflation every 5 years by the
Commission to reflect the change in the Consumer Price
Index for All Urban Consumers published by the Bureau
of Labor Statistics, setting the threshold to the
nearest 1,000,000) during its most recently completed
fiscal year. An issuer that is an emerging growth
company as of the first day of that fiscal year shall
continue to be deemed an emerging growth company until
the earliest of--
(A) the last day of the fiscal year of the
issuer during which it had total annual gross
revenues of $1,000,000,000 (as such amount is
indexed for inflation every 5 years by the
Commission to reflect the change in the
Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics,
setting the threshold to the nearest 1,000,000)
or more;
(B) the last day of the fiscal year of the
issuer following the fifth anniversary of the
date of the first sale of common equity
securities of the issuer pursuant to an
effective registration statement under the
Securities Act of 1933;
(C) the date on which such issuer has, during
the previous 3-year period, issued more than
$1,000,000,000 in non-convertible debt; or
(D) the date on which such issuer is deemed
to be a ``large accelerated filer'', as defined
in section 240.12b-2 of title 17, Code of
Federal Regulations, or any successor thereto.
[(80)] (81) Funding portal.--The term ``funding
portal'' means any person acting as an intermediary in
a transaction involving the offer or sale of securities
for the account of others, solely pursuant to section
4(6) of the Securities Act of 1933 (15 U.S.C. 77d(6)),
that does not--
(A) offer investment advice or
recommendations;
(B) solicit purchases, sales, or offers to
buy the securities offered or displayed on its
website or portal;
(C) compensate employees, agents, or other
persons for such solicitation or based on the
sale of securities displayed or referenced on
its website or portal;
(D) hold, manage, possess, or otherwise
handle investor funds or securities; or
(E) engage in such other activities as the
Commission, by rule, determines appropriate.
(82) Bank secrecy act.--The term ``Bank Secrecy Act''
means--
(A) section 21 of the Federal Deposit
Insurance Act (12 U.S.C. 1829b);
(B) chapter 2 of title I of Public Law 91-508
(12 U.S.C. 1951 et seq.); and
(C) subchapter II of chapter 53 of title 31,
United States Code.
(83) Digital asset broker.--The term ``digital asset
broker''--
(A) means any person engaged in the business
of effecting transactions in restricted digital
assets for the account of others; and
(B) does not include a blockchain protocol or
a person or group of persons solely because of
their development of a blockchain protocol.
(84) Digital asset custodian.--The term ``digital
asset custodian'' means an entity in the business of
providing custodial or safekeeping services for
restricted digital assets.
(85) Digital asset dealer.--The term ``digital asset
dealer''--
(A) means any person engaged in the business
of buying and selling restricted digital assets
for such person's own account through a broker
or otherwise; and
(B) does not include--
(i) a person that buys or sells
restricted digital assets for such
person's own account, either
individually or in a fiduciary
capacity, but not as a part of a
regular business; or
(ii) a blockchain protocol or a
person or group of persons solely
because of their development of a
blockchain protocol.
(86) Digital asset trading system.--The term
``digital asset trading system''--
(A) means any organization, association,
person, or group of persons, whether
incorporated or unincorporated, that
constitutes, maintains, or provides a market
place or facilities for bringing together
purchasers and sellers of restricted digital
assets or for otherwise performing with respect
to digital assets the functions commonly
performed by a stock exchange within the
meaning of section 240.3b-16 of title 17, Code
of Federal Regulations, as in effect on the
date of enactment of this paragraph; and
(B) does not include a blockchain protocol or
a person or group of persons solely because of
their development of a blockchain protocol.
(87) Mixed digital asset transaction.--The term
``mixed digital asset transaction'' means an agreement,
contract, or transaction involving a restricted digital
asset and a digital commodity.
(88) Notice-registered digital asset clearing
agency.--The term ``notice-registered digital asset
clearing agency'' means a clearing agency that has
registered with the Commission pursuant to section
17A(b)(9).
(89) Additional digital asset-related terms.--
(A) Securities act of 1933.--The terms
``affiliated person'', ``blockchain system'',
``decentralized governance system'',
``decentralized network'', ``digital asset'',
``digital asset issuer'', ``digital asset
maturity date'', ``end user distribution'',
``functional network'', ``mixed digital asset
transaction'', ``permitted payment
stablecoin'', ``related person'', ``restricted
digital asset'', and ``source code'' have the
meaning given those terms, respectively, under
section 2(a) of the Securities Act of 1933 (15
U.S.C. 77b(a)).
(B) Commodity exchange act.--The terms
``digital commodity'', ``digital commodity
broker'', ``digital commodity dealer'', and
``digital commodity exchange'' have the meaning
given those terms, respectively, under section
1a of the Commodity Exchange Act (7 U.S.C. 1a).
(b) The Commission and the Board of Governors of the Federal
Reserve System, as to matters within their respective
jurisdictions, shall have power by rules and regulations to
define technical, trade, accounting, and other terms used in
this title, consistently with the provisions and purposes of
this title.
(c) No provision of this title shall apply to, or be deemed
to include, any executive department or independent
establishment of the United States, or any lending agency which
is wholly owned, directly or indirectly, by the United States,
or any officer, agent, or employee of any such department,
establishment, or agency, acting in the course of his official
duty as such, unless such provision makes specific reference to
such department, establishment, or agency.
(d) No issuer of municipal securities or officer or employee
thereof acting in the course of his official duties as such
shall be deemed to be a ``broker'', ``dealer'', or ``municipal
securities dealer'' solely by reason of buying, selling, or
effecting transactions in the issuer's securities.
(e) Charitable Organizations.--
(1) Exemption.--Notwithstanding any other provision
of this title, but subject to paragraph (2) of this
subsection, a charitable organization, as defined in
section 3(c)(10)(D) of the Investment Company Act of
1940, or any trustee, director, officer, employee, or
volunteer of such a charitable organization acting
within the scope of such person's employment or duties
with such organization, shall not be deemed to be a
``broker'', ``dealer'', ``municipal securities
broker'', ``municipal securities dealer'', ``government
securities broker'', or ``government securities
dealer'' for purposes of this title solely because such
organization or person buys, holds, sells, or trades in
securities for its own account in its capacity as
trustee or administrator of, or otherwise on behalf of
or for the account of--
(A) such a charitable organization;
(B) a fund that is excluded from the
definition of an investment company under
section 3(c)(10)(B) of the Investment Company
Act of 1940; or
(C) a trust or other donative instrument
described in section 3(c)(10)(B) of the
Investment Company Act of 1940, or the settlors
(or potential settlors) or beneficiaries of any
such trust or other instrument.
(2) Limitation on compensation.--The exemption
provided under paragraph (1) shall not be available to
any charitable organization, or any trustee, director,
officer, employee, or volunteer of such a charitable
organization, unless each person who, on or after 90
days after the date of enactment of this subsection,
solicits donations on behalf of such charitable
organization from any donor to a fund that is excluded
from the definition of an investment company under
section 3(c)(10)(B) of the Investment Company Act of
1940, is either a volunteer or is engaged in the
overall fund raising activities of a charitable
organization and receives no commission or other
special compensation based on the number or the value
of donations collected for the fund.
(f) Consideration of Promotion of Efficiency, Competition,
and Capital Formation.--Whenever pursuant to this title the
Commission is engaged in rulemaking, or in the review of a rule
of a self-regulatory organization, and is required to consider
or determine whether an action is necessary or appropriate in
the public interest, the Commission shall also consider, in
addition to the protection of investors, whether the action
will promote efficiency, competition, and capital formation.
(g) Church Plans.--No church plan described in section 414(e)
of the Internal Revenue Code of 1986, no person or entity
eligible to establish and maintain such a plan under the
Internal Revenue Code of 1986, no company or account that is
excluded from the definition of an investment company under
section 3(c)(14) of the Investment Company Act of 1940, and no
trustee, director, officer or employee of or volunteer for such
plan, company, account, person, or entity, acting within the
scope of that person's employment or activities with respect to
such plan, shall be deemed to be a ``broker'', ``dealer'',
``municipal securities broker'', ``municipal securities
dealer'', ``government securities broker'', ``government
securities dealer'', ``clearing agency'', or ``transfer agent''
for purposes of this title--
(1) solely because such plan, company, person, or
entity buys, holds, sells, trades in, or transfers
securities or acts as an intermediary in making
payments in connection with transactions in securities
for its own account in its capacity as trustee or
administrator of, or otherwise on behalf of, or for the
account of, any church plan, company, or account that
is excluded from the definition of an investment
company under section 3(c)(14) of the Investment
Company Act of 1940; and
(2) if no such person or entity receives a commission
or other transaction-related sales compensation in
connection with any activities conducted in reliance on
the exemption provided by this subsection.
(h) Limited Exemption for Funding Portals.--
(1) In general.--The Commission shall, by rule,
exempt, conditionally or unconditionally, a registered
funding portal from the requirement to register as a
broker or dealer under section 15(a)(1), provided that
such funding portal--
(A) remains subject to the examination,
enforcement, and other rulemaking authority of
the Commission;
(B) is a member of a national securities
association registered under section 15A; and
(C) is subject to such other requirements
under this title as the Commission determines
appropriate under such rule.
(2) National securities association membership.--For
purposes of sections 15(b)(8) and 15A, the term
``broker or dealer'' includes a funding portal and the
term ``registered broker or dealer'' includes a
registered funding portal, except to the extent that
the Commission, by rule, determines otherwise, provided
that a national securities association shall only
examine for and enforce against a registered funding
portal rules of such national securities association
written specifically for registered funding portals.
* * * * * * *
securities and exchange commission
Sec. 4. (a) There is hereby established a Securities and
Exchange Commission (hereinafter referred to as the
``Commission'') to be composed of five commissioners to be
appointed by the President by and with the advice and consent
of the Senate. Not more than three of such commissioners shall
be members of the same political party, and in making
appointments members of different political parties shall be
appointed alternately as nearly as may be practicable. No
commissioner shall engage in any other business, vocation, or
employment than that of serving as commissioner, nor shall any
commissioner participate, directly or indirectly, in any stock-
market operations or transactions of a character subject to
regulation by the Commission pursuant to this title. Each
commissioner shall hold office for a term of five years and
until his successor is appointed and has qualified, except that
he shall not so continue to serve beyond the expiration of the
next session of Congress subsequent to the expiration of said
fixed term of office, and except (1) any commissioner appointed
to fill a vacancy occurring prior to the expiration of the term
for which his predecessor was appointed shall be appointed for
the remainder of such term, and (2) the terms of office of the
commissioners first taking office after the enactment of this
title shall expire as designated by the President at the time
of nomination, one at the end of one year, one at the end of
two years, one at the end of three years, one at the end of
four years, and one at the end of five years, after the date of
the enactment of this title.
(b) Appointment and Compensation of Staff and Leasing
Authority.--
(1) Appointment and compensation.--The Commission
shall appoint and compensate officers, attorneys,
economists, examiners, and other employees in
accordance with section 4802 of title 5, United States
Code.
(2) Reporting of information.--In establishing and
adjusting schedules of compensation and benefits for
officers, attorneys, economists, examiners, and other
employees of the Commission under applicable provisions
of law, the Commission shall inform the heads of the
agencies referred to under section 1206 of the
Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (12 U.S.C. 1833b) and Congress
of such compensation and benefits and shall seek to
maintain comparability with such agencies regarding
compensation and benefits.
(3) Leasing authority.--Nothwithstanding any other
provision of law, the Commission is authorized to enter
directly into leases for real property for office,
meeting, storage, and such other space as is necessary
to carry out its functions, and shall be exempt from
any General Services Administration space management
regulations or directives.
(c) Notwithstanding any other provision of law, in accordance
with regulations which the Commission shall prescribe to
prevent conflicts of interest, the Commission may accept
payment and reimbursement, in cash or in kind, from non-Federal
agencies, organizations, and individuals for travel,
subsistence, and other necessary expenses incurred by
Commission members and employees in attending meetings and
conferences concerning the functions or activities of the
Commission. Any payment or reimbursement accepted shall be
credited to the appropriated funds of the Commission. The
amount of travel, subsistence, and other necessary expenses for
members and employees paid or reimbursed under this subsection
may exceed per diem amounts established in official travel
regulations, but the Commission may include in its regulations
under this subsection a limitation on such amounts.
(d) Notwithstanding any other provision of law, former
employers of participants in the Commission's professional
fellows programs may pay such participants their actual
expenses for relocation to Washington, District of Columbia, to
facilitate their participation in such programs, and program
participants may accept such payments.
(e) Notwithstanding any other provision of law, whenever any
fee is required to be paid to the Commission pursuant to any
provision of the securities laws or any other law, the
Commission may provide by rule that such fee shall be paid in a
manner other than in cash and the Commission may also specify
the time that such fee shall be determined and paid relative to
the filing of any statement or document with the Commission.
(f) Reimbursement of Expenses for Assisting Foreign
Securities Authorities.--Notwithstanding any other provision of
law, the Commission may accept payment and reimbursement, in
cash or in kind, from a foreign securities authority, or made
on behalf of such authority, for necessary expenses incurred by
the Commission, its members, and employees in carrying out any
investigation pursuant to section 21(a)(2) of this title or in
providing any other assistance to a foreign securities
authority. Any payment or reimbursement accepted shall be
considered a reimbursement to the appropriated funds of the
Commission.
(g) Office of the Investor Advocate.--
(1) Office established.--There is established within
the Commission the Office of the Investor Advocate (in
this subsection referred to as the ``Office'').
(2) Investor advocate.--
(A) In general.--The head of the Office shall
be the Investor Advocate, who shall--
(i) report directly to the Chairman;
and
(ii) be appointed by the Chairman, in
consultation with the Commission, from
among individuals having experience in
advocating for the interests of
investors in securities and investor
protection issues, from the perspective
of investors.
(B) Compensation.--The annual rate of pay for
the Investor Advocate shall be equal to the
highest rate of annual pay for other senior
executives who report to the Chairman of the
Commission.
(C) Limitation on service.--An individual who
serves as the Investor Advocate may not be
employed by the Commission--
(i) during the 2-year period ending
on the date of appointment as Investor
Advocate; or
(ii) during the 5-year period
beginning on the date on which the
person ceases to serve as the Investor
Advocate.
(3) Staff of office.--The Investor Advocate, after
consultation with the Chairman of the Commission, may
retain or employ independent counsel, research staff,
and service staff, as the Investor Advocate deems
necessary to carry out the functions, powers, and
duties of the Office.
(4) Functions of the investor advocate.--The Investor
Advocate shall--
(A) assist retail investors in resolving
significant problems such investors may have
with the Commission or with self-regulatory
organizations;
(B) identify areas in which investors would
benefit from changes in the regulations of the
Commission or the rules of self-regulatory
organizations;
(C) identify problems that investors have
with financial service providers and investment
products;
(D) analyze the potential impact on investors
of--
(i) proposed regulations of the
Commission; and
(ii) proposed rules of self-
regulatory organizations registered
under this title; and
(E) to the extent practicable, propose to the
Commission changes in the regulations or orders
of the Commission and to Congress any
legislative, administrative, or personnel
changes that may be appropriate to mitigate
problems identified under this paragraph and to
promote the interests of investors.
(5) Access to documents.--The Commission shall ensure
that the Investor Advocate has full access to the
documents of the Commission and any self-regulatory
organization, as necessary to carry out the functions
of the Office.
(6) Annual reports.--
(A) Report on objectives.--
(i) In general.--Not later than June
30 of each year after 2010, the
Investor Advocate shall submit to the
Committee on Banking, Housing, and
Urban Affairs of the Senate and the
Committee on Financial Services of the
House of Representatives a report on
the objectives of the Investor Advocate
for the following fiscal year.
(ii) Contents.--Each report required
under clause (i) shall contain full and
substantive analysis and explanation.
(B) Report on activities.--
(i) In general.--Not later than
December 31 of each year after 2010,
the Investor Advocate shall submit to
the Committee on Banking, Housing, and
Urban Affairs of the Senate and the
Committee on Financial Services of the
House of Representatives a report on
the activities of the Investor Advocate
during the immediately preceding fiscal
year.
(ii) Contents.--Each report required
under clause (i) shall include--
(I) appropriate statistical
information and full and
substantive analysis;
(II) information on steps
that the Investor Advocate has
taken during the reporting
period to improve investor
services and the responsiveness
of the Commission and self-
regulatory organizations to
investor concerns;
(III) a summary of the most
serious problems encountered by
investors during the reporting
period;
(IV) an inventory of the
items described in subclause
(III) that includes--
(aa) identification
of any action taken by
the Commission or the
self-regulatory
organization and the
result of such action;
(bb) the length of
time that each item has
remained on such
inventory; and
(cc) for items on
which no action has
been taken, the reasons
for inaction, and an
identification of any
official who is
responsible for such
action;
(V) recommendations for such
administrative and legislative
actions as may be appropriate
to resolve problems encountered
by investors; and
(VI) any other information,
as determined appropriate by
the Investor Advocate.
(iii) Independence.--Each report
required under this paragraph shall be
provided directly to the Committees
listed in clause (i) without any prior
review or comment from the Commission,
any commissioner, any other officer or
employee of the Commission, or the
Office of Management and Budget.
(iv) Confidentiality.--No report
required under clause (i) may contain
confidential information.
(7) Regulations.--The Commission shall, by
regulation, establish procedures requiring a formal
response to all recommendations submitted to the
Commission by the Investor Advocate, not later than 3
months after the date of such submission.
(8) Ombudsman.--
(A) Appointment.--Not later than 180 days
after the date on which the first Investor
Advocate is appointed under paragraph
(2)(A)(i), the Investor Advocate shall appoint
an Ombudsman, who shall report directly to the
Investor Advocate.
(B) Duties.--The Ombudsman appointed under
subparagraph (A) shall--
(i) act as a liaison between the
Commission and any retail investor in
resolving problems that retail
investors may have with the Commission
or with self-regulatory organizations;
(ii) review and make recommendations
regarding policies and procedures to
encourage persons to present questions
to the Investor Advocate regarding
compliance with the securities laws;
and
(iii) establish safeguards to
maintain the confidentiality of
communications between the persons
described in clause (ii) and the
Ombudsman.
(C) Limitation.--In carrying out the duties
of the Ombudsman under subparagraph (B), the
Ombudsman shall utilize personnel of the
Commission to the extent practicable. Nothing
in this paragraph shall be construed as
replacing, altering, or diminishing the
activities of any ombudsman or similar office
of any other agency.
(D) Report.--The Ombudsman shall submit a
semiannual report to the Investor Advocate that
describes the activities and evaluates the
effectiveness of the Ombudsman during the
preceding year. The Investor Advocate shall
include the reports required under this section
in the reports required to be submitted by the
Inspector Advocate under paragraph (6).
(h) Examiners.--
(1) Division of trading and markets.--The Division of
Trading and Markets of the Commission, or any successor
organizational unit, shall have a staff of examiners
who shall--
(A) perform compliance inspections and
examinations of entities under the jurisdiction
of that Division; and
(B) report to the Director of that Division.
(2) Division of investment management.--The Division
of Investment Management of the Commission, or any
successor organizational unit, shall have a staff of
examiners who shall--
(A) perform compliance inspections and
examinations of entities under the jurisdiction
of that Division; and
(B) report to the Director of that Division.
(i) Securities and Exchange Commission Reserve Fund.--
(1) Reserve fund established.--There is established
in the Treasury of the United States a separate fund,
to be known as the ``Securities and Exchange Commission
Reserve Fund'' (referred to in this subsection as the
``Reserve Fund'').
(2) Reserve fund amounts.--
(A) In general.--Except as provided in
subparagraph (B), any registration fees
collected by the Commission under section 6(b)
of the Securities Act of 1933 (15 U.S.C.
77f(b)) or section 24(f) of the Investment
Company Act of 1940 (15 U.S.C. 80a-24(f)) shall
be deposited into the Reserve Fund.
(B) Limitations.--For any 1 fiscal year--
(i) the amount deposited in the Fund
may not exceed $50,000,000; and
(ii) the balance in the Fund may not
exceed $100,000,000.
(C) Excess fees.--Any amounts in excess of
the limitations described in subparagraph (B)
that the Commission collects from registration
fees under section 6(b) of the Securities Act
of 1933 (15 U.S.C. 77f(b)) or section 24(f) of
the Investment Company Act of 1940 (15 U.S.C.
80a-24(f)) shall be deposited in the General
Fund of the Treasury of the United States and
shall not be available for obligation by the
Commission.
(3) Use of amounts in reserve fund.--The Commission
may obligate amounts in the Reserve Fund, not to exceed
a total of $100,000,000 in any 1 fiscal year, as the
Commission determines is necessary to carry out the
functions of the Commission. Any amounts in the reserve
fund shall remain available until expended. Not later
than 10 days after the date on which the Commission
obligates amounts under this paragraph, the Commission
shall notify Congress of the date, amount, and purpose
of the obligation.
(4) Rule of construction.--Amounts collected and
deposited in the Reserve Fund shall not be construed to
be Government funds or appropriated monies and shall
not be subject to apportionment for the purpose of
chapter 15 of title 31, United States Code, or under
any other authority.
(j) Office of the Advocate for Small Business Capital
Formation.--
(1) Office established.--There is established within
the Commission the Office of the Advocate for Small
Business Capital Formation (hereafter in this
subsection referred to as the ``Office'').
(2) Advocate for small business capital formation.--
(A) In general.--The head of the Office shall
be the Advocate for Small Business Capital
Formation, who shall--
(i) report directly to the
Commission; and
(ii) be appointed by the Commission,
from among individuals having
experience in advocating for the
interests of small businesses and
encouraging small business capital
formation.
(B) Compensation.--The annual rate of pay for
the Advocate for Small Business Capital
Formation shall be equal to the highest rate of
annual pay for other senior executives who
report directly to the Commission.
(C) No current employee of the commission.--
An individual may not be appointed as the
Advocate for Small Business Capital Formation
if the individual is currently employed by the
Commission.
(3) Staff of office.--The Advocate for Small Business
Capital Formation, after consultation with the
Commission, may retain or employ independent counsel,
research staff, and service staff, as the Advocate for
Small Business Capital Formation determines to be
necessary to carry out the functions of the Office.
(4) Functions of the advocate for small business
capital formation.--The Advocate for Small Business
Capital Formation shall--
(A) assist small businesses and small
business investors in resolving significant
problems such businesses and investors may have
with the Commission or with self-regulatory
organizations;
(B) identify areas in which small businesses
and small business investors would benefit from
changes in the regulations of the Commission or
the rules of self-regulatory organizations;
(C) identify problems that small businesses
have with securing access to capital, including
any unique challenges to minority-owned small
businesses, women-owned small businesses, and
small businesses affected by hurricanes or
other natural disasters;
(D) analyze the potential impact on small
businesses and small business investors of--
(i) proposed regulations of the
Commission that are likely to have a
significant economic impact on small
businesses and small business capital
formation; and
(ii) proposed rules that are likely
to have a significant economic impact
on small businesses and small business
capital formation of self-regulatory
organizations registered under this
title;
(E) conduct outreach to small businesses and
small business investors, including through
regional roundtables, in order to solicit views
on relevant capital formation issues;
(F) to the extent practicable, propose to the
Commission changes in the regulations or orders
of the Commission and to Congress any
legislative, administrative, or personnel
changes that may be appropriate to mitigate
problems identified under this paragraph and to
promote the interests of small businesses and
small business investors;
(G) consult with the Investor Advocate on
proposed recommendations made under
subparagraph (F); and
(H) advise the Investor Advocate on issues
related to small businesses and small business
investors.
(5) Access to documents.--The Commission shall ensure
that the Advocate for Small Business Capital Formation
has full access to the documents and information of the
Commission and any self-regulatory organization, as
necessary to carry out the functions of the Office.
(6) Annual report on activities.--
(A) In general.--Not later than December 31
of each year after 2015, the Advocate for Small
Business Capital Formation shall submit to the
Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on
Financial Services of the House of
Representatives a report on the activities of
the Advocate for Small Business Capital
Formation during the immediately preceding
fiscal year.
(B) Contents.--Each report required under
subparagraph (A) shall include--
(i) appropriate statistical
information and full and substantive
analysis;
(ii) information on steps that the
Advocate for Small Business Capital
Formation has taken during the
reporting period to improve small
business services and the
responsiveness of the Commission and
self-regulatory organizations to small
business and small business investor
concerns;
(iii) a summary of the most serious
issues encountered by small businesses
and small business investors, including
any unique issues encountered by
minority-owned small businesses, women-
owned small businesses, and small
businesses affected by hurricanes or
other natural disasters and their
investors, during the reporting period;
(iv) an inventory of the items
summarized under clause (iii)
(including items summarized under such
clause for any prior reporting period
on which no action has been taken or
that have not been resolved to the
satisfaction of the Advocate for Small
Business Capital Formation as of the
beginning of the reporting period
covered by the report) that includes--
(I) identification of any
action taken by the Commission
or the self-regulatory
organization and the result of
such action;
(II) the length of time that
each item has remained on such
inventory; and
(III) for items on which no
action has been taken, the
reasons for inaction, and an
identification of any official
who is responsible for such
action;
(v) recommendations for such changes
to the regulations, guidance and orders
of the Commission and such legislative
actions as may be appropriate to
resolve problems with the Commission
and self-regulatory organizations
encountered by small businesses and
small business investors and to
encourage small business capital
formation; and
(vi) any other information, as
determined appropriate by the Advocate
for Small Business Capital Formation.
(C) Confidentiality.--No report required by
subparagraph (A) may contain confidential
information.
(D) Independence.--Each report required under
subparagraph (A) shall be provided directly to
the committees of Congress listed in such
subparagraph without any prior review or
comment from the Commission, any commissioner,
any other officer or employee of the
Commission, or the Office of Management and
Budget.
(7) Regulations.--The Commission shall establish
procedures requiring a formal response to all
recommendations submitted to the Commission by the
Advocate for Small Business Capital Formation, not
later than 3 months after the date of such submission.
(8) Government-business forum on small business
capital formation.--The Advocate for Small Business
Capital Formation shall be responsible for planning,
organizing, and executing the annual Government-
Business Forum on Small Business Capital Formation
described in section 503 of the Small Business
Investment Incentive Act of 1980 (15 U.S.C. 80c-1).
(9) Rule of construction.--Nothing in this subsection
may be construed as replacing or reducing the
responsibilities of the Investor Advocate with respect
to small business investors.
(k) Open Data Publication.--All public data assets published
by the Commission under the securities laws and the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Public Law 111-
203; 124 Stat. 1376) shall be--
(1) made available as an open Government data asset
(as defined in section 3502 of title 44, United States
Code);
(2) freely available for download;
(3) rendered in a human-readable format; and
(4) accessible via application programming interface
where appropriate.
(l) Strategic Hub for Innovation and Financial Technology.--
(1) Office established.--There is established within
the Commission the Strategic Hub for Innovation and
Financial Technology (referred to in this section as
the ``FinHub'').
(2) Purposes.--The purposes of FinHub are as follows:
(A) To assist in shaping the approach of the
Commission to technological advancements in the
financial industry.
(B) To examine financial technology
innovations within capital markets, market
participants, and investors.
(C) To coordinate the response of the
Commission to emerging technologies in
financial, regulatory, and supervisory systems.
(3) Director of finhub.--FinHub shall have a Director
who shall be appointed by the Commission, from among
individuals having experience in both emerging
technologies and Federal securities law and serve at
the pleasure of the Commission. The Director shall
report directly to the Commission and perform such
functions and duties as the Commission may prescribe.
(4) Responsibilities.--FinHub shall--
(A) foster responsible technological
innovation and fair competition within the
Commission, including around financial
technology, regulatory technology, and
supervisory technology;
(B) provide internal education and training
to the Commission regarding financial
technology;
(C) advise the Commission regarding financial
technology that would serve the Commission's
oversight functions;
(D) analyze technological advancements and
the impact of regulatory requirements on
financial technology companies;
(E) advise the Commission with respect to
rulemakings or other agency or staff action
regarding financial technology;
(F) provide businesses working in emerging
financial technology fields with information on
the Commission, its rules and regulations; and
(G) encourage firms working in emerging
technology fields to engage with the Commission
and obtain feedback from the Commission on
potential regulatory issues.
(5) Access to documents.--The Commission shall ensure
that FinHub has full access to the documents and
information of the Commission and any self-regulatory
organization, as necessary to carry out the functions
of FinHub.
(6) Report to congress.--
(A) In general.--Not later than October 31 of
each year after 2024, FinHub shall submit to
the Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on
Financial Services of the House of
Representatives a report on the activities of
FinHub during the immediately preceding fiscal
year.
(B) Contents.--Each report required under
subparagraph (A) shall include--
(i) the total number of persons that
met with FinHub;
(ii) the total number of market
participants FinHub met with, including
the classification of those
participants;
(iii) a summary of general issues
discussed during meetings with persons;
(iv) information on steps FinHub has
taken to improve Commission services,
including responsiveness to the
concerns of persons;
(v) recommendations--
(I) with respect to the
regulations of the Commission
and the guidance and orders of
the Commission; and
(II) for such legislative
actions as the FinHub
determines appropriate; and
(vi) any other information, as
determined appropriate by the Director
of FinHub.
(C) Confidentiality.--A report under
subparagraph (A) may not contain confidential
information.
(7) Systems of records.--
(A) In general.--The Commission shall
establish a detailed system of records (as
defined under section 552a of title 5, United
States Code) to assist FinHub in communicating
with interested parties.
(B) Entities covered by the system.--Entities
covered by the system required under
subparagraph (A) include entities or persons
submitting requests or inquiries and other
information to Commission through FinHub.
(C) Security and storage of records.--FinHub
shall store--
(i) electronic records--
(I) in the system required
under subparagraph (A); or
(II) on the secure network or
other electronic medium, such
as encrypted hard drives or
back-up media, of the
Commission; and
(ii) paper records in secure
facilities.
(8) Effective date.--This subsection shall take
effect on the date that is 180 days after the date of
the enactment of this subsection.
* * * * * * *
national securities exchanges
Sec. 6. (a) An exchange may be registered as a national
securities exchange under the terms and conditions hereinafter
provided in this section and in accordance with the provisions
of section 19(a) of this title, by filing with the Commission
an application for registration in such form as the Commission,
by rule, may prescribe containing the rules of the exchange and
such other information and documents as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
(b) An exchange shall not be registered as a national
securities exchange unless the Commission determines that--
(1) Such exchange is so organized and has the
capacity to be able to carry out the purposes of this
title and to comply, and (subject to any rule or order
of the Commission pursuant to section 17(d) or 19(g)(2)
of this title) to enforce compliance by its members and
persons associated with its members, with the
provisions of this title, the rules and regulations
thereunder, and the rules of the exchange.
(2) Subject to the provisions of subsection (c) of
this section, the rules of the exchange provide that
any registered broker or dealer or natural person
associated with a registered broker or dealer may
become a member of such exchange and any person may
become associated with a member thereof.
(3) The rules of the exchange assure a fair
representation of its members in the selection of its
directors and administration of its affairs and provide
that one or more directors shall be representative of
issuers and investors and not be associated with a
member of the exchange, broker, or dealer.
(4) The rules of the exchange provide for the
equitable allocation of reasonable dues, fees, and
other charges among its members and issuers and other
persons using its facilities.
(5) The rules of the exchange are designed to prevent
fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to
foster cooperation and coordination with persons
engaged in regulating, clearing, settling, processing
information with respect to, and facilitating
transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect
investors and the public interest; and are not designed
to permit unfair discrimination between customers,
issuers, brokers, or dealers, or to regulate by virtue
of any authority conferred by this title matters not
related to the purposes of this title or the
administration of the exchange.
(6) The rules of the exchange provide that (subject
to any rule or order of the Commission pursuant to
section 17(d) or 19(g)(2) of this title) its members
and persons associated with its members shall be
appropriately disciplined for violation of the
provisions of this title, the rules or regulations
thereunder, or the rules of the exchange, by expulsion,
suspension, limitation of activities, functions, and
operations, fine, censure, being suspended or barred
from being associated with a member, or any other
fitting sanction.
(7) The rules of the exchange are in accordance with
the provisions of subsection (d) of this section, and
in general, provide a fair procedure for the
disciplining of members and persons associated with
members, the denial of membership to any person seeking
membership therein, the barring of any person from
becoming associated with a member thereof, and the
prohibition or limitation by the exchange of any person
with respect to access to services offered by the
exchange or a member thereof.
(8) The rules of the exchange do not impose any
burden on competition not necessary or appropriate in
furtherance of the purposes of this title.
(9)(A) The rules of the exchange prohibit the listing
of any security issued in a limited partnership rollup
transaction (as such term is defined in paragraphs (4)
and (5) of section 14(h)), unless such transaction was
conducted in accordance with procedures designed to
protect the rights of limited partners, including--
(i) the right of dissenting limited partners
to one of the following:
(I) an appraisal and compensation;
(II) retention of a security under
substantially the same terms and
conditions as the original issue;
(III) approval of the limited
partnership rollup transaction by not
less than 75 percent of the outstanding
securities of each of the participating
limited partnerships;
(IV) the use of a committee of
limited partners that is independent,
as determined in accordance with rules
prescribed by the exchange, of the
general partner or sponsor, that has
been approved by a majority of the
outstanding units of each of the
participating limited partnerships, and
that has such authority as is necessary
to protect the interest of limited
partners, including the authority to
hire independent advisors, to negotiate
with the general partner or sponsor on
behalf of the limited partners, and to
make a recommendation to the limited
partners with respect to the proposed
transaction; or
(V) other comparable rights that are
prescribed by rule by the exchange and
that are designed to protect dissenting
limited partners;
(ii) the right not to have their voting power
unfairly reduced or abridged;
(iii) the right not to bear an unfair portion
of the costs of a proposed limited partnership
rollup transaction that is rejected; and
(iv) restrictions on the conversion of
contingent interests or fees into non-
contingent interests or fees and restrictions
on the receipt of a non-contingent equity
interest in exchange for fees for services
which have not yet been provided.
(B) As used in this paragraph, the term ``dissenting
limited partner'' means a person who, on the date on
which soliciting material is mailed to investors, is a
holder of a beneficial interest in a limited
partnership that is the subject of a limited
partnership rollup transaction, and who casts a vote
against the transaction and complies with procedures
established by the exchange, except that for purposes
of an exchange or tender offer, such person shall file
an objection in writing under the rules of the exchange
during the period during which the offer is
outstanding.
(10)(A) The rules of the exchange prohibit any member
that is not the beneficial owner of a security
registered under section 12 from granting a proxy to
vote the security in connection with a shareholder vote
described in subparagraph (B), unless the beneficial
owner of the security has instructed the member to vote
the proxy in accordance with the voting instructions of
the beneficial owner.
(B) A shareholder vote described in this subparagraph
is a shareholder vote with respect to the election of a
member of the board of directors of an issuer,
executive compensation, or any other significant
matter, as determined by the Commission, by rule, and
does not include a vote with respect to the uncontested
election of a member of the board of directors of any
investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80b-1 et seq.).
(C) Nothing in this paragraph shall be construed to
prohibit a national securities exchange from
prohibiting a member that is not the beneficial owner
of a security registered under section 12 from granting
a proxy to vote the security in connection with a
shareholder vote not described in subparagraph (A).
(c)(1) A national securities exchange shall deny membership
to (A) any person, other than a natural person, which is not a
registered broker or dealer or (B) any natural person who is
not, or is not associated with, a registered broker or dealer.
(2) A national securities exchange may, and in cases in which
the Commission, by order, directs as necessary or appropriate
in the public interest or for the protection of investors
shall, deny membership to any registered broker or dealer or
natural person associated with a registered broker or dealer,
and bar from becoming associated with a member any person, who
is subject to a statutory disqualification. A national
securities exchange shall file notice with the Commission not
less than thirty days prior to admitting any person to
membership or permitting any person to become associated with a
member, if the exchange knew, or in the exercise of reasonable
care should have known, that such person was subject to a
statutory disqualification. The notice shall be in such form
and contain such information as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or
for the protection of investors.
(3)(A) A national securities exchange may deny membership to,
or condition the membership of, a registered broker or dealer
if (i) such broker or dealer does not meet such standards of
financial responsibility or operational capability or such
broker or dealer or any natural person associated with such
broker or dealer does not meet such standards of training,
experience, and competence as are prescribed by the rules of
the exchange or (ii) such broker or dealer or person associated
with such broker or dealer has engaged and there is a
reasonable likelihood he may again engage in acts or practices
inconsistent with just and equitable principles of trade. A
national securities exchange may examine and verify the
qualifications of an applicant to become a member and the
natural persons associated with such an applicant in accordance
with procedures established by the rules of the exchange.
(B) A national securities exchange may bar a natural person
from becoming a member or associated with a member, or
condition the membership of a natural person or association of
a natural person with a member, if such natural person (i) does
not meet such standards of training, experience, and competence
as are prescribed by the rules of the exchange or (ii) has
engaged and there is a reasonable likelihood he may again
engage in acts or practices inconsistent with just and
equitable principles of trade. A national securities exchange
may examine and verify the qualifications of an applicant to
become a person associated with a member in accordance with
procedures established by the rules of the exchange and require
any person associated with a member, or any class of such
persons, to be registered with the exchange in accordance with
procedures so established.
(C) A national securities exchange may bar any person from
becoming associated with a member if such person does not agree
(i) to supply the exchange with such information with respect
to its relationship and dealings with the member as may be
specified in the rules of the exchange and (ii) to permit the
examination of its books and records to verify the accuracy of
any information so supplied.
(4) A national securities exchange may limit (A) the number
of members of the exchange and (B) the number of members and
designated representatives of members permitted to effect
transactions on the floor of the exchange without the services
of another person acting as broker: Provided, however, That no
national securities exchange shall have the authority to
decrease the number of memberships in such exchange, or the
number of members and designated representatives of members
permitted to effect transactions on the floor of such exchange
without the services of another person acting as broker, below
such number in effect on May 1, 1975, or the date such exchange
was registered with the Commission, whichever is later: And
provided further, That the Commission, in accordance with the
provisions of section 19(c) of this title, may amend the rules
of any national securities exchange to increase (but not to
decrease) or to remove any limitation on the number of
memberships in such exchange or the number of members or
designated representatives of members permitted to effect
transactions on the floor of the exchange without the services
of another person acting as broker, if the Commission finds
that such limitation imposes a burden on competition not
necessary or appropriate in furtherance of the purposes of this
title.
(d)(1) In any proceeding by a national securities exchange to
determine whether a member or person associated with a member
should be disciplined (other than a summary proceeding pursuant
to paragraph (3) of this subsection), the exchange shall bring
specific charges, notify such member or person of, and give him
an opportunity to defend against, such charges, and keep a
record. A determination by the exchange to impose a
disciplinary sanction shall be supported by a statement setting
forth--
(A) any act or practice in which such member or
person associated with a member has been found to have
engaged, or which such member or person has been found
to have omitted;
(B) the specific provision of this title, the rules
or regulations thereunder, or the rules of the exchange
which any such act or practice, or omission to act, is
deemed to violate; and
(C) the sanction imposed and the reasons therefor.
(2) In any proceeding by a national securities exchange to
determine whether a person shall be denied membership, barred
from becoming associated with a member, or prohibited or
limited with respect to access to services offered by the
exchange or a member thereof (other than a summary proceeding
pursuant to paragraph (3) of this subsection), the exchange
shall notify such person of, and give him an opportunity to be
heard upon, the specific grounds for denial, bar, or
prohibition or limitation under consideration and keep a
record. A determination by the exchange to deny membership, bar
a person from becoming associated with a member, or prohibit or
limit a person with respect to access to services offered by
the exchange or a member thereof shall be supported by a
statement setting forth the specific grounds on which the
denial, bar, or prohibition or limitation is based.
(3) A national securities exchange may summarily (A) suspend
a member or person associated with a member who has been and is
expelled or suspended from any self-regulatory organization or
barred or suspended from being associated with a member of any
self-regulatory organization, (B) suspend a member who is in
such financial or operating difficulty that the exchange
determines and so notifies the Commission that the member
cannot be permitted to continue to do business as a member with
safety to investors, creditors, other members, or the exchange,
or (C) limit or prohibit any person with respect to access to
services offered by the exchange if subparagraph (A) or (B) of
this paragraph is applicable to such person or, in the case of
a person who is not a member, if the exchange determines that
such person does not meet the qualification requirements or
other prerequisites for such access and such person cannot be
permitted to continue to have such access with safety to
investors, creditors, members, or the exchange. Any person
aggrieved by any such summary action shall be promptly afforded
an opportunity for a hearing by the exchange in accordance with
the provisions of paragraph (1) or (2) of this subsection. The
Commission, by order, may stay any such summary action on its
own motion or upon application by any person aggrieved thereby,
if the Commission determines summarily or after notice and
opportunity for hearing (which hearing may consist solely of
the submission of affidavits or presentation of oral arguments)
that such stay is consistent with the public interest and the
protection of investors.
(e)(1) On and after the date of enactment of the Securities
Acts Amendments of 1975, no national securities exchange may
impose any schedule or fix rates of commissions, allowances,
discounts, or other fees to be charged by its members:
Provided, however, That until May 1, 1976, the preceding
provisions of this paragraph shall not prohibit any such
exchange from imposing or fixing any schedule of commissions,
allowances, discounts, or other fees to be charged by its
members for acting as broker on the floor of the exchange or as
odd-lot dealer: And provided further, That the Commission, in
accordance with the provisions of section 19(b) of this title
as modified by the provisions of paragraph (3) of this
subsection, may--
(A) permit a national securities exchange, by rule,
to impose a reasonable schedule or fix reasonable rates
of commissions, allowances, discounts, or other fees to
be charged by its members for effecting transactions on
such exchange prior to November 1, 1976, if the
Commission finds that such schedule or fixed rates of
commissions, allowances, discounts, or other fees are
in the public interest; and
(B) permit a national securities exchange, by rule,
to impose a schedule or fix rates of commissions,
allowances, discounts, or other fees to be charged by
its members for effecting transactions on such exchange
after November 1, 1976, if the Commission finds that
such schedule or fixed rates of commissions,
allowances, discounts, or other fees (i) are reasonable
in relation to the costs of providing the service for
which such fees are charged (and the Commission
publishes the standards employed in adjudging
reasonableness) and (ii) do not impose any burden on
competition not necessary or appropriate in furtherance
of the purposes of this title, taking into
consideration the competitive effects of permitting
such schedule or fixed rates weighed against the
competitive effects of other lawful actions which the
Commission is authorized to take under this title.
(2) Notwithstanding the provisions of section 19(c) of this
title, the Commission, by rule, may abrogate any exchange rule
which imposes a schedule or fixes rates of commissions,
allowances, discounts, or other fees, if the Commission
determines that such schedule or fixed rates are no longer
reasonable, in the public interest, or necessary to accomplish
the purposes of this title.
(3)(A) Before approving or disapproving any proposed rule
change submitted by a national securities exchange which would
impose a schedule or fix rates of commissions, allowances,
discounts, or other fees to be charged by its members for
effecting transactions on such exchange, the Commission shall
afford interested persons (i) an opportunity for oral
presentation of data, views, and arguments and (ii) with
respect to any such rule concerning transactions effected after
November 1, 1976, if the Commission determines there are
disputed issues of material fact, to present such rebuttal
submissions and to conduct (or have conducted under
subparagraph (B) of this paragraph) such cross-examination as
the Commission determines to be appropriate and required for
full disclosure and proper resolution of such disputed issues
of material fact.
(B) The Commission shall prescribe rules and make rulings
concerning any proceeding in accordance with subparagraph (A)
of this paragraph designed to avoid unnecessary costs or delay.
Such rules or rulings may (i) impose reasonable time limits on
each interested person's oral presentations, and (ii) require
any cross-examination to which a person may be entitled under
subparagraph (A) of this paragraph to be conducted by the
Commission on behalf of that person in such manner as the
Commission determines to be appropriate and required for full
disclosure and proper resolution of disputed issues of material
fact.
(C)(i) If any class of persons, the members of which are
entitled to conduct (or have conducted) cross-examination under
subparagraphs (A) and (B) of this paragraph and which have, in
the view of the Commission, the same or similar interests in
the proceeding, cannot agree upon a single representative of
such interests for purposes of cross-examination, the
Commission may make rules and rulings specifying the manner in
which such interests shall be represented and such cross-
examination conducted.
(ii) No member of any class of persons with respect to which
the Commission has specified the manner in which its interests
shall be represented pursuant to clause (i) of this
subparagraph shall be denied, pursuant to such clause (i), the
opportunity to conduct (or have conducted) cross-examination as
to issues affecting his particular interests if he satisfies
the Commission that he has made a reasonable and good faith
effort to reach agreement upon group representation and there
are substantial and relevant issues which would not be
presented adequately by group representation.
(D) A transcript shall be kept of any oral presentation and
cross-examination.
(E) In addition to the bases specified in subsection 25(a), a
reviewing Court may set aside an order of the Commission under
section 19(b) approving an exchange rule imposing a schedule or
fixing rates of commissions, allowances, discounts, or other
fees, if the Court finds--
(1) a Commission determination under subparagraph (A)
of this paragraph that an interested person is not
entitled to conduct cross-examination or make rebuttal
submissions, or
(2) a Commission rule or ruling under subparagraph
(B) of this paragraph limiting the petitioner's cross-
examination or rebuttal submissions,
has precluded full disclosure
and proper resolution of
disputed issues of material
fact which were necessary for
fair determination by the
Commission.
(f) The Commission, by rule or order, as it deems necessary
or appropriate in the public interest and for the protection of
investors, to maintain fair and orderly markets, or to assure
equal regulation, may require--
(1) any person not a member or a designated
representative of a member of a national securities
exchange effecting transactions on such exchange
without the services of another person acting as a
broker, or
(2) any broker or dealer not a member of a national
securities exchange effecting transactions on such
exchange on a regular basis,
to comply with such rules of such exchange as the Commission
may specify.
(g) Notice Registration of Security Futures Product
Exchanges.--
(1) Registration required.--An exchange that lists or
trades security futures products may register as a
national securities exchange solely for the purposes of
trading security futures products if--
(A) the exchange is a board of trade, as that
term is defined by the Commodity Exchange Act
(7 U.S.C. 1a(2)), that has been designated a
contract market by the Commodity Futures
Trading Commission and such designation is not
suspended by order of the Commodity Futures
Trading Commission; and
(B) such exchange does not serve as a market
place for transactions in securities other
than--
(i) security futures products; or
(ii) futures on exempted securities
or groups or indexes of securities or
options thereon that have been
authorized under section 2(a)(1)(C) of
the Commodity Exchange Act.
(2) Registration by notice filing.--
(A) Form and content.--An exchange required
to register only because such exchange lists or
trades security futures products may register
for purposes of this section by filing with the
Commission a written notice in such form as the
Commission, by rule, may prescribe containing
the rules of the exchange and such other
information and documents concerning such
exchange, comparable to the information and
documents required for national securities
exchanges under section 6(a), as the
Commission, by rule, may prescribe as necessary
or appropriate in the public interest or for
the protection of investors. If such exchange
has filed documents with the Commodity Futures
Trading Commission, to the extent that such
documents contain information satisfying the
Commission's informational requirements, copies
of such documents may be filed with the
Commission in lieu of the required written
notice.
(B) Immediate effectiveness.--Such
registration shall be effective
contemporaneously with the submission of
notice, in written or electronic form, to the
Commission, except that such registration shall
not be effective if such registration would be
subject to suspension or revocation.
(C) Termination.--Such registration shall be
terminated immediately if any of the conditions
for registration set forth in this subsection
are no longer satisfied.
(3) Public availability.--The Commission shall
promptly publish in the Federal Register an
acknowledgment of receipt of all notices the Commission
receives under this subsection and shall make all such
notices available to the public.
(4) Exemption of exchanges from specified
provisions.--
(A) Transaction exemptions.--An exchange that
is registered under paragraph (1) of this
subsection shall be exempt from, and shall not
be required to enforce compliance by its
members with, and its members shall not, solely
with respect to those transactions effected on
such exchange in security futures products, be
required to comply with, the following
provisions of this title and the rules
thereunder:
(i) Subsections (b)(2), (b)(3),
(b)(4), (b)(7), (b)(9), (c), (d), and
(e) of this section.
(ii) Section 8.
(iii) Section 11.
(iv) Subsections (d), (f), and (k) of
section 17.
(v) Subsections (a), (f), and (h) of
section 19.
(B) Rule change exemptions.--An exchange that
registered under paragraph (1) of this
subsection shall also be exempt from submitting
proposed rule changes pursuant to section 19(b)
of this title, except that--
(i) such exchange shall file proposed
rule changes related to higher margin
levels, fraud or manipulation,
recordkeeping, reporting, listing
standards, or decimal pricing for
security futures products, sales
practices for security futures products
for persons who effect transactions in
security futures products, or rules
effectuating such exchange's obligation
to enforce the securities laws pursuant
to section 19(b)(7);
(ii) such exchange shall file
pursuant to sections 19(b)(1) and
19(b)(2) proposed rule changes related
to margin, except for changes resulting
in higher margin levels; and
(iii) such exchange shall file
pursuant to section 19(b)(1) proposed
rule changes that have been abrogated
by the Commission pursuant to section
19(b)(7)(C).
(5) Trading in security futures products.--
(A) In general.--Subject to subparagraph (B),
it shall be unlawful for any person to execute
or trade a security futures product until the
later of--
(i) 1 year after the date of the
enactment of the Commodity Futures
Modernization Act of 2000; or
(ii) such date that a futures
association registered under section 17
of the Commodity Exchange Act has met
the requirements set forth in section
15A(k)(2) of this title.
(B) Principal-to-principal transactions.--
Notwithstanding subparagraph (A), a person may
execute or trade a security futures product
transaction if--
(i) the transaction is entered into--
(I) on a principal-to-
principal basis between parties
trading for their own accounts
or as described in section
1a(18)(B)(ii) of the Commodity
Exchange Act; and
(II) only between eligible
contract participants (as
defined in subparagraphs (A),
(B)(ii), and (C) of such
section 1a(18)) at the time at
which the persons enter into
the agreement, contract, or
transaction; and
(ii) the transaction is entered into
on or after the later of--
(I) 8 months after the date
of the enactment of the
Commodity Futures Modernization
Act of 2000; or
(II) such date that a futures
association registered under
section 17 of the Commodity
Exchange Act has met the
requirements set forth in
section 15A(k)(2) of this
title.
(h) Trading in Security Futures Products.--
(1) Trading on exchange or association required.--It
shall be unlawful for any person to effect transactions
in security futures products that are not listed on a
national securities exchange or a national securities
association registered pursuant to section 15A(a).
(2) Listing standards required.--Except as otherwise
provided in paragraph (7), a national securities
exchange or a national securities association
registered pursuant to section 15A(a) may trade only
security futures products that (A) conform with listing
standards that such exchange or association files with
the Commission under section 19(b) and (B) meet the
criteria specified in section 2(a)(1)(D)(i) of the
Commodity Exchange Act.
(3) Requirements for listing standards and conditions
for trading.--Such listing standards shall--
(A) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that any security
underlying the security future, including each
component security of a narrow-based security
index, be registered pursuant to section 12 of
this title;
(B) require that if the security futures
product is not cash settled, the market on
which the security futures product is traded
have arrangements in place with a registered
clearing agency for the payment and delivery of
the securities underlying the security futures
product;
(C) be no less restrictive than comparable
listing standards for options traded on a
national securities exchange or national
securities association registered pursuant to
section 15A(a) of this title;
(D) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that the security future
be based upon common stock and such other
equity securities as the Commission and the
Commodity Futures Trading Commission jointly
determine appropriate;
(E) require that the security futures product
is cleared by a clearing agency that has in
place provisions for linked and coordinated
clearing with other clearing agencies that
clear security futures products, which permits
the security futures product to be purchased on
one market and offset on another market that
trades such product;
(F) require that only a broker or dealer
subject to suitability rules comparable to
those of a national securities association
registered pursuant to section 15A(a) effect
transactions in the security futures product;
(G) require that the security futures product
be subject to the prohibition against dual
trading in section 4j of the Commodity Exchange
Act (7 U.S.C. 6j) and the rules and regulations
thereunder or the provisions of section 11(a)
of this title and the rules and regulations
thereunder, except to the extent otherwise
permitted under this title and the rules and
regulations thereunder;
(H) require that trading in the security
futures product not be readily susceptible to
manipulation of the price of such security
futures product, nor to causing or being used
in the manipulation of the price of any
underlying security, option on such security,
or option on a group or index including such
securities;
(I) require that procedures be in place for
coordinated surveillance among the market on
which the security futures product is traded,
any market on which any security underlying the
security futures product is traded, and other
markets on which any related security is traded
to detect manipulation and insider trading;
(J) require that the market on which the
security futures product is traded has in place
audit trails necessary or appropriate to
facilitate the coordinated surveillance
required in subparagraph (I);
(K) require that the market on which the
security futures product is traded has in place
procedures to coordinate trading halts between
such market and any market on which any
security underlying the security futures
product is traded and other markets on which
any related security is traded; and
(L) require that the margin requirements for
a security futures product comply with the
regulations prescribed pursuant to section
7(c)(2)(B), except that nothing in this
subparagraph shall be construed to prevent a
national securities exchange or national
securities association from requiring higher
margin levels for a security futures product
when it deems such action to be necessary or
appropriate.
(4) Authority to modify certain listing standard
requirements.--
(A) Authority to modify.--The Commission and
the Commodity Futures Trading Commission, by
rule, regulation, or order, may jointly modify
the listing standard requirements specified in
subparagraph (A) or (D) of paragraph (3) to the
extent such modification fosters the
development of fair and orderly markets in
security futures products, is necessary or
appropriate in the public interest, and is
consistent with the protection of investors.
(B) Authority to grant exemptions.--The
Commission and the Commodity Futures Trading
Commission, by order, may jointly exempt any
person from compliance with the listing
standard requirement specified in subparagraph
(E) of paragraph (3) to the extent such
exemption fosters the development of fair and
orderly markets in security futures products,
is necessary or appropriate in the public
interest, and is consistent with the protection
of investors.
(5) Requirements for other persons trading security
future products.--It shall be unlawful for any person
(other than a national securities exchange or a
national securities association registered pursuant to
section 15A(a)) to constitute, maintain, or provide a
marketplace or facilities for bringing together
purchasers and sellers of security future products or
to otherwise perform with respect to security future
products the functions commonly performed by a stock
exchange as that term is generally understood, unless a
national securities association registered pursuant to
section 15A(a) or a national securities exchange of
which such person is a member--
(A) has in place procedures for coordinated
surveillance among such person, the market
trading the securities underlying the security
future products, and other markets trading
related securities to detect manipulation and
insider trading;
(B) has rules to require audit trails
necessary or appropriate to facilitate the
coordinated surveillance required in
subparagraph (A); and
(C) has rules to require such person to
coordinate trading halts with markets trading
the securities underlying the security future
products and other markets trading related
securities.
(6) Deferral of options on security futures
trading.--No person shall offer to enter into, enter
into, or confirm the execution of any put, call,
straddle, option, or privilege on a security future,
except that, after 3 years after the date of the
enactment of this subsection, the Commission and the
Commodity Futures Trading Commission may by order
jointly determine to permit trading of puts, calls,
straddles, options, or privileges on any security
future authorized to be traded under the provisions of
this Act and the Commodity Exchange Act.
(7) Deferral of linked and coordinated clearing.--
(A) Notwithstanding paragraph (2), until the
compliance date, a national securities exchange
or national securities association registered
pursuant to section 15A(a) may trade a security
futures product that does not--
(i) conform with any listing standard
promulgated to meet the requirement
specified in subparagraph (E) of
paragraph (3); or
(ii) meet the criterion specified in
section 2(a)(1)(D)(i)(IV) of the
Commodity Exchange Act.
(B) The Commission and the Commodity Futures
Trading Commission shall jointly publish in the
Federal Register a notice of the compliance
date no later than 165 days before the
compliance date.
(C) For purposes of this paragraph, the term
``compliance date'' means the later of--
(i) 180 days after the end of the
first full calendar month period in
which the average aggregate comparable
share volume for all security futures
products based on single equity
securities traded on all national
securities exchanges, any national
securities associations registered
pursuant to section 15A(a), and all
other persons equals or exceeds 10
percent of the average aggregate
comparable share volume of options on
single equity securities traded on all
national securities exchanges and any
national securities associations
registered pursuant to section 15A(a);
or
(ii) 2 years after the date on which
trading in any security futures product
commences under this title.
(i) Consistent with this title, each national securities
exchange registered pursuant to subsection (a) of this section
shall issue such rules as are necessary to avoid duplicative or
conflicting rules applicable to any broker or dealer registered
with the Commission pursuant to section 15(b) (except paragraph
(11) thereof), that is also registered with the Commodity
Futures Trading Commission pursuant to section 4f(a) of the
Commodity Exchange Act (except paragraph (2) thereof), with
respect to the application of--
(1) rules of such national securities exchange of the
type specified in section 15(c)(3)(B) involving
security futures products; and
(2) similar rules of national securities exchanges
registered pursuant to section 6(g) and national
securities associations registered pursuant to section
15A(k) involving security futures products.
(j) Procedures and Rules for Security Future Products.--A
national securities exchange registered pursuant to subsection
(a) shall implement the procedures specified in section
6(h)(5)(A) of this title and adopt the rules specified in
subparagraphs (B) and (C) of section 6(h)(5) of this title not
later than 8 months after the date of receipt of a request from
an alternative trading system for such implementation and
rules.
(k)(1) To the extent necessary or appropriate in the public
interest, to promote fair competition, and consistent with the
promotion of market efficiency, innovation, and expansion of
investment opportunities, the protection of investors, and the
maintenance of fair and orderly markets, the Commission and the
Commodity Futures Trading Commission shall jointly issue such
rules, regulations, or orders as are necessary and appropriate
to permit the offer and sale of a security futures product
traded on or subject to the rules of a foreign board of trade
to United States persons.
(2) The rules, regulations, or orders adopted under paragraph
(1) shall take into account, as appropriate, the nature and
size of the markets that the securities underlying the security
futures product reflect.
(l) Security-based Swaps.--It shall be unlawful for any
person to effect a transaction in a security-based swap with or
for a person that is not an eligible contract participant,
unless such transaction is effected on a national securities
exchange registered pursuant to subsection (b).
(m) Digital Asset Trading System.--
(1) In general.--It shall be unlawful for any digital
asset trading system to make use of the mails or any
means or instrumentality of interstate commerce within
or subject to the jurisdiction of the United States to
effect any transaction in a restricted digital asset,
unless such digital asset trading system is registered
with the Commission.
(2) Application.--A person desiring to register as a
digital asset trading system shall submit to the
Commission an application in such form and containing
such information as the Commission may require for the
purpose of making the determinations required for
approval.
(3) Exemptions.--A digital asset trading system that
offers or seeks to offer at least one restricted
digital asset shall not be required to register under
this section (and subparagraph (A) shall not apply to
such digital asset trading system) if the trading
system satisfies any exemption contained on a list of
exemptions prepared by the Commission to be as close as
practicable to those exemptions set forth in section
240.3b-16(b) of title 17, Code of Federal Regulations,
applicable to the definition of an exchange.
(4) Additional registrations.--
(A) With the commission.--
(i) In general.--A registered digital
asset trading system shall be permitted
to maintain any other registration with
the Commission relating to the other
activities of the registered digital
asset trading system, including as a--
(I) national securities
exchange;
(II) broker;
(III) dealer;
(IV) alternative trading
system, pursuant to part 242 of
title 17, Code of Federal
Regulations, as in effect on
the date of enactment of this
subsection;
(V) digital asset broker; or
(VI) digital asset dealer.
(ii) Rulemaking.--The Commission
shall prescribe rules for an entity
with multiple registrations described
under subparagraph (A) to exempt the
entity from duplicative, conflicting,
or unduly burdensome provisions of this
Act and the rules under this Act, to
the extent such an exemption would
protect investors, maintain fair,
orderly, and efficient markets, and
facilitate capital formation.
(B) With the commodity futures trading
commission.--A registered digital asset trading
system shall be permitted to maintain a
registration with the Commodity Futures Trading
Commission as a digital commodity exchange to
offer contracts of sale for digital
commodities.
SEC. 6A. REQUIREMENTS FOR DIGITAL ASSET TRADING SYSTEMS.
(a) Holding of Customer Assets.--
(1) In general.--A digital asset trading system shall
hold customer money, assets, and property in a manner
to minimize the risk of loss to the customer or
unreasonable delay in the access to the money, assets,
and property of the customer.
(2) Qualified digital asset custodian required.--A
digital asset trading system shall hold customer
restricted digital assets described in paragraph (1)
with a qualified digital asset custodian described
under section 6B.
(3) Custody prohibited.--A digital asset trading
system, in its capacity as such, may not hold custody
of customer money, assets, or property.
(b) Rulemaking.--The Commission shall prescribe rules for
digital asset trading systems relating to the following:
(1) Notice.--Notice to the Commission of the initial
operation of a digital asset trading system or any
material change to the operation of the digital asset
trading system.
(2) Order display.--The thresholds at which a digital
asset trading system is required to display the orders
of the digital asset trading system, and the manner of
such display.
(3) Fair access.--The thresholds at which a digital
asset trading system is required to have policies
regarding providing fair access to the digital asset
trading system.
(4) Capacity, integrity, and security of automated
systems.--Policies and procedures reasonably designed
to ensure the capacity, integrity, and security of the
digital asset trading system, taking into account the
particular nature of digital asset trading systems.
(5) Examinations, inspections, and investigations.--
The examination and inspection of the premises,
systems, and records of the digital asset trading
system by the Commission or by a self-regulatory
organization of which such digital asset trading system
is a member.
(6) Recordkeeping.--The making, keeping current, and
preservation of records related to trading activity on
the digital asset trading system.
(7) Reporting.--The reporting of transactions in
digital assets that occur through the digital asset
trading system.
(8) Procedures.--The establishment of adequate
written safeguards and written procedures to protect
confidential trading information.
(c) Name Requirement.--A digital asset trading system may not
use the word ``exchange'' in the name of the digital asset
trading system, unless the digital asset trading system--
(1) is operated by a registered national securities
exchange; and
(2) is clearly indicated as being provided outside of
the system's capacity as a national securities
exchange.
(d) Treatment Under the Bank Secrecy Act.--A digital asset
trading system shall be treated as a financial institution for
purposes of the Bank Secrecy Act.
SEC. 6B. REQUIREMENTS FOR QUALIFIED DIGITAL ASSET CUSTODIANS.
(a) In General.--A digital asset custodian is a qualified
digital asset custodian if the digital asset custodian complies
with the requirements of this section.
(b) Supervision Requirement.--
(1) In general.--A digital asset custodian shall--
(A) be subject to adequate supervision and
appropriate regulation by--
(i) the Board of Governors of the
Federal Reserve System;
(ii) the Comptroller of the Currency;
(iii) the Federal Deposit Insurance
Corporation;
(iv) the Commodity Futures Trading
Commission;
(v) the Securities and Exchange
Commission;
(vi) a State bank supervisor (within
the meaning of section 3 of the Federal
Deposit Insurance Act); or
(vii) an appropriate foreign
governmental authority in the home
country of the digital asset custodian;
and
(B) not be prohibited by the applicable
supervisor from engaging in an activity with
respect to the custody and safekeeping of
digital assets.
(2) Adequate supervision and appropriate
regulation.--For purposes of paragraph (1), the terms
``adequate supervision'' and ``appropriate regulation''
mean such minimum standards for supervision and
regulation as are reasonably necessary to protect the
digital assets of customers of an entity registered
with the Commission, including minimum standards
relating to--
(A) accessibility of customer assets;
(B) financial resources;
(C) risk management requirements;
(D) governance arrangements;
(E) fitness standards for officers and
directors;
(F) recordkeeping;
(G) information sharing; and
(H) conflicts of interest.
(3) Deemed compliance.--A digital asset custodian
shall be deemed to be subject to adequate supervision
and appropriate regulation, if--
(A) it is supervised by an agency described
under any of clauses (i) through (v) of
paragraph (1)(A); or
(B) it is a bank supervised by a State bank
supervisor (within the meaning of section 3 of
the Federal Deposit Insurance Act).
(4) Rulemaking with respect to definitions.--For
purposes of this subsection, the Commission may, by
rule, further define the terms ``adequate supervision''
and ``appropriate regulation'' as necessary in the
public interest, as appropriate for the protection of
investors, and consistent with the purposes of this
Act.
(c) Information Sharing.--Each digital asset custodian shall
periodically share of information with the Commission, as the
Commission determines by rule to be reasonably necessary to
effectuate any of the provisions, or to accomplish any of the
purposes, of this Act.
SEC. 6C. TREATMENT OF TRANSACTIONS IN PERMITTED PAYMENT STABLECOINS.
(a) Authority to Broker, Trade, and Custody Permitted Payment
Stablecoins.--Permitted payment stablecoins may be brokered,
traded, or custodied by a broker, dealer, digital asset broker,
or digital asset dealer or through an alternative trading
system or digital asset trading platform.
(b) Commission Jurisdiction.--The Commission shall have
jurisdiction over a transaction in a permitted payment
stablecoin with respect to those circumstances in which a
permitted payment stablecoin is brokered, traded, or
custodied--
(1) by a broker, dealer, digital asset broker, or
digital asset dealer; or
(2) through an alternative trading system or digital
asset trading system.
(c) Limitation.--Subsection (b) shall only apply to a
transaction described in subsection (b) for the purposes of
regulating the offer, execution, solicitation, or acceptance of
a permitted payment stablecoin in those circumstances in which
the permitted payment stablecoin is brokered, traded, or
custodied--
(1) by a broker, dealer, digital asset broker, or
digital asset dealer; or
(2) through an alternative trading system or digital
asset trading system.
* * * * * * *
regulation of the use of manipulative and deceptive devices
Sec. 10. It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of
interstate commerce or of the mails, or of any facility of any
national securities exchange--
(a)(1) To effect a short sale, or to use or employ
any stop-loss order in connection with the purchase or
sale, of any security other than a government security,
in contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
(2) Paragraph (1) of this subsection shall not apply to
security futures products.
(b) To use or employ, in connection with the purchase
or sale of any security registered on a national
securities exchange or any security not so registered,
or any securities-based swap agreement any manipulative
or deceptive device or contrivance in contravention of
such rules and regulations as the Commission may
prescribe as necessary or appropriate in the public
interest or for the protection of investors.
(c)(1) To effect, accept, or facilitate a transaction
involving the loan or borrowing of securities in
contravention of such rules and regulations as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
(2) Nothing in paragraph (1) may be construed
to limit the authority of the appropriate
Federal banking agency (as defined in section
3(q) of the Federal Deposit Insurance Act (12
U.S.C. 1813(q))), the National Credit Union
Administration, or any other Federal department
or agency having a responsibility under Federal
law to prescribe rules or regulations
restricting transactions involving the loan or
borrowing of securities in order to protect the
safety and soundness of a financial institution
or to protect the financial system from
systemic risk.
(d) Rules promulgated under subsection (b) that
prohibit fraud, manipulation, or insider trading (but
not rules imposing or specifying reporting or
recordkeeping requirements, procedures, or standards as
prophylactic measures against fraud, manipulation, or
insider trading), and judicial precedents decided under
subsection (b) and rules promulgated thereunder that
prohibit fraud, manipulation, or insider trading, shall
apply to security-based swap agreements to the same
extent as they apply to securities. Judicial precedents
decided under section 17(a) of the Securities Act of
1933 and sections 9, 15, 16, 20, and 21A of this title,
and judicial precedents decided under applicable rules
promulgated under such sections, shall apply to
security-based swap agreements to the same extent as
they apply to securities.
(e)(1) Rules promulgated under subsection (b) that
prohibit fraud, manipulation, or insider trading (but
not rules imposing or specifying reporting or
recordkeeping requirements, procedures, or standards as
prophylactic measures against fraud, manipulation, or
insider trading), and judicial precedents decided under
subsection (b) and rules promulgated thereunder that
prohibit fraud, manipulation, or insider trading, shall
apply to permitted payment stablecoins with respect to
those circumstances in which the permitted payment
stablecoins are brokered, traded, or custodied by a
broker, dealer, digital asset broker, or digital asset
dealer or through an alternative trading system or
digital asset trading platform to the same extent as
they apply to securities.
(2) Judicial precedents decided under section
17(a) of the Securities Act of 1933 and
sections 9, 15, 16, 20, and 21A of this title,
and judicial precedents decided under
applicable rules promulgated under such
sections, shall apply to permitted payment
stablecoins with respect to those circumstances
in which the permitted payment stablecoins are
brokered, traded, or custodied by a digital
asset broker, digital asset dealer, or digital
asset trading system to the same extent as they
apply to securities.
(3) Nothing in this subsection may be
construed to provide the Commission authority
to make any rule, regulation, requirement, or
obligation on a permitted payment stablecoin
issuer regarding the operations of a permitted
payment stablecoin issuer or a permitted
payment stablecoin, including any aspect of the
operation of a permitted payment stablecoin
issuer or permitted payment stablecoin.
* * * * * * *
SEC. 10E. CONFLICTS OF INTEREST RELATED TO DIGITAL ASSETS.
Each registered digital asset trading system, registered
digital asset broker, registered digital asset dealer, and
notice-registered digital asset clearing agency shall
establish, maintain, and enforce written policies and
procedures reasonably designed, taking into consideration the
nature of such person's business, to mitigate any conflicts of
interest and transactions or arrangements with affiliates.
* * * * * * *
registration requirements for securities
Sec. 12. (a) It shall be unlawful for any member, broker, or
dealer to effect any transaction in any security (other than an
exempted security) on a national securities exchange unless a
registration is effective as to such security for such exchange
in accordance with the provisions of this title and the rules
and regulations thereunder. The provisions of this subsection
shall not apply in respect of a security futures product traded
on a national securities exchange.
(b) A security may be registered on a national securities
exchange by the issuer filing an application with the exchange
(and filing with the Commission such duplicate originals
thereof as the Commission may require), which application shall
contain--
(1) Such information, in such detail, as to the
issuer and any person directly or indirectly
controlling or controlled by, or under direct or
indirect common control with, the issuer, and any
guarantor of the security as to principal or interest
or both, as the Commission may by rules and regulations
require, as necessary or appropriate in the public
interest or for the protection of investors, in respect
of the following:
(A) the organization, financial structures,
and nature of the business;
(B) the terms, position, rights, and
privileges of the different classes of
securities outstanding;
(C) the terms on which their securities are
to be, and during the preceding three years
have been, offered to the public or otherwise;
(D) the directors, officers, and
underwriters, and each security holder of
record holding more than 10 per centum of any
class of any equity security of the issuer
(other than an exempted security), their
remuneration and their interests in the
securities of, and their material contracts
with, the issuer and any person directly or
indirectly controlling or controlled by, or
under direct or indirect common control with,
the issuer;
(E) remuneration to others than directors and
officers exceeding $20,000 per annum;
(F) bonus and profit-sharing arrangements;
(G) management and service contracts;
(H) options existing or to be created in
respect of their securities;
(I) material contracts, not made in the
ordinary course of business, which are to be
executed in whole or in part at or after the
filing of the application or which were made
not more than two years before such filing, and
every material patent or contract for a
material patent right shall be deemed a
material contract;
(J) balance sheets for not more than the
three preceding fiscal years, certified if
required by the rules and regulations of the
Commission by a registered public accounting
firm;
(K) profit and loss statements for not more
than the three preceding fiscal years,
certified if required by the rules and
regulations of the Commission by a registered
public accounting firm; and
(L) any further financial statements which
the Commission may deem necessary or
appropriate for the protection of investors.
(2) Such copies of articles of incorporation, bylaws,
trust indentures, or corresponding documents by
whatever name known, underwriting arrangements, and
other similar documents of, and voting trust agreements
with respect to, the issuer and any person directly or
indirectly controlling or controlled by, or under
direct or indirect common control with, the issuer as
the Commission may require as necessary or appropriate
for the proper protection of investors and to insure
fair dealing in the security.
(3) Such copies of material contracts, referred to in
paragraph (1)(I) above, as the Commission may require
as necessary or appropriate for the proper protection
of investors and to insure fair dealing in the
security.
(c) If in the judgment of the Commission any information
required under subsection (b) of this section is inapplicable
to any specified class or classes of issuers, the Commission
shall require in lieu thereof the submission of such other
information of comparable character as it may deem applicable
to such class of issuers.
(d) If the exchange authorities certify to the Commission
that the security has been approved by the exchange for listing
and registration, the registration shall become effective
thirty days after the receipt of such certification by the
Commission or within such shorter period of time as the
Commission may determine. A security registered with a national
securities exchange may be withdrawn or stricken from listing
and registration in accordance with the rules of the exchange
and, upon such terms as the Commission may deem necessary to
impose for the protection of investors, upon application by the
issuer or the exchange to the Commission; whereupon the issuer
shall be relieved from further compliance with the provisions
of this section and section 13 of this title and any rules or
regulations under such sections as to the securities so
withdrawn or stricken. An unissued security may be registered
only in accordance with such rules and regulations as the
Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors.
(e) Notwithstanding the foregoing provisions of this section,
the Commission may by such rules and regulations as it deems
necessary or appropriate in the public interest or for the
protection of investors permit securities listed on any
exchange at the time the registration of such exchange as a
national securities exchange becomes effective, to be
registered for a period ending not later than July 1, 1935,
without complying with the provisions of this section.
(f)(1)(A) Notwithstanding the preceding subsections of this
section, any national securities exchange, in accordance with
the requirements of this subsection and the rules hereunder,
may extend unlisted trading privileges to--
(i) any security that is listed and registered on a
national securities exchange, subject to subparagraph
(B); and
(ii) any security that is otherwise registered
pursuant to this section, or that would be required to
be so registered except for the exemption from
registration provided in subparagraph (B) or (G) of
subsection (g)(2), subject to subparagraph (E) of this
paragraph.
(B) A national securities exchange may not extend unlisted
trading privileges to a security described in subparagraph
(A)(i) during such interval, if any, after the commencement of
an initial public offering of such security, as is or may be
required pursuant to subparagraph (C).
(C) Not later than 180 days after the date of enactment of
the Unlisted Trading Privileges Act of 1994, the Commission
shall prescribe, by rule or regulation, the duration of the
interval referred to in subparagraph (B), if any, as the
Commission determines to be necessary or appropriate for the
maintenance of fair and orderly markets, the protection of
investors and the public interest, or otherwise in furtherance
of the purposes of this title. Until the earlier of the
effective date of such rule or regulation or 240 days after
such date of enactment, such interval shall begin at the
opening of trading on the day on which such security commences
trading on the national securities exchange with which such
security is registered and end at the conclusion of the next
day of trading.
(D) The Commission may prescribe, by rule or regulation such
additional procedures or requirements for extending unlisted
trading privileges to any security as the Commission deems
necessary or appropriate for the maintenance of fair and
orderly markets, the protection of investors and the public
interest, or otherwise in furtherance of the purposes of this
title.
(E) No extension of unlisted trading privileges to securities
described in subparagraph (A)(ii) may occur except pursuant to
a rule, regulation, or order of the Commission approving such
extension or extensions. In promulgating such rule or
regulation or in issuing such order, the Commission--
(i) shall find that such extension or extensions of
unlisted trading privileges is consistent with the
maintenance of fair and orderly markets, the protection
of investors and the public interest, and otherwise in
furtherance of the purposes of this title;
(ii) shall take account of the public trading
activity in such securities, the character of such
trading, the impact of such extension on the existing
markets for such securities, and the desirability of
removing impediments to and the progress that has been
made toward the development of a national market
system; and
(iii) shall not permit a national securities exchange
to extend unlisted trading privileges to such
securities if any rule of such national securities
exchange would unreasonably impair the ability of a
dealer to solicit or effect transactions in such
securities for its own account, or would unreasonably
restrict competition among dealers in such securities
or between such dealers acting in the capacity of
market makers who are specialists and such dealers who
are not specialists.
(F) An exchange may continue to extend unlisted trading
privileges in accordance with this paragraph only if the
exchange and the subject security continue to satisfy the
requirements for eligibility under this paragraph, including
any rules and regulations issued by the Commission pursuant to
this paragraph, except that unlisted trading privileges may
continue with regard to securities which had been admitted on
such exchange prior to July 1, 1964, notwithstanding the
failure to satisfy such requirements. If unlisted trading
privileges in a security are discontinued pursuant to this
subparagraph, the exchange shall cease trading in that
security, unless the exchange and the subject security
thereafter satisfy the requirements of this paragraph and the
rules issued hereunder.
(G) For purposes of this paragraph--
(i) a security is the subject of an initial public
offering if--
(I) the offering of the subject security is
registered under the Securities Act of 1933;
and
(II) the issuer of the security, immediately
prior to filing the registration statement with
respect to the offering, was not subject to the
reporting requirements of section 13 or 15(d)
of this title; and
(ii) an initial public offering of such security
commences at the opening of trading on the day on which
such security commences trading on the national
securities exchange with which such security is
registered.
(2)(A) At any time within 60 days of commencement of trading
on an exchange of a security pursuant to unlisted trading
privileges, the Commission may summarily suspend such unlisted
trading privileges on the exchange. Such suspension shall not
be reviewable under section 25 of this title and shall not be
deemed to be a final agency action for purposes of section 704
of title 5, United States Code. Upon such suspension--
(i) the exchange shall cease trading in the security
by the close of business on the date of such
suspension, or at such time as the Commission may
prescribe by rule or order for the maintenance of fair
and orderly markets, the protection of investors and
the public interest, or otherwise in furtherance of the
purposes of this title; and
(ii) if the exchange seeks to extend unlisted trading
privileges to the security, the exchange shall file an
application to reinstate its ability to do so with the
Commission pursuant to such procedures as the
Commission may prescribe by rule or order for the
maintenance of fair and orderly markets, the protection
of investors and the public interest, or otherwise in
furtherance of the purposes of this title.
(B) A suspension under subparagraph (A) shall remain in
effect until the Commission, by order, grants approval of an
application to reinstate, as described in subparagraph (A)(ii).
(C) A suspension under subparagraph (A) shall not affect the
validity or force of an extension of unlisted trading
privileges in effect prior to such suspension.
(D) The Commission shall not approve an application by a
national securities exchange to reinstate its ability to extend
unlisted trading privileges to a security unless the Commission
finds, after notice and opportunity for hearing, that the
extension of unlisted trading privileges pursuant to such
application is consistent with the maintenance of fair and
orderly markets, the protection of investors and the public
interest, and otherwise in furtherance of the purposes of this
title. If the application is made to reinstate unlisted trading
privileges to a security described in paragraph (1)(A)(ii), the
Commission--
(i) shall take account of the public trading activity
in such security, the character of such trading, the
impact of such extension on the existing markets for
such a security, and the desirability of removing
impediments to and the progress that has been made
toward the development of a national market system; and
(ii) shall not grant any such application if any rule
of the national securities exchange making application
under this subsection would unreasonably impair the
ability of a dealer to solicit or effect transactions
in such security for its own account, or would
unreasonably restrict competition among dealers in such
security or between such dealers acting in the capacity
of marketmakers who are specialists and such dealers
who are not specialists.
(3) Notwithstanding paragraph (2), the Commission shall by
rules and regulations suspend unlisted trading privileges in
whole or in part for any or all classes of securities for a
period not exceeding twelve months, if it deems such suspension
necessary or appropriate in the public interest or for the
protection of investors or to prevent evasion of the purposes
of this title.
(4) On the application of the issuer of any security for
which unlisted trading privileges on any exchange have been
continued or extended pursuant to this subsection, or of any
broker or dealer who makes or creates a market for such
security, or of any other person having a bona fide interest in
the question of termination or suspension of such unlisted
trading privileges, or on its own motion, the Commission shall
by order terminate, or suspend for a period not exceeding
twelve months, such unlisted trading privileges for such
security if the Commission finds, after appropriate notice and
opportunity for hearing, that such termination or suspension is
necessary or appropriate in the public interest or for the
protection of investors.
(5) In any proceeding under this subsection in which
appropriate notice and opportunity for hearing are required,
notice of not less than ten days to the applicant in such
proceeding, to the issuer of the security involved, to the
exchange which is seeking to continue or extend or has
continued or extended unlisted trading privileges for such
security, and to the exchange, if any, on which such security
is listed and registered, shall be deemed adequate notice, and
any broker or dealer who makes or creates a market for such
security, and any other person having a bona fide interest in
such proceeding, shall upon application be entitled to be
heard.
(6) Any security for which unlisted trading privileges are
continued or extended pursuant to this subsection shall be
deemed to be registered on a national securities exchange
within the meaning of this title. The powers and duties of the
Commission under this title shall be applicable to the rules of
an exchange in respect to any such security. The Commission
may, by such rules and regulations as it deems necessary or
appropriate in the public interest or for the protection of
investors, either unconditionally or upon specified terms and
conditions, or for stated periods, exempt such securities from
the operation of any provision of section 13, 14, or 16 of this
title.
(g)(1) Every issuer which is engaged in interstate commerce,
or in a business affecting interstate commerce, or whose
securities are traded by use of the mails or any means or
instrumentality of interstate commerce shall--
(A) within 120 days after the last day of its first
fiscal year ended on which the issuer has total assets
exceeding $10,000,000 and a class of equity security
(other than an exempted security) held of record by
either--
(i) 2,000 persons, or
(ii) 500 persons who are not accredited investors (as
such term is defined by the Commission), and
(B) in the case of an issuer that is a bank, a
savings and loan holding company (as defined in section
10 of the Home Owners' Loan Act), or a bank holding
company, as such term is defined in section 2 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841), not
later than 120 days after the last day of its first
fiscal year ended after the effective date of this
subsection, on which the issuer has total assets
exceeding $10,000,000 and a class of equity security
(other than an exempted security) held of record by
2,000 or more persons,
register such security by filing with the Commission a
registration statement (and such copies thereof as the
Commission may require) with respect to such security
containing such information and documents as the Commission may
specify comparable to that which is required in an application
to register a security pursuant to subsection (b) of this
section. Each such registration statement shall become
effective sixty days after filing with the Commission or within
such shorter period as the Commission may direct. Until such
registration statement becomes effective it shall not be deemed
filed for the purposes of section 18 of this title. Any issuer
may register any class of equity security not required to be
registered by filing a registration statement pursuant to the
provisions of this paragraph. The Commission is authorized to
extend the date upon which any issuer or class of issuers is
required to register a security pursuant to the provisions of
this paragraph.
(2) The provisions of this subsection shall not apply in
respect of--
(A) any security listed and registered on a national
securities exchange.
(B) any security issued by an investment company
registered pursuant to section 8 of the Investment
Company Act of 1940.
(C) any security, other than permanent stock,
guaranty stock, permanent reserve stock, or any similar
certificate evidencing nonwithdrawable capital, issued
by a savings and loan association, building and loan
association, cooperative bank, homestead association,
or similar institution, which is supervised and
examined by State or Federal authority having
supervision over any such institution.
(D) any security of an issuer organized and operated
exclusively for religious, educational, benevolent,
fraternal, charitable, or reformatory purposes and not
for pecuniary profit, and no part of the net earnings
of which inures to the benefit of any private
shareholder or individual; or any security of a fund
that is excluded from the definition of an investment
company under section 3(c)(10)(B) of the Investment
Company Act of 1940.
(E) any security of an issuer which is a
``cooperative association'' as defined in the
Agricultural Marketing Act, approved June 15, 1929, as
amended, or a federation of such cooperative
associations, if such federation possesses no greater
powers or purposes than cooperative associations so
defined.
(F) any security issued by a mutual or cooperative
organization which supplies a commodity or service
primarily for the benefit of its members and operates
not for pecuniary profit, but only if the security is
part of a class issuable only to persons who purchase
commodities or services from the issuer, the security
is transferable only to a successor in interest or
occupancy of premises serviced or to be served by the
issuer, and no dividends are payable to the holder of
the security.
(G) any security issued by an insurance company if
all of the following conditions are met:
(i) Such insurance company is required to and
does file an annual statement with the
Commissioner of Insurance (or other officer or
agency performing a similar function) of its
domiciliary State, and such annual statement
conforms to that prescribed by the National
Association of Insurance Commissioners or in
the determination of such State commissioner,
officer or agency substantially conforms to
that so prescribed.
(ii) Such insurance company is subject to
regulation by its domiciliary State of proxies,
consents, or authorizations in respect of
securities issued by such company and such
regulation conforms to that prescribed by the
National Association of Insurance
Commissioners.
(iii) After July 1, 1966, the purchase and
sales of securities issued by such insurance
company by beneficial owners, directors, or
officers of such company are subject to
regulation (including reporting) by its
domiciliary State substantially in the manner
provided in section 16 of this title.
(H) any interest or participation in any collective
trust funds maintained by a bank or in a separate
account maintained by an insurance company which
interest or participation is issued in connection with
(i) a stock-bonus, pension, or profit-sharing plan
which meets the requirements for qualification under
section 401 of the Internal Revenue Code of 1954, (ii)
an annuity plan which meets the requirements for
deduction of the employer's contribution under section
404(a)(2) of such Code, or (iii) a church plan,
company, or account that is excluded from the
definition of an investment company under section
3(c)(14) of the Investment Company Act of 1940.
(3) The Commission may by rules or regulations or, on its own
motion, after notice and opportunity for hearing, by order,
exempt from this subsection any security of a foreign issuer,
including any certificate of deposit for such a security, if
the Commission finds that such exemption is in the public
interest and is consistent with the protection of investors.
(4) Registration of any class of security pursuant to this
subsection shall be terminated ninety days, or such shorter
period as the Commission may determine, after the issuer files
a certification with the Commission that the number of holders
of record of such class of security is reduced to less than 300
persons, or, in the case of a bank, a savings and loan holding
company (as defined in section 10 of the Home Owners' Loan
Act), or a bank holding company, as such term is defined in
section 2 of the Bank Holding Company Act of 1956 (12 U.S.C.
1841), 1,200 persons persons. The Commission shall after notice
and opportunity for hearing deny termination of registration if
it finds that the certification is untrue. Termination of
registration shall be deferred pending final determination on
the question of denial.
(5) For the purposes of this subsection the term ``class''
shall include all securities of an issuer which are of
substantially similar character and the holders of which enjoy
substantially similar rights and privileges. The Commission may
for the purpose of this subsection define by rules and
regulations the terms ``total assets'' and ``held of record''
as it deems necessary or appropriate in the public interest or
for the protection of investors in order to prevent
circumvention of the provisions of this subsection. For
purposes of this subsection, a security futures product shall
not be considered a class of equity security of the issuer of
the securities underlying the security futures product. For
purposes of determining whether an issuer is required to
register a security with the Commission pursuant to paragraph
(1), the definition of ``held of record'' shall not include
securities held by persons who received the securities pursuant
to an employee compensation plan in transactions exempted from
the registration requirements of section 5 of the Securities
Act of 1933.
(6) Exclusion for persons holding certain
securities.--The Commission shall, by rule, exempt,
conditionally or unconditionally, securities acquired
pursuant to an offering made [under section 4(6)] under
section 4(a)(6) or 4(a)(8) of the Securities Act of
1933 from the provisions of this subsection.
(h) The Commission may by rules and regulations, or upon
application of an interested person, by order, after notice and
opportunity for hearing, exempt in whole or in part any issuer
or class of issuers from the provisions of subsection (g) of
this section or from section 13, 14, or 15(d) or may exempt
from section 16 any officer, director, or beneficial owner of
securities of any issuer, any security of which is required to
be registered pursuant to subsection (g) hereof, upon such
terms and conditions and for such period as it deems necessary
or appropriate, if the Commission finds, by reason of the
number of public investors, amount of trading interest in the
securities, the nature and extent of the activities of the
issuer, income or assets of the issuer, or otherwise, that such
action is not inconsistent with the public interest or the
protection of investors. The Commission may, for the purposes
of any of the above-mentioned sections or subsections of this
title, classify issuers and prescribe requirements appropriate
for each such class.
(i) In respect of any securities issued by banks and savings
associations the deposits of which are insured in accordance
with the Federal Deposit Insurance Act, the powers, functions,
and duties vested in the Commission to administer and enforce
sections 10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of
this Act, and sections 302, 303, 304, 306, 401(b), 404, 406,
and 407 of the Sarbanes-Oxley Act of 2002, (1) with respect to
national banks and Federal savings associations, the accounts
of which are insured by the Federal Deposit Insurance
Corporation are vested in the Comptroller of the Currency, (2)
with respect to all other member banks of the Federal Reserve
System are vested in the Board of Governors of the Federal
Reserve System, and (3) with respect to all other insured banks
and State savings associations, the accounts of which are
insured by the Federal Deposit Insurance Corporation, are
vested in the Federal Deposit Insurance Corporation. The
Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, and the Federal Deposit Insurance
Corporation shall have the power to make such rules and
regulations as may be necessary for the execution of the
functions vested in them as provided in this subsection. In
carrying out their responsibilities under this subsection, the
agencies named in the first sentence of this subsection shall
issue substantially similar regulations to regulations and
rules issued by the Commission under sections 10A(m), 12, 13,
14(a), 14(c), 14(d), 14(f) and 16 of this Act, and sections
302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-
Oxley Act of 2002, unless they find that implementation of
substantially similar regulations with respect to insured banks
and insured institutions are not necessary or appropriate in
the public interest or for protection of investors, and publish
such findings, and the detailed reasons therefor, in the
Federal Register. Such regulations of the above-named agencies,
or the reasons for failure to publish such substantially
similar regulations to those of the Commission, shall be
published in the Federal Register within 120 days of the date
of enactment of this subsection, and, thereafter, within 60
days of any changes made by the Commission in its relevant
regulations and rules.
(j) The Commission is authorized, by order, as it deems
necessary or appropriate for the protection of investors to
deny, to suspend the effective date of, to suspend for a period
not exceeding twelve months, or to revoke the registration of a
security, if the Commission finds, on the record after notice
and opportunity for hearing, that the issuer of such security
has failed to comply with any provision of this title or the
rules and regulations thereunder. No member of a national
securities exchange, broker, or dealer shall make use of the
mails or any means or instrumentality of interstate commerce to
effect any transaction in, or to induce the purchase or sale
of, any security the registration of which has been and is
suspended or revoked pursuant to the preceding sentence.
(k) Trading Suspensions; Emergency Authority.--
(1) Trading suspensions.--If in its opinion the
public interest and the protection of investors so
require, the Commission is authorized by order--
(A) summarily to suspend trading in any
security (other than an exempted security) for
a period not exceeding 10 business days, and
(B) summarily to suspend all trading on any
national securities exchange or otherwise, in
securities other than exempted securities, for
a period not exceeding 90 calendar days.
The action described in subparagraph (B) shall not take
effect unless the Commission notifies the President of
its decision and the President notifies the Commission
that the President does not disapprove of such
decision. If the actions described in subparagraph (A)
or (B) involve a security futures product, the
Commission shall consult with and consider the views of
the Commodity Futures Trading Commission.
(2) Emergency orders.--
(A) In general.--The Commission, in an
emergency, may by order summarily take such
action to alter, supplement, suspend, or impose
requirements or restrictions with respect to
any matter or action subject to regulation by
the Commission or a self-regulatory
organization under the securities laws, as the
Commission determines is necessary in the
public interest and for the protection of
investors--
(i) to maintain or restore fair and
orderly securities markets (other than
markets in exempted securities);
(ii) to ensure prompt, accurate, and
safe clearance and settlement of
transactions in securities (other than
exempted securities); or
(iii) to reduce, eliminate, or
prevent the substantial disruption by
the emergency of--
(I) securities markets (other
than markets in exempted
securities), investment
companies, or any other
significant portion or segment
of such markets; or
(II) the transmission or
processing of securities
transactions (other than
transactions in exempted
securities).
(B) Effective period.--An order of the
Commission under this paragraph shall continue
in effect for the period specified by the
Commission, and may be extended. Except as
provided in subparagraph (C), an order of the
Commission under this paragraph may not
continue in effect for more than 10 business
days, including extensions.
(C) Extension.--An order of the Commission
under this paragraph may be extended to
continue in effect for more than 10 business
days if, at the time of the extension, the
Commission finds that the emergency still
exists and determines that the continuation of
the order beyond 10 business days is necessary
in the public interest and for the protection
of investors to attain an objective described
in clause (i), (ii), or (iii) of subparagraph
(A). In no event shall an order of the
Commission under this paragraph continue in
effect for more than 30 calendar days.
(D) Security futures.--If the actions
described in subparagraph (A) involve a
security futures product, the Commission shall
consult with and consider the views of the
Commodity Futures Trading Commission.
(E) Exemption.--In exercising its authority
under this paragraph, the Commission shall not
be required to comply with the provisions of--
(i) section 19(c); or
(ii) section 553 of title 5, United
States Code.
(3) Termination of emergency actions by president.--
The President may direct that action taken by the
Commission under paragraph (1)(B) or paragraph (2) of
this subsection shall not continue in effect.
(4) Compliance with orders.--No member of a national
securities exchange, broker, or dealer shall make use
of the mails or any means or instrumentality of
interstate commerce to effect any transaction in, or to
induce the purchase or sale of, any security in
contravention of an order of the Commission under this
subsection unless such order has been stayed, modified,
or set aside as provided in paragraph (5) of this
subsection or has ceased to be effective upon direction
of the President as provided in paragraph (3).
(5) Limitations on review of orders.--An order of the
Commission pursuant to this subsection shall be subject
to review only as provided in section 25(a) of this
title. Review shall be based on an examination of all
the information before the Commission at the time such
order was issued. The reviewing court shall not enter a
stay, writ of mandamus, or similar relief unless the
court finds, after notice and hearing before a panel of
the court, that the Commission's action is arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.
(6) Consultation.--Prior to taking any action
described in paragraph (1)(B), the Commission shall
consult with and consider the views of the Secretary of
the Treasury, the Board of Governors of the Federal
Reserve System, and the Commodity Futures Trading
Commission, unless such consultation is impracticable
in light of the emergency.
(7) Definition.--For purposes of this subsection, the
term ``emergency'' means--
(A) a major market disturbance characterized
by or constituting--
(i) sudden and excessive fluctuations
of securities prices generally, or a
substantial threat thereof, that
threaten fair and orderly markets; or
(ii) a substantial disruption of the
safe or efficient operation of the
national system for clearance and
settlement of transactions in
securities, or a substantial threat
thereof; or
(B) a major disturbance that substantially
disrupts, or threatens to substantially
disrupt--
(i) the functioning of securities
markets, investment companies, or any
other significant portion or segment of
the securities markets; or
(ii) the transmission or processing
of securities transactions.
(l) It shall be unlawful for an issuer, any class of whose
securities is registered pursuant to this section or would be
required to be so registered except for the exemption from
registration provided by subsection (g)(2)(B) or (g)(2)(G) of
this section, by the use of any means or instrumentality of
interstate commerce, or of the mails, to issue, either
originally or upon transfer, any of such securities in a form
or with a format which contravenes such rules and regulations
as the Commission may prescribe as necessary or appropriate for
the prompt and accurate clearance and settlement of
transactions in securities. The provisions of this subsection
shall not apply to variable annuity contracts or variable life
policies issued by an insurance company or its separate
accounts.
* * * * * * *
SEC. 15H. REGISTRATION OF DIGITAL ASSET BROKERS AND DIGITAL ASSET
DEALERS.
(a) Registration.--
(1) In general.--It shall be unlawful for any digital
asset broker or digital asset dealer (other than a
natural person associated with a digital asset broker
or digital asset dealer, and other than such a digital
asset broker or digital asset dealer whose business is
exclusively intrastate and who does not make use of any
facility of a digital asset trading platform) to make
use of the mails or any means or instrumentality of
interstate commerce to effect any transactions in, or
to induce or attempt to induce the purchase or sale of,
any restricted digital asset unless such digital asset
broker or digital asset dealer is registered in
accordance with this section.
(2) Application.--A person desiring to register as a
digital asset broker or digital asset dealer shall
submit to the Commission an application in such form
and containing such information as the Commission may
require for the purpose of making the determinations
required for approval.
(b) National Securities Association Membership.--
(1) In general.--A digital asset broker or digital
asset dealer may not register or maintain registration
under this section unless such digital asset broker or
digital asset dealer is a member of a national
securities association registered under section 15A.
(2) Treatment under section 15a.--
(A) In general.--For purposes of section
15A--
(i) the term ``broker'' includes a
digital asset broker;
(ii) the term ``dealer'' includes a
digital asset dealer; and
(iii) the term ``security'' includes
a restricted digital asset.
(B) Clarification.--Notwithstanding
subparagraph (A), a national securities
association shall only examine for and enforce
against a digital asset broker and digital
asset dealer rules of such national securities
association written specifically for digital
asset brokers and a digital asset dealers.
(3) Exception.--A digital asset broker or digital
asset dealer may register under this section without
obtaining membership in a national securities
association until the end of the 360-day period
beginning on the date the first national securities
association adopts rules to admit digital asset brokers
or digital asset dealers as members.
(c) Additional Registrations With the Commission.--
(1) In general.--A registered digital asset broker or
registered digital asset dealer shall be permitted to
maintain any other registration with the Commission
relating to the other activities of the registered
digital asset broker or registered digital asset
dealer, including as--
(A) a national securities exchange;
(B) a broker;
(C) a dealer;
(D) an alternative trading system, pursuant
to part 242 of title 17, Code of Federal
Regulations, as in effect on the date of
enactment of this section; or
(E) a digital asset trading system.
(2) Rulemaking.--The Commission shall prescribe rules
for an entity with multiple registrations described
under paragraph (1) to exempt the entity from
duplicative, conflicting, or unduly burdensome
provisions of this Act and the rules under this Act, to
the extent such an exemption would protect investors,
maintain fair, orderly, and efficient markets, and
facilitate capital formation.
(3) Self-regulatory organizations.--The Commission
shall require any self-regulatory organization with a
registered digital asset broker or registered digital
asset dealer as a member to provide such rules as may
be necessary to further compliance with this section,
protect investors, maintain fair, orderly, and
efficient markets, and facilitate capital formation.
(d) Additional Registrations With the Commodity Futures
Trading Commission.--A registered digital asset broker or
registered digital asset dealer shall be permitted to maintain
a registration with the Commodity Futures Trading Commission as
a digital commodity broker or digital commodity dealer, to list
or trade contracts of sale for digital commodities.
(e) Anti-fraud.--No digital asset broker or digital asset
dealer shall make use of the mails or any means or
instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase
or sale of, any restricted digital asset by means of any
manipulative, deceptive, or other fraudulent device or
contrivance.
(f) Holding of Customer Assets.--
(1) In general.--A digital asset broker or digital
asset dealer shall hold customer money, assets, and
property in a manner to minimize the risk of loss to
the customer or unreasonable delay in the access to the
money, assets, and property of the customer.
(2) Qualified digital asset custodian required.--A
digital asset broker or digital asset dealer shall hold
customer restricted digital assets described in
paragraph (1) with a qualified digital asset custodian
described under section 6B.
(3) Segregation of funds.--
(A) In general.--A digital asset broker or
digital asset dealer shall treat and deal with
all money, assets, and property held for a
customer of the digital asset broker or digital
asset dealer, or that accrues to a customer as
a result of trading in restricted digital
assets, as belonging to the customer.
(B) Commingling prohibited.--Money, assets,
and property of a customer described in
subparagraph (A) shall be separately accounted
for and shall not be commingled with the funds
of the digital asset broker or digital asset
dealer or be used to margin, secure, or
guarantee any trades of any person other than
the customer of the digital asset broker or
digital asset dealer for whom the same are
held.
(4) Exceptions.--
(A) Use of funds.--
(i) In general.--Notwithstanding
paragraph (3), money, assets, and
property of customers of a digital
asset broker or digital asset dealer
described in paragraph (3) may be
maintained and deposited in the same
account or accounts with any bank,
trust company, or qualified digital
asset custodian described under section
6B, if the money, assets, and property
remain segregated from the money,
assets, and property of the digital
asset broker or digital asset dealer.
(ii) Withdrawal.--Notwithstanding
paragraph (3), such share of the money,
assets, and property described in
paragraph (3) as in the normal course
of business shall be necessary to
transfer, adjust, or settle a
restricted digital asset transaction
pursuant to a customer's instruction
(standing or otherwise) may be
withdrawn and applied to such purposes,
including the withdrawal and payment of
commissions, brokerage, interest,
taxes, storage, and other charges
lawfully accruing in connection with a
restricted digital asset transaction.
(iii) Commission action.--In
accordance with such terms and
conditions as the Commission may
prescribe by rule, regulation, or
order, any money, assets, or property
of a customer of a digital asset broker
or digital asset dealer described in
paragraph (3) may be commingled and
deposited as provided in this section
with any other money, assets, or
property received by the digital asset
broker or digital asset dealer and
required by the Commission to be
separately accounted for and treated
and dealt with as belonging to the
customer of the digital asset broker or
digital asset dealer.
(B) Participation in blockchain services.--
(i) In general.--A customer shall
have the right to waive the
restrictions in paragraph (3) for any
unit of a digital asset to be used
under clause (ii), by affirmatively
electing, in writing to the digital
asset broker or digital asset dealer,
to waive the restrictions.
(ii) Use of funds.--Customer digital
assets removed from segregation under
clause (i) may be pooled and used by
the digital asset broker or digital
asset dealer or its designee to provide
a blockchain service for a blockchain
system to which the unit of the digital
asset removed from segregation under
clause (i) relates.
(iii) Limitations.--The Commission
may, by rule, establish notice and
disclosure requirements, and any other
limitations and rules related to the
waiving of any restrictions under this
subparagraph that are reasonably
necessary to protect customers.
(iv) Blockchain service defined.--In
this subparagraph, the term
``blockchain service'' means any
activity relating to validating
transactions on a blockchain system,
providing security for a blockchain
system, or other similar activity
required for the ongoing operation of a
blockchain system.
(5) Further limitations.--No person shall treat or
deal with a restricted digital asset held on behalf of
any customer pursuant to paragraph (3) by utilizing any
unit of such restricted digital asset to participate in
a blockchain service (as defined in paragraph
(4)(B)(iv)) or a decentralized governance system
associated with the restricted digital asset or the
blockchain system to which the restricted digital asset
relates in any manner other than that which is
expressly directed by the customer from which such unit
of a restricted digital asset was received.
(g) Capital Requirements.--
(1) In general.--Each registered digital asset broker
and registered digital asset dealer shall meet such
minimum capital requirements as the Commission may
prescribe to ensure that the digital asset broker or
digital asset dealer is able to--
(A) conduct an orderly wind-down of the
activities of the digital asset broker or
digital asset dealer; and
(B) fulfill the customer obligations of the
digital asset broker or digital asset dealer.
(2) Calculation.--For purposes of any Commission rule
or order adopted under this section or any
interpretation thereof regulating a digital asset
broker or digital asset dealer's financial
responsibility obligations and capital requirements, a
registered digital asset broker or digital asset dealer
that maintains control of customer digital assets in a
manner that satisfies the rules issued by the
Commission under subsection (f)(2) shall not be
required to include the value of such digital assets as
assets or liabilities of the digital asset broker or
digital asset dealer.
(3) Coordination of capital requirements.--
(A) Commission rule.--The Commission shall,
by rule, provide appropriate offsets to any
applicable capital requirement for a person
with multiple registrations, including as a
broker, dealer, digital asset broker, or
digital asset dealer.
(B) Joint rule.--The Commission and the
Commodity Futures Trading Commission shall
jointly, by rule, provide appropriate offsets
to any applicable capital requirement for a
person with multiple registrations, including
as a digital asset broker, digital asset
dealer, digital asset trading system, digital
commodity broker, digital commodity dealer, or
digital commodity exchange.
(h) Reporting and Recordkeeping.--Each registered digital
asset broker and digital asset dealer--
(1) shall make such reports as are required by the
Commission by rule or regulation regarding the
transactions, positions, and financial condition of the
digital asset broker or digital asset dealer;
(2) shall keep books and records in such form and
manner and for such period as may be prescribed by the
Commission by rule or regulation; and
(3) shall keep the books and records open to
inspection and examination by any representative of the
Commission.
(i) Treatment Under the Bank Secrecy Act.--A digital asset
broker and a digital asset dealer shall be treated as a
financial institution for purposes of the Bank Secrecy Act.
SEC. 15I. EXCLUSION FOR ANCILLARY ACTIVITIES.
(a) In General.--Notwithstanding any other provision of this
Act, a person shall not be subject to this Act and the
regulations thereunder solely based on the person undertaking
any ancillary activities.
(b) Exceptions.--Subsection (a) shall not be construed to
apply to the anti-fraud and anti-manipulation authorities of
the Commission.
(c) Ancillary Activities Defined.--In this section, the term
``ancillary activities'' means any of the following activities
related to the operation of a blockchain system:
(1) Compiling network transactions, operating or
participating in a liquidity pool, relaying, searching,
sequencing, validating, or acting in a similar capacity
with respect to a digital asset.
(2) Providing computational work, operating a node,
or procuring, offering, or utilizing network bandwidth,
or other similar incidental services with respect to a
digital asset.
(3) Providing a user-interface that enables a user to
read and access data about a blockchain system, send
messages, or otherwise interact with a blockchain
system.
(4) Developing, publishing, constituting,
administering, maintaining, or otherwise distributing a
blockchain system.
(5) Developing, publishing, constituting,
administering, maintaining, or otherwise distributing
software or systems that create or deploy a hardware or
software wallet or other system facilitating an
individual user's own personal ability to keep,
safeguard, or custody the user's digital assets or
related private keys.
* * * * * * *
national system for clearance and settlement of securities transactions
Sec. 17A. (a)(1) The Congress finds that--
(A) The prompt and accurate clearance and settlement
of securities transactions, including the transfer of
record ownership and the safeguarding of securities and
funds related thereto, are necessary for the protection
of investors and persons facilitating transactions by
and acting on behalf of investors.
(B) Inefficient procedures for clearance and
settlement impose unnecessary costs on investors and
persons facilitating transactions by and acting on
behalf of investors.
(C) New data processing and communications techniques
create the opportunity for more efficient, effective,
and safe procedures for clearance and settlement.
(D) The linking of all clearance and settlement
facilities and the development of uniform standards and
procedures for clearance and settlement will reduce
unnecessary costs and increase the protection of
investors and persons facilitating transactions by and
acting on behalf of investors.
(2)(A) The Commission is directed, therefore, having due
regard for the public interest, the protection of investors,
the safeguarding of securities and funds, and maintenance of
fair competition among brokers and dealers, clearing agencies,
and transfer agents, to use its authority under this title--
(i) to facilitate the establishment of a national
system for the prompt and accurate clearance and
settlement of transactions in securities (other than
exempt securities); and
(ii) to facilitate the establishment of linked or
coordinated facilities for clearance and settlement of
transactions in securities, securities options,
contracts of sale for future delivery and options
thereon, and commodity options;
in accordance with the findings and to carry out the objectives
set forth in paragraph (1) of this subsection.
(B) The Commission shall use its authority under this title
to assure equal regulation under this title of registered
clearing agencies and registered transfer agents. In carrying
out its responsibilities set forth in subparagraph (A)(ii) of
this paragraph, the Commission shall coordinate with the
Commodity Futures Trading Commission and consult with the Board
of Governors of the Federal Reserve System.
(b)(1) Except as otherwise provided in this section, it shall
be unlawful for any clearing agency (other than a notice-
registered digital asset clearing agency), unless registered in
accordance with this subsection, directly or indirectly, to
make use of the mails or any means or instrumentality of
interstate commerce to perform the functions of a clearing
agency with respect to any security (other than an exempted
security). The Commission, by rule or order, upon its own
motion or upon application, may conditionally or
unconditionally exempt any clearing agency or security or any
class of clearing agencies or securities from any provisions of
this section or the rules or regulations thereunder, if the
Commission finds that such exemption is consistent with the
public interest, the protection of investors, and the purposes
of this section, including the prompt and accurate clearance
and settlement of securities transactions and the safeguarding
of securities and funds. A clearing agency or transfer agent
shall not perform the functions of both a clearing agency and a
transfer agent unless such clearing agency or transfer agent is
registered in accordance with this subsection and subsection
(c) of this section.
(2) A clearing agency may be registered under the terms and
conditions hereinafter provided in this subsection and in
accordance with the provisions of section 19(a) of this title,
by filing with the Commission an application for registration
in such form as the Commission, by rule, may prescribe
containing the rules of the clearing agency and such other
information and documents as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or
for the prompt and accurate clearance and settlement of
securities transactions.
(3) A clearing agency shall not be registered unless the
Commission determines that--
(A) Such clearing agency is so organized and has the
capacity to be able to facilitate the prompt and
accurate clearance and settlement of securities
transactions and derivative agreements, contracts, and
transactions for which it is responsible, to safeguard
securities and funds in its custody or control or for
which it is responsible, to comply with the provisions
of this title and the rules and regulations thereunder,
to enforce (subject to any rule or order of the
Commission pursuant to section 17(d) or 19(g)(2) of
this title) compliance by its participants with the
rules of the clearing agency, and to carry out the
purposes of this section.
(B) Subject to the provisions of paragraph (4) of
this subsection, the rules of the clearing agency
provide that any (i) registered broker or dealer, (ii)
other registered clearing agency, (iii) registered
investment company, (iv) bank, (v) insurance company,
or (vi) other person or class of persons as the
Commission, by rule, may from time to time designate as
appropriate to the development of a national system or
the prompt and accurate clearance and settlement of
securities transactions may become a participant in
such clearing agency.
(C) The rules of the clearing agency assure a fair
representation of its shareholders (or members) and
participants in the selection of its directors and
administration of its affairs. (The Commission may
determine that the representation of participants is
fair if they are afforded a reasonable opportunity to
acquire voting stock of the clearing agency, directly
or indirectly, in reasonable proportion to their use of
such clearing agency.)
(D) The rules of the clearing agency provide for the
equitable allocation of reasonable dues, fees, and
other charges among its participants.
(E) The rules of the clearing agency do not impose
any schedule of prices, or fix rates or other fees, for
services rendered by its participants.
(F) The rules of the clearing agency are designed to
promote the prompt and accurate clearance and
settlement of securities transactions and, to the
extent applicable, derivative agreements, contracts,
and transactions, to assure the safeguarding of
securities and funds which are in the custody or
control of the clearing agency or for which it is
responsible, to foster cooperation and coordination
with persons engaged in the clearance and settlement of
securities transactions, to remove impediments to and
perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of
securities transactions, and, in general, to protect
investors and the public interest; and are not designed
to permit unfair discrimination in the admission of
participants or among participants in the use of the
clearing agency, or to regulate by virtue of any
authority conferred by this title matters not related
to the purposes of this section or the administration
of the clearing agency.
(G) The rules of the clearing agency provide that
(subject to any rule or order of the Commission
pursuant to section 17(d) or 19(g)(2) of this title)
its participants shall be appropriately disciplined for
violation of any provision of the rules of the clearing
agency by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure,
or any other fitting sanction.
(H) The rules of the clearing agency are in
accordance with the provisions of paragraph (5) of this
subsection, and, in general, provide a fair procedure
with respect to the disciplining of participants, the
denial of participation to any persons seeking
participation therein, and the prohibition or
limitation by the clearing agency of any person with
respect to access to services offered by the clearing
agency.
(I) The rules of the clearing agency do not impose
any burden on competition not necessary or appropriate
in furtherance of the purposes of this title.
(4)(A) A registered clearing agency may, and in cases in
which the Commission, by order, directs as appropriate in the
public interest shall, deny participation to any person subject
to a statutory disqualification. A registered clearing agency
shall file notice with the Commission not less than thirty days
prior to admitting any person to participation, if the clearing
agency knew, or in the exercise of reasonable care should have
known, that such person was subject to a statutory
disqualification. The notice shall be in such form and contain
such information as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the
protection of investors.
(B) A registered clearing agency may deny participation to,
or condition the participation of, any person if such person
does not meet such standards of financial responsibility,
operational capability, experience, and competence as are
prescribed by the rules of the clearing agency. A registered
clearing agency may examine and verify the qualifications of an
applicant to be a participant in accordance with procedures
established by the rules of the clearing agency.
(5)(A) In any proceeding by a registered clearing agency to
determine whether a participant should be disciplined (other
than a summary proceeding pursuant to subparagraph (C) of this
paragraph), the clearing agency shall bring specific charges,
notify such participant of, and give him an opportunity to
defend against such charges, and keep a record. A determination
by the clearing agency to impose a disciplinary sanction shall
be supported by a statement setting forth--
(i) any act or practice in which such participant has
been found to have engaged, or which such participant
has been found to have omitted;
(ii) the specific provisions of the rules of the
clearing agency which any such act or practice, or
omission to act, is deemed to violate; and
(iii) the sanction imposed and the reasons therefor.
(B) In any proceeding by a registered clearing agency to
determine whether a person shall be denied participation or
prohibited or limited with respect to access to services
offered by the clearing agency, the clearing agency shall
notify such person of, and give him an opportunity to be heard
upon, the specific grounds for denial or prohibition or
limitation under consideration and keep a record. A
determination by the clearing agency to deny participation or
prohibit or limit a person with respect to access to services
offered by the clearing agency shall be supported by a
statement setting forth the specific grounds on which the
denial or prohibition or limitation is based.
(C) A registered clearing agency may summarily suspend and
close the accounts of a participant who (i) has been and is
expelled or suspended from any self-regulatory organization,
(ii) is in default of any delivery of funds or securities to
the clearing agency, or (iii) is in such financial or operating
difficulty that the clearing agency determines and so notifies
the appropriate regulatory agency for such participant that
such suspension and closing of accounts are necessary for the
protection of the clearing agency, its participants, creditors,
or investors. A participant so summarily suspended shall be
promptly afforded an opportunity for a hearing by the clearing
agency in accordance with the provisions of subparagraph (A) of
this paragraph. The appropriate regulatory agency for such
participant, by order, may stay any such summary suspension on
its own motion or upon application by any person aggrieved
thereby, if such appropriate regulatory agency determines
summarily or after notice and opportunity for hearing (which
hearing may consist solely of the submission of affidavits or
presentation of oral arguments) that such stay is consistent
with the public interest and protection of investors.
(6) No registered clearing agency shall prohibit or limit
access by any person to services offered by any participant
therein.
(7)(A) A clearing agency that is regulated directly or
indirectly by the Commodity Futures Trading Commission through
its association with a designated contract market for security
futures products that is a national securities exchange
registered pursuant to section 6(g), and that would be required
to register pursuant to paragraph (1) of this subsection only
because it performs the functions of a clearing agency with
respect to security futures products effected pursuant to the
rules of the designated contract market with which such agency
is associated, is exempted from the provisions of this section
and the rules and regulations thereunder, except that if such a
clearing agency performs the functions of a clearing agency
with respect to a security futures product that is not cash
settled, it must have arrangements in place with a registered
clearing agency to effect the payment and delivery of the
securities underlying the security futures product.
(B) Any clearing agency that performs the functions of a
clearing agency with respect to security futures products must
coordinate with and develop fair and reasonable links with any
and all other clearing agencies that perform the functions of a
clearing agency with respect to security futures products, in
order to permit, as of the compliance date (as defined in
section 6(h)(6)(C)), security futures products to be purchased
on one market and offset on another market that trades such
products.
(8) A registered clearing agency shall be permitted to
provide facilities for the clearance and settlement of any
derivative agreements, contracts, or transactions that are
excluded from the Commodity Exchange Act, subject to the
requirements of this section and to such rules and regulations
as the Commission may prescribe as necessary or appropriate in
the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title.
(9) Registration and requirements for notice-
registered digital asset clearing agency.--
(A) Eligibility.--A person may register with
the Commission as a notice-registered digital
asset clearing agency if the person--
(i) is otherwise registered as a
digital asset broker or digital asset
dealer with the Commission and is
engaging in a business involving
restricted digital assets, in
compliance with Commission rules
pursuant to section 15H(f); or
(ii) is a bank engaging in a business
involving digital assets, in compliance
with applicable banking law and
regulation relating to the custody and
safekeeping of such assets.
(B) Registration.--A person may register with
the Commission as a notice-registered digital
asset clearing agency by providing the
Commission with notice of the activities of the
person or planned activities in such form as
the Commission determines appropriate. Such
notice shall include information describing the
person's policies and procedures relating to
the holding of customer assets.
(C) Rulemaking.--The Commission may adopt
rules, which may not take effect until at least
360 days following the date of enactment of
this paragraph, with regard to the activities
of notice-registered digital asset clearing
agencies, taking into account the nature of
restricted digital assets.
(c)(1) Except as otherwise provided in this section, it shall
be unlawful for any transfer agent, unless registered in
accordance with this section, directly or indirectly, to make
use of the mails or any means or instrumentality of interstate
commerce to perform the function of a transfer agent with
respect to any security registered under section 12 of this
title or which would be required to be registered except for
the exemption from registration provided by subsection
(g)(2)(B) or (g)(2)(G) of that section. The appropriate
regulatory agency, by rule or order, upon its own motion or
upon application, may conditionally or unconditionally exempt
any person or security or class of persons or securities from
any provision of this section or any rule or regulation
prescribed under this section, if the appropriate regulatory
agency finds (A) that such exemption is in the public interest
and consistent with the protection of investors and the
purposes of this section, including the prompt and accurate
clearance and settlement of securities transactions and the
safeguarding of securities and funds, and (B) the Commission
does not object to such exemption.
(2) A transfer agent may be registered by filing with the
appropriate regulatory agency for such transfer agent an
application for registration in such form and containing such
information and documents concerning such transfer agent and
any persons associated with the transfer agent as such
appropriate regulatory agency may prescribe as necessary or
appropriate in furtherance of the purposes of this section.
Except as hereinafter provided, such registration shall become
effective 45 days after receipt of such application by such
appropriate regulatory agency or within such shorter period of
time as such appropriate regulatory agency may determine.
(3) The appropriate regulatory agency for a transfer agent,
by order, shall deny registration to, censure, place
limitations on the activities, functions, or operations of,
suspend for a period not exceeding 12 months, or revoke the
registration of such transfer agent, if such appropriate
regulatory agency finds, on the record after notice and
opportunity for hearing, that such denial, censure, placing of
limitations, suspension, or revocation is in the public
interest and that such transfer agent, whether prior or
subsequent to becoming such, or any person associated with such
transfer agent, whether prior or subsequent to becoming so
associated--
(A) has committed or omitted any act, or is subject
to an order or finding, enumerated in subparagraph (A),
(D), (E), (H), or (G) of paragraph (4) of section 15(b)
of this title, has been convicted of any offense
specified in subparagraph (B) of such paragraph (4)
within ten years of the commencement of the proceedings
under this paragraph, or is enjoined from any action,
conduct, or practice specified in subparagraph (C) of
such paragraph (4); or
(B) is subject to an order entered pursuant to
subparagraph (C) of paragraph (4) of this subsection
barring or suspending the right of such person to be
associated with a transfer agent.
(4)(A) Pending final determination whether any registration
by a transfer agent under this subsection shall be denied, the
appropriate regulatory agency for such transfer agent, by
order, may postpone the effective date of such registration for
a period not to exceed fifteen days, but if, after notice and
opportunity for hearing (which may consist solely of affidavits
and oral arguments), it shall appear to such appropriate
regulatory agency to be necessary or appropriate in the public
interest or for the protection of investors to postpone the
effective date of such registration until final determination,
such appropriate regulatory agency shall so order. Pending
final determination whether any registration under this
subsection shall be revoked, such appropriate regulatory
agency, by order, may suspend such registration, if such
suspension appears to such appropriate regulatory agency, after
notice and opportunity for hearing, to be necessary or
appropriate in the public interest or for the protection of
investors.
(B) A registered transfer agent may, upon such terms and
conditions as the appropriate regulatory agency for such
transfer agent deems necessary or appropriate in the public
interest, for the protection of investors, or in furtherance of
the purposes of this section, withdraw from registration by
filing a written notice of withdrawal with such appropriate
regulatory agency. If such appropriate regulatory agency finds
that any transfer agent for which it is the appropriate
regulatory agency, is no longer in existence or has ceased to
do business as a transfer agent, such appropriate regulatory
agency, by order, shall cancel or deny the registration.
(C) The appropriate regulatory agency for a transfer agent,
by order, shall censure or place limitations on the activities
or functions of any person associated, seeking to become
associated, or, at the time of the alleged misconduct,
associated or seeking to become associated with the transfer
agent, or suspend for a period not exceeding 12 months or bar
any such person from being associated with any transfer agent,
broker, dealer, investment adviser, municipal securities
dealer, municipal advisor, or nationally recognized statistical
rating organization, if the appropriate regulatory agency
finds, on the record after notice and opportunity for hearing,
that such censure, placing of limitations, suspension, or bar
is in the public interest and that such person has committed or
omitted any act, or is subject to an order or finding,
enumerated in subparagraph (A), (D), (E), (H), or (G) or
paragraph (4) of section 15(b) of this title, has been
convicted of any offense specified in subparagraph (B) of such
paragraph (4) within ten years of the commencement of the
proceedings under this paragraph, or is enjoined from any
action, conduct, or practice specified in subparagraph (C) of
such paragraph (4). It shall be unlawful for any person as to
whom such an order suspending or barring him from being
associated with a transfer agent is in effect willfully to
become, or to be, associated with a transfer agent without the
consent of the appropriate regulatory agency that entered the
order and the appropriate regulatory agency for that transfer
agent. It shall be unlawful for any transfer agent to permit
such a person to become, or remain, a person associated with it
without the consent of such appropriate regulatory agencies, if
the transfer agent knew, or in the exercise of reasonable care
should have known, of such order. The Commission may establish,
by rule, procedures by which a transfer agent reasonably can
determine whether a person associated or seeking to become
associated with it is subject to any such order, and may
require, by rule, that any transfer agent comply with such
procedures.
(d)(1) No registered clearing agency or registered transfer
agent shall, directly or indirectly, engage in any activity as
clearing agency or transfer agent in contravention of such
rules and regulations (A) as the Commission may prescribe as
necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the
purposes of this title, or (B) as the appropriate regulatory
agency for such clearing agency or transfer agent may prescribe
as necessary or appropriate for the safeguarding of securities
and funds.
(2) With respect to any clearing agency or transfer agent for
which the Commission is not the appropriate regulatory agency,
the appropriate regulatory agency for such clearing agency or
transfer agent may, in accordance with section 8 of the Federal
Deposit Insurance Act (12 U.S.C. 1818), enforce compliance by
such clearing agency or transfer agent with the provisions of
this section, sections 17 and 19 of this title, and the rules
and regulations thereunder. For purposes of the preceding
sentence, any violation of any such provision shall constitute
adequate basis for the issuance of an order under section 8(b)
or 8(c) of the Federal Deposit Insurance Act, and the
participants in any such clearing agency and the persons doing
business with any such transfer agent shall be deemed to be
``depositors'' as that term is used in section 8(c) of that
Act.
(3)(A) With respect to any clearing agency or transfer agent
for which the Commission is not the appropriate regulatory
agency, the Commission and the appropriate regulatory agency
for such clearing agency or transfer agent shall consult and
cooperate with each other, and, as may be appropriate, with
State banking authorities having supervision over such clearing
agency or transfer agent toward the end that, to the maximum
extent practicable, their respective regulatory
responsibilities may be fulfilled and the rules and regulations
applicable to such clearing agency or transfer agent may be in
accord with both sound banking practices and a national system
for the prompt and accurate clearance and settlement of
securities transactions. In accordance with this objective--
(i) the Commission and such appropriate regulatory
agency shall, at least fifteen days prior to the
issuance for public comment of any proposed rule or
regulation or adoption of any rule or regulation
concerning such clearing agency or transfer agent,
consult and request the views of the other; and
(ii) such appropriate regulatory agency shall assume
primary responsibility to examine and enforce
compliance by such clearing agency or transfer agent
with the provisions of this section and sections 17 and
19 of this title.
(B) Nothing in the preceding subparagraph or elsewhere in
this title shall be construed to impair or limit (other than by
the requirement of notification) the Commission's authority to
make rules under any provision of this title or to enforce
compliance pursuant to any provision of this title by any
clearing agency, transfer agent, or person associated with a
transfer agent with the provisions of this title and the rules
and regulations thereunder.
(4) Nothing in this section shall be construed to impair the
authority of any State banking authority or other State or
Federal regulatory authority having jurisdiction over a person
registered as a clearing agency, transfer agent, or person
associated with a transfer agent, to make and enforce rules
governing such person which are not inconsistent with this
title and the rules and regulations thereunder.
(5) A registered transfer agent may not, directly or
indirectly, engage in any activity in connection with the
guarantee of a signature of an endorser of a security,
including the acceptance or rejection of such guarantee, in
contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public
interest, for the protection of investors, to facilitate the
equitable treatment of financial institutions which issue such
guarantees, or otherwise in furtherance of the purposes of this
title.
(e) The Commission shall use its authority under this title
to end the physical movement of securities certificates in
connection with the settlement among brokers and dealers of
transactions in securities consummated by means of the mails or
any means or instrumentalities of interstate commerce.
(f)(1) Notwithstanding any provision of State law, except as
provided in paragraph (3), if the Commission makes each of the
findings described in paragraph (2)(A), the Commission may
adopt rules concerning--
(A) the transfer of certificated or uncertificated
securities (other than government securities issued
pursuant to chapter 31 of title 31, United States Code,
or securities otherwise processed within a book-entry
system operated by the Federal Reserve banks pursuant
to a Federal book-entry regulation) or limited
interests (including security interests) therein; and
(B) rights and obligations of purchasers, sellers,
owners, lenders, borrowers, and financial
intermediaries (including brokers, dealers, banks, and
clearing agencies) involved in or affected by such
transfers, and the rights of third parties whose
interests in such securities devolve from such
transfers.
(2)(A) The findings described in this paragraph are findings
by the Commission that--
(i) such rule is necessary or appropriate for the
protection of investors or in the public interest and
is reasonably designed to promote the prompt, accurate,
and safe clearance and settlement of securities
transactions;
(ii) in the absence of a uniform rule, the safe and
efficient operation of the national system for
clearance and settlement of securities transactions
will be, or is, substantially impeded; and
(iii) to the extent such rule will impair or
diminish, directly or indirectly, rights of persons
specified in paragraph (1)(B) under State law
concerning transfers of securities (or limited
interests therein), the benefits of such rule outweigh
such impairment or diminution of rights.
(B) In making the findings described in subparagraph (A), the
Commission shall give consideration to the recommendations of
the Advisory Committee established under paragraph (4), and it
shall consult with and consider the views of the Secretary of
the Treasury and the Board of Governors of the Federal Reserve
System. If the Secretary of the Treasury objects, in writing,
to any proposed rule of the Commission on the basis of the
Secretary's view on the issues described in clauses (i), (ii),
and (iii) of subparagraph (A), the Commission shall consider
all feasible alternatives to the proposed rule, and it shall
not adopt any such rule unless the Commission makes an explicit
finding that the rule is the most practicable method for
achieving safe and efficient operation of the national
clearance and settlement system.
(3) Any State may, prior to the expiration of 2 years after
the Commission adopts a rule under this subsection, enact a
statute that specifically refers to this subsection and the
specific rule thereunder and establishes, prospectively from
the date of enactment of the State statute, a provision that
differs from that applicable under the Commission's rule.
(4)(A) Within 90 days after the date of enactment of this
subsection, the Commission shall (and at such times thereafter
as the Commission may determine, the Commission may), after
consultation with the Secretary of the Treasury and the Board
of Governors of the Federal Reserve System, establish an
advisory committee under chapter 10 of title 5, United States
Code. The Advisory Committee shall be directed to consider and
report to the Commission on such matters as the Commission,
after consultation with the Secretary of the Treasury and the
Board of Governors of the Federal Reserve System, determines,
including the areas, if any, in which State commercial laws and
related Federal laws concerning the transfer of certificated or
uncertificated securities, limited interests (including
security interests) in such securities, or the creation or
perfection of security interests in such securities do not
provide the necessary certainty, uniformity, and clarity for
purchasers, sellers, owners, lenders, borrowers, and financial
intermediaries concerning their respective rights and
obligations.
(B) The Advisory Committee shall consist of 15 members, of
which--
(i) 11 shall be designated by the Commission in
accordance with chapter 10 of title 5, United States
Code; and
(ii) 2 each shall be designated by the Board of
Governors of the Federal Reserve System and the
Secretary of the Treasury.
(C) The Advisory Committee shall conduct its activities in
accordance with chapter 10 of title 5, United States Code.
Within 6 months of its designation, or such longer time as the
Commission may designate, the Advisory Committee shall issue a
report to the Commission, and shall cause copies of that report
to be delivered to the Secretary of the Treasury and the
Chairman of the Board of Governors of the Federal Reserve
System.
(g) Due Diligence for the Delivery of Dividends, Interest,
and Other Valuable Property Rights.--
(1) Revision of rules required.--The Commission shall
revise its regulations in section 240.17Ad-17 of title
17, Code of Federal Regulations, as in effect on
December 8, 1997, to extend the application of such
section to brokers and dealers and to provide for the
following:
(A) A requirement that the paying agent
provide a single written notification to each
missing security holder that the missing
security holder has been sent a check that has
not yet been negotiated. The written
notification may be sent along with a check or
other mailing subsequently sent to the missing
security holder but must be provided no later
than 7 months after the sending of the not yet
negotiated check.
(B) An exclusion for paying agents from the
notification requirements when the value of the
not yet negotiated check is less than $25.
(C) A provision clarifying that the
requirements described in subparagraph (A)
shall have no effect on State escheatment laws.
(D) For purposes of such revised
regulations--
(i) a security holder shall be
considered a ``missing security
holder'' if a check is sent to the
security holder and the check is not
negotiated before the earlier of the
paying agent sending the next regularly
scheduled check or the elapsing of 6
months after the sending of the not yet
negotiated check; and
(ii) the term ``paying agent''
includes any issuer, transfer agent,
broker, dealer, investment adviser,
indenture trustee, custodian, or any
other person that accepts payments from
the issuer of a security and
distributes the payments to the holders
of the security.
(2) Rulemaking.--The Commission shall adopt such
rules, regulations, and orders necessary to implement
this subsection no later than 1 year after the date of
enactment of this subsection. In proposing such rules,
the Commission shall seek to minimize disruptions to
current systems used by or on behalf of paying agents
to process payment to account holders and avoid
requiring multiple paying agents to send written
notification to a missing security holder regarding the
same not yet negotiated check.
(g) Registration Requirement.--It shall be unlawful for a
clearing agency, unless registered with the Commission,
directly or indirectly to make use of the mails or any means or
instrumentality of interstate commerce to perform the functions
of a clearing agency with respect to a security-based swap.
(h) Voluntary Registration.--A person that clears agreements,
contracts, or transactions that are not required to be cleared
under this title may register with the Commission as a clearing
agency.
(i) Standards for Clearing Agencies Clearing Security-based
Swap Transactions.--To be registered and to maintain
registration as a clearing agency that clears security-based
swap transactions, a clearing agency shall comply with such
standards as the Commission may establish by rule. In
establishing any such standards, and in the exercise of its
oversight of such a clearing agency pursuant to this title, the
Commission may conform such standards or oversight to reflect
evolving United States and international standards. Except
where the Commission determines otherwise by rule or
regulation, a clearing agency shall have reasonable discretion
in establishing the manner in which it complies with any such
standards.
(j) Rules.--The Commission shall adopt rules governing
persons that are registered as clearing agencies for security-
based swaps under this title.
(k) Exemptions.--The Commission may exempt, conditionally or
unconditionally, a clearing agency from registration under this
section for the clearing of security-based swaps if the
Commission determines that the clearing agency is subject to
comparable, comprehensive supervision and regulation by the
Commodity Futures Trading Commission or the appropriate
government authorities in the home country of the agency. Such
conditions may include, but are not limited to, requiring that
the clearing agency be available for inspection by the
Commission and make available all information requested by the
Commission.
(l) Existing Depository Institutions and Derivative Clearing
Organizations.--
(1) In general.--A depository institution or
derivative clearing organization registered with the
Commodity Futures Trading Commission under the
Commodity Exchange Act that is required to be
registered as a clearing agency under this section is
deemed to be registered under this section solely for
the purpose of clearing security-based swaps to the
extent that, before the date of enactment of this
subsection--
(A) the depository institution cleared swaps
as a multilateral clearing organization; or
(B) the derivative clearing organization
cleared swaps pursuant to an exemption from
registration as a clearing agency.
(2) Conversion of depository institutions.--A
depository institution to which this subsection applies
may, by the vote of the shareholders owning not less
than 51 percent of the voting interests of the
depository institution, be converted into a State
corporation, partnership, limited liability company, or
similar legal form pursuant to a plan of conversion, if
the conversion is not in contravention of applicable
State law.
(3) Sharing of information.--The Commodity Futures
Trading Commission shall make available to the
Commission, upon request, all information determined to
be relevant by the Commodity Futures Trading Commission
regarding a derivatives clearing organization deemed to
be registered with the Commission under paragraph (1).
(m) Modification of Core Principles.--The Commission may
conform the core principles established in this section to
reflect evolving United States and international standards.
* * * * * * *
SEC. 42. REQUIREMENTS FOR OFFERS AND SALES OF CERTAIN DIGITAL ASSETS.
(a) Offers and Sales of Certain Restricted Digital Assets.--
(1) In general.--Notwithstanding any other provision
of law, subject to paragraph (2), a restricted digital
asset may be offered and sold on a digital asset
trading system by any person other than a digital asset
issuer if, at the time of such offer or sale, any
blockchain system to which the restricted digital asset
relates is a functional network and the information
described in section 43 has been certified and made
publicly available for any blockchain system to which
the restricted digital asset relates.
(2) Additional rules for related persons and
affiliated persons.--Except as provided under
subsection (c), a restricted digital asset owned by a
related person or an affiliated person may only be
offered or sold after 12 months after the later of--
(A) the date on which such restricted digital
asset was acquired; or
(B) the digital asset maturity date.
(b) Offers and Sales of Certain Digital Commodities.--
(1) In general.--Subject to paragraph (2), a digital
commodity may be offered and sold by any person.
(2) Rules for related and affiliated persons.--Except
as provided under subsection (c), a digital commodity
may only be offered or sold by a related person or an
affiliated person if--
(A) the holder of the digital commodity owned
the digital commodity while it was a restricted
digital asset for 12 months after the later
of--
(i) the date on which such restricted
digital asset was acquired; or
(ii) the digital asset maturity date;
(B) any blockchain system to which the
digital commodity relates is certified to be a
decentralized network under section 44; and
(C) the digital commodity is offered or sold
on or subject to the rules of a digital
commodity exchange registered under section 5i
of the Commodity Exchange Act.
(3) Not an investment contract.--For purposes of the
securities laws, an offer or sale of a digital
commodity that does not violate paragraph (2) shall not
be a transaction in an investment contract.
(c) Sales Restrictions for Affiliated Persons.--A digital
asset may be offered and sold by an affiliated person under
subsection (a) or (b) if--
(1) the aggregate amount of such digital assets sold
in any 3-month period by the affiliated person is not
greater than one percent of the digital assets then
outstanding; or
(2) the affiliated person promptly, following the
placement of an order to sell one percent or more of
the digital assets then outstanding during any 3-month
period, reports the sale to--
(A) the Commodity Futures Trading Commission,
in the case of an order to sell a digital
commodity on or subject to the rules of a
digital commodity exchange; or
(B) the Securities and Exchange Commission,
in the case of a sell order for a restricted
digital asset placed with a digital asset
trading system.
(d) Treatment of Certain End User Distributions Under the
Securities Laws.--
(1) In general.--With respect to a digital asset, an
end user distribution is described under this paragraph
if--
(A) each blockchain system to which such
digital asset relates is a functional network;
and
(B) with respect to the digital asset and
each blockchain system to which such digital
asset relates, the information described in
section 43 has been certified and made publicly
available.
(2) Not an investment contract.--For purposes of the
securities laws, an end user distribution described
under paragraph (1) shall not be a transaction in an
investment contract.
(3) Exemption.--Section 5 of the Securities Act of
1933 (15 U.S.C. 77e) shall not apply to an end user
distribution described under paragraph (1) or a
transaction in a unit of digital asset issued in such a
distribution.
SEC. 43. ENHANCED DISCLOSURE REQUIREMENTS WITH RESPECT TO DIGITAL
ASSETS.
(a) Disclosure Information.--With respect to a digital asset
and any blockchain system to which the digital asset relates,
the information described under this section is as follows:
(1) Source code.--The source code for any blockchain
system to which the digital asset relates.
(2) Transaction history.--A description of the steps
necessary to independently access, search, and verify
the transaction history of any blockchain system to
which the digital asset relates.
(3) Digital asset economics.--A description of the
purpose of any blockchain system to which the digital
asset relates and the operation of any such blockchain
system, including--
(A) information explaining the launch and
supply process, including the number of digital
assets to be issued in an initial allocation,
the total number of digital assets to be
created, the release schedule for the digital
assets, and the total number of digital assets
then outstanding;
(B) information on any applicable consensus
mechanism or process for validating
transactions, method of generating or mining
digital assets, and any process for burning or
destroying digital assets on the blockchain
system;
(C) an explanation of governance mechanisms
for implementing changes to the blockchain
system or forming consensus among holders of
such digital assets; and
(D) sufficient information for a third party
to create a tool for verifying the transaction
history of the digital asset.
(4) Plan of development.--The current state and
timeline for the development of any blockchain system
to which the digital asset relates, showing how and
when the blockchain system intends or intended to be
considered a functional network and decentralized
network.
(5) Development disclosures.--A list of all persons
who are related persons or affiliated persons who have
been issued a unit of a digital asset by a digital
asset issuer or have a right to a unit of a digital
asset from a digital asset issuer.
(6) Risk factor disclosures.--Where appropriate,
provide under the caption ``Risk Factors'' a
description of the material risks surrounding ownership
of a unit of a digital asset. This discussion shall be
organized logically with relevant headings and each
risk factor shall be set forth under a subcaption that
adequately describes the risk.
(b) Certification.--With respect to a digital asset and any
blockchain system to which the digital asset relates, the
information required to be made available under this section
has been certified if the digital asset issuer, an affiliated
person, a decentralized governance system, or a digital
commodity exchange certifies on a quarterly basis to the
Commodity Futures Trading Commission and the Securities and
Exchange Commission that the information is true and correct.
SEC. 44. CERTIFICATION OF CERTAIN DIGITAL ASSETS.
(a) Certification.--Any person may certify to the Securities
and Exchange Commission that the blockchain system to which a
digital asset relates is a decentralized network.
(b) Filing Requirements.--A certification described under
subsection (a) shall be filed with the Commission, and
include--
(1) information regarding the person making the
certification;
(2) a description of the blockchain system and the
digital asset which relates to such blockchain system,
including--
(A) the operation of the blockchain system;
(B) the functionality of the related digital
asset;
(C) any decentralized governance system which
relates to the blockchain system; and
(D) the process to develop consensus or
agreement within such decentralized governance
system;
(3) a description of the development of the
blockchain system and the digital asset which relates
to the blockchain system, including--
(A) a history of the development of the
blockchain system and the digital asset which
relates to such blockchain system;
(B) a description of the issuance process for
the digital asset which relates to the
blockchain system;
(C) information identifying the digital asset
issuer of the digital asset which relates to
the blockchain system; and
(D) a list of any affiliated person related
to the digital asset issuer;
(4) an analysis of the factors on which such person
based the certification that the blockchain system is a
decentralized network, including--
(A) an explanation of the protections and
prohibitions available during the previous 12
months against any one person being able to--
(i) control or materially alter the
blockchain system;
(ii) exclude any other person from
using or participating on the
blockchain system; and
(iii) exclude any other person from
participating in a decentralized
governance system;
(B) information regarding the beneficial
ownership of the digital asset which relates to
such blockchain system and the distribution of
voting power in any decentralized governance
system during the previous 12 months;
(C) information regarding the history of
upgrades to the source code for such blockchain
system during the previous 3 months,
including--
(i) a description of any consensus or
agreement process utilized to process
or approve changes to the source code;
(ii) a list of any material changes
to the source code, the purpose and
effect of the changes, and the
contributor of the changes, if known;
and
(iii) any changes to the source code
made by the digital asset issuer, a
related person, or an affiliated
person;
(D) information regarding any activities
conducted to market the digital asset which
relates to the blockchain system during the
previous 3 months by the digital asset issuer
or an affiliated person of the digital asset
issuer; and
(E) information regarding any issuance of a
unit of the digital asset which relates to such
blockchain system during the previous 12
months; and
(5) with respect to a blockchain system for which a
certification has previously been rebutted under this
section or withdrawn under section 5i(m) of the
Commodity Exchange Act, specific information relating
to the analysis provided in subsection (f)(2) in
connection with such rebuttal or such section
5i(m)(1)(C) in connection with such withdrawal.
(c) Rebuttable Presumption.--The Commission may rebut a
certification described under subsection (a) with respect to a
blockchain system if the Commission, within 60 days of
receiving such certification, determines that the blockchain
system is not a decentralized network.
(d) Certification Review.--
(1) In general.--Any blockchain system that relates
to a digital asset for which a certification has been
made under subsection (a) shall be considered a
decentralized network 60 days after the date on which
the Commission receives a certification under
subsection (a), unless the Commission notifies the
person who made the certification within such time that
the Commission is staying the certification due to--
(A) an inadequate explanation by the person
making the certification; or
(B) any novel or complex issues which require
additional time to consider.
(2) Public notice.--The Commission shall make the
following available to the public and provide a copy to
the Commodity Futures Trading Commission:
(A) Each certification received under
subsection (a).
(B) Each stay of the Commission under this
section, and the reasons therefore.
(C) Any response from a person making a
certification under subsection (a) to a stay of
the certification by the Commission.
(3) Consolidation.--The Commission may consolidate
and treat as one submission multiple certifications
made under subsection (a) for the same blockchain
system which relates to a digital asset which are
received during the review period provided under this
subsection.
(e) Stay of Certification.--
(1) In general.--A notification by the Commission
pursuant to subsection (d)(1) shall stay the
certification once for up to an additional 120 days
from the date of the notification.
(2) Public comment period.--Before the end of the 60-
day period described under subsection (d)(1), the
Commission may begin a public comment period of at
least 30 days in conjunction with a stay under this
section.
(f) Disposition of Certification.--
(1) In general.--A certification made under
subsection (a) shall--
(A) become effective--
(i) upon the publication of a
notification from the Commission to the
person who made the certification that
the Commission does not object to the
certification; or
(ii) at the expiration of the
certification review period; and
(B) not become effective upon the publication
of a notification from the Commission to the
person who made the certification that the
Commission has rebutted the certification.
(2) Detailed analysis included with rebuttal.--The
Commission shall include, with each publication of a
notification of rebuttal described under paragraph
(1)(B), a detailed analysis of the factors on which the
decision was based.
(g) Recertification.--With respect to a blockchain system for
which a certification has been rebutted under this section, no
person may make a certification under subsection (a) with
respect to such blockchain system during the 90-day period
beginning on the date of such rebuttal.
(h) Appeal of Rebuttal.--
(1) In general.--If a certification is rebutted under
this section, the person making such certification may
appeal the decision to the United States Court of
Appeals for the District of Columbia, not later than 60
days after the notice of rebuttal is made.
(2) Review.--In an appeal under paragraph (1), the
court shall have de novo review of the determination to
rebut the certification.
(i) Liability for Providing False Information.--It shall be
unlawful for any person to provide false information in support
of a certification under this section if such person knew or
reasonably should have known such information was false.
* * * * * * *
----------
COMMODITY EXCHANGE ACT
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That this
Act may be cited as the ``Commodity Exchange Act''.
SEC. 1A. DEFINITIONS.
As used in this Act:
(1) Alternative trading system.--The term
``alternative trading system'' means an organization,
association, or group of persons that--
(A) is registered as a broker or dealer
pursuant to section 15(b) of the Securities
Exchange Act of 1934 (except paragraph (11)
thereof);
(B) performs the functions commonly performed
by an exchange (as defined in section 3(a)(1)
of the Securities Exchange Act of 1934);
(C) does not--
(i) set rules governing the conduct
of subscribers other than the conduct
of such subscribers' trading on the
alternative trading system; or
(ii) discipline subscribers other
than by exclusion from trading; and
(D) is exempt from the definition of the term
``exchange'' under such section 3(a)(1) by rule
or regulation of the Securities and Exchange
Commission on terms that require compliance
with regulations of its trading functions.
(2) Appropriate federal banking agency.--The term
``appropriate Federal banking agency''--
(A) has the meaning given the term in section
3 of the Federal Deposit Insurance Act (12
U.S.C. 1813);
(B) means the Board in the case of a
noninsured State bank; and
(C) is the Farm Credit Administration for
farm credit system institutions.
(3) Associated person of a security-based swap dealer
or major security-based swap participant.--The term
``associated person of a security-based swap dealer or
major security-based swap participant'' has the meaning
given the term in section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)).
(4) Associated person of a swap dealer or major swap
participant.--
(A) In general.--The term ``associated person
of a swap dealer or major swap participant''
means a person who is associated with a swap
dealer or major swap participant as a partner,
officer, employee, or agent (or any person
occupying a similar status or performing
similar functions), in any capacity that
involves--
(i) the solicitation or acceptance of
swaps; or
(ii) the supervision of any person or
persons so engaged.
(B) Exclusion.--Other than for purposes of
section 4s(b)(6), the term ``associated person
of a swap dealer or major swap participant''
does not include any person associated with a
swap dealer or major swap participant the
functions of which are solely clerical or
ministerial.
(5) Board.--The term ``Board'' means the Board of
Governors of the Federal Reserve System.
(6) Board of trade.--The term ``board of trade''
means any organized exchange or other trading facility.
(7) Cleared swap.--The term ``cleared swap'' means
any swap that is, directly or indirectly, submitted to
and cleared by a derivatives clearing organization
registered with the Commission.
(8) Commission.--The term ``Commission'' means the
Commodity Futures Trading Commission established under
section 2(a)(2).
(9) Commodity.--The term ``commodity'' means wheat,
cotton, rice, corn, oats, barley, rye, flaxseed, grain
sorghums, mill feeds, butter, eggs, Solanum tuberosum
(Irish potatoes), wool, wool tops, fats and oils
(including lard, tallow, cottonseed oil, peanut oil,
soybean oil, and all other fats and oils), cottonseed
meal, cottonseed, peanuts, soybeans, soybean meal,
livestock, livestock products, and frozen concentrated
orange juice, and all other goods and articles, except
onions (as provided by the first section of Public Law
85-839 (7 U.S.C. 13-1)) and motion picture box office
receipts (or any index, measure, value, or data related
to such receipts), and all services, rights, and
interests (except motion picture box office receipts,
or any index, measure, value or data related to such
receipts) in which contracts for future delivery are
presently or in the future dealt in.
(10) Commodity pool.--
(A) In general.--The term ``commodity pool''
means any investment trust, syndicate, or
similar form of enterprise operated for the
purpose of trading in commodity interests,
including any--
(i) commodity for future delivery,
security futures product, or swap;
(ii) agreement, contract, or
transaction described in section
2(c)(2)(C)(i) or section 2(c)(2)(D)(i);
(iii) digital commodity;
[(iii)] (iv) commodity option
authorized under section 4c; or
[(iv)] (v) leverage transaction
authorized under section 19.
(B) Further definition.--The Commission, by
rule or regulation, may include within, or
exclude from, the term ``commodity pool'' any
investment trust, syndicate, or similar form of
enterprise if the Commission determines that
the rule or regulation will effectuate the
purposes of this Act.
(11) Commodity pool operator.--
(A) In general.--The term ``commodity pool
operator'' means any person--
(i) engaged in a business that is of
the nature of a commodity pool,
investment trust, syndicate, or similar
form of enterprise, and who, in
connection therewith, solicits,
accepts, or receives from others,
funds, securities, or property, either
directly or through capital
contributions, the sale of stock or
other forms of securities, or
otherwise, for the purpose of trading
in commodity interests, including any--
(I) commodity for future
delivery, security futures
product, or swap;
(II) agreement, contract, or
transaction described in
section 2(c)(2)(C)(i) or
section 2(c)(2)(D)(i);
(III) digital commodity;
[(III)] (IV) commodity option
authorized under section 4c; or
[(IV)] (V) leverage
transaction authorized under
section 19; or
(ii) who is registered with the
Commission as a commodity pool
operator.
(B) Exclusion.--The term ``commodity pool
operator'' does not include--
(i) a decentralized governance
system; or
(ii) ancillary activities, as defined
in section 4v.
[(B)] (C) Further definition.--The
Commission, by rule or regulation, may include
within, or exclude from, the term ``commodity
pool operator'' any person engaged in a
business that is of the nature of a commodity
pool, investment trust, syndicate, or similar
form of enterprise if the Commission determines
that the rule or regulation will effectuate the
purposes of this Act.
(12) Commodity trading advisor.--
(A) In general.--Except as otherwise provided
in this paragraph, the term ``commodity trading
advisor'' means any person who--
(i) for compensation or profit,
engages in the business of advising
others, either directly or through
publications, writings, or electronic
media, as to the value of or the
advisability of trading in--
(I) any contract of sale of a
commodity for future delivery,
security futures product, or
swap;
(II) any agreement, contract,
or transaction described in
section 2(c)(2)(C)(i) or
section 2(c)(2)(D)(i);
(III) a digital commodity;
[(III)] (IV) any commodity
option authorized under section
4c; or
[(IV)] (V) any leverage
transaction authorized under
section 19;
(ii) for compensation or profit, and
as part of a regular business, issues
or promulgates analyses or reports
concerning any of the activities
referred to in clause (i);
(iii) is registered with the
Commission as a commodity trading
advisor; or
(iv) the Commission, by rule or
regulation, may include if the
Commission determines that the rule or
regulation will effectuate the purposes
of this Act.
(B) Exclusions.--Subject to subparagraph (C),
the term ``commodity trading advisor'' does not
include--
(i) any bank or trust company or any
person acting as an employee thereof;
(ii) any news reporter, news
columnist, or news editor of the print
or electronic media, or any lawyer,
accountant, or teacher;
(iii) any floor broker or futures
commission merchant;
(iv) the publisher or producer of any
print or electronic data of general and
regular dissemination, including its
employees;
(v) the fiduciary of any defined
benefit plan that is subject to the
Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1001 et seq.);
(vi) any contract market or
derivatives transaction execution
facility; and
(vii) such other persons not within
the intent of this paragraph as the
Commission may specify by rule,
regulation, or order.
(C) Incidental services.--Subparagraph (B)
shall apply only if the furnishing of such
services by persons referred to in subparagraph
(B) is solely incidental to the conduct of
their business or profession.
(D) Advisors.--The Commission, by rule or
regulation, may include within the term
``commodity trading advisor'', any person
advising as to the value of commodities or
issuing reports or analyses concerning
commodities if the Commission determines that
the rule or regulation will effectuate the
purposes of this paragraph.
(13) Contract of sale.--The term ``contract of sale''
includes sales, agreements of sale, and agreements to
sell.
(14) Cooperative association of producers.--The term
``cooperative association of producers'' means any
cooperative association, corporate, or otherwise, not
less than 75 percent in good faith owned or controlled,
directly or indirectly, by producers of agricultural
products and otherwise complying with the Act of
February 18, 1922 (42 Stat. 388, chapter 57; 7 U.S.C.
291 and 292), including any organization acting for a
group of such associations and owned or controlled by
such associations, except that business done for or
with the United States, or any agency thereof, shall
not be considered either member or nonmember business
in determining the compliance of any such association
with this Act.
(15) Derivatives clearing organization.--
(A) In general.--The term ``derivatives
clearing organization'' means a clearinghouse,
clearing association, clearing corporation, or
similar entity, facility, system, or
organization that, with respect to an
agreement, contract, or transaction--
(i) enables each party to the
agreement, contract, or transaction to
substitute, through novation or
otherwise, the credit of the
derivatives clearing organization for
the credit of the parties;
(ii) arranges or provides, on a
multilateral basis, for the settlement
or netting of obligations resulting
from such agreements, contracts, or
transactions executed by participants
in the derivatives clearing
organization; or
(iii) otherwise provides clearing
services or arrangements that mutualize
or transfer among participants in the
derivatives clearing organization the
credit risk arising from such
agreements, contracts, or transactions
executed by the participants.
(B) Exclusions.--The term ``derivatives
clearing organization'' does not include an
entity, facility, system, or organization
solely because it arranges or provides for--
(i) settlement, netting, or novation
of obligations resulting from
agreements, contracts, or transactions,
on a bilateral basis and without a
central counterparty;
(ii) settlement or netting of cash
payments through an interbank payment
system; or
(iii) settlement, netting, or
novation of obligations resulting from
a sale of a commodity in a transaction
in the spot market for the commodity.
(16) Electronic trading facility.--The term
``electronic trading facility'' means a trading
facility that--
(A) operates by means of an electronic or
telecommunications network; and
(B) maintains an automated audit trail of
bids, offers, and the matching of orders or the
execution of transactions on the facility.
(17) Eligible commercial entity.--The term ``eligible
commercial entity'' means, with respect to an
agreement, contract or transaction in a commodity--
(A) an eligible contract participant
described in clause (i), (ii), (v), (vii),
(viii), or (ix) of paragraph (18)(A) that, in
connection with its business--
(i) has a demonstrable ability,
directly or through separate
contractual arrangements, to make or
take delivery of the underlying
commodity;
(ii) incurs risks, in addition to
price risk, related to the commodity;
or
(iii) is a dealer that regularly
provides risk management or hedging
services to, or engages in market-
making activities with, the foregoing
entities involving transactions to
purchase or sell the commodity or
derivative agreements, contracts, or
transactions in the commodity;
(B) an eligible contract participant, other
than a natural person or an instrumentality,
department, or agency of a State or local
governmental entity, that--
(i) regularly enters into
transactions to purchase or sell the
commodity or derivative agreements,
contracts, or transactions in the
commodity; and
(ii) either--
(I) in the case of a
collective investment vehicle
whose participants include
persons other than--
(aa) qualified
eligible persons, as
defined in Commission
rule 4.7(a) (17 CFR
4.7(a));
(bb) accredited
investors, as defined
in Regulation D of the
Securities and Exchange
Commission under the
Securities Act of 1933
(17 CFR 230.501(a)),
with total assets of
$2,000,000; or
(cc) qualified
purchasers, as defined
in section 2(a)(51)(A)
of the Investment
Company Act of 1940;
in each case as in effect on
the date of the enactment of
the Commodity Futures
Modernization Act of 2000, has,
or is one of a group of
vehicles under common control
or management having in the
aggregate, $1,000,000,000 in
total assets; or
(II) in the case of other
persons, has, or is one of a
group of persons under common
control or management having in
the aggregate, $100,000,000 in
total assets; or
(C) such other persons as the Commission
shall determine appropriate and shall designate
by rule, regulation, or order.
(18) Eligible contract participant.--The term
``eligible contract participant'' means--
(A) acting for its own account--
(i) a financial institution;
(ii) an insurance company that is
regulated by a State, or that is
regulated by a foreign government and
is subject to comparable regulation as
determined by the Commission, including
a regulated subsidiary or affiliate of
such an insurance company;
(iii) an investment company subject
to regulation under the Investment
Company Act of 1940 (15 U.S.C. 80
(iv) a-1 et seq.) or a foreign person
performing a similar role or function
subject as such to foreign regulation
(regardless of whether each investor in
the investment company or the foreign
person is itself an eligible contract
participant);
(v) a commodity pool that--
(I) has total assets
exceeding $5,000,000; and
(II) is formed and operated
by a person subject to
regulation under this Act or a
foreign person performing a
similar role or function
subject as such to foreign
regulation (regardless of
whether each investor in the
commodity pool or the foreign
person is itself an eligible
contract participant) provided,
however, that for purposes of
section 2(c)(2)(B)(vi) and
section 2(c)(2)(C)(vii), the
term ``eligible contract
participant'' shall not include
a commodity pool in which any
participant is not otherwise an
eligible contract participant;
(vi) a corporation, partnership,
proprietorship, organization, trust, or
other entity--
(I) that has total assets
exceeding $10,000,000;
(II) the obligations of which
under an agreement, contract,
or transaction are guaranteed
or otherwise supported by a
letter of credit or keepwell,
support, or other agreement by
an entity described in
subclause (I), in clause (i),
(ii), (iii), (iv), or (vii), or
in subparagraph (C); or
(III) that--
(aa) has a net worth
exceeding $1,000,000;
and
(bb) enters into an
agreement, contract, or
transaction in
connection with the
conduct of the entity's
business or to manage
the risk associated
with an asset or
liability owned or
incurred or reasonably
likely to be owned or
incurred by the entity
in the conduct of the
entity's business;
(vii) an employee benefit plan
subject to the Employee Retirement
Income Security Act of 1974 (29 U.S.C.
1001 et seq.), a governmental employee
benefit plan, or a foreign person
performing a similar role or function
subject as such to foreign regulation--
(I) that has total assets
exceeding $5,000,000; or
(II) the investment decisions
of which are made by--
(aa) an investment
adviser or commodity
trading advisor subject
to regulation under the
Investment Advisers Act
of 1940 (15 U.S.C. 80b-
1 et seq.) or this Act;
(bb) a foreign person
performing a similar
role or function
subject as such to
foreign regulation;
(cc) a financial
institution; or
(dd) an insurance
company described in
clause (ii), or a
regulated subsidiary or
affiliate of such an
insurance company;
(viii)(I) a governmental entity
(including the United States, a State,
or a foreign government) or political
subdivision of a governmental entity;
(II) a multinational or supranational
government entity; or
(III) an instrumentality, agency, or
department of an entity described in
subclause (I) or (II);
except that such term does not include
an entity, instrumentality, agency, or
department referred to in subclause (I)
or (III) of this clause unless (aa) the
entity, instrumentality, agency, or
department is a person described in
clause (i), (ii), or (iii) of paragraph
(17)(A); (bb) the entity,
instrumentality, agency, or department
owns and invests on a discretionary
basis $50,000,000 or more in
investments; or (cc) the agreement,
contract, or transaction is offered by,
and entered into with, an entity that
is listed in any of subclauses (I)
through (VI) of section 2(c)(2)(B)(ii);
(ix)(I) a broker or dealer subject to
regulation under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.) or a foreign person performing a
similar role or function subject as
such to foreign regulation, except
that, if the broker or dealer or
foreign person is a natural person or
proprietorship, the broker or dealer or
foreign person shall not be considered
to be an eligible contract participant
unless the broker or dealer or foreign
person also meets the requirements of
clause (v) or (xi);
(II) an associated person of a
registered broker or dealer concerning
the financial or securities activities
of which the registered person makes
and keeps records under section 15C(b)
or 17(h) of the Securities Exchange Act
of 1934 (15 U.S.C. 78o-5(b), 78q(h));
(III) an investment bank holding
company (as defined in section 17(i) of
the Securities Exchange Act of 1934 (15
U.S.C. 78q(i));
(x) a futures commission merchant
subject to regulation under this Act or
a foreign person performing a similar
role or function subject as such to
foreign regulation, except that, if the
futures commission merchant or foreign
person is a natural person or
proprietorship, the futures commission
merchant or foreign person shall not be
considered to be an eligible contract
participant unless the futures
commission merchant or foreign person
also meets the requirements of clause
(v) or (xi);
(xi) a floor broker or floor trader
subject to regulation under this Act in
connection with any transaction that
takes place on or through the
facilities of a registered entity
(other than an electronic trading
facility with respect to a significant
price discovery contract) or an exempt
board of trade, or any affiliate
thereof, on which such person regularly
trades; or
(xii) an individual who has amounts
invested on a discretionary basis, the
aggregate of which is in excess of--
(I) $10,000,000; or
(II) $5,000,000 and who
enters into the agreement,
contract, or transaction in
order to manage the risk
associated with an asset owned
or liability incurred, or
reasonably likely to be owned
or incurred, by the individual;
(B)(i) a person described in clause (i),
(ii), (iv), (v), (viii), (ix), or (x) of
subparagraph (A) or in subparagraph (C), acting
as broker or performing an equivalent agency
function on behalf of another person described
in subparagraph (A) or (C); or
(ii) an investment adviser subject to
regulation under the Investment Advisers Act of
1940, a commodity trading advisor subject to
regulation under this Act, a foreign person
performing a similar role or function subject
as such to foreign regulation, or a person
described in clause (i), (ii), (iv), (v),
(viii), (ix), or (x) of subparagraph (A) or in
subparagraph (C), in any such case acting as
investment manager or fiduciary (but excluding
a person acting as broker or performing an
equivalent agency function) for another person
described in subparagraph (A) or (C) and who is
authorized by such person to commit such person
to the transaction; or
(C) any other person that the Commission
determines to be eligible in light of the
financial or other qualifications of the
person.
(19) Excluded commodity.--The term ``excluded
commodity'' means--
(i) an interest rate, exchange rate,
currency, security, security index,
credit risk or measure, debt or equity
instrument, index or measure of
inflation, or other macroeconomic index
or measure;
(ii) any other rate, differential,
index, or measure of economic or
commercial risk, return, or value that
is--
(I) not based in substantial
part on the value of a narrow
group of commodities not
described in clause (i); or
(II) based solely on one or
more commodities that have no
cash market;
(iii) any economic or commercial
index based on prices, rates, values,
or levels that are not within the
control of any party to the relevant
contract, agreement, or transaction; or
(iv) an occurrence, extent of an
occurrence, or contingency (other than
a change in the price, rate, value, or
level of a commodity not described in
clause (i)) that is--
(I) beyond the control of the
parties to the relevant
contract, agreement, or
transaction; and
(II) associated with a
financial, commercial, or
economic consequence.
(20) Exempt commodity.--The term ``exempt commodity''
means a commodity that is not an excluded commodity or
an agricultural commodity.
(21) Financial institution.--The term ``financial
institution'' means--
(A) a corporation operating under the fifth
undesignated paragraph of section 25 of the
Federal Reserve Act (12 U.S.C. 603), commonly
known as ``an agreement corporation'';
(B) a corporation organized under section 25A
of the Federal Reserve Act (12 U.S.C. 611 et
seq.), commonly known as an ``Edge Act
corporation'';
(C) an institution that is regulated by the
Farm Credit Administration;
(D) a Federal credit union or State credit
union (as defined in section 101 of the Federal
Credit Union Act (12 U.S.C. 1752));
(E) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813));
(F) a foreign bank or a branch or agency of a
foreign bank (each as defined in section 1(b)
of the International Banking Act of 1978 (12
U.S.C. 3101(b)));
(G) any financial holding company (as defined
in section 2 of the Bank Holding Company Act of
1956);
(H) a trust company; or
(I) a similarly regulated subsidiary or
affiliate of an entity described in any of
subparagraphs (A) through (H).
(22) Floor broker.--
(A) In general.--The term ``floor broker''
means any person--
(i) who, in or surrounding any pit,
ring, post, or other place provided by
a contract market for the meeting of
persons similarly engaged, shall
purchase or sell for any other person--
(I) any commodity for future
delivery, security futures
product, or swap; or
(II) any commodity option
authorized under section 4c; or
(ii) who is registered with the
Commission as a floor broker.
(B) Further definition.--The Commission, by
rule or regulation, may include within, or
exclude from, the term ``floor broker'' any
person in or surrounding any pit, ring, post,
or other place provided by a contract market
for the meeting of persons similarly engaged
who trades for any other person if the
Commission determines that the rule or
regulation will effectuate the purposes of this
Act.
(23) Floor trader.--
(A) In general.--The term ``floor trader''
means any person--
(i) who, in or surrounding any pit,
ring, post, or other place provided by
a contract market for the meeting of
persons similarly engaged, purchases,
or sells solely for such person's own
account--
(I) any commodity for future
delivery, security futures
product, or swap; or
(II) any commodity option
authorized under section 4c; or
(ii) who is registered with the
Commission as a floor trader.
(B) Further definition.--The Commission, by
rule or regulation, may include within, or
exclude from, the term ``floor trader'' any
person in or surrounding any pit, ring, post,
or other place provided by a contract market
for the meeting of persons similarly engaged
who trades solely for such person's own account
if the Commission determines that the rule or
regulation will effectuate the purposes of this
Act.
(24) Foreign exchange forward.--The term ``foreign
exchange forward'' means a transaction that solely
involves the exchange of 2 different currencies on a
specific future date at a fixed rate agreed upon on the
inception of the contract covering the exchange.
(25) Foreign exchange swap.--The term ``foreign
exchange swap'' means a transaction that solely
involves--
(A) an exchange of 2 different currencies on
a specific date at a fixed rate that is agreed
upon on the inception of the contract covering
the exchange; and
(B) a reverse exchange of the 2 currencies
described in subparagraph (A) at a later date
and at a fixed rate that is agreed upon on the
inception of the contract covering the
exchange.
(26) Foreign futures authority.--The term ``foreign
futures authority'' means any foreign government, or
any department, agency, governmental body, or
regulatory organization empowered by a foreign
government to administer or enforce a law, rule, or
regulation as it relates to a futures or options
matter, or any department or agency of a political
subdivision of a foreign government empowered to
administer or enforce a law, rule, or regulation as it
relates to a futures or options matter.
(27) Future delivery.--The term ``future delivery''
does not include any sale of any cash commodity for
deferred shipment or delivery.
(28) Futures commission merchant.--
(A) In general.--The term ``futures
commission merchant'' means an individual,
association, partnership, corporation, or
trust--
(i) that--
(I) is--
(aa) engaged in
soliciting or in
accepting orders for--
(AA) the
purchase or
sale of a
commodity for
future
delivery;
(BB) a
security
futures
product;
(CC) a swap;
(DD) any
agreement,
contract, or
transaction
described in
section
2(c)(2)(C)(i)
or section
2(c)(2)(D)(i);
(EE) any
commodity
option
authorized
under section
4c; or
(FF) any
leverage
transaction
authorized
under section
19; or
(bb) acting as a
counterparty in any
agreement, contract, or
transaction described
in section
2(c)(2)(C)(i) or
section 2(c)(2)(D)(i);
and
(II) in or in connection with
the activities described in
items (aa) or (bb) of subclause
(I), accepts any money,
securities, or property (or
extends credit in lieu thereof)
to margin, guarantee, or secure
any trades or contracts that
result or may result therefrom;
or
(ii) that is registered with the
Commission as a futures commission
merchant.
(B) Further definition.--The Commission, by
rule or regulation, may include within, or
exclude from, the term ``futures commission
merchant'' any person who engages in soliciting
or accepting orders for, or acting as a
counterparty in, any agreement, contract, or
transaction subject to this Act, and who
accepts any money, securities, or property (or
extends credit in lieu thereof) to margin,
guarantee, or secure any trades or contracts
that result or may result therefrom, if the
Commission determines that the rule or
regulation will effectuate the purposes of this
Act.
(29) Hybrid instrument.--The term ``hybrid
instrument'' means a security having one or more
payments indexed to the value, level, or rate of, or
providing for the delivery of, one or more commodities.
(30) Interstate commerce.--The term ``interstate
commerce'' means commerce--
(A) between any State, territory, or
possession, or the District of Columbia, and
any place outside thereof; or
(B) between points within the same State,
territory, or possession, or the District of
Columbia, but through any place outside
thereof, or within any territory or possession,
or the District of Columbia.
(31) Introducing broker.--
(A) In general.--The term ``introducing
broker'' means any person (except an individual
who elects to be and is registered as an
associated person of a futures commission
merchant)--
(i) who--
(I) is engaged in soliciting
or in accepting orders for--
(aa) the purchase or
sale of any commodity
for future delivery,
security futures
product, or swap;
(bb) any agreement,
contract, or
transaction described
in section
2(c)(2)(C)(i) or
section 2(c)(2)(D)(i);
(cc) any commodity
option authorized under
section 4c; or
(dd) any leverage
transaction authorized
under section 19; and
(II) does not accept any
money, securities, or property
(or extend credit in lieu
thereof) to margin, guarantee,
or secure any trades or
contracts that result or may
result therefrom; or
(ii) who is registered with the
Commission as an introducing broker.
(B) Further definition.--The Commission, by
rule or regulation, may include within, or
exclude from, the term ``introducing broker''
any person who engages in soliciting or
accepting orders for any agreement, contract,
or transaction subject to this Act, and who
does not accept any money, securities, or
property (or extend credit in lieu thereof) to
margin, guarantee, or secure any trades or
contracts that result or may result therefrom,
if the Commission determines that the rule or
regulation will effectuate the purposes of this
Act.
(32) Major security-based swap participant.--The term
``major security-based swap participant'' has the
meaning given the term in section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
(33) Major swap participant.--
(A) In general.--The term ``major swap
participant'' means any person who is not a
swap dealer, and--
(i) maintains a substantial position
in swaps for any of the major swap
categories as determined by the
Commission, excluding--
(I) positions held for
hedging or mitigating
commercial risk; and
(II) positions maintained by
any employee benefit plan (or
any contract held by such a
plan) as defined in paragraphs
(3) and (32) of section 3 of
the Employee Retirement Income
Security Act of 1974 (29 U.S.C.
1002) for the primary purpose
of hedging or mitigating any
risk directly associated with
the operation of the plan;
(ii) whose outstanding swaps create
substantial counterparty exposure that
could have serious adverse effects on
the financial stability of the United
States banking system or financial
markets; or
(iii)(I) is a financial entity that
is highly leveraged relative to the
amount of capital it holds and that is
not subject to capital requirements
established by an appropriate Federal
banking agency; and
(II) maintains a substantial position
in outstanding swaps in any major swap
category as determined by the
Commission.
(B) Definition of substantial position.--For
purposes of subparagraph (A), the Commission
shall define by rule or regulation the term
``substantial position'' at the threshold that
the Commission determines to be prudent for the
effective monitoring, management, and oversight
of entities that are systemically important or
can significantly impact the financial system
of the United States. In setting the definition
under this subparagraph, the Commission shall
consider the person's relative position in
uncleared as opposed to cleared swaps and may
take into consideration the value and quality
of collateral held against counterparty
exposures.
(C) Scope of designation.--For purposes of
subparagraph (A), a person may be designated as
a major swap participant for 1 or more
categories of swaps without being classified as
a major swap participant for all classes of
swaps.
(D) Exclusions.--The definition under this
paragraph shall not include an entity whose
primary business is providing financing, and
uses derivatives for the purpose of hedging
underlying commercial risks related to interest
rate and foreign currency exposures, 90 percent
or more of which arise from financing that
facilitates the purchase or lease of products,
90 percent or more of which are manufactured by
the parent company or another subsidiary of the
parent company.
(34) Member of a registered entity; member of a
derivatives transaction execution facility.--The term
``member'' means, with respect to a registered entity
or derivatives transaction execution facility, an
individual, association, partnership, corporation, or
trust--
(A) owning or holding membership in, or
admitted to membership representation on, the
registered entity or derivatives transaction
execution facility; or
(B) having trading privileges on the
registered entity or derivatives transaction
execution facility.
A participant in an alternative trading system that is
designated as a contract market pursuant to section 5f
is deemed a member of the contract market for purposes
of transactions in security futures products through
the contract market.
(35) Narrow-based security index.--
(A) The term ``narrow-based security index''
means an index--
(i) that has 9 or fewer component
securities;
(ii) in which a component security
comprises more than 30 percent of the
index's weighting;
(iii) in which the five highest
weighted component securities in the
aggregate comprise more than 60 percent
of the index's weighting; or
(iv) in which the lowest weighted
component securities comprising, in the
aggregate, 25 percent of the index's
weighting have an aggregate dollar
value of average daily trading volume
of less than $50,000,000 (or in the
case of an index with 15 or more
component securities, $30,000,000),
except that if there are two or more
securities with equal weighting that
could be included in the calculation of
the lowest weighted component
securities comprising, in the
aggregate, 25 percent of the index's
weighting, such securities shall be
ranked from lowest to highest dollar
value of average daily trading volume
and shall be included in the
calculation based on their ranking
starting with the lowest ranked
security.
(B) Notwithstanding subparagraph (A), an
index is not a narrow-based security index if--
(i)(I) it has at least 9 component
securities;
(II) no component security comprises
more than 30 percent of the index's
weighting; and
(III) each component security is--
(aa) registered pursuant to
section 12 of the Securities
Exchange Act of 1934;
(bb) one of 750 securities
with the largest market
capitalization; and
(cc) one of 675 securities
with the largest dollar value
of average daily trading
volume;
(ii) a board of trade was designated
as a contract market by the Commodity
Futures Trading Commission with respect
to a contract of sale for future
delivery on the index, before the date
of the enactment of the Commodity
Futures Modernization Act of 2000;
(iii)(I) a contract of sale for
future delivery on the index traded on
a designated contract market or
registered derivatives transaction
execution facility for at least 30 days
as a contract of sale for future
delivery on an index that was not a
narrow-based security index; and
(II) it has been a narrow-based
security index for no more than 45
business days over 3 consecutive
calendar months;
(iv) a contract of sale for future
delivery on the index is traded on or
subject to the rules of a foreign board
of trade and meets such requirements as
are jointly established by rule or
regulation by the Commission and the
Securities and Exchange Commission;
(v) no more than 18 months have
passed since the date of the enactment
of the Commodity Futures Modernization
Act of 2000 and--
(I) it is traded on or
subject to the rules of a
foreign board of trade;
(II) the offer and sale in
the United States of a contract
of sale for future delivery on
the index was authorized before
the date of the enactment of
the Commodity Futures
Modernization Act of 2000; and
(III) the conditions of such
authorization continue to be
met; or
(vi) a contract of sale for future
delivery on the index is traded on or
subject to the rules of a board of
trade and meets such requirements as
are jointly established by rule,
regulation, or order by the Commission
and the Securities and Exchange
Commission.
(C) Within 1 year after the date of the
enactment of the Commodity Futures
Modernization Act of 2000, the Commission and
the Securities and Exchange Commission jointly
shall adopt rules or regulations that set forth
the requirements under subparagraph (B)(iv).
(D) An index that is a narrow-based security
index solely because it was a narrow-based
security index for more than 45 business days
over 3 consecutive calendar months pursuant to
clause (iii) of subparagraph (B) shall not be a
narrow-based security index for the 3 following
calendar months.
(E) For purposes of subparagraphs (A) and
(B)--
(i) the dollar value of average daily
trading volume and the market
capitalization shall be calculated as
of the preceding 6 full calendar
months; and
(ii) the Commission and the
Securities and Exchange Commission
shall, by rule or regulation, jointly
specify the method to be used to
determine market capitalization and
dollar value of average daily trading
volume.
(36) Option.--The term ``option'' means an agreement,
contract, or transaction that is of the character of,
or is commonly known to the trade as, an ``option'',
``privilege'', ``indemnity'', ``bid'', ``offer'',
``put'', ``call'', ``advance guaranty'', or ``decline
guaranty''.
(37) Organized exchange.--The term ``organized
exchange'' means a trading facility that--
(A) permits trading--
(i) by or on behalf of a person that
is not an eligible contract
participant; or
(ii) by persons other than on a
principal-to-principal basis; or
(B) has adopted (directly or through another
nongovernmental entity) rules that--
(i) govern the conduct of
participants, other than rules that
govern the submission of orders or
execution of transactions on the
trading facility; and
(ii) include disciplinary sanctions
other than the exclusion of
participants from trading.
(38) Person.--The term ``person'' imports the plural
or singular, and includes individuals, associations,
partnerships, corporations, and trusts.
(39) Prudential regulator.--The term ``prudential
regulator'' means--
(A) the Board in the case of a swap dealer,
major swap participant, security-based swap
dealer, or major security-based swap
participant that is--
(i) a State-chartered bank that is a
member of the Federal Reserve System;
(ii) a State-chartered branch or
agency of a foreign bank;
(iii) any foreign bank which does not
operate an insured branch;
(iv) any organization operating under
section 25A of the Federal Reserve Act
or having an agreement with the Board
under section 225 of the Federal
Reserve Act;
(v) any bank holding company (as
defined in section 2 of the Bank
Holding Company Act of 1965 (12 U.S.C.
1841)), any foreign bank (as defined in
section 1(b)(7) of the International
Banking Act of 1978 (12 U.S.C.
3101(b)(7)) that is treated as a bank
holding company under section 8(a) of
the International Banking Act of 1978
(12 U.S.C. 3106(a)), and any subsidiary
of such a company or foreign bank
(other than a subsidiary that is
described in subparagraph (A) or (B) or
that is required to be registered with
the Commission as a swap dealer or
major swap participant under this Act
or with the Securities and Exchange
Commission as a security-based swap
dealer or major security-based swap
participant);
(vi) after the transfer date (as
defined in section 311 of the Dodd-
Frank Wall Street Reform and Consumer
Protection Act), any savings and loan
holding company (as defined in section
10 of the Home Owners' Loan Act (12
U.S.C. 1467a)) and any subsidiary of
such company (other than a subsidiary
that is described in subparagraph (A)
or (B) or that is required to be
registered as a swap dealer or major
swap participant with the Commission
under this Act or with the Securities
and Exchange Commission as a security-
based swap dealer or major security-
based swap participant); or
(vii) any organization operating
under section 25A of the Federal
Reserve Act (12U.S.C. 611 et seq.) or
having an agreement with the Board
under section 25 of the Federal Reserve
Act (12 U.S.C. 601 et seq.);
(B) the Office of the Comptroller of the
Currency in the case of a swap dealer, major
swap participant, security-based swap dealer,
or major security-based swap participant that
is--
(i) a national bank;
(ii) a federally chartered branch or
agency of a foreign bank; or
(iii) any Federal savings
association;
(C) the Federal Deposit Insurance Corporation
in the case of a swap dealer, major swap
participant, security-based swap dealer, or
major security-based swap participant that is--
(i) a State-chartered bank that is
not a member of the Federal Reserve
System; or
(ii) any State savings association;
(D) the Farm Credit Administration, in the
case of a swap dealer, major swap participant,
security-based swap dealer, or major security-
based swap participant that is an institution
chartered under the Farm Credit Act of 1971 (12
U.S.C. 2001 et seq.); and
(E) the Federal Housing Finance Agency in the
case of a swap dealer, major swap participant,
security-based swap dealer, or major security-
based swap participant that is a regulated
entity (as such term is defined in section 1303
of the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992).
(40) Registered entity.--The term ``registered
entity'' means--
(A) a board of trade designated as a contract
market under section 5;
(B) a derivatives clearing organization
registered under section 5b;
(C) a board of trade designated as a contract
market under section 5f;
(D) a swap execution facility registered
under section 5h;
(E) a swap data repository registered under
section 21; [and]
(F) with respect to a contract that the
Commission determines is a significant price
discovery contract, any electronic trading
facility on which the contract is executed or
traded[.]; and
(G) a digital commodity exchange registered
under section 5i.
(41) Security.--The term ``security'' means a
security as defined in section 2(a)(1) of the
Securities Act of 1933 (15 U.S.C. 77b(a)(1)) or section
3(a)(10) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(10)).
(42) Security-based swap.--The term ``security-based
swap'' has the meaning given the term in section 3(a)
of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)).
(43) Security-based swap dealer.--The term
``security-based swap dealer'' has the meaning given
the term in section 3(a) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)).
(44) Security future.--The term ``security future''
means a contract of sale for future delivery of a
single security or of a narrow-based security index,
including any interest therein or based on the value
thereof, except an exempted security under section
3(a)(12) of the Securities Exchange Act of 1934 as in
effect on the date of the enactment of the Futures
Trading Act of 1982 (other than any municipal security
as defined in section 3(a)(29) of the Securities
Exchange Act of 1934 as in effect on the date of the
enactment of the Futures Trading Act of 1982). The term
``security future'' does not include any agreement,
contract, or transaction excluded from this Act under
section 2(c), 2(d), 2(f), or 2(g) of this Act (as in
effect on the date of the enactment of the Commodity
Futures Modernization Act of 2000) or title IV of the
Commodity Futures Modernization Act of 2000.
(45) Security futures product.--The term ``security
futures product'' means a security future or any put,
call, straddle, option, or privilege on any security
future.
(46) Significant price discovery contract.--The term
``significant price discovery contract'' means an
agreement, contract, or transaction subject to section
2(h)(5).
(47) Swap.--
(A) In general.--Except as provided in
subparagraph (B), the term ``swap'' means any
agreement, contract, or transaction--
(i) that is a put, call, cap, floor,
collar, or similar option of any kind
that is for the purchase or sale, or
based on the value, of 1 or more
interest or other rates, currencies,
commodities, securities, instruments of
indebtedness, indices, quantitative
measures, or other financial or
economic interests or property of any
kind;
(ii) that provides for any purchase,
sale, payment, or delivery (other than
a dividend on an equity security) that
is dependent on the occurrence,
nonoccurrence, or the extent of the
occurrence of an event or contingency
associated with a potential financial,
economic, or commercial consequence;
(iii) that provides on an executory
basis for the exchange, on a fixed or
contingent basis, of 1 or more payments
based on the value or level of 1 or
more interest or other rates,
currencies, commodities, securities,
instruments of indebtedness, indices,
quantitative measures, or other
financial or economic interests or
property of any kind, or any interest
therein or based on the value thereof,
and that transfers, as between the
parties to the transaction, in whole or
in part, the financial risk associated
with a future change in any such value
or level without also conveying a
current or future direct or indirect
ownership interest in an asset
(including any enterprise or investment
pool) or liability that incorporates
the financial risk so transferred,
including any agreement, contract, or
transaction commonly known as--
(I) an interest rate swap;
(II) a rate floor;
(III) a rate cap;
(IV) a rate collar;
(V) a cross-currency rate
swap;
(VI) a basis swap;
(VII) a currency swap;
(VIII) a foreign exchange
swap;
(IX) a total return swap;
(X) an equity index swap;
(XI) an equity swap;
(XII) a debt index swap;
(XIII) a debt swap;
(XIV) a credit spread;
(XV) a credit default swap;
(XVI) a credit swap;
(XVII) a weather swap;
(XVIII) an energy swap;
(XIX) a metal swap;
(XX) an agricultural swap;
(XXI) an emissions swap; and
(XXII) a commodity swap;
(iv) that is an agreement, contract,
or transaction that is, or in the
future becomes, commonly known to the
trade as a swap;
(v) including any security-based swap
agreement which meets the definition of
``swap agreement'' as defined in
section 206A of the Gramm-Leach-Bliley
Act (15 U.S.C. 78c note) of which a
material term is based on the price,
yield, value, or volatility of any
security or any group or index of
securities, or any interest therein; or
(vi) that is any combination or
permutation of, or option on, any
agreement, contract, or transaction
described in any of clauses (i) through
(v).
(B) Exclusions.--The term ``swap'' does not
include--
(i) any contract of sale of a
commodity for future delivery (or
option on such a contract), leverage
contract authorized under section 19,
security futures product, or agreement,
contract, or transaction described in
section 2(c)(2)(C)(i) or section
2(c)(2)(D)(i);
(ii) any sale of a nonfinancial
commodity or security for deferred
shipment or delivery, so long as the
transaction is intended to be
physically settled;
(iii) any put, call, straddle,
option, or privilege on any security,
certificate of deposit, or group or
index of securities, including any
interest therein or based on the value
thereof, that is subject to--
(I) the Securities Act of
1933 (15 U.S.C. 77a et seq.);
and
(II) the Securities Exchange
Act of 1934 (15 U.S.C. 78a et
seq.);
(iv) any put, call, straddle, option,
or privilege relating to a foreign
currency entered into on a national
securities exchange registered pursuant
to section 6(a) of the Securities
Exchange Act of 1934 (15 U.S.C.
78f(a));
(v) any agreement, contract, or
transaction providing for the purchase
or sale of 1 or more securities on a
fixed basis that is subject to--
(I) the Securities Act of
1933 (15 U.S.C. 77a et seq.);
and
(II) the Securities Exchange
Act of 1934 (15 U.S.C. 78a et
seq.);
(vi) any agreement, contract, or
transaction providing for the purchase
or sale of 1 or more securities on a
contingent basis that is subject to the
Securities Act of 1933 (15 U.S.C. 77a
et seq.) and the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.),
unless the agreement, contract, or
transaction predicates the purchase or
sale on the occurrence of a bona fide
contingency that might reasonably be
expected to affect or be affected by
the creditworthiness of a party other
than a party to the agreement,
contract, or transaction;
(vii) any note, bond, or evidence of
indebtedness that is a security, as
defined in section 2(a)(1) of the
Securities Act of 1933 (15 U.S.C.
77b(a)(1));
(viii) any agreement, contract, or
transaction that is--
(I) based on a security; and
(II) entered into directly or
through an underwriter (as
defined in section 2(a)(11) of
the Securities Act of 1933 (15
U.S.C. 77b(a)(11)) by the
issuer of such security for the
purposes of raising capital,
unless the agreement, contract,
or transaction is entered into
to manage a risk associated
with capital raising;
(ix) any agreement, contract, or
transaction a counterparty of which is
a Federal Reserve bank, the Federal
Government, or a Federal agency that is
expressly backed by the full faith and
credit of the United States; and
(x) any security-based swap, other
than a security-based swap as described
in subparagraph (D).
(C) Rule of construction regarding master
agreements.--
(i) In general.--Except as provided
in clause (ii), the term ``swap''
includes a master agreement that
provides for an agreement, contract, or
transaction that is a swap under
subparagraph (A), together with each
supplement to any master agreement,
without regard to whether the master
agreement contains an agreement,
contract, or transaction that is not a
swap pursuant to subparagraph (A).
(ii) Exception.--For purposes of
clause (i), the master agreement shall
be considered to be a swap only with
respect to each agreement, contract, or
transaction covered by the master
agreement that is a swap pursuant to
subparagraph (A).
(D) Mixed swap.--The term ``security-based
swap'' includes any agreement, contract, or
transaction that is as described in section
3(a)(68)(A) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(68)(A)) and also is
based on the value of 1 or more interest or
other rates, currencies, commodities,
instruments of indebtedness, indices,
quantitative measures, other financial or
economic interest or property of any kind
(other than a single security or a narrow-based
security index), or the occurrence, non-
occurrence, or the extent of the occurrence of
an event or contingency associated with a
potential financial, economic, or commercial
consequence (other than an event described in
subparagraph (A)(iii)).
(E) Treatment of foreign exchange swaps and
forwards.--
(i) In general.--Foreign exchange
swaps and foreign exchange forwards
shall be considered swaps under this
paragraph unless the Secretary makes a
written determination under section 1b
that either foreign exchange swaps or
foreign exchange forwards or both--
(I) should be not be
regulated as swaps under this
Act; and
(II) are not structured to
evade the Dodd-Frank Wall
Street Reform and Consumer
Protection Act in violation of
any rule promulgated by the
Commission pursuant to section
721(c) of that Act.
(ii) Congressional notice;
effectiveness.--The Secretary shall
submit any written determination under
clause (i) to the appropriate
committees of Congress, including the
Committee on Agriculture, Nutrition,
and Forestry of the Senate and the
Committee on Agriculture of the House
of Representatives. Any such written
determination by the Secretary shall
not be effective until it is submitted
to the appropriate committees of
Congress.
(iii) Reporting.--Notwithstanding a
written determination by the Secretary
under clause (i), all foreign exchange
swaps and foreign exchange forwards
shall be reported to either a swap data
repository, or, if there is no swap
data repository that would accept such
swaps or forwards, to the Commission
pursuant to section 4r within such time
period as the Commission may by rule or
regulation prescribe.
(iv) Business standards.--
Notwithstanding a written determination
by the Secretary pursuant to clause
(i), any party to a foreign exchange
swap or forward that is a swap dealer
or major swap participant shall conform
to the business conduct standards
contained in section 4s(h).
(v) Secretary.--For purposes of this
subparagraph, the term ``Secretary''
means the Secretary of the Treasury.
(F) Exception for certain foreign exchange
swaps and forwards.--
(i) Registered entities.--Any foreign
exchange swap and any foreign exchange
forward that is listed and traded on or
subject to the rules of a designated
contract market or a swap execution
facility, or that is cleared by a
derivatives clearing organization,
shall not be exempt from any provision
of this Act or amendments made by the
Wall Street Transparency and
Accountability Act of 2010 prohibiting
fraud or manipulation.
(ii) Retail transactions.--Nothing in
subparagraph (E) shall affect, or be
construed to affect, the applicability
of this Act or the jurisdiction of the
Commission with respect to agreements,
contracts, or transactions in foreign
currency pursuant to section 2(c)(2).
(48) Swap data repository.--The term ``swap data
repository'' means any person that collects and
maintains information or records with respect to
transactions or positions in, or the terms and
conditions of, swaps entered into by third parties for
the purpose of providing a centralized recordkeeping
facility for swaps.
(49) Swap dealer.--
(A) In general.--The term ``swap dealer''
means any person who--
(i) holds itself out as a dealer in
swaps;
(ii) makes a market in swaps;
(iii) regularly enters into swaps
with counterparties as an ordinary
course of business for its own account;
or
(iv) engages in any activity causing
the person to be commonly known in the
trade as a dealer or market maker in
swaps,
provided however, in no event shall an insured
depository institution be considered to be a
swap dealer to the extent it offers to enter
into a swap with a customer in connection with
originating a loan with that customer.
(B) Inclusion.--A person may be designated as
a swap dealer for a single type or single class
or category of swap or activities and
considered not to be a swap dealer for other
types, classes, or categories of swaps or
activities.
(C) Exception.--The term ``swap dealer'' does
not include a person that enters into swaps for
such person's own account, either individually
or in a fiduciary capacity, but not as a part
of a regular business.
(D) De minimis exception.--The Commission
shall exempt from designation as a swap dealer
an entity that engages in a de minimis quantity
of swap dealing in connection with transactions
with or on behalf of its customers. The
Commission shall promulgate regulations to
establish factors with respect to the making of
this determination to exempt.
(50) Swap execution facility.--The term ``swap
execution facility'' means a trading system or platform
in which multiple participants have the ability to
execute or trade swaps by accepting bids and offers
made by multiple participants in the facility or
system, through any means of interstate commerce,
including any trading facility, that--
(A) facilitates the execution of swaps
between persons; and
(B) is not a designated contract market.
(51) Trading facility.--
(A) In general.--The term ``trading
facility'' means a person or group of persons
that constitutes, maintains, or provides a
physical or electronic facility or system in
which multiple participants have the ability to
execute or trade agreements, contracts, or
transactions--
(i) by accepting bids or offers made
by other participants that are open to
multiple participants in the facility
or system; or
(ii) through the interaction of
multiple bids or multiple offers within
a system with a pre-determined non-
discretionary automated trade matching
and execution algorithm.
(B) Exclusions.--The term ``trading
facility'' does not include--
(i) a person or group of persons
solely because the person or group of
persons constitutes, maintains, or
provides an electronic facility or
system that enables participants to
negotiate the terms of and enter into
bilateral transactions as a result of
communications exchanged by the parties
and not from interaction of multiple
bids and multiple offers within a
predetermined, nondiscretionary
automated trade matching and execution
algorithm;
(ii) a government securities dealer
or government securities broker, to the
extent that the dealer or broker
executes or trades agreements,
contracts, or transactions in
government securities, or assists
persons in communicating about,
negotiating, entering into, executing,
or trading an agreement, contract, or
transaction in government securities
(as the terms ``government securities
dealer'', ``government securities
broker'', and ``government securities''
are defined in section 3(a) of the
Securities Exchange Act of 1934 (15
U.S.C. 78c(a))); or
(iii) facilities on which bids and
offers, and acceptances of bids and
offers effected on the facility, are
not binding.
Any person, group of persons, dealer, broker,
or facility described in clause (i) or (ii) is
excluded from the meaning of the term ``trading
facility'' for the purposes of this Act without
any prior specific approval, certification, or
other action by the Commission.
(C) Special rule.--A person or group of
persons that would not otherwise constitute a
trading facility shall not be considered to be
a trading facility solely as a result of the
submission to a derivatives clearing
organization of transactions executed on or
through the person or group of persons.
(52) Associated person of a digital commodity
broker.--
(A) In general.--Except as provided in
subparagraph (B), the term ``associated person
of a digital commodity broker'' means a person
who is associated with a digital commodity
broker as a partner, officer, employee, or
agent (or any person occupying a similar status
or performing similar functions) in any
capacity that involves--
(i) the solicitation or acceptance of
a contract for sale of a digital
commodity; or
(ii) the supervision of any person
engaged in the solicitation or
acceptance of a contract for sale of a
digital commodity.
(B) Exclusion.--The term ``associated person
of a digital commodity broker'' does not
include any person associated with a digital
commodity broker the functions of which are
solely clerical or ministerial.
(53) Associated person of a digital commodity
dealer.--
(A) In general.--Except as provided in
subparagraph (B), the term ``associated person
of a digital commodity dealer'' means a person
who is associated with a digital commodity
dealer as a partner, officer, employee, or
agent (or any person occupying a similar status
or performing similar functions) in any
capacity that involves--
(i) the solicitation or acceptance of
a contract for sale of a digital
commodity; or
(ii) the supervision of any person
engaged in the solicitation or
acceptance of a contract for sale of a
digital commodity.
(B) Exclusion.--The term ``associated person
of a digital commodity dealer'' does not
include any person associated with a digital
commodity dealer the functions of which are
solely clerical or ministerial.
(54) Bank secrecy act.--The term ``Bank Secrecy Act''
means--
(A) section 21 of the Federal Deposit
Insurance Act (12 U.S.C. 1829b);
(B) chapter 2 of title I of Public Law 91-508
(12 U.S.C. 1951 et seq.); and
(C) subchapter II of chapter 53 of title 31,
United States Code.
(55) Digital commodity.--
(A) In general.--The term ``digital
commodity'' means--
(i) any unit of a digital asset held
by a person, other than a digital asset
issuer, a related person, or an
affiliated person, before the first
date on which each blockchain system to
which the digital asset relates is a
functional network and certified to be
a decentralized network under section
44 of the Securities Exchange Act of
1934, that was--
(I) issued to the person
through an end user
distribution described under
section 42(d)(1) of the
Securities Exchange Act of
1934; or
(II) acquired by such person
in a transaction that was
executed on a digital commodity
exchange; or
(ii) any unit of a digital asset held
by a person, other than a digital asset
issuer, a related person, or an
affiliated person, after the first date
on which each blockchain system to
which the digital asset relates is a
functional network and certified to be
a decentralized network under section
44 of the Securities Exchange Act of
1934; and
(iii) any unit of a digital asset
held by a related person or an
affiliated person during any period
when any blockchain system to which the
digital asset relates is a functional
network and certified to be a
decentralized network under section 44
of the Securities Exchange Act of 1934.
(B) Exclusion.--The term ``digital
commodity'' does not include a permitted
payment stablecoin.
(56) Digital commodity broker.--
(A) In general.--The term ``digital commodity
broker'' means any person who, in a digital
commodity cash or spot market, is--
(i) engaged in soliciting or
accepting orders for the purchase or
sale of a unit of a digital commodity
from a customer that is not an eligible
contract participant;
(ii) engaged in soliciting or
accepting orders for the purchase or
sale of a unit of a digital commodity
from a customer on or subject to the
rules of a registered entity; or
(iii) registered with the Commission
as a digital commodity broker.
(B) Exceptions.--The term ``digital commodity
broker'' does not include a person solely
because the person--
(i) enters into a digital commodity
transaction the primary purpose of
which is to make, send, receive, or
facilitate payments, whether involving
a payment service provider or on a
peer-to-peer basis; or
(ii) validates a digital commodity
transaction, operates a node, or
engages in similar activity to
participate in facilitating, operating,
or securing a blockchain system.
(57) Digital commodity custodian.--The term ``digital
commodity custodian'' means a bank or trust company in
the business of holding, maintaining, or safeguarding
digital commodities.
(58) Digital commodity dealer.--
(A) In general.--The term ``digital commodity
dealer'' means any person who--
(i) in digital commodity cash or spot
markets--
(I) holds itself out as a
dealer in a digital commodity;
(II) makes a market in a
digital commodity;
(III) regularly enters into
digital commodity transactions
with counterparties as an
ordinary course of business for
its own account; or
(IV) engages in any activity
causing the person to be
commonly known in the trade as
a dealer or market maker in a
digital commodity;
(ii) regularly enters into any
agreement, contract, or transaction
described in subsection (c)(2)(D)(i)
involving a digital commodity; or
(iii) is registered with the
Commission as a digital commodity
dealer.
(B) Exception.--The term ``digital commodity
dealer'' does not include a person solely
because the person--
(i) enters into a digital commodity
transaction with an eligible contract
participant;
(ii) enters into a digital commodity
transaction on or through a registered
digital commodity exchange;
(iii) enters into a digital commodity
transaction for the person's own
account, either individually or in a
fiduciary capacity, but not as a part
of a regular business;
(iv) enters into a digital commodity
transaction the primary purpose of
which is to make, send, receive, or
facilitate payments, whether involving
a payment service provider or on a
peer-to-peer basis; or
(v) validates a digital commodity
transaction, operates a node, or
engages in similar activity to
participate in facilitating, operating,
or securing a blockchain system.
(59) Digital commodity exchange.--The term ``digital
commodity exchange'' means a trading facility that
offers or seeks to offer a cash or spot market in at
least 1 digital commodity.
(60) Digital asset-related definitions.--
(A) Securities act of 1933.--The terms
``affiliated person'', ``blockchain system'',
``decentralized governance system'',
``decentralized network'', ``digital asset'',
``digital asset issuer'', ``end user
distribution'', ``functional network'',
``permitted payment stablecoin'', ``related
person'', and ``restricted digital asset'' have
the meaning given the terms, respectively,
under section 2(a) of the Securities Act of
1933 (15 U.S.C. 77b(a)).
(B) Securities exchange act of 1934.--The
terms ``digital asset broker'' and ``digital
asset dealer'' have the meaning given those
terms, respectively, under section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C.
78c(a)).
(61) Mixed digital asset transaction.--The term
``mixed digital asset transaction'' has the meaning
given that term under section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)).
* * * * * * *
SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF
AGENT; COMMODITY FUTURES TRADING COMMISSION;
TRANSACTION IN INTERSTATE COMMERCE.
(a) Jurisdiction of Commission; Commodity Futures Trading
Commission.--
(1) Jurisdiction of commission.--
(A) In general.--The Commission shall have
exclusive jurisdiction, except to the extent
otherwise provided in the Wall Street
Transparency and Accountability Act of 2010
(including an amendment made by that Act) and
subparagraphs (C), (D), and (I) of this
paragraph and subsections (c) and (f), with
respect to accounts, agreements (including any
transaction which is of the character of, or is
commonly known to the trade as, an ``option'',
``privilege'', ``indemnity'', ``bid'',
``offer'', ``put'', ``call'', ``advance
guaranty'', or ``decline guaranty''), and
transactions involving swaps or contracts of
sale of a commodity for future delivery
(including significant price discovery
contracts), traded or executed on a contract
market designated pursuant to section 5 or a
swap execution facility pursuant to section 5h
or any other board of trade, exchange, or
market, and transactions subject to regulation
by the Commission pursuant to subsection
(c)(2)(F) of this section or section 19 of this
Act. Except as hereinabove provided, nothing
contained in this section shall (I) supersede
or limit the jurisdiction at any time conferred
on the Securities and Exchange Commission or
other regulatory authorities under the laws of
the United States or of any State, or (II)
restrict the Securities and Exchange Commission
and such other authorities from carrying out
their duties and responsibilities in accordance
with such laws. Nothing in this section shall
supersede or limit the jurisdiction conferred
on courts of the United States or any State.
(B) Liability of principal for act of
agent.--The act, omission, or failure of any
official, agent, or other person acting for any
individual, association, partnership,
corporation, or trust within the scope of his
employment or office shall be deemed the act,
omission, or failure of such individual,
association, partnership, corporation, or
trust, as well as of such official, agent, or
other person.
(C) Notwithstanding any other provision of law--
(i)(I) Except as provided in subclause (II), this Act
shall not apply to and the Commission shall have no
jurisdiction to designate a board of trade as a
contract market for any transaction whereby any party
to such transaction acquires any put, call, or other
option on one or more securities (as defined in section
2(1) of the Securities Act of 1933 or section 3(a)(10)
of the Securities Exchange Act of 1934 on the date of
enactment of the Futures Trading Act of 1982),
including any group or index of such securities, or any
interest therein or based on the value thereof.
(II) This Act shall apply to and the
Commission shall have jurisdiction with respect
to accounts, agreements, and transactions
involving, and may permit the listing for
trading pursuant to section 5c(c) of, a put,
call, or other option on 1 or more securities
(as defined in section 2(a)(1) of the
Securities Act of 1933 or section 3(a)(10) of
the Securities Exchange Act of 1934 on the date
of enactment of the Futures Trading Act of
1982), including any group or index of such
securities, or any interest therein or based on
the value thereof, that is exempted by the
Securities and Exchange Commission pursuant to
section 36(a)(1) of the Securities Exchange Act
of 1934 with the condition that the Commission
exercise concurrent jurisdiction over such put,
call, or other option; provided, however, that
nothing in this paragraph shall be construed to
affect the jurisdiction and authority of the
Securities and Exchange Commission over such
put, call, or other option.
(ii) This Act shall apply to and the Commission shall
have exclusive jurisdiction with respect to accounts,
agreements (including any transaction which is of the
character of, or is commonly known to the trade as, an
``option'', ``privilege'', ``indemnity'', ``bid'',
``offer'', ``put'', ``call'', ``advance guaranty'', or
``decline guaranty'') and transactions involving, and
may designate a board of trade as a contract market in,
or register a derivatives transaction execution
facility that trades or executes, contracts of sale (or
options on such contracts) for future delivery of a
group or index of securities (or any interest therein
or based upon the value thereof): Provided, however,
That no board of trade shall be designated as a
contract market with respect to any such contracts of
sale (or options on such contracts) for future
delivery, and no derivatives transaction execution
facility shall trade or execute such contracts of sale
(or options on such contracts) for future delivery,
unless the board of trade or the derivatives
transaction execution facility, and the applicable
contract, meet the following minimum requirements:
(I) Settlement of or delivery on such
contract (or option on such contract) shall be
effected in cash or by means other than the
transfer or receipt of any security, except an
exempted security under section 3 of the
Securities Act of 1933 or section 3(a)(12) of
the Securities Exchange Act of 1934 as in
effect on the date of enactment of the Futures
Trading Act of 1982 (other than any municipal
security, as defined in section 3(a)(29) of the
Securities Exchange Act of 1934 on the date of
enactment of the Futures Trading Act of 1982);
(II) Trading in such contract (or option on
such contract) shall not be readily susceptible
to manipulation of the price of such contract
(or option on such contract), nor to causing or
being used in the manipulation of the price of
any underlying security, option on such
security or option on a group or index
including such securities; and
(III) Such group or index of securities shall
not constitute a narrow-based security index.
(iii) If, in its discretion, the Commission
determines that a stock index futures contract,
notwithstanding its conformance with the requirements
in clause (ii) of this subparagraph, can reasonably be
used as a surrogate for trading a security (including a
security futures product), it may, by order, require
such contract and any option thereon be traded and
regulated as security futures products as defined in
section 3(a)(56) of the Securities Exchange Act of 1934
and section 1a of this Act subject to all rules and
regulations applicable to security futures products
under this Act and the securities laws as defined in
section 3(a)(47) of the Securities Exchange Act of
1934.
(iv) No person shall offer to enter into, enter into,
or confirm the execution of any contract of sale (or
option on such contract) for future delivery of any
security, or interest therein or based on the value
thereof, except an exempted security under or section
3(a)(12) of the Securities Exchange Act of 1934 as in
effect on the date of enactment of the Futures Trading
Act of 1982 (other than any municipal security as
defined in section 3(a)(29) of the Securities Exchange
Act of 1934 on the date of enactment of the Futures
Trading Act of 1982), or except as provided in clause
(ii) of this subparagraph or subparagraph (D), any
group or index of such securities or any interest
therein or based on the value thereof.
(v)(I) Notwithstanding any other provision of this
Act, any contract market in a stock index futures
contract (or option thereon) other than a security
futures product, or any derivatives transaction
execution facility on which such contract or option is
traded, shall file with the Board of Governors of the
Federal Reserve System any rule establishing or
changing the levels of margin (initial and maintenance)
for such stock index futures contract (or option
thereon) other than security futures products.
(II) The Board may at any time request any contract
market or derivatives transaction execution facility to
set the margin for any stock index futures contract (or
option thereon), other than for any security futures
product, at such levels as the Board in its judgment
determines are appropriate to preserve the financial
integrity of the contract market or derivatives
transaction execution facility, or its clearing system,
or to prevent systemic risk. If the contract market or
derivatives transaction execution facility fails to do
so within the time specified by the Board in its
request, the Board may direct the contract market or
derivatives transaction execution facility to alter or
supplement the rules of the contract market or
derivatives transaction execution facility as specified
in the request.
(III) Subject to such conditions as the Board may
determine, the Board may delegate any or all of its
authority, relating to margin for any stock index
futures contract (or option thereon), other than
security futures products, under this clause to the
Commission.
(IV) It shall be unlawful for any futures commission
merchant to, directly or indirectly, extend or maintain
credit to or for, or collect margin from any customer
on any security futures product unless such activities
comply with the regulations prescribed pursuant to
section 7(c)(2)(B) of the Securities Exchange Act of
1934.
(V) Nothing in this clause shall supersede or limit
the authority granted to the Commission in section
8a(9) to direct a contract market or registered
derivatives transaction execution facility, on finding
an emergency to exist, to raise temporary margin levels
on any futures contract, or option on the contract
covered by this clause, or on any security futures
product.
(VI) Any action taken by the Board, or by the
Commission acting under the delegation of authority
under subclause III, under this clause directing a
contract market to alter or supplement a contract
market rule shall be subject to review only in the
Court of Appeals where the party seeking review resides
or has its principal place of business, or in the
United States Court of Appeals for the District of
Columbia Circuit. The review shall be based on the
examination of all information before the Board or the
Commission, as the case may be, at the time the
determination was made. The court reviewing the action
of the Board or the Commission shall not enter a stay
or order of mandamus unless the court has determined,
after notice and a hearing before a panel of the court,
that the agency action complained of was arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.
(D)(i) Notwithstanding any other provision of this Act, the
Securities and Exchange Commission shall have jurisdiction and
authority over security futures as defined in section 3(a)(55)
of the Securities Exchange Act of 1934, section 2(a)(16) of the
Securities Act of 1933, section 2(a)(52) of the Investment
Company Act of 1940, and section 202(a)(27) of the Investment
Advisers Act of 1940, options on security futures, and persons
effecting transactions in security futures and options thereon,
and this Act shall apply to and the Commission shall have
jurisdiction with respect to accounts, agreements (including
any transaction which is of the character of, or is commonly
known to the trade as, an ``option'', ``privilege'',
``indemnity'', ``bid'', ``offer'', ``put'', ``call'', ``advance
guaranty'', or ``decline guaranty''), contracts, and
transactions involving, and may designate a board of trade as a
contract market in, or register a derivatives transaction
execution facility that trades or executes, a security futures
product as defined in section 1a of this Act: Provided,
however, That, except as provided in clause (vi) of this
subparagraph, no board of trade shall be designated as a
contract market with respect to, or registered as a derivatives
transaction execution facility for, any such contracts of sale
for future delivery unless the board of trade and the
applicable contract meet the following criteria:
(I) Except as otherwise provided in a rule,
regulation, or order issued pursuant to clause (v) of
this subparagraph, any security underlying the security
future, including each component security of a narrow-
based security index, is registered pursuant to section
12 of the Securities Exchange Act of 1934.
(II) If the security futures product is not cash
settled, the board of trade on which the security
futures product is traded has arrangements in place
with a clearing agency registered pursuant to section
17A of the Securities Exchange Act of 1934 for the
payment and delivery of the securities underlying the
security futures product.
(III) Except as otherwise provided in a rule,
regulation, or order issued pursuant to clause (v) of
this subparagraph, the security future is based upon
common stock and such other equity securities as the
Commission and the Securities and Exchange Commission
jointly determine appropriate.
(IV) The security futures product is cleared by a
clearing agency that has in place provisions for linked
and coordinated clearing with other clearing agencies
that clear security futures products, which permits the
security futures product to be purchased on a
designated contract market, registered derivatives
transaction execution facility, national securities
exchange registered under section 6(a) of the
Securities Exchange Act of 1934, or national securities
association registered pursuant to section 15A(a) of
the Securities Exchange Act of 1934 and offset on
another designated contract market, registered
derivatives transaction execution facility, national
securities exchange registered under section 6(a) of
the Securities Exchange Act of 1934, or national
securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934.
(V) Only futures commission merchants, introducing
brokers, commodity trading advisors, commodity pool
operators or associated persons subject to suitability
rules comparable to those of a national securities
association registered pursuant to section 15A(a) of
the Securities Exchange Act of 1934 solicit, accept any
order for, or otherwise deal in any transaction in or
in connection with the security futures product.
(VI) The security futures product is subject to a
prohibition against dual trading in section 4j of this
Act and the rules and regulations thereunder or the
provisions of section 11(a) of the Securities Exchange
Act of 1934 and the rules and regulations thereunder,
except to the extent otherwise permitted under the
Securities Exchange Act of 1934 and the rules and
regulations thereunder.
(VII) Trading in the security futures product is not
readily susceptible to manipulation of the price of
such security futures product, nor to causing or being
used in the manipulation of the price of any underlying
security, option on such security, or option on a group
or index including such securities;
(VIII) The board of trade on which the security
futures product is traded has procedures in place for
coordinated surveillance among such board of trade, any
market on which any security underlying the security
futures product is traded, and other markets on which
any related security is traded to detect manipulation
and insider trading, except that, if the board of trade
is an alternative trading system, a national securities
association registered pursuant to section 15A(a) of
the Securities Exchange Act of 1934 or national
securities exchange registered pursuant to section 6(a)
of the Securities Exchange Act of 1934 of which such
alternative trading system is a member has in place
such procedures.
(IX) The board of trade on which the security futures
product is traded has in place audit trails necessary
or appropriate to facilitate the coordinated
surveillance required in subclause (VIII), except that,
if the board of trade is an alternative trading system,
a national securities association registered pursuant
to section 15A(a) of the Securities Exchange Act of
1934 or national securities exchange registered
pursuant to section 6(a) of the Securities Exchange Act
of 1934 of which such alternative trading system is a
member has rules to require such audit trails.
(X) The board of trade on which the security futures
product is traded has in place procedures to coordinate
trading halts between such board of trade and markets
on which any security underlying the security futures
product is traded and other markets on which any
related security is traded, except that, if the board
of trade is an alternative trading system, a national
securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 or
national securities exchange registered pursuant to
section 6(a) of the Securities Exchange Act of 1934 of
which such alternative trading system is a member has
rules to require such coordinated trading halts.
(XI) The margin requirements for a security futures
product comply with the regulations prescribed pursuant
to section 7(c)(2)(B) of the Securities Exchange Act of
1934, except that nothing in this subclause shall be
construed to prevent a board of trade from requiring
higher margin levels for a security futures product
when it deems such action to be necessary or
appropriate.
(ii) It shall be unlawful for any person to offer, to enter
into, to execute, to confirm the execution of, or to conduct
any office or business anywhere in the United States, its
territories or possessions, for the purpose of soliciting, or
accepting any order for, or otherwise dealing in, any
transaction in, or in connection with, a security futures
product unless--
(I) the transaction is conducted on or subject to the
rules of a board of trade that--
(aa) has been designated by the Commission as
a contract market in such security futures
product; or
(bb) is a registered derivatives transaction
execution facility for the security futures
product that has provided a certification with
respect to the security futures product
pursuant to clause (vii);
(II) the contract is executed or consummated by,
through, or with a member of the contract market or
registered derivatives transaction execution facility;
and
(III) the security futures product is evidenced by a
record in writing which shows the date, the parties to
such security futures product and their addresses, the
property covered, and its price, and each contract
market member or registered derivatives transaction
execution facility member shall keep the record for a
period of 3 years from the date of the transaction, or
for a longer period if the Commission so directs, which
record shall at all times be open to the inspection of
any duly authorized representative of the Commission.
(iii)(I) Except as provided in subclause (II) but
notwithstanding any other provision of this Act, no person
shall offer to enter into, enter into, or confirm the execution
of any option on a security future.
(II) After 3 years after the date of the enactment of the
Commodity Futures Modernization Act of 2000, the Commission and
the Securities and Exchange Commission may by order jointly
determine to permit trading of options on any security future
authorized to be traded under the provisions of this Act and
the Securities Exchange Act of 1934.
(iv)(I) All relevant records of a futures commission merchant
or introducing broker registered pursuant to section 4f(a)(2),
floor broker or floor trader exempt from registration pursuant
to section 4f(a)(3), associated person exempt from registration
pursuant to [section 4k(6)] section 4k(7), or board of trade
designated as a contract market in a security futures product
pursuant to section 5f shall be subject to such reasonable
periodic or special examinations by representatives of the
Commission as the Commission deems necessary or appropriate in
the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this Act, and the
Commission, before conducting any such examination, shall give
notice to the Securities and Exchange Commission of the
proposed examination and consult with the Securities and
Exchange Commission concerning the feasibility and desirability
of coordinating the examination with examinations conducted by
the Securities and Exchange Commission in order to avoid
unnecessary regulatory duplication or undue regulatory burdens
for the registrant or board of trade.
(II) The Commission shall notify the Securities and Exchange
Commission of any examination conducted of any futures
commission merchant or introducing broker registered pursuant
to section 4f(a)(2), floor broker or floor trader exempt from
registration pursuant to section 4f(a)(3), associated person
exempt from registration pursuant to [section 4k(6)] section
4k(7), or board of trade designated as a contract market in a
security futures product pursuant to section 5f, and, upon
request, furnish to the Securities and Exchange Commission any
examination report and data supplied to or prepared by the
Commission in connection with the examination.
(III) Before conducting an examination under subclause (I),
the Commission shall use the reports of examinations, unless
the information sought is unavailable in the reports, of any
futures commission merchant or introducing broker registered
pursuant to section 4f(a)(2), floor broker or floor trader
exempt from registration pursuant to section 4f(a)(3),
associated person exempt from registration pursuant to [section
4k(6)] section 4k(7), or board of trade designated as a
contract market in a security futures product pursuant to
section 5f that is made by the Securities and Exchange
Commission, a national securities association registered
pursuant to section 15A(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78o-3(a)), or a national securities exchange
registered pursuant to section 6(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78f(a)).
(IV) Any records required under this subsection for a futures
commission merchant or introducing broker registered pursuant
to section 4f(a)(2), floor broker or floor trader exempt from
registration pursuant to section 4f(a)(3), associated person
exempt from registration pursuant to [section 4k(6)] section
4k(7), or board of trade designated as a contract market in a
security futures product pursuant to section 5f, shall be
limited to records with respect to accounts, agreements,
contracts, and transactions involving security futures
products.
(v)(I) The Commission and the Securities and Exchange
Commission, by rule, regulation, or order, may jointly modify
the criteria specified in subclause (I) or (III) of clause (i),
including the trading of security futures based on securities
other than equity securities, to the extent such modification
fosters the development of fair and orderly markets in security
futures products, is necessary or appropriate in the public
interest, and is consistent with the protection of investors.
(II) The Commission and the Securities and Exchange
Commission, by order, may jointly exempt any person from
compliance with the criterion specified in clause (i)(IV) to
the extent such exemption fosters the development of fair and
orderly markets in security futures products, is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
(vi)(I) Notwithstanding clauses (i) and (vii), until the
compliance date, a board of trade shall not be required to meet
the criterion specified in clause (i)(IV).
(II) The Commission and the Securities and Exchange
Commission shall jointly publish in the Federal Register a
notice of the compliance date no later than 165 days before the
compliance date.
(III) For purposes of this clause, the term ``compliance
date'' means the later of--
(aa) 180 days after the end of the first full
calendar month period in which the average aggregate
comparable share volume for all security futures
products based on single equity securities traded on
all designated contract markets and registered
derivatives transaction execution facilities equals or
exceeds 10 percent of the average aggregate comparable
share volume of options on single equity securities
traded on all national securities exchanges registered
pursuant to section 6(a) of the Securities Exchange Act
of 1934 and any national securities associations
registered pursuant to section 15A(a) of such Act; or
(bb) 2 years after the date on which trading in any
security futures product commences under this Act.
(vii) It shall be unlawful for a board of trade to trade or
execute a security futures product unless the board of trade
has provided the Commission with a certification that the
specific security futures product and the board of trade, as
applicable, meet the criteria specified in subclauses (I)
through (XI) of clause (i), except as otherwise provided in
clause (vi).
(E)(i) To the extent necessary or appropriate in the public
interest, to promote fair competition, and consistent with
promotion of market efficiency, innovation, and expansion of
investment opportunities, the protection of investors, and the
maintenance of fair and orderly markets, the Commission and the
Securities and Exchange Commission shall jointly issue such
rules, regulations, or orders as are necessary and appropriate
to permit the offer and sale of a security futures product
traded on or subject to the rules of a foreign board of trade
to United States persons.
(ii) The rules, regulations, or orders adopted under clause
(i) shall take into account, as appropriate, the nature and
size of the markets that the securities underlying the security
futures product reflects.
(F)(i) Nothing in this Act is intended to prohibit a futures
commission merchant from carrying security futures products
traded on or subject to the rules of a foreign board of trade
in the accounts of persons located outside of the United
States.
(ii) Nothing in this Act is intended to prohibit any eligible
contract participant located in the United States from
purchasing or carrying securities futures products traded on or
subject to the rules of a foreign board of trade, exchange, or
market to the same extent such person may be authorized to
purchase or carry other securities traded on a foreign board of
trade, exchange, or market so long as any underlying security
for such security futures products is traded principally on,
by, or through any exchange or market located outside the
United States.
(G)(i) Nothing in this paragraph shall limit
the jurisdiction conferred on the Securities
and Exchange Commission by the Wall Street
Transparency and Accountability Act of 2010
with regard to security-based swap agreements
as defined pursuant to section 3(a)(78) of the
Securities Exchange Act of 1934, and security-
based swaps.
(ii) In addition to the authority of the
Securities and Exchange Commission described in
clause (i), nothing in this subparagraph shall
limit or affect any statutory authority of the
Commission with respect to an agreement,
contract, or transaction described in clause
(i).
(H) Notwithstanding any other provision of
law, the Wall Street Transparency and
Accountability Act of 2010 shall not apply to,
and the Commodity Futures Trading Commission
shall have no jurisdiction under such Act (or
any amendments to the Commodity Exchange Act
made by such Act) with respect to, any security
other than a security-based swap.
(I)(i) Nothing in this Act shall limit or
affect any statutory authority of the Federal
Energy Regulatory Commission or a State
regulatory authority (as defined in section
3(21) of the Federal Power Act (16 U.S.C.
796(21)) with respect to an agreement,
contract, or transaction that is entered into
pursuant to a tariff or rate schedule approved
by the Federal Energy Regulatory Commission or
a State regulatory authority and is--
(I) not executed, traded, or cleared
on a registered entity or trading
facility; or
(II) executed, traded, or cleared on
a registered entity or trading facility
owned or operated by a regional
transmission organization or
independent system operator.
(ii) In addition to the authority of the
Federal Energy Regulatory Commission or a State
regulatory authority described in clause (i),
nothing in this subparagraph shall limit or
affect--
(I) any statutory authority of the
Commission with respect to an
agreement, contract, or transaction
described in clause (i); or
(II) the jurisdiction of the
Commission under subparagraph (A) with
respect to an agreement, contract, or
transaction that is executed, traded,
or cleared on a registered entity or
trading facility that is not owned or
operated by a regional transmission
organization or independent system
operator (as defined by sections 3(27)
and (28) of the Federal Power Act (16
U.S.C. 796(27), 796(28)).
(J) Except as expressly provided in this Act,
nothing in the Financial Innovation and
Technology for the 21st Century Act shall
affect or apply to, or be interpreted to affect
or apply to--
(i) any agreement, contract, or
transaction that is subject to
regulation under this Act as--
(I) a contract of sale of a
commodity for future delivery
or an option on such a
contract;
(II) a swap;
(III) a security futures
product;
(IV) an option authorized
under section 4c of this Act;
(V) an agreement, contract,
or transaction described in
subparagraph (C)(i) or (D)(i)
of subsection (c)(2) of this
section; or
(VI) a leverage transaction
authorized under section 19 of
this Act; or
(ii) the activities of any person
with respect to any such an agreement,
contract, or transaction.
(2)(A) There is hereby established, as an independent
agency of the United States Government, a Commodity
Futures Trading Commission. The Commission shall be
composed of five Commissioners who shall be appointed
by the President, by and with the advice and consent of
the Senate. In nominating persons for appointment, the
President shall--
(i) select persons who shall each have
demonstrated knowledge in futures trading or
its regulation, or the production,
merchandising, processing or distribution of
one or more of the commodities or other goods
and articles, services, rights, and interests
covered by this Act; and
(ii) seek to ensure that the demonstrated
knowledge of the Commissioners is balanced with
respect to such areas.
Not more than three of the members of the Commission
shall be members of the same political party. Each
Commissioner shall hold office for a term of five years
and until his successor is appointed and has qualified,
except that he shall not so continue to serve beyond
the expiration of the next session of Congress
subsequent to the expiration of said fixed term of
office, and except (i) any Commissioner appointed to
fill a vacancy occurring prior to the expiration of the
term for which his predecessor was appointed shall be
appointed for the remainder of such term, and (ii) the
terms of office of the Commissioners first taking
office after the enactment of this paragraph shall
expire as designated by the President at the time of
nomination, one at the end of one year, one at the end
of two years, one at the end of three years, one at the
end of four years, and one at the end of five years.
(B) The President shall appoint, by and with the
advice and consent of the Senate, a member of the
Commission as Chairman, who shall serve as Chairman at
the pleasure of the President. An individual may be
appointed as Chairman at the same time that person is
appointed as a Commissioner. The Chairman shall be the
chief administrative officer of the Commission and
shall preside at hearings before the Commission. At any
time, the President may appoint, by and with the advice
and consent of the Senate, a different Chairman, and
the Commissioner previously appointed as Chairman may
complete that Commissioner's term as a Commissioner.
(3) A vacancy in the Commission shall not impair the
right of the remaining Commissioners to exercise all
the powers of the Commission.
(4) The Commission shall have a General Counsel, who
shall be appointed by the Commission and serve at the
pleasure of the Commission. The General Counsel shall
report directly to the Commission and serve as its
legal advisor. The Commission shall appoint such other
attorneys as may be necessary, in the opinion of the
Commission, to assist the General Counsel, represent
the Commission in all disciplinary proceedings pending
before it, represent the Commission in courts of law
whenever appropriate, assist the Department of Justice
in handling litigation concerning the Commission in
courts of law, and perform such other legal duties and
functions as the Commission may direct.
(5) The Commission shall have an Executive Director,
who shall be appointed by the Commission and serve at
the pleasure of the Commission. The Executive Director
shall report directly to the Commission and perform
such functions and duties as the Commission may
prescribe.
(6)(A) Except as otherwise provided in this
[paragraph and in] paragraph, paragraphs (4) and (5) of
this subsection, and section 18(c)(3), the executive
and administrative functions of the Commission,
including functions of the Commission with respect to
the appointment and supervision of personnel employed
under the Commission, the distribution of business
among such personnel and among administrative units of
the Commission, and the use and expenditure of funds,
according to budget categories, plans, programs, and
priorities established and approved by the Commission,
shall be exercised solely by the Chairman.
(B) In carrying out any of his functions under the
provisions of this paragraph, the Chairman shall be
governed by general policies, plans, priorities, and
budgets approved by the Commission and by such
regulatory decisions, findings, and determinations as
the Commission may by law be authorized to make.
(C) The appointment by the Chairman of the heads of
major administrative units under the Commission shall
be subject to the approval of the Commission.
(D) Personnel employed regularly and full time in the
immediate offices of Commissioners other than the
Chairman shall not be affected by the provisions of
this paragraph.
(E) There are hereby reserved to the Commission its
functions with respect to revising budget estimates and
with respect to determining the distribution of
appropriated funds according to major programs and
purposes.
(F) The Chairman may from time to time make such
provisions as he shall deem appropriate authorizing the
performance by any officer, employee, or administrative
unit under his jurisdiction of any functions of the
Chairman under this paragraph.
(7) Appointment and compensation.--
(A) In general.--The Commission may appoint
and fix the compensation of such officers,
attorneys, economists, examiners, and other
employees as may be necessary for carrying out
the functions of the Commission under this Act.
(B) Rates of pay.--Rates of basic pay for all
employees of the Commission may be set and
adjusted by the Commission without regard to
chapter 51 or subchapter III of chapter 53 of
title 5, United States Code.
(C) Comparability.--
(i) In general.--The Commission may
provide additional compensation and
benefits to employees of the Commission
if the same type of compensation or
benefits are provided by any agency
referred to in section 1206(a) of the
Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
(12 U.S.C. 1833b(a)) or could be
provided by such an agency under
applicable provisions of law (including
rules and regulations).
(ii) Consultation.--In setting and
adjusting the total amount of
compensation and benefits for
employees, the Commission shall consult
with, and seek to maintain
comparability with, the agencies
referred to in section 1206(a) of the
Financial Institutions Reform,
Recovery, and Enforcement Act of 1989
(12 U.S.C. 1833b(a)).
(8) No Commissioner or employee of the Commission
shall accept employment or compensation from any
person, exchange, or clearinghouse subject to
regulation by the Commission under this Act during his
term of office, nor shall he participate, directly or
indirectly, in any registered entity operations or
transactions of a character subject to regulation by
the Commission.
(9)(A) The Commission shall, in cooperation with the
Secretary of Agriculture, maintain a liaison between
the Commission and the Department of Agriculture. The
Secretary shall take such steps as may be necessary to
enable the Commission to obtain information and utilize
such services and facilities of the Department of
Agriculture as may be necessary in order to maintain
effectively such liaison. In addition, the Secretary
shall appoint a liaison officer, who shall be an
employee of the Office of the Secretary, for the
purpose of maintaining a liaison between the Department
of Agriculture and the Commission. The Commission shall
furnish such liaison officer appropriate office space
within the offices of the Commission and shall allow
such liaison officer to attend and observe all
deliberations and proceedings of the Commission.
(B)(i) The Commission shall maintain communications
with the Department of the Treasury, the Board of
Governors of the Federal Reserve System, and the
Securities and Exchange Commission for the purpose of
keeping such agencies fully informed of Commission
activities that relate to the responsibilities of those
agencies, for the purpose of seeking the views of those
agencies on such activities, and for considering the
relationships between the volume and nature of
investment and trading in contracts of sale of a
commodity for future delivery and in securities and
financial instruments under the jurisdiction of such
agencies.
(ii) When a board of trade applies for designation or
registration as a contract market or derivatives
transaction execution facility involving transactions
for future delivery of any security issued or
guaranteed by the United States or any agency thereof,
the Commission shall promptly deliver a copy of such
application to the Department of the Treasury and the
Board of Governors of the Federal Reserve System. The
Commission may not designate or register a board of
trade as a contract market or derivatives transaction
execution facility based on such application until
forty-five days after the date the Commission delivers
the application to such agencies or until the
Commission receives comments from each of such agencies
on the application, whichever period is shorter. Any
comments received by the Commission from such agencies
shall be included as part of the public record of the
Commission's designation proceeding. In designating,
registering, or refusing, suspending, or revoking the
designation or registration of, a board of trade as a
contract market or derivatives transaction execution
facility involving transactions for future delivery
referred to in this clause or in considering any
possible action under this Act (including without
limitation emergency action under section 8a(9)) with
respect to such transactions, the Commission shall take
into consideration all comments it receives from the
Department of the Treasury and the Board of Governors
of the Federal Reserve System and shall consider the
effect that any such designation, registration,
suspension, revocation, or action may have on the debt
financing requirements of the United States Government
and the continued efficiency and integrity of the
underlying market for government securities.
(iii) The provisions of this subparagraph shall not
create any rights, liabilities, or obligations upon
which actions may be brought against the Commission.
(10)(A) Whenever the Commission submits any budget
estimate or request to the President or the Office of
Management and Budget, it shall concurrently transmit
copies of that estimate or request to the House and
Senate Appropriations Committees and the House
Committee on Agriculture and the Senate Committee on
Agriculture, Nutrition, and Forestry.
(B) Whenever the Commission transmits any legislative
recommendations, or testimony, or comments on
legislation to the President or the Office of
Management and Budget, it shall concurrently transmit
copies thereof to the House Committee on Agriculture
and the Senate Committee on Agriculture, Nutrition, and
Forestry. No officer or agency of the United States
shall have any authority to require the Commission to
submit its legislative recommendations, or testimony,
or comments on legislation to any officer or agency of
the United States for approval, comments, or review,
prior to the submission of such recommendations,
testimony, or comments to the Congress. In instances in
which the Commission voluntarily seeks to obtain the
comments or review of any officer or agency of the
United States, the Commission shall include a
description of such actions in its legislative
recommendations, testimony, or comments on legislation
which it transmits to the Congress.
(C) Whenever the Commission issues for official
publication any opinion, release, rule, order,
interpretation, or other determination on a matter, the
Commission shall provide that any dissenting,
concurring, or separate opinion by any Commissioner on
the matter be published in full along with the
Commission opinion, release, rule, order,
interpretation, or determination.
(11) The Commission shall have an official seal, which shall
be judicially noticed.
(12) The Commission is authorized to promulgate such rules
and regulations as it deems necessary to govern the operating
procedures and conduct of the business of the Commission.
(13) Public availability of swap transaction data.--
(A) Definition of real-time public
reporting.--In this paragraph, the term ``real-
time public reporting'' means to report data
relating to a swap transaction, including price
and volume, as soon as technologically
practicable after the time at which the swap
transaction has been executed.
(B) Purpose.--The purpose of this section is
to authorize the Commission to make swap
transaction and pricing data available to the
public in such form and at such times as the
Commission determines appropriate to enhance
price discovery.
(C) General rule.--The Commission is
authorized and required to provide by rule for
the public availability of swap transaction and
pricing data as follows:
(i) With respect to those swaps that
are subject to the mandatory clearing
requirement described in subsection
(h)(1) (including those swaps that are
excepted from the requirement pursuant
to subsection (h)(7)), the Commission
shall require real-time public
reporting for such transactions.
(ii) With respect to those swaps that
are not subject to the mandatory
clearing requirement described in
subsection (h)(1), but are cleared at a
registered derivatives clearing
organization, the Commission shall
require real-time public reporting for
such transactions.
(iii) With respect to swaps that are
not cleared at a registered derivatives
clearing organization and which are
reported to a swap data repository or
the Commission under subsection (h)(6),
the Commission shall require real-time
public reporting for such transactions,
in a manner that does not disclose the
business transactions and market
positions of any person.
(iv) With respect to swaps that are
determined to be required to be cleared
under subsection (h)(2) but are not
cleared, the Commission shall require
real-time public reporting for such
transactions.
(D) Registered entities and public
reporting.--The Commission may require
registered entities to publicly disseminate the
swap transaction and pricing data required to
be reported under this paragraph.
(E) Rulemaking required.--With respect to the
rule providing for the public availability of
transaction and pricing data for swaps
described in clauses (i) and (ii) of
subparagraph (C), the rule promulgated by the
Commission shall contain provisions--
(i) to ensure such information does
not identify the participants;
(ii) to specify the criteria for
determining what constitutes a large
notional swap transaction (block trade)
for particular markets and contracts;
(iii) to specify the appropriate time
delay for reporting large notional swap
transactions (block trades) to the
public; and
(iv) that take into account whether
the public disclosure will materially
reduce market liquidity.
(F) Timeliness of reporting.--Parties to a
swap (including agents of the parties to a
swap) shall be responsible for reporting swap
transaction information to the appropriate
registered entity in a timely manner as may be
prescribed by the Commission.
(G) Reporting of swaps to registered swap
data repositories.--Each swap (whether cleared
or uncleared) shall be reported to a registered
swap data repository.
(14) Semiannual and annual public reporting of
aggregate swap data.--
(A) In general.--In accordance with
subparagraph (B), the Commission shall issue a
written report on a semiannual and annual basis
to make available to the public information
relating to--
(i) the trading and clearing in the
major swap categories; and
(ii) the market participants and
developments in new products.
(B) Use; consultation.--In preparing a report
under subparagraph (A), the Commission shall--
(i) use information from swap data
repositories and derivatives clearing
organizations; and
(ii) consult with the Office of the
Comptroller of the Currency, the Bank
for International Settlements, and such
other regulatory bodies as may be
necessary.
(C) Authority of the commission.--The
Commission may, by rule, regulation, or order,
delegate the public reporting responsibilities
of the Commission under this paragraph in
accordance with such terms and conditions as
the Commission determines to be appropriate and
in the public interest.
(15) Energy and environmental markets advisory
committee.--
(A) Establishment.--
(i) In general.--An Energy and
Environmental Markets Advisory
Committee is hereby established.
(ii) Membership.--The Committee shall
have 9 members.
(iii) Activities.--The Committee's
objectives and scope of activities
shall be--
(I) to conduct public
meetings;
(II) to submit reports and
recommendations to the
Commission (including
dissenting or minority views,
if any); and
(III) otherwise to serve as a
vehicle for discussion and
communication on matters of
concern to exchanges, firms,
end users, and regulators
regarding energy and
environmental markets and their
regulation by the Commission.
(B) Requirements.--
(i) In general.--The Committee shall
hold public meetings at such intervals
as are necessary to carry out the
functions of the Committee, but not
less frequently than 2 times per year.
(ii) Members.--Members shall be
appointed to 3-year terms, but may be
removed for cause by vote of the
Commission.
(C) Appointment.--The Commission shall
appoint members with a wide diversity of
opinion and who represent a broad spectrum of
interests, including hedgers and consumers.
(D) Reimbursement.--Members shall be entitled
to per diem and travel expense reimbursement by
the Commission.
(E) Chapter 10 of title 5, united states
code.--The Committee shall not be subject to
chapter 10 of title 5, United States Code.
(b) For the purposes of this Act (but not in any wise
limiting the foregoing definition of interstate commerce) a
transaction in respect to any article shall be considered to be
in interstate commerce if such article is part of that current
of commerce usual in the commodity trade whereby commodities
and commodity products and by-products thereof are sent from
one State with the expectation that they will end their
transit, after purchase, in another, including, in addition to
cases within the above general description, all cases where
purchase or sale is either for shipment to another State, or
for manufacture within the State and the shipment outside the
State of the products resulting from such manufacture. Articles
normally in such current of commerce shall not be considered
out of such commerce through resort being had to any means or
device intended to remove transactions in respect thereto from
the provisions of this Act. For the purpose of this paragraph
the word ``State'' includes Territory, the District of
Columbia, possession of the United States, and foreign nation.
(c) Agreements, Contracts, and Transactions in Foreign
Currency, Government Securities, and Certain Other
Commodities.--
(1) In general.--Except as provided in paragraph (2),
nothing in this Act (other than section, 5b, or
12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in--
(A) foreign currency;
(B) government securities;
(C) security warrants;
(D) security rights;
(E) resales of installment loan contracts;
(F) repurchase transactions in an excluded
commodity; [or]
(G) mortgages or mortgage purchase
commitments[.]; or
(H) permitted payment stablecoins.
(2) Commission jurisdiction.--
(A) Agreements, contracts, and transactions
traded on an organized exchange.--This Act
applies to, and the Commission shall have
jurisdiction over, an agreement, contract, or
transaction described in paragraph (1) that
is--
(i) a contract of sale of a commodity
for future delivery (or an option on
such a contract), or an option on a
commodity (other than foreign currency
or a security or a group or index of
securities), that is executed or traded
on an organized exchange;
(ii) a swap; or
(iii) an option on foreign currency
executed or traded on an organized
exchange that is not a national
securities exchange registered pursuant
to section 6(a) of the Securities
Exchange Act of 1934.
(B) Agreements, contracts, and transactions
in retail foreign currency.--
(i) This Act applies to, and the
Commission shall have jurisdiction
over, an agreement, contract, or
transaction in foreign currency that--
(I) is a contract of sale of
a commodity for future delivery
(or an option on such a
contract) or an option (other
than an option executed or
traded on a national securities
exchange registered pursuant to
section 6(a) of the Securities
Exchange Act of 1934 (15 U.S.C.
78f(a))); and
(II) is offered to, or
entered into with, a person
that is not an eligible
contract participant, unless
the counterparty, or the person
offering to be the
counterparty, of the person
is--
(aa) a United States
financial institution;
(bb)(AA) a broker or
dealer registered under
section 15(b) (except
paragraph (11) thereof)
or 15C of the
Securities Exchange Act
of 1934 (15 U.S.C.
78o(b), 78o-5); or
(BB) an associated
person of a broker or
dealer registered under
section 15(b) (except
paragraph (11) thereof)
or 15C of the
Securities Exchange Act
of 1934 (15 U.S.C.
78o(b), 78o-5)
concerning the
financial or securities
activities of which the
broker or dealer makes
and keeps records under
section 15C(b) or 17(h)
of the Securities
Exchange Act of 1934
(15 U.S.C. 78o-5(b),
78q(h));
(cc)(AA) a futures
commission merchant
that is primarily or
substantially engaged
in the business
activities described in
section 1a of this Act,
is registered under
this Act, is not a
person described in
item (bb) of this
subclause, and
maintains adjusted net
capital equal to or in
excess of the dollar
amount that applies for
purposes of clause (ii)
of this subparagraph;
or
(BB) an affiliated
person of a futures
commission merchant
that is primarily or
substantially engaged
in the business
activities described in
section 1a of this Act,
is registered under
this Act, and is not a
person described in
item (bb) of this
subclause, if the
affiliated person
maintains adjusted net
capital equal to or in
excess of the dollar
amount that applies for
purposes of clause (ii)
of this subparagraph
and is not a person
described in such item
(bb), and the futures
commission merchant
makes and keeps records
under section
4f(c)(2)(B) of this Act
concerning the futures
and other financial
activities of the
affiliated person;
(dd) a financial
holding company (as
defined in section 2 of
the Bank Holding
Company Act of 1956);
or
(ff) a retail foreign
exchange dealer that
maintains adjusted net
capital equal to or in
excess of the dollar
amount that applies for
purposes of clause (ii)
of this subparagraph
and is registered in
such capacity with the
Commission, subject to
such terms and
conditions as the
Commission shall
prescribe, and is a
member of a futures
association registered
under section 17.
(ii) The dollar amount that applies
for purposes of this clause is--
(I) $10,000,000, beginning
120 days after the date of the
enactment of this clause;
(II) $15,000,000, beginning
240 days after such date of
enactment; and
(III) $20,000,000, beginning
360 days after such date of
enactment.
(iii) Notwithstanding items (cc) and
(gg) of clause (i)(II) of this
subparagraph, agreements, contracts, or
transactions described in clause (i) of
this subparagraph, and accounts or
pooled investment vehicles described in
clause (vi), shall be subject to
subsection (a)(1)(B) of this section
and sections 4(b), 4b, 4c(b), 4o, 6(c)
and 6(d) (except to the extent that
sections 6(c) and 6(d) prohibit
manipulation of the market price of any
commodity in interstate commerce, or
for future delivery on or subject to
the rules of any market), 6c, 6d, 8(a),
13(a), and 13(b) if the agreements,
contracts, or transactions are offered,
or entered into, by a person that is
registered as a futures commission
merchant or retail foreign exchange
dealer, or an affiliated person of a
futures commission merchant registered
under this Act that is not also a
person described in any of item (aa),
(bb), (ee), or (ff) of clause (i)(II)
of this subparagraph.
(iv)(I) Notwithstanding items (cc)
and (gg) of clause (i)(II), a person,
unless registered in such capacity as
the Commission by rule, regulation, or
order shall determine and a member of a
futures association registered under
section 17, shall not--
(aa) solicit or accept orders
from any person that is not an
eligible contract participant
in connection with agreements,
contracts, or transactions
described in clause (i) entered
into with or to be entered into
with a person who is not
described in item (aa), (bb),
(ee), or (ff) of clause
(i)(II);
(bb) exercise discretionary
trading authority or obtain
written authorization to
exercise discretionary trading
authority over any account for
or on behalf of any person that
is not an eligible contract
participant in connection with
agreements, contracts, or
transactions described in
clause (i) entered into with or
to be entered into with a
person who is not described in
item (aa), (bb), (ee), or (ff)
of clause (i)(II); or
(cc) operate or solicit
funds, securities, or property
for any pooled investment
vehicle that is not an eligible
contract participant in
connection with agreements,
contracts, or transactions
described in clause (i) entered
into with or to be entered into
with a person who is not
described in item (aa), (bb),
(ee), or (ff) of clause
(i)(II).
(II) Subclause (I) of this clause
shall not apply to--
(aa) any person described in
any of item (aa), (bb), (ee),
or (ff) of clause (i)(II);
(bb) any such person's
associated persons; or
(cc) any person who would be
exempt from registration if
engaging in the same activities
in connection with transactions
conducted on or subject to the
rules of a contract market or a
derivatives transaction
execution facility.
(III) Notwithstanding items (cc) and
(gg) of clause (i)(II), the Commission
may make, promulgate, and enforce such
rules and regulations as, in the
judgment of the Commission, are
reasonably necessary to effectuate any
of the provisions of, or to accomplish
any of the purposes of, this Act in
connection with the activities of
persons subject to subclause (I).
(IV) Subclause (III) of this clause
shall not apply to--
(aa) any person described in
any of item (aa) through (ff)
of clause (i)(II);
(bb) any such person's
associated persons; or
(cc) any person who would be
exempt from registration if
engaging in the same activities
in connection with transactions
conducted on or subject to the
rules of a contract market or a
derivatives transaction
execution facility.
(v) Notwithstanding items (cc) and
(gg) of clause (i)(II), the Commission
may make, promulgate, and enforce such
rules and regulations as, in the
judgment of the Commission, are
reasonably necessary to effectuate any
of the provisions of, or to accomplish
any of the purposes of, this Act in
connection with agreements, contracts,
or transactions described in clause (i)
which are offered, or entered into, by
a person described in item (cc) or (gg)
of clause (i)(II).
(vi) This Act applies to, and the
Commission shall have jurisdiction
over, an account or pooled investment
vehicle that is offered for the purpose
of trading, or that trades, any
agreement, contract, or transaction in
foreign currency described in clause
(i).
(C)(i)(I) This subparagraph shall apply to
any agreement, contract, or transaction in
foreign currency that is--
(aa) offered to, or entered
into with, a person that is not
an eligible contract
participant (except that this
subparagraph shall not apply if
the counterparty, or the person
offering to be the
counterparty, of the person
that is not an eligible
contract participant is a
person described in any of item
(aa), (bb), (ee), or (ff) of
subparagraph (B)(i)(II)); and
(bb) offered, or entered
into, on a leveraged or
margined basis, or financed by
the offeror, the counterparty,
or a person acting in concert
with the offeror or
counterparty on a similar
basis.
(II) Subclause (I) of this clause shall not
apply to--
(aa) a security that is not a
security futures product; or
(bb) a contract of sale that--
(AA) results in actual
delivery within 2 days; or
(BB) creates an enforceable
obligation to deliver between a
seller and buyer that have the
ability to deliver and accept
delivery, respectively, in
connection with their line of
business.
(ii)(I) Agreements, contracts, or
transactions described in clause (i) of this
subparagraph, and accounts or pooled investment
vehicles described in clause (vii), shall be
subject to subsection (a)(1)(B) of this section
and sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d)
(except to the extent that sections 6(c) and
6(d) prohibit manipulation of the market price
of any commodity in interstate commerce, or for
future delivery on or subject to the rules of
any market), 6c, 6d, 8(a), 13(a), and 13(b).
(II) Subclause (I) of this clause shall not
apply to--
(aa) any person described in any of
item (aa), (bb), (ee), or (ff) of
subparagraph (B)(i)(II); or
(bb) any such person's associated
persons.
(III) The Commission may make, promulgate,
and enforce such rules and regulations as, in
the judgment of the Commission, are reasonably
necessary to effectuate any of the provisions
of or to accomplish any of the purposes of this
Act in connection with agreements, contracts,
or transactions described in clause (i) of this
subparagraph if the agreements, contracts, or
transactions are offered, or entered into, by a
person that is not described in item (aa)
through (ff) of subparagraph (B)(i)(II).
(iii)(I) A person, unless registered in such
capacity as the Commission by rule, regulation,
or order shall determine and a member of a
futures association registered under section
17, shall not--
(aa) solicit or accept orders from
any person that is not an eligible
contract participant in connection with
agreements, contracts, or transactions
described in clause (i) of this
subparagraph entered into with or to be
entered into with a person who is not
described in item (aa), (bb), (ee), or
(ff) of subparagraph (B)(i)(II);
(bb) exercise discretionary trading
authority or obtain written
authorization to exercise written
trading authority over any account for
or on behalf of any person that is not
an eligible contract participant in
connection with agreements, contracts,
or transactions described in clause (i)
of this subparagraph entered into with
or to be entered into with a person who
is not described in item (aa), (bb),
(ee), or (ff) of subparagraph
(B)(i)(II); or
(cc) operate or solicit funds,
securities, or property for any pooled
investment vehicle that is not an
eligible contract participant in
connection with agreements, contracts,
or transactions described in clause (i)
of this subparagraph entered into with
or to be entered into with a person who
is not described in item (aa), (bb),
(ee), or (ff) of subparagraph
(B)(i)(II).
(II) Subclause (I) of this clause shall not
apply to--
(aa) any person described in item
(aa), (bb), (ee), or (ff) of
subparagraph (B)(i)(II);
(bb) any such person's associated
persons; or
(cc) any person who would be exempt
from registration if engaging in the
same activities in connection with
transactions conducted on or subject to
the rules of a contract market or a
derivatives transaction execution
facility.
(III) The Commission may make, promulgate,
and enforce such rules and regulations as, in
the judgment of the Commission, are reasonably
necessary to effectuate any of the provisions
of, or to accomplish any of the purposes of,
this Act in connection with the activities of
persons subject to subclause (I).
(IV) Subclause (III) of this clause shall not
apply to--
(aa) any person described in item
(aa) through (ff) of subparagraph
(B)(i)(II);
(bb) any such person's associated
persons; or
(cc) any person who would be exempt
from registration if engaging in the
same activities in connection with
transactions conducted on or subject to
the rules of a contract market or a
derivatives transaction execution
facility.
(iv) Sections 4(b) and 4b shall apply to any
agreement, contract, or transaction described
in clause (i) of this subparagraph as if the
agreement, contract, or transaction were a
contract of sale of a commodity for future
delivery.
(v) This subparagraph shall not be construed
to limit any jurisdiction that the Commission
may otherwise have under any other provision of
this Act over an agreement, contract, or
transaction that is a contract of sale of a
commodity for future delivery.
(vi) This subparagraph shall not be construed
to limit any jurisdiction that the Commission
or the Securities and Exchange Commission may
otherwise have under any other provision of
this Act with respect to security futures
products and persons effecting transactions in
security futures products.
(vii) This Act applies to, and the
Commission shall have jurisdiction
over, an account or pooled investment
vehicle that is offered for the purpose
of trading, or that trades, any
agreement, contract, or transaction in
foreign currency described in clause
(i).
(D) Retail commodity transactions.--
(i) Applicability.--Except as
provided in clause (ii), this
subparagraph shall apply to any
agreement, contract, or transaction in
any commodity that is--
(I) entered into with, or
offered to (even if not entered
into with), a person that is
not an eligible contract
participant or eligible
commercial entity; and
(II) entered into, or offered
(even if not entered into), on
a leveraged or margined basis,
or financed by the offeror, the
counterparty, or a person
acting in concert with the
offeror or counterparty on a
similar basis.
(ii) Exceptions.--This subparagraph
shall not apply to--
(I) an agreement, contract,
or transaction described in
paragraph (1) or subparagraphs
(A), (B), or (C), including any
agreement, contract, or
transaction specifically
excluded from subparagraph (A),
(B), or (C);
(II) any security;
(III) a contract of sale of a
commodity, other than a digital
commodity, that--
(aa) results in
actual delivery within
28 days or such other
longer period as the
Commission may
determine by rule or
regulation based upon
the typical commercial
practice in cash or
spot markets for the
commodity involved; or
(bb) creates an
enforceable obligation
to deliver between a
seller and a buyer that
have the ability to
deliver and accept
delivery, respectively,
in connection with the
line of business of the
seller and buyer; or
(IV) a contract of sale of a
digital commodity that--
(aa) results in
actual delivery, as the
Commission shall by
rule determine, within
2 days or such other
period as the
Commission may
determine by rule or
regulation based upon
the typical commercial
practice in cash or
spot markets for the
digital commodity
involved; or
(bb) is executed with
a registered digital
commodity dealer--
(AA)
directly;
(BB) through
a registered
digital
commodity
broker; or
(CC) on or
subject to the
rules of a
registered
digital
commodity
exchange;
[(IV)] (V) an agreement,
contract, or transaction that
is listed on a national
securities exchange registered
under section 6(a) of the
Securities Exchange Act of 1934
(15 U.S.C. 78f(a)); or
[(V)] (VI) an identified
banking product, as defined in
section 402(b) of the Legal
Certainty for Bank Products Act
of 2000 (7 U.S.C.27(b)).
(iii) Enforcement.--Sections 4(a),
4(b), and 4b apply to any agreement,
contract, or transaction described in
clause (i), as if the agreement,
contract, or transaction was a contract
of sale of a commodity for future
delivery.
(iv) Eligible commercial entity.--For
purposes of this subparagraph, an
agricultural producer, packer, or
handler shall be considered to be an
eligible commercial entity for any
agreement, contract, or transaction for
a commodity in connection with the line
of business of the agricultural
producer, packer, or handler.
(E) Prohibition.--
(i) Definition of federal regulatory
agency.--In this subparagraph, the term
``Federal regulatory agency'' means--
(I) the Commission;
(II) the Securities and
Exchange Commission;
(III) an appropriate Federal
banking agency;
(IV) the National Credit
Union Association; and
(V) the Farm Credit
Administration.
(ii) Prohibition.--
(I) In general.--Except as
provided in subclause (II), a
person described in
subparagraph (B)(i)(II) for
which there is a Federal
regulatory agency shall not
offer to, or enter into with, a
person that is not an eligible
contract participant, any
agreement, contract, or
transaction in foreign currency
described in subparagraph
(B)(i)(I) except pursuant to a
rule or regulation of a Federal
regulatory agency allowing the
agreement, contract, or
transaction under such terms
and conditions as the Federal
regulatory agency shall
prescribe.
(II) Effective date.--With
regard to persons described in
subparagraph (B)(i)(II) for
which a Federal regulatory
agency has issued a proposed
rule concerning agreements,
contracts, or transactions in
foreign currency described in
subparagraph (B)(i)(I) prior to
the date of enactment of this
subclause, subclause (I) shall
take effect 90 days after the
date of enactment of this
subclause.
(iii) Requirements of rules and
regulations.--
(I) In general.--The rules
and regulations described in
clause (ii) shall prescribe
appropriate requirements with
respect to--
(aa) disclosure;
(bb) recordkeeping;
(cc) capital and
margin;
(dd) reporting;
(ee) business
conduct;
(ff) documentation;
and
(gg) such other
standards or
requirements as the
Federal regulatory
agency shall determine
to be necessary.
(II) Treatment.--The rules or
regulations described in clause
(ii) shall treat all
agreements, contracts, and
transactions in foreign
currency described in
subparagraph (B)(i)(I), and all
agreements, contracts, and
transactions in foreign
currency that are functionally
or economically similar to
agreements, contracts, or
transactions described in
subparagraph (B)(i)(I),
similarly.
(F) Commission jurisdiction with respect to digital commodity
transactions.--
(i) In general.--Subject to sections 6d and 12(e),
the Commission shall have exclusive jurisdiction with
respect to any account, agreement, contract, or
transaction involving a contract of sale of a digital
commodity in interstate commerce, including in a
digital commodity cash or spot market, that is offered,
solicited, traded, facilitated, executed, cleared,
reported, or otherwise dealt in--
(I) on or subject to the rules of a
registered entity or an entity that is required
to be registered as a registered entity; or
(II) by any other entity registered, or
required to be registered, with the Commission.
(ii) Limitations.--Clause (i) shall not apply with
respect to custodial or depository activities for a
digital commodity, or custodial or depository
activities for any promise or right to a future digital
commodity, of an entity regulated by an appropriate
Federal banking agency or a State bank supervisor
(within the meaning of section 3 of the Federal Deposit
Insurance Act).
(iii) Mixed digital asset transactions.--
(I) In general.--Clause (i) shall not apply
to a mixed digital asset transaction.
(II) Oversight of mixed digital asset
transactions.--
(aa) On a cftc regulated platform.--A
mixed digital asset transaction that
occurs on or subject to the rules of a
registered entity or by any other
entity registered with the Commission--
(AA) shall not occur except
on or subject to the rules of a
registered entity or by any
other entity that is dually
registered with the Commission
and the Securities and Exchange
Commission; and
(BB) shall be subject to the
jurisdiction of the Commission
and the Securities and Exchange
Commission.
(bb) Off exchange.--A mixed digital
asset transaction that does not occur
on or subject to the rules of a
registered entity or by any other
entity registered with the Commission
shall be subject to the exclusive
jurisdiction of the Securities and
Exchange Commission.
(III) Reports on mixed digital asset
transactions.--A digital asset issuer, related
person, affiliated person, or other person
registered with the Securities and Exchange
Commission that engages in a mixed digital
asset transaction, shall, on request, open to
inspection and examination by the Commodity
Futures Trading Commission all books and
records relating to the mixed digital asset
transaction, subject to the confidentiality and
disclosure requirements of section 8.
(G) Agreements, contracts, and transactions in stablecoins.--
(i) Treatment of permitted payment stablecoins on
commission-registered entities.--Except as provided in
clauses (ii) and (iii), the Commission shall only have
jurisdiction over a cash or spot agreement, contract,
or transaction in a permitted payment stablecoin that
is offered, offered to enter into, entered into,
executed, confirmed the execution of, solicited, or
accepted--
(I) on or subject to the rules of a
registered entity; or
(II) by any other entity registered by the
Commission.
(ii) Permitted payment stablecoin transaction
rules.--This Act shall only apply to a transaction
described in clause (i) for the purposes of regulating
the offer, execution, solicitation, or acceptance of a
cash or spot permitted payment stablecoin transaction
on a registered entity or other entity registered by
the Commission with respect to requirements imposed
with respect to--
(I) recordkeeping;
(II) custody;
(III) segregation;
(IV) reporting;
(V) trading procedures and trade processing
requirements;
(VI) information sharing;
(VII) conflicts of interest;
(VIII) antifraud, antimanipulation, or false
reporting; or
(IX) any other transaction level requirement
imposed on the registered entity or other
entity registered by the Commission that the
Commission by rule determines would foster the
development of fair and orderly cash or spot
markets in digital commodities, be necessary or
appropriate in the public interest, and be
consistent with the protection of customers.
(iii) No authority over permitted payment
stablecoins.--Notwithstanding clause (ii), the
Commission shall not make a rule or regulation, impose
a requirement or obligation on a registered entity or
other entity registered by the Commission, or impose a
requirement or obligation on a permitted payment
stablecoin issuer, regarding the operation of a
permitted payment stablecoin issuer or a permitted
payment stablecoin, including a requirement or
obligation regarding--
(I) design;
(II) structure;
(III) issuance;
(IV) redemption;
(V) financial resources;
(VI) collateral; or
(VII) any other aspect of such an operation
or such a stablecoin.
(d) Swaps.--Nothing in this Act (other than subparagraphs
(A), (B), (C), (D), (G), and (H) of subsection (a)(1),
subsections (f) and (g), sections 1a, 2(a)(13), 2(c)(2)(A)(ii),
2(e), 2(h), 4(c), 4a, 4b, and 4b-1, subsections (a), (b), and
(g) of section 4c, sections 4d, 4e, 4f, 4g, 4h, 4i, 4j, 4k, 4l,
4m, 4n, 4o, 4p, 4r, 4s, 4t, 5, 5b, 5c, 5e, and 5h, subsections
(c) and (d) of section 6, sections 6c, 6d, 8, 8a, and 9,
subsections (e)(2), (f), and (h) of section 12, subsections (a)
and (b) of section 13, sections 17, 20, 21, and 22(a)(4), and
any other provision of this Act that is applicable to
registered entities or Commission registrants) governs or
applies to a swap.
(e) Limitation on Participation.--It shall be unlawful for
any person, other than an eligible contract participant, to
enter into a swap unless the swap is entered into on, or
subject to the rules of, a board of trade designated as a
contract market under section 5.
(f) Exclusion for Qualifying Hybrid Instruments.--
(1) In general.--Nothing in this Act (other than
section 12(e)(2)(B)) governs or is applicable to a
hybrid instrument that is predominantly a security.
(2) Predominance.--A hybrid instrument shall be
considered to be predominantly a security if--
(A) the issuer of the hybrid instrument
receives payment in full of the purchase price
of the hybrid instrument, substantially
contemporaneously with delivery of the hybrid
instrument;
(B) the purchaser or holder of the hybrid
instrument is not required to make any payment
to the issuer in addition to the purchase price
paid under subparagraph (A), whether as margin,
settlement payment, or otherwise, during the
life of the hybrid instrument or at maturity;
(C) the issuer of the hybrid instrument is
not subject by the terms of the instrument to
mark-to-market margining requirements; and
(D) the hybrid instrument is not marketed as
a contract of sale of a commodity for future
delivery (or option on such a contract) subject
to this Act.
(3) Mark-to-market margining requirements.--For the
purposes of paragraph (2)(C), mark-to-market margining
requirements do not include the obligation of an issuer
of a secured debt instrument to increase the amount of
collateral held in pledge for the benefit of the
purchaser of the secured debt instrument to secure the
repayment obligations of the issuer under the secured
debt instrument.
(g) Application of Commodity Futures Laws.--
(1) No provision of this Act shall be construed as
implying or creating any presumption that--
(A) any agreement, contract, or transaction
that is excluded from this Act under section
2(c), 2(d), 2(e), 2(f), or 2(g) of this Act or
title IV of the Commodity Futures Modernization
Act of 2000, or exempted under section 2(h) or
4(c) of this Act; or
(B) any agreement, contract, or transaction,
not otherwise subject to this Act, that is not
so excluded or exempted,
is or would otherwise be subject to this Act.
(2) No provision of, or amendment made by, the
Commodity Futures Modernization Act of 2000 shall be
construed as conferring jurisdiction on the Commission
with respect to any such agreement, contract, or
transaction, except as expressly provided in section 5b
of this Act.
(h) Clearing Requirement.--
(1) In general.--
(A) Standard for clearing.--It shall be
unlawful for any person to engage in a swap
unless that person submits such swap for
clearing to a derivatives clearing organization
that is registered under this Act or a
derivatives clearing organization that is
exempt from registration under this Act if the
swap is required to be cleared.
(B) Open access.--The rules of a derivatives
clearing organization described in subparagraph
(A) shall--
(i) prescribe that all swaps (but not
contracts of sale of a commodity for
future delivery or options on such
contracts) submitted to the derivatives
clearing organization with the same
terms and conditions are economically
equivalent within the derivatives
clearing organization and may be offset
with each other within the derivatives
clearing organization; and
(ii) provide for non-discriminatory
clearing of a swap (but not a contract
of sale of a commodity for future
delivery or option on such contract)
executed bilaterally or on or through
the rules of an unaffiliated designated
contract market or swap execution
facility.
(2) Commission review.--
(A) Commission-initiated review.--
(i) The Commission on an ongoing
basis shall review each swap, or any
group, category, type, or class of
swaps to make a determination as to
whether the swap or group, category,
type, or class of swaps should be
required to be cleared.
(ii) The Commission shall provide at
least a 30-day public comment period
regarding any determination made under
clause (i).
(B) Swap submissions.--
(i) A derivatives clearing
organization shall submit to the
Commission each swap, or any group,
category, type, or class of swaps that
it plans to accept for clearing, and
provide notice to its members (in a
manner to be determined by the
Commission) of the submission.
(ii) Any swap or group, category,
type, or class of swaps listed for
clearing by a derivative clearing
organization as of the date of
enactment of this subsection shall be
considered submitted to the Commission.
(iii) The Commission shall--
(I) make available to the
public submissions received
under clauses (i) and (ii);
(II) review each submission
made under clauses (i) and
(ii), and determine whether the
swap, or group, category, type,
or class of swaps described in
the submission is required to
be cleared; and
(III) provide at least a 30-
day public comment period
regarding its determination as
to whether the clearing
requirement under paragraph
(1)(A) shall apply to the
submission.
(C) Deadline.--The Commission shall make its
determination under subparagraph (B)(iii) not
later than 90 days after receiving a submission
made under subparagraphs (B)(i) and (B)(ii),
unless the submitting derivatives clearing
organization agrees to an extension for the
time limitation established under this
subparagraph.
(D) Determination.--
(i) In reviewing a submission made
under subparagraph (B), the Commission
shall review whether the submission is
consistent with section 5b(c)(2).
(ii) In reviewing a swap, group of
swaps, or class of swaps pursuant to
subparagraph (A) or a submission made
under subparagraph (B), the Commission
shall take into account the following
factors:
(I) The existence of
significant outstanding
notional exposures, trading
liquidity, and adequate pricing
data.
(II) The availability of rule
framework, capacity,
operational expertise and
resources, and credit support
infrastructure to clear the
contract on terms that are
consistent with the material
terms and trading conventions
on which the contract is then
traded.
(III) The effect on the
mitigation of systemic risk,
taking into account the size of
the market for such contract
and the resources of the
derivatives clearing
organization available to clear
the contract.
(IV) The effect on
competition, including
appropriate fees and charges
applied to clearing.
(V) The existence of
reasonable legal certainty in
the event of the insolvency of
the relevant derivatives
clearing organization or 1 or
more of its clearing members
with regard to the treatment of
customer and swap counterparty
positions, funds, and property.
(iii) In making a determination under
subparagraph (A) or (B)(iii) that the
clearing requirement shall apply, the
Commission may require such terms and
conditions to the requirement as the
Commission determines to be
appropriate.
(E) Rules.--Not later than 1 year after the
date of the enactment of this subsection, the
Commission shall adopt rules for a derivatives
clearing organization's submission for review,
pursuant to this paragraph, of a swap, or a
group, category, type, or class of swaps, that
it seeks to accept for clearing. Nothing in
this subparagraph limits the Commission from
making a determination under subparagraph
(B)(iii) for swaps described in subparagraph
(B)(ii).
(3) Stay of clearing requirement.--
(A) In general.--After making a determination
pursuant to paragraph (2)(B), the Commission,
on application of a counterparty to a swap or
on its own initiative, may stay the clearing
requirement of paragraph (1) until the
Commission completes a review of the terms of
the swap (or the group, category, type, or
class of swaps) and the clearing arrangement.
(B) Deadline.--The Commission shall complete
a review undertaken pursuant to subparagraph
(A) not later than 90 days after issuance of
the stay, unless the derivatives clearing
organization that clears the swap, or group,
category, type, or class of swaps agrees to an
extension of the time limitation established
under this subparagraph.
(C) Determination.--Upon completion of the
review undertaken pursuant to subparagraph (A),
the Commission may--
(i) determine, unconditionally or
subject to such terms and conditions as
the Commission determines to be
appropriate, that the swap, or group,
category, type, or class of swaps must
be cleared pursuant to this subsection
if it finds that such clearing is
consistent with paragraph (2)(D); or
(ii) determine that the clearing
requirement of paragraph (1) shall not
apply to the swap, or group, category,
type, or class of swaps.
(D) Rules.--Not later than 1 year after the
date of the enactment of the Wall Street
Transparency and Accountability Act of 2010,
the Commission shall adopt rules for reviewing,
pursuant to this paragraph, a derivatives
clearing organization's clearing of a swap, or
a group, category, type, or class of swaps,
that it has accepted for clearing.
(4) Prevention of evasion.--
(A) In general.--The Commission shall
prescribe rules under this subsection (and
issue interpretations of rules prescribed under
this subsection) as determined by the
Commission to be necessary to prevent evasions
of the mandatory clearing requirements under
this Act.
(B) Duty of commission to investigate and
take certain actions.--To the extent the
Commission finds that a particular swap, group,
category, type, or class of swaps would
otherwise be subject to mandatory clearing but
no derivatives clearing organization has listed
the swap, group, category, type, or class of
swaps for clearing, the Commission shall--
(i) investigate the relevant facts
and circumstances;
(ii) within 30 days issue a public
report containing the results of the
investigation; and
(iii) take such actions as the
Commission determines to be necessary
and in the public interest, which may
include requiring the retaining of
adequate margin or capital by parties
to the swap, group, category, type, or
class of swaps.
(C) Effect on authority.--Nothing in this
paragraph--
(i) authorizes the Commission to
adopt rules requiring a derivatives
clearing organization to list for
clearing a swap, group, category, type,
or class of swaps if the clearing of
the swap, group, category, type, or
class of swaps would threaten the
financial integrity of the derivatives
clearing organization; and
(ii) affects the authority of the
Commission to enforce the open access
provisions of paragraph (1)(B) with
respect to a swap, group, category,
type, or class of swaps that is listed
for clearing by a derivatives clearing
organization.
(5) Reporting transition rules.--Rules adopted by the
Commission under this section shall provide for the
reporting of data, as follows:
(A) Swaps entered into before the date of the
enactment of this subsection shall be reported
to a registered swap data repository or the
Commission no later than 180 days after the
effective date of this subsection.
(B) Swaps entered into on or after such date
of enactment shall be reported to a registered
swap data repository or the Commission no later
than the later of--
(i) 90 days after such effective
date; or
(ii) such other time after entering
into the swap as the Commission may
prescribe by rule or regulation.
(6) Clearing transition rules.--
(A) Swaps entered into before the date of the
enactment of this subsection are exempt from
the clearing requirements of this subsection if
reported pursuant to paragraph (5)(A).
(B) Swaps entered into before application of
the clearing requirement pursuant to this
subsection are exempt from the clearing
requirements of this subsection if reported
pursuant to paragraph (5)(B).
(7) Exceptions.--
(A) In general.--The requirements of
paragraph (1)(A) shall not apply to a swap if 1
of the counterparties to the swap--
(i) is not a financial entity;
(ii) is using swaps to hedge or
mitigate commercial risk; and
(iii) notifies the Commission, in a
manner set forth by the Commission, how
it generally meets its financial
obligations associated with entering
into non-cleared swaps.
(B) Option to clear.--The application of the
clearing exception in subparagraph (A) is
solely at the discretion of the counterparty to
the swap that meets the conditions of clauses
(i) through (iii) of subparagraph (A).
(C) Financial entity definition.--
(i) In general.--For the purposes of
this paragraph, the term ``financial
entity'' means--
(I) a swap dealer;
(II) a security-based swap
dealer;
(III) a major swap
participant;
(IV) a major security-based
swap participant;
(V) a commodity pool;
(VI) a private fund as
defined in section 202(a) of
the Investment Advisers Act of
1940 (15 U.S.C. 80-b-2(a));
(VII) an employee benefit
plan as defined in paragraphs
(3) and (32) of section 3 of
the Employee Retirement Income
Security Act of 1974 (29 U.S.C.
1002);
(VIII) a person predominantly
engaged in activities that are
in the business of banking, or
in activities that are
financial in nature, as defined
in section 4(k) of the Bank
Holding Company Act of 1956.
(ii) Exclusion.--The Commission shall
consider whether to exempt small banks,
savings associations, farm credit
system institutions, and credit unions,
including--
(I) depository institutions
with total assets of
$10,000,000,000 or less;
(II) farm credit system
institutions with total assets
of $10,000,000,000 or less; or
(III) credit unions with
total assets of $10,000,000,000
or less.
(iii) Limitation.--Such definition
shall not include an entity whose
primary business is providing
financing, and uses derivatives for the
purpose of hedging underlying
commercial risks related to interest
rate and foreign currency exposures, 90
percent or more of which arise from
financing that facilitates the purchase
or lease of products, 90 percent or
more of which are manufactured by the
parent company or another subsidiary of
the parent company.
(D) Treatment of affiliates.--
(i) In general.--An affiliate of a
person that qualifies for an exception
under subparagraph (A) (including
affiliate entities predominantly
engaged in providing financing for the
purchase of the merchandise or
manufactured goods of the person) may
qualify for the exception only if the
affiliate--
(I) enters into the swap to
hedge or mitigate the
commercial risk of the person
or other affiliate of the
person that is not a financial
entity, and the commercial risk
that the affiliate is hedging
or mitigating has been
transferred to the affiliate;
(II) is directly and wholly-
owned by another affiliate
qualified for the exception
under this subparagraph or an
entity that is not a financial
entity;
(III) is not indirectly
majority-owned by a financial
entity;
(IV) is not ultimately owned
by a parent company that is a
financial entity; and
(V) does not provide any
services, financial or
otherwise, to any affiliate
that is a nonbank financial
company supervised by the Board
of Governors (as defined under
section 102 of the Financial
Stability Act of 2010).
(ii) Limitation on qualifying
affiliates.--The exception in clause
(i) shall not apply if the affiliate
is--
(I) a swap dealer;
(II) a security-based swap
dealer;
(III) a major swap
participant;
(IV) a major security-based
swap participant;
(V) a commodity pool;
(VI) a bank holding company;
(VII) a private fund, as
defined in section 202(a) of
the Investment Advisers Act of
1940 (15 U.S.C. 80-b-2(a));
(VIII) an employee benefit
plan or government plan, as
defined in paragraphs (3) and
(32) of section 3 of the
Employee Retirement Income
Security Act of 1974 (29 U.S.C.
1002);
(IX) an insured depository
institution;
(X) a farm credit system
institution;
(XI) a credit union;
(XII) a nonbank financial
company supervised by the Board
of Governors (as defined under
section 102 of the Financial
Stability Act of 2010); or
(XIII) an entity engaged in
the business of insurance and
subject to capital requirements
established by an insurance
governmental authority of a
State, a territory of the
United States, the District of
Columbia, a country other than
the United States, or a
political subdivision of a
country other than the United
States that is engaged in the
supervision of insurance
companies under insurance law.
(iii) Limitation on affiliates'
affiliates.--Unless the Commission
determines, by order, rule, or
regulation, that it is in the public
interest, the exception in clause (i)
shall not apply with respect to an
affiliate if the affiliate is itself
affiliated with--
(I) a major security-based
swap participant;
(II) a security-based swap
dealer;
(III) a major swap
participant; or
(IV) a swap dealer.
(iv) Conditions on transactions.--
With respect to an affiliate that
qualifies for the exception in clause
(i)--
(I) the affiliate may not
enter into any swap other than
for the purpose of hedging or
mitigating commercial risk; and
(II) neither the affiliate
nor any person affiliated with
the affiliate that is not a
financial entity may enter into
a swap with or on behalf of any
affiliate that is a financial
entity or otherwise assume,
net, combine, or consolidate
the risk of swaps entered into
by any such financial entity,
except one that is an affiliate
that qualifies for the
exception under clause (i).
(v) Transition rule for affiliates.--
An affiliate, subsidiary, or a wholly
owned entity of a person that qualifies
for an exception under subparagraph (A)
and is predominantly engaged in
providing financing for the purchase or
lease of merchandise or manufactured
goods of the person shall be exempt
from the margin requirement described
in section 4s(e) and the clearing
requirement described in paragraph (1)
with regard to swaps entered into to
mitigate the risk of the financing
activities for not less than a 2-year
period beginning on the date of
enactment of this clause.
(vi) Risk management program.--Any
swap entered into by an affiliate that
qualifies for the exception in clause
(i) shall be subject to a centralized
risk management program of the
affiliate, which is reasonably designed
both to monitor and manage the risks
associated with the swap and to
identify each of the affiliates on
whose behalf a swap was entered into.
(E) Election of counterparty.--
(i) Swaps required to be cleared.--
With respect to any swap that is
subject to the mandatory clearing
requirement under this subsection and
entered into by a swap dealer or a
major swap participant with a
counterparty that is not a swap dealer,
major swap participant, security-based
swap dealer, or major security-based
swap participant, the counterparty
shall have the sole right to select the
derivatives clearing organization at
which the swap will be cleared.
(ii) Swaps not required to be
cleared.--With respect to any swap that
is not subject to the mandatory
clearing requirement under this
subsection and entered into by a swap
dealer or a major swap participant with
a counterparty that is not a swap
dealer, major swap participant,
security-based swap dealer, or major
security-based swap participant, the
counterparty--
(I) may elect to require
clearing of the swap; and
(II) shall have the sole
right to select the derivatives
clearing organization at which
the swap will be cleared.
(F) Abuse of exception.--The Commission may
prescribe such rules or issue interpretations
of the rules as the Commission determines to be
necessary to prevent abuse of the exceptions
described in this paragraph. The Commission may
also request information from those persons
claiming the clearing exception as necessary to
prevent abuse of the exceptions described in
this paragraph.
(8) Trade execution.--
(A) In general.--With respect to transactions
involving swaps subject to the clearing
requirement of paragraph (1), counterparties
shall--
(i) execute the transaction on a
board of trade designated as a contract
market under section 5; or
(ii) execute the transaction on a
swap execution facility registered
under 5h or a swap execution facility
that is exempt from registration under
section 5h(f) of this Act.
(B) Exception.--The requirements of clauses
(i) and (ii) of subparagraph (A) shall not
apply if no board of trade or swap execution
facility makes the swap available to trade or
for swap transactions subject to the clearing
exception under paragraph (7).
(i) Applicability.--The provisions of this Act relating to
swaps that were enacted by the Wall Street Transparency and
Accountability Act of 2010 (including any rule prescribed or
regulation promulgated under that Act), shall not apply to
activities outside the United States unless those activities--
(1) have a direct and significant connection with
activities in, or effect on, commerce of the United
States; or
(2) contravene such rules or regulations as the
Commission may prescribe or promulgate as are necessary
or appropriate to prevent the evasion of any provision
of this Act that was enacted by the Wall Street
Transparency and Accountability Act of 2010.
(j) Committee Approval by Board.--Exemptions from the
requirements of subsection (h)(1) to clear a swap and
subsection (h)(8) to execute a swap through a board of trade or
swap execution facility shall be available to a counterparty
that is an issuer of securities that are registered under
section 12 of the Securities Exchange Act of 1934 (15 U.S.C.
78l) or that is required to file reports pursuant to section
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o)
only if an appropriate committee of the issuer's board or
governing body has reviewed and approved its decision to enter
into swaps that are subject to such exemptions.
* * * * * * *
Sec. 4d. (a) It shall be unlawful for any person to be a
futures commission merchant unless--
(1) such person shall have registered, under this
Act, with the Commission as such futures commission
merchant and such registration shall not have expired
nor been suspended nor revoked; and
(2) such person shall, whether a member or nonmember
of a contract market or derivatives transaction
execution facility, treat and deal with all money,
securities, and property received by such person to
margin, guarantee, or secure the trades or contracts of
any customer of such person, or accruing to such
customer as the result of such trades or contracts, as
belonging to such customer. Such money, securities, and
property shall be separately accounted for and shall
not be commingled with the funds of such commission
merchant or be used to margin or guarantee the trades
or contracts, or to secure or extend the credit, of any
customer or person other than the one for whom the same
are held: Provided, however, That such money,
securities, and property of the customers of such
futures commission merchant may, for convenience, be
commingled and deposited in the same account or
accounts with [any bank or trust company] any bank,
trust company, or qualified digital commodity custodian
or with the clearing house organization of such
contract market or derivatives transaction execution
facility, and that such share thereof as in the normal
course of business shall be necessary to margin,
guarantee, secure, transfer, adjust, or settle the
contracts or trades of such customers, or resulting
market positions, with the clearing-house organization
of such contract market or derivatives transaction
execution facility or with any member of such contract
market or derivatives transaction execution facility,
may be withdrawn and applied to such purposes,
including the payment of commissions, brokerage,
interest, taxes, storage, and other charges, lawfully
accruing in connection with such contracts and trades:
Provided further, That in accordance with such terms
and conditions as the Commission may prescribe by rule,
regulation, or order, such money, securities, and
property of the customers of such futures commission
merchant may be commingled and deposited as provided in
this section with any other money, securities, and
property received by such futures commission merchant
and required by the Commission to be separately
accounted for and treated and dealt with as belonging
to the customers of such futures commission merchant:
Provided further, That such money may be invested in
obligations of the United States, in general
obligations of any State or of any political
subdivision thereof, and in obligations fully
guaranteed as to principal and interest by the United
States, such investments to be made in accordance with
such rules and regulations and subject to such
conditions as the Commission may prescribe : Provided
further, That any such property that is a digital
commodity shall be held in a qualified digital
commodity custodian.
(b) It shall be unlawful for any person, including but not
limited to any clearing agency of a contract market or
derivatives transaction execution facility and any depository,
that has received any money, securities, or property for
deposit in a separate account as provided in paragraph (2) of
this section, to hold, dispose of, or use any such money,
securities, or property as belonging to the depositing futures
commission merchant or any person other than the customers of
such futures commission merchant.
(c) Conflicts of Interest.--The Commission shall require that
futures commission merchants and introducing brokers implement
conflict-of-interest systems and procedures that--
(1) establish structural and institutional safeguards
to ensure that the activities of any person within the
firm relating to research or analysis of the price or
market for any commodity are separated by appropriate
informational partitions within the firm from the
review, pressure, or oversight of persons whose
involvement in trading or clearing activities might
potentially bias the judgment or supervision of the
persons; and
(2) address such other issues as the Commission
determines to be appropriate.
(d) Designation of Chief Compliance Officer.--Each futures
commission merchant shall designate an individual to serve as
its Chief Compliance Officer and perform such duties and
responsibilities as shall be set forth in regulations to be
adopted by the Commission or rules to be adopted by a futures
association registered under section 17.
(e) Consistent with this Act, the Commission, in consultation
with the Securities and Exchange Commission, shall issue such
rules, regulations, or orders as are necessary to avoid
duplicative or conflicting regulations applicable to any
futures commission merchant registered with the Commission
pursuant to section 4f(a) (except paragraph (2) thereof), that
is also registered with the Securities and Exchange Commission
pursuant to section 15(b) of the Securities Exchange Act
(except paragraph (11) thereof), involving the application of--
(1) section 8, section 15(c)(3), and section 17 of
the Securities Exchange Act of 1934 and the rules and
regulations thereunder related to the treatment of
customer funds, securities, or property, maintenance of
books and records, financial reporting or other
financial responsibility rules (as defined in section
3(a)(40) of the Securities Exchange Act of 1934),
involving security futures products; and
(2) similar provisions of this Act and the rules and
regulations thereunder involving security futures
products.
(f) Swaps.--
(1) Registration requirement.--It shall be unlawful
for any person to accept any money, securities, or
property (or to extend any credit in lieu of money,
securities, or property) from, for, or on behalf of a
swaps customer to margin, guarantee, or secure a swap
cleared by or through a derivatives clearing
organization (including money, securities, or property
accruing to the customer as the result of such a swap),
unless the person shall have registered under this Act
with the Commission as a futures commission merchant,
and the registration shall not have expired nor been
suspended nor revoked.
(2) Cleared swaps.--
(A) Segregation required.--A futures
commission merchant shall treat and deal with
all money, securities, and property of any
swaps customer received to margin, guarantee,
or secure a swap cleared by or though a
derivatives clearing organization (including
money, securities, or property accruing to the
swaps customer as the result of such a swap) as
belonging to the swaps customer.
(B) Commingling prohibited.--Money,
securities, and property of a swaps customer
described in subparagraph (A) shall be
separately accounted for and shall not be
commingled with the funds of the futures
commission merchant or be used to margin,
secure, or guarantee any trades or contracts of
any swaps customer or person other than the
person for whom the same are held.
(3) Exceptions.--
(A) Use of funds.--
(i) In general.--Notwithstanding
paragraph (2), money, securities, and
property of swap customers of a futures
commission merchant described in
paragraph (2) may, for convenience, be
commingled and deposited in the same
account or accounts with [any bank or
trust company] any bank, trust company,
or qualified digital commodity
custodian or with a derivatives
clearing organization.
(ii) Withdrawal.--Notwithstanding
paragraph (2), such share of the money,
securities, and property described in
clause (i) as in the normal course of
business shall be necessary to margin,
guarantee, secure, transfer, adjust, or
settle a cleared swap with a
derivatives clearing organization, or
with any member of the derivatives
clearing organization, may be withdrawn
and applied to such purposes, including
the payment of commissions, brokerage,
interest, taxes, storage, and other
charges, lawfully accruing in
connection with the cleared swap.
(B) Commission action.--Notwithstanding
paragraph (2), in accordance with such terms
and conditions as the Commission may prescribe
by rule, regulation, or order, any money,
securities, or property of the swaps customers
of a futures commission merchant described in
paragraph (2) may be commingled and deposited
in customer accounts with any other money,
securities, or property received by the futures
commission merchant and required by the
Commission to be separately accounted for and
treated and dealt with as belonging to the
swaps customer of the futures commission
merchant.
(4) Permitted investments.--Money described in
paragraph (2) may be invested in obligations of the
United States, in general obligations of any State or
of any political subdivision of a State, and in
obligations fully guaranteed as to principal and
interest by the United States, or in any other
investment that the Commission may by rule or
regulation prescribe, and such investments shall be
made in accordance with such rules and regulations and
subject to such conditions as the Commission may
prescribe.
(5) Commodity contract.--A swap cleared by or through
a derivatives clearing organization shall be considered
to be a commodity contract as such term is defined in
section 761 of title 11, United States Code, with
regard to all money, securities, and property of any
swaps customer received by a futures commission
merchant or a derivatives clearing organization to
margin, guarantee, or secure the swap (including money,
securities, or property accruing to the customer as the
result of the swap).
(6) Prohibition.--It shall be unlawful for any
person, including any derivatives clearing organization
and any depository institution, that has received any
money, securities, or property for deposit in a
separate account or accounts as provided in paragraph
(2) to hold, dispose of, or use any such money,
securities, or property as belonging to the depositing
futures commission merchant or any person other than
the swaps customer of the futures commission merchant.
(g) It shall be unlawful for any person to be an introducing
broker unless such person shall have registered under this Act
with the Commission as an introducing broker and such
registration shall not have expired nor been suspended nor
revoked.
(h) Notwithstanding subsection (a)(2) or the rules and
regulations thereunder, and pursuant to an exemption granted by
the Commission under section 4(c) of this Act or pursuant to a
rule or regulation, a futures commission merchant that is
registered pursuant to section 4f(a)(1) of this Act and also
registered as a broker or dealer pursuant to section 15(b)(1)
of the Securities Exchange Act of 1934 may, pursuant to a
portfolio margining program approved by the Securities and
Exchange Commission pursuant to section 19(b) of the Securities
Exchange Act of 1934, hold in a portfolio margining account
carried as a securities account subject to section 15(c)(3) of
the Securities Exchange Act of 1934 and the rules and
regulations thereunder, a contract for the purchase or sale of
a commodity for future delivery or an option on such a
contract, and any money, securities or other property received
from a customer to margin, guarantee or secure such a contract,
or accruing to a customer as the result of such a contract. The
Commission shall consult with the Securities and Exchange
Commission to adopt rules to ensure that such transactions and
accounts are subject to comparable requirements to the extent
practical for similar products.
* * * * * * *
Sec. 4k. (1) It shall be unlawful for any person to be
associated with a futures commission merchant as a partner,
officer, or employee, or to be associated with an introducing
broker as a partner, officer, employee, or agent (or any person
occupying a similar status or performing similar functions), in
any capacity that involves (i) the solicitation or acceptance
of customers' orders (other than in a clerical capacity) or
(ii) the supervision of any person or persons so engaged,
unless such person is registered with the Commission under this
Act as an associated person of such futures commission merchant
or of such introducing broker and such registration shall not
have expired, been suspended (and the period of suspension has
not expired), or been revoked. It shall be unlawful for a
futures commission merchant or introducing broker to permit
such a person to become or remain associated with the futures
commission merchant or introducing broker in any such capacity
if such futures commission merchant or introducing broker knew
or should have known that such person was not so registered or
that such registration had expired, been suspended (and the
period of suspension has not expired), or been revoked. Any
individual who is registered as a floor broker, futures
commission merchant, or introducing broker (and such
registration is not suspended or revoked) need not also
register under this subsection.
(2) It shall be unlawful for any person to be associated with
a commodity pool operator as a partner, officer, employee,
consultant, or agent (or any person occupying a similar status
or performing similar functions), in any capacity that involves
(i) the solicitation of funds, securities, or property for a
participation in a commodity pool or (ii) the supervision of
any person or persons so engaged, unless such person is
registered with the Commission under this Act as an associated
person of such commodity pool operator and such registration
shall not have expired, been suspended (and the period of
suspension has not expired), or been revoked. It shall be
unlawful for a commodity pool operator to permit such a person
to become or remain associated with the commodity pool operator
in any such capacity if the commodity pool operator knew or
should have known that such person was not so registered or
that such registration had expired, been suspended (and the
period of suspension has not expired), or been revoked. Any
individual who is registered as a floor broker, futures
commission merchant, introducing broker, commodity pool
operator, or as an associated person of another category of
registrant under this section (and such registration is not
suspended or revoked) need not also register under this
subsection. The Commission may exempt any person or class of
persons from having to register under this subsection by rule,
regulation, or order.
(3) It shall be unlawful for any person to be associated with
a commodity trading advisor as a partner, officer, employee,
consultant, or agent (or any person occupying a similar status
or performing similar functions), in any capacity which
involves (i) the solicitation of a client's or prospective
client's discretionary account or (ii) the supervision of any
person or persons so engaged, unless such person is registered
with the Commission under this Act as an associated person of
such commodity trading advisor and such registration shall not
have expired, been suspended (and the period of suspension has
not expired), or been revoked. It shall be unlawful for a
commodity trading advisor to permit such a person to become or
remain associated with the commodity trading advisor in any
such capacity if the commodity trading advisor knew or should
have known that such person was not so registered or that such
registration had expired, been suspended (and the period of
suspension has not expired), or been revoked. Any individual
who is registered as a floor broker, futures commission
merchant, introducing broker, commodity trading advisor, or as
an associated person of another category of registrant under
this section (and such registration is not suspended or
revoked) need not also register under this subsection. The
Commission may exempt any person or class of persons from
having to register under this subsection by rule, regulation,
or order.
(4) It shall be unlawful for any person to act as an
associated person of a digital commodity broker or an
associated person of a digital commodity dealer unless the
person is registered with the Commission under this Act and
such registration shall not have expired, been suspended (and
the period of suspension has not expired), or been revoked. It
shall be unlawful for a digital commodity broker or a digital
commodity dealer to permit such a person to become or remain
associated with the digital commodity broker or digital
commodity dealer if the digital commodity broker or digital
commodity dealer knew or should have known that the person was
not so registered or that the registration had expired, been
suspended (and the period of suspension has not expired), or
been revoked.
[(4)] (5) Any person desiring to be registered as an
associated person of a futures commission merchant, of an
introducing broker, of a commodity pool operator, [or of a
commodity trading advisor] of a commodity trading advisor, of a
digital commodity broker, or of a digital commodity dealer
shall make application to the Commission in the form and manner
prescribed by the Commission, giving such information and facts
as the Commission may deem necessary concerning the applicant.
Such person, when registered hereunder, shall likewise continue
to report and furnish to the Commission such information as the
Commission may require. Such registration shall expire at such
time as the Commission may by rule, regulation, or order
prescribe.
[(5)] (6) Any associated person of a broker or dealer that is
registered with the Securities and Exchange Commission, and who
limits its solicitation of orders, acceptance of orders, or
execution of orders, or placing of orders on behalf of others
involving any contracts of sale of any commodity for future
delivery or any option on such a contract, on or subject to the
rules of any contract market or registered derivatives
transaction execution facility to security futures products,
shall be exempt from the following provisions of this Act and
the rules thereunder:
(A) Subsections (b), (d), (e), and (g) of section 4c.
(B) Sections 4d, 4e, and 4h.
(C) Subsections (b) and (c) of section 4f.
(D) Section 4j.
(E) Paragraph (1) of this section.
(F) Section 4p.
(G) Section 6d.
(H) Subsections (d) and (g) of section 8.
(I) Section 16.
[(6)] (7) It shall be unlawful for any registrant to permit a
person to become or remain an associated person of such
registrant, if the registrant knew or should have known of
facts regarding such associated person that are set forth as
statutory disqualifications in section 8a(2) of this Act,
unless such registrant has notified the Commission of such
facts and the Commission has determined that such person should
be registered or temporarily licensed.
* * * * * * *
Sec. 4m. (1) It shall be unlawful for any commodity trading
advisor or commodity pool operator, unless registered under
this Act, to make use of the mails or any means or
instrumentality of interstate commerce in connection with his
business as such commodity trading advisor or commodity pool
operator: Provided, That the provisions of this section shall
not apply to any commodity trading advisor who, during the
course of the preceding twelve months, has not furnished
commodity trading advice to more than fifteen persons and who
does not hold himself out generally to the public as a
commodity trading advisor. The provisions of this section shall
not apply to any commodity trading advisor who is a (1) dealer,
processor, broker, or seller in cash market transactions of any
commodity specifically set forth in section 2(a) of this Act
prior to the enactment of the Commodity Futures Trading
Commission Act of 1974 (or products thereof) or (2) nonprofit,
voluntary membership, general farm organization, who provides
advice on the sale or purchase of any commodity specifically
set forth in section 2(a) of this Act prior to the enactment of
the Commodity Futures Trading Commission Act of 1974; if the
advice by the person described in clause (1) or (2) of this
sentence as a commodity trading advisor is solely incidental to
the conduct of that person's business: Provided, That such
person shall be subject to proceedings under section 14 of this
Act.
(2) Nothing in this Act shall relieve any person of any
obligation or duty, or affect the availability of any right or
remedy available to the Securities and Exchange Commission or
any private party arising under the Securities Act of 1933 or
the Securities Exchange Act of 1934 governing the issuance,
offer, purchase, or sale of securities of a commodity pool, or
of persons engaged in transactions with respect to such
securities, or reporting by a commodity pool.
(3) Exception.--
(A) In general.--Paragraph (1) shall not apply to
[any commodity trading advisor] a commodity pool
operator or commodity trading advisor that is
registered with the Securities and Exchange Commission
as an investment adviser whose business does not
consist primarily of [acting as a commodity trading
advisor] acting as a commodity pool operator or
commodity trading advisor, as defined in section 1a,
and that does not act as a commodity trading advisor to
any commodity pool that is engaged primarily in trading
commodity interests.
(B) Engaged primarily.--For purposes of subparagraph
(A), a commodity trading advisor or a commodity pool
shall be considered to be ``engaged primarily'' in the
business of being a commodity trading advisor or
commodity pool if it is or holds itself out to the
public as being engaged primarily, or proposes to
engage primarily, in the business of advising on
commodity interests or investing, reinvesting, owning,
holding, or trading in commodity interests,
respectively.
(C) Commodity interests.--For purposes of this
paragraph, commodity interests shall include contracts
of sale of a commodity for future delivery, options on
such contracts, security futures, swaps, leverage
contracts, foreign exchange, spot and forward contracts
on physical commodities, digital commodities, and any
monies held in an account used for trading commodity
interests.
* * * * * * *
SEC. 4U. REGISTRATION AND REGULATION OF DIGITAL COMMODITY BROKERS AND
DEALERS.
(a) Registration.--It shall be unlawful for any person to act
as a digital commodity broker or digital commodity dealer
unless the person is registered as such with the Commission.
(b) Requirements.--
(1) In general.--A person shall register as a digital
commodity broker or digital commodity dealer by filing
a registration application with the Commission.
(2) Contents.--
(A) In general.--The application shall be
made in such form and manner as is prescribed
by the Commission, and shall contain such
information as the Commission considers
necessary concerning the business in which the
applicant is or will be engaged.
(B) Continual reporting.--A person that is
registered as a digital commodity broker or
digital commodity dealer shall continue to
submit to the Commission reports that contain
such information pertaining to the business of
the person as the Commission may require.
(3) Transition.--Within 180 days after the date of
the enactment of this section, the Commission shall
prescribe rules providing for the registration of
digital commodity brokers and digital commodity dealers
under this section.
(4) Statutory disqualification.--Except to the extent
otherwise specifically provided by rule, regulation, or
order, it shall be unlawful for a digital commodity
broker or digital commodity dealer to permit any person
who is associated with a digital commodity broker or a
digital commodity dealer and who is subject to a
statutory disqualification to effect or be involved in
effecting a contract for sale of a digital commodity on
behalf of the digital commodity broker or the digital
commodity dealer, respectively, if the digital
commodity broker or digital commodity dealer,
respectively, knew, or in the exercise of reasonable
care should have known, of the statutory
disqualification.
(5) Limitations on certain assets.--A registered
digital commodity broker or registered digital
commodity dealer shall not offer, offer to enter into,
enter into, or facilitate any contract for sale of a
digital commodity that has not been certified under
section 5c(d).
(c) Additional Registrations.--
(1) With the commission.--Any person required to be
registered as a digital commodity broker or digital
commodity dealer may also be registered as a futures
commission merchant, introducing broker, or swap
dealer.
(2) With the securities and exchange commission.--Any
person required to be registered as a digital commodity
broker or digital commodity dealer under this section
may register with the Securities and Exchange
Commission as a digital asset broker or digital asset
dealer, pursuant to section 15(b) of the Securities
Exchange Act of 1934, as applicable, if the digital
asset broker or digital asset dealer limits its
solicitation of orders, acceptance of orders, or
execution of orders, or placing of orders on behalf of
others involving any contract of sale of digital
assets.
(3) With membership in a registered futures
association.--Any person required to be registered as a
digital commodity broker or digital commodity dealer
under this section shall be a member of a registered
futures association.
(4) Registration required.--Any person required to be
registered as a digital commodity broker or digital
commodity dealer under this section shall register with
the Commission as such regardless of whether the person
is registered as such with another State or Federal
regulator.
(d) Rulemaking.--
(1) In general.--The Commission shall prescribe such
rules applicable to registered digital commodity
brokers and registered digital commodity dealers as are
appropriate to carry out this section, including rules
in the public interest that limit the activities of
digital commodity brokers and digital commodity
dealers.
(2) Multiple registrants.--The Commission shall
prescribe rules or regulations permitting, or may
otherwise authorize, exemptions or additional
requirements applicable to persons with multiple
registrations under this Act, including as futures
commission merchants, introducing brokers, digital
commodity brokers, digital commodity dealers, or swap
dealers, as may be in the public interest to reduce
compliance costs and promote customer protection.
(e) Capital Requirements.--
(1) In general.--Each registered digital commodity
broker and registered digital commodity dealer shall
meet such minimum capital requirements as the
Commission may prescribe to ensure that the digital
commodity broker or digital commodity dealer,
respectively, is able to--
(A) meet, and continue to meet, at all times,
the obligations of such a registrant;
(B) conduct an orderly wind-down of the
activities of the digital commodity broker or
digital commodity dealer, respectively; and
(C) in the case of a digital commodity
dealer, fulfill the customer obligations of the
digital commodity dealer for any margined,
leveraged, or financed transactions.
(2) Rule of construction.--Nothing in this section
shall limit, or be construed to limit, the authority of
the Securities and Exchange Commission to set financial
responsibility rules for a broker or dealer registered
pursuant to section 15(b) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(b)) (except for section
15(b)(11) of such Act (15 U.S.C. 78o(b)(11)) in
accordance with section 15(c)(3) of such Act (15 U.S.C.
78o(c)(3)).
(3) Futures commission merchants and other dealers.--
(A) In general.--Each futures commission
merchant, introducing broker, digital commodity
broker, digital commodity dealer, broker, and
dealer shall maintain sufficient capital to
comply with the stricter of any applicable
capital requirements to which the futures
commission merchant, introducing broker,
digital commodity broker, digital commodity
dealer, broker, or dealer, respectively, is
subject under this Act or the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.).
(B) Coordination of capital requirements.--
(i) Commission rule.--The Commission
shall, by rule, provide appropriate
offsets to any applicable capital
requirement for a person with multiple
registrations as a digital commodity
dealer, digital commodity broker,
futures commission merchant, or
introducing broker.
(ii) Joint rule.--The Commission and
the Securities and Exchange Commission
shall jointly, by rule, provide
appropriate offsets to any applicable
capital requirement for a person with
multiple registrations as a digital
commodity dealer, digital commodity
broker, futures commission merchant,
introducing broker, broker, or dealer.
(f) Reporting and Recordkeeping.--Each registered digital
commodity broker and registered digital commodity dealer--
(1) shall make such reports as are required by the
Commission by rule or regulation regarding the
transactions, positions, and financial condition of the
digital commodity broker or digital commodity dealer,
respectively;
(2) shall keep books and records in such form and
manner and for such period as may be prescribed by the
Commission by rule or regulation; and
(3) shall keep the books and records open to
inspection and examination by any representative of the
Commission.
(g) Daily Trading Records.--
(1) In general.--Each registered digital commodity
broker and registered digital commodity dealer shall
maintain daily trading records of the transactions of
the digital commodity broker or digital commodity
dealer, respectively, and all related records
(including related forward or derivatives transactions)
and recorded communications, including electronic mail,
instant messages, and recordings of telephone calls,
for such period as the Commission may require by rule
or regulation.
(2) Information requirements.--The daily trading
records shall include such information as the
Commission shall require by rule or regulation.
(3) Counterparty records.--Each registered digital
commodity broker and registered digital commodity
dealer shall maintain daily trading records for each
customer or counterparty in a manner and form that is
identifiable with each digital commodity transaction.
(4) Audit trail.--Each registered digital commodity
broker and registered digital commodity dealer shall
maintain a complete audit trail for conducting
comprehensive and accurate trade reconstructions.
(h) Business Conduct Standards.--
(1) In general.--Each registered digital commodity
broker and registered digital commodity dealer shall
conform with such business conduct standards as the
Commission, by rule or regulation, prescribes related
to--
(A) fraud, manipulation, and other abusive
practices involving spot or margined,
leveraged, or financed digital commodity
transactions (including transactions that are
offered but not entered into);
(B) diligent supervision of the business of
the registered digital commodity broker or
digital commodity dealer, respectively; and
(C) such other matters as the Commission
deems appropriate.
(2) Business conduct requirements.--The Commission
shall, by rule, prescribe business conduct requirements
which--
(A) require disclosure by a registered
digital commodity broker and registered digital
commodity dealer to any counterparty to the
transaction (other than an eligible contract
participant) of--
(i) information about the material
risks and characteristics of the
digital commodity; and
(ii) information about the material
risks and characteristics of the
transaction;
(B) establish a duty for such a digital
commodity broker and such a digital commodity
dealer to communicate in a fair and balanced
manner based on principles of fair dealing and
good faith;
(C) establish standards governing digital
commodity platform marketing and advertising,
including testimonials and endorsements; and
(D) establish such other standards and
requirements as the Commission may determine
are--
(i) in the public interest;
(ii) appropriate for the protection
of customers; or
(iii) otherwise in furtherance of the
purposes of this Act.
(3) Prohibition on fraudulent practices.--It shall be
unlawful for a registered digital commodity broker or
registered digital commodity dealer to--
(A) employ any device, scheme, or artifice to
defraud any customer or counterparty;
(B) engage in any transaction, practice, or
course of business that operates as a fraud or
deceit on any customer or counterparty; or
(C) engage in any act, practice, or course of
business that is fraudulent, deceptive, or
manipulative.
(i) Duties.--
(1) Risk management procedures.--Each registered
digital commodity broker and registered digital
commodity dealer shall establish robust and
professional risk management systems adequate for
managing the day-to-day business of the digital
commodity broker or digital commodity dealer,
respectively.
(2) Disclosure of general information.--Each
registered digital commodity broker and registered
digital commodity dealer shall disclose to the
Commission information concerning--
(A) the terms and conditions of the
transactions of the digital commodity broker or
digital commodity dealer, respectively;
(B) the trading operations, mechanisms, and
practices of the digital commodity broker or
digital commodity dealer, respectively;
(C) financial integrity protections relating
to the activities of the digital commodity
broker or digital commodity dealer,
respectively; and
(D) other information relevant to trading in
digital commodities by the digital commodity
broker or digital commodity dealer,
respectively.
(3) Ability to obtain information.--Each registered
digital commodity broker and registered digital
commodity dealer shall--
(A) establish and enforce internal systems
and procedures to obtain any necessary
information to perform any of the functions
described in this section; and
(B) provide the information to the
Commission, on request.
(4) Conflicts of interest.--Each registered digital
commodity broker and digital commodity dealer shall
implement conflict-of-interest systems and procedures
that--
(A) establish structural and institutional
safeguards--
(i) to minimize conflicts of interest
that might potentially bias the
judgment or supervision of the digital
commodity broker or digital commodity
dealer, respectively, and contravene
the principles of fair and equitable
trading and the business conduct
standards described in this Act,
including conflicts arising out of
transactions or arrangements with
affiliates (including affiliates acting
as digital asset issuers, digital
commodity dealers, or qualified digital
commodity custodians), which may
include information partitions and the
legal separation of different digital
commodity transaction intermediaries;
and
(ii) to ensure that the activities of
any person within the digital commodity
broker or digital commodity dealer
relating to research or analysis of the
price or market for any digital
commodity or acting in a role of
providing exchange activities or making
determinations as to accepting exchange
customers are separated by appropriate
informational partitions within the
digital commodity broker or digital
commodity dealer from the review,
pressure, or oversight of persons whose
involvement in pricing, trading,
exchange, or clearing activities might
potentially bias their judgment or
supervision and contravene the core
principles of open access and the
business conduct standards described in
this Act; and
(B) address such other issues as the
Commission determines to be appropriate.
(5) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, a
digital commodity broker or digital commodity dealer
shall not--
(A) adopt any process or take any action that
results in any unreasonable restraint of trade;
or
(B) impose any material anticompetitive
burden on trading or clearing.
(j) Designation of Chief Compliance Officer.--
(1) In general.--Each registered digital commodity
broker and registered digital commodity dealer shall
designate an individual to serve as a chief compliance
officer.
(2) Duties.--The chief compliance officer shall--
(A) report directly to the board or to the
senior officer of the registered digital
commodity broker or registered digital
commodity dealer;
(B) review the compliance of the registered
digital commodity broker or registered digital
commodity dealer with respect to the registered
digital commodity broker and registered digital
commodity dealer requirements described in this
section;
(C) in consultation with the board of
directors, a body performing a function similar
to the board, or the senior officer of the
organization, resolve any conflicts of interest
that may arise;
(D) be responsible for administering each
policy and procedure that is required to be
established pursuant to this section;
(E) ensure compliance with this Act
(including regulations), including each rule
prescribed by the Commission under this
section;
(F) establish procedures for the remediation
of noncompliance issues identified by the chief
compliance officer through any--
(i) compliance office review;
(ii) look-back;
(iii) internal or external audit
finding;
(iv) self-reported error; or
(v) validated complaint; and
(G) establish and follow appropriate
procedures for the handling, management
response, remediation, retesting, and closing
of noncompliance issues.
(3) Annual reports.--
(A) In general.--In accordance with rules
prescribed by the Commission, the chief
compliance officer shall annually prepare and
sign a report that contains a description of--
(i) the compliance of the registered
digital commodity broker or registered
digital commodity dealer with respect
to this Act (including regulations);
and
(ii) each policy and procedure of the
registered digital commodity broker or
registered digital commodity dealer of
the chief compliance officer (including
the code of ethics and conflict of
interest policies).
(B) Requirements.--The chief compliance
officer shall ensure that a compliance report
under subparagraph (A)--
(i) accompanies each appropriate
financial report of the registered
digital commodity broker or registered
digital commodity dealer that is
required to be furnished to the
Commission pursuant to this section;
and
(ii) includes a certification that,
under penalty of law, the compliance
report is accurate and complete.
(k) Segregation of Digital Commodities.--
(1) Holding of customer assets.--
(A) In general.--Each registered digital
commodity broker and registered digital
commodity dealer shall hold customer money,
assets, and property in a manner to minimize
the risk of loss to the customer or
unreasonable delay in customer access to the
money, assets, and property of the customer.
(B) Qualified digital commodity custodian.--
Each registered digital commodity broker and
registered digital commodity dealer shall hold
in a qualified digital commodity custodian each
unit of a digital commodity that is--
(i) the property of a customer or
counterparty of the digital commodity
broker or digital commodity dealer,
respectively; or
(ii) otherwise so required by the
Commission to reasonably protect
customers or promote the public
interest.
(2) Segregation of funds.--
(A) In general.--Each registered digital
commodity broker and registered digital
commodity dealer shall treat and deal with all
money, assets, and property that is received by
the registered digital commodity broker or
registered digital commodity dealer, or accrues
to a customer as the result of trading in
digital commodities, as belonging to the
customer.
(B) Commingling prohibited.--
(i) In general.--Except as provided
in clause (ii), each registered digital
commodity broker and registered digital
commodity dealer shall separately
account for money, assets, and property
of a digital commodity customer, and
shall not commingle any such money,
assets, or property with the funds of
the digital commodity broker or digital
commodity dealer, respectively, or use
any such money, assets, or property to
margin, secure, or guarantee any trades
or accounts of any customer or person
other than the person for whom the
money, assets, or property are held.
(ii) Exceptions.--
(I) Use of funds.--
(aa) In general.--A
registered digital
commodity broker or
registered digital
commodity dealer may,
for convenience,
commingle and deposit
in the same account or
accounts with any bank,
trust company,
derivatives clearing
organization, or
qualified digital
commodity custodian
money, assets, and
property of customers.
(bb) Withdrawal.--The
share of the money,
assets, and property
described in item (aa)
as in the normal course
of business shall be
necessary to margin,
guarantee, secure,
transfer, adjust, or
settle a contract for
sale of a digital
commodity with a
registered entity may
be withdrawn and
applied to such
purposes, including the
payment of commissions,
brokerage, interest,
taxes, storage, and
other charges, lawfully
accruing in connection
with the contract.
(II) Commission action.--In
accordance with such terms and
conditions as the Commission
may prescribe by rule,
regulation, or order, any
money, assets, or property of
the customers of a registered
digital commodity broker or
registered digital commodity
dealer may be commingled and
deposited in customer accounts
with any other money, assets,
or property received by the
digital commodity broker or
digital commodity dealer,
respectively, and required by
the Commission to be separately
accounted for and treated and
dealt with as belonging to the
customer of the digital
commodity broker or digital
commodity dealer, respectively.
(3) Permitted investments.--Money described in
paragraph (2) may be invested in obligations of the
United States, in general obligations of any State or
of any political subdivision of a State, in obligations
fully guaranteed as to principal and interest by the
United States, or in any other investment that the
Commission may by rule or regulation allow.
(4) Customer protection during bankruptcy.--
(A) Customer property.--All money, assets, or
property described in paragraph (2) shall be
considered customer property for purposes of
section 761 of title 11, United States Code.
(B) Transactions.--A transaction involving a
unit of a digital commodity occurring with a
digital commodity dealer shall be considered a
``contract for the purchase or sale of a
commodity for future delivery, on or subject to
the rules of, a contract market or board of
trade'' for purposes of the definition of a
``commodity contract'' in section 761 of title
11, United States Code.
(C) Brokers and dealers.--A registered
digital commodity dealer and a registered
digital commodity broker shall be considered a
futures commission merchant for purposes of
section 761 of title 11, United States Code.
(D) Assets removed from segregation.--Assets
removed from segregation due to a customer
election under paragraph (5) shall not be
considered customer property for purposes of
section 761 of title 11, United States Code.
(5) Misuse of customer property.--
(A) In general.--It shall be unlawful--
(i) for any digital commodity broker
or digital commodity dealer that has
received any customer money, assets, or
property for custody to dispose of, or
use any such money, assets, or property
as belonging to the digital commodity
broker or digital commodity dealer,
respectively; or
(ii) for any other person, including
any depository, digital commodity
exchange, other digital commodity
broker, other digital commodity dealer,
or digital commodity custodian that has
received any customer money, assets, or
property for deposit, to hold, dispose
of, or use any such money, assets, or
property, as belonging to the
depositing digital commodity broker or
digital commodity dealer or any person
other than the customers of the digital
commodity broker or digital commodity
dealer, respectively.
(B) Use further defined.--For purposes of
this section, ``use'' of a digital commodity
includes utilizing any unit of a digital asset
to participate in a blockchain service defined
in paragraph (5) or a decentralized governance
system associated with the digital commodity or
the blockchain system to which the digital
commodity relates in any manner other than that
expressly directed by the customer from whom
the unit of a digital commodity was received.
(6) Participation in blockchain services.--
(A) In general.--A customer shall have the
right to waive the restrictions in paragraph
(1) for any unit of a digital commodity, by
affirmatively electing, in writing to the
digital commodity broker or digital commodity
dealer, to waive the restrictions.
(B) Use of funds.--Customer digital
commodities removed from segregation under
subparagraph (A) may be pooled and used by the
digital commodity broker or digital commodity
dealer, or one of their designees, to provide a
blockchain service for a blockchain system to
which the unit of the digital asset removed
from segregation in subparagraph (A) relates.
(C) Limitations.--The Commission may, by
rule, establish notice and disclosure
requirements, and any other limitations and
rules related to the waiving of any
restrictions under this paragraph that are
reasonably necessary to protect customers,
including eligible contract participants, non-
eligible contract participants, or any other
class of customers.
(D) Blockchain service defined.--In this
subparagraph, the term ``blockchain service''
means any activity relating to validating
transactions on a blockchain system, providing
security for a blockchain system, or other
similar activity required for the ongoing
operation of a blockchain system.
(l) Federal Preemption.--Notwithstanding any other provision
of law, the Commission shall have exclusive jurisdiction over
any digital commodity broker or digital commodity dealer
registered under this section.
(m) Exemptions.--In order to promote responsible economic or
financial innovation and fair competition, or protect
customers, the Commission may (on its own initiative or on
application of the registered digital commodity broker or
registered digital commodity dealer) exempt, unconditionally or
on stated terms or conditions, or for stated periods, and
retroactively or prospectively, or both, a registered digital
commodity broker or registered digital commodity dealer from
the requirements of this section, if the Commission determines
that--
(1)(A) the exemption would be consistent with the
public interest and the purposes of this Act; and
(B) the exemption will not have a material adverse
effect on the ability of the Commission or the digital
commodity broker or digital commodity dealer to
discharge regulatory duties under this Act; or
(2) the registered digital commodity broker or
registered digital commodity dealer is subject to
comparable, comprehensive supervision and regulation by
the appropriate government authorities in the home
country of the registered digital commodity broker or
registered digital commodity dealer, respectively.
(n) Treatment Under the Bank Secrecy Act.--A registered
digital commodity broker and a registered digital commodity
dealer shall be treated as a financial institution for purposes
of the Bank Secrecy Act.
SEC. 4V. EXCLUSION FOR ANCILLARY ACTIVITIES.
(a) In General.--Notwithstanding any other provision of this
Act, a person shall not be subject to this Act and the
regulations promulgated under this Act solely based on the
person undertaking any ancillary activities.
(b) Exceptions.--Subsection (a) shall not be construed to
apply to the antimanipulation, antifraud, or false reporting
enforcement authorities of the Commission.
(c) Ancillary Activities Defined.--In this section, the term
``ancillary activities'' means any of the following activities
related to the operation of a blockchain system:
(1) Compiling network transactions, operating a pool,
relaying, searching, sequencing, validating, or acting
in a similar capacity with respect to a digital
commodity transaction.
(2) Providing computational work, operating a node,
or procuring, offering, or utilizing network bandwidth,
or other similar incidental services with respect to a
digital commodity transaction.
(3) Providing a user interface that enables a user to
read, and access data about a blockchain system, send
messages, or otherwise interact with a blockchain
system.
(4) Developing, publishing, constituting,
administering, maintaining, or otherwise distributing a
blockchain system.
(5) Developing, publishing, constituting,
administering, maintaining, or otherwise distributing
software or systems that create or deploy hardware or
software, including wallets or other systems,
facilitating an individual user's own personal ability
to keep, safeguard, or custody a user's digital
commodities or related private keys.
* * * * * * *
SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.
(a) Acceptable Business Practices Under Core Principles.--
(1) In general.--Consistent with the purposes of this
Act, the Commission may issue interpretations, or
approve interpretations submitted to the Commission, of
sections [5(d) and 5b(c)(2)] 5(d), 5b(c)(2), and 5i(c),
to describe what would constitute an acceptable
business practice under such sections.
(2) Effect of interpretation.--An interpretation
issued under paragraph (1) may provide the exclusive
means for complying with each section described in
paragraph (1).
(b) Delegation of Functions Under Core Principles.--
(1) In general.--A contract market, digital commodity
exchange, derivatives transaction execution facility,
or electronic trading facility with respect to a
significant price discovery contract may comply with
any applicable core principle through delegation of any
relevant function to a registered futures association
or a registered entity that is not an electronic
trading facility.
(2) Responsibility.--A contract market, digital
commodity exchange, derivatives transaction execution
facility, or electronic trading facility that delegates
a function under paragraph (1) shall remain responsible
for carrying out the function.
(3) Noncompliance.--If a contract market, digital
commodity exchange, derivatives transaction execution
facility, or electronic trading facility that delegates
a function under paragraph (1) becomes aware that a
delegated function is not being performed as required
under this Act, the contract market, digital commodity
exchange, derivatives transaction execution facility,
or electronic trading facility shall promptly take
steps to address the noncompliance.
(c) New Contracts, New Rules, and Rule Amendments.--
(1) In general.--A registered entity may elect to
list for trading or accept for clearing any new
contract, or other instrument, or may elect to approve
and implement any new rule or rule amendment, by
providing to the Commission (and the Secretary of the
Treasury, in the case of a contract of sale of a
government security for future delivery (or option on
such a contract) or a rule or rule amendment
specifically related to such a contract) a written
certification that the new contract or instrument or
clearing of the new contract or instrument, new rule,
or rule amendment complies with this Act (including
regulations under this Act).
(2) Rule review.--The new rule or rule amendment
described in paragraph (1) shall become effective,
pursuant to the certification of the registered entity
and notice of such certification to its members or
participants (in a manner to be determined by the
Commission), on the date that is 10 business days after
the date on which the Commission receives the
certification (or such shorter period as determined by
the Commission by rule or regulation) unless the
Commission notifies the registered entity within such
time that it is staying the certification because there
exist novel or complex issues that require additional
time to analyze, an inadequate explanation by the
submitting registered entity, or a potential
inconsistency with this Act (including regulations
under this Act).
(3) Stay of certification for rules.--
(A) A notification by the Commission pursuant
to paragraph (2) shall stay the certification
of the new rule or rule amendment for up to an
additional 90 days from the date of the
notification.
(B) A rule or rule amendment subject to a
stay pursuant to subparagraph (A) shall become
effective, pursuant to the certification of the
registered entity, at the expiration of the
period described in subparagraph (A) unless the
Commission--
(i) withdraws the stay prior to that
time; or
(ii) notifies the registered entity
during such period that it objects to
the proposed certification on the
grounds that it is inconsistent with
this Act (including regulations under
this Act).
(C) The Commission shall provide a not less
than 30-day public comment period, within the
90-day period in which the stay is in effect as
described in subparagraph (A), whenever the
Commission reviews a rule or rule amendment
pursuant to a notification by the Commission
under this paragraph.
(4) Prior approval.--
(A) In general.--A registered entity may
request that the Commission grant prior
approval to any new contract or other
instrument, new rule, or rule amendment.
(B) Prior approval required.--Notwithstanding
any other provision of this section, a
designated contract market shall submit to the
Commission for prior approval each rule
amendment that materially changes the terms and
conditions, as determined by the Commission, in
any contract of sale for future delivery of a
commodity specifically enumerated in section
[1a(10)] 1a(9) (or any option thereon) traded
through its facilities if the rule amendment
applies to contracts and delivery months which
have already been listed for trading and have
open interest.
(C) Deadline.--If prior approval is requested
under subparagraph (A), the Commission shall
take final action on the request not later than
90 days after submission of the request, unless
the person submitting the request agrees to an
extension of the time limitation established
under this subparagraph.
(5) Approval.--
(A) Rules.--The Commission shall approve a
new rule, or rule amendment, of a registered
entity unless the Commission finds that the new
rule, or rule amendment, is inconsistent with
this subtitle (including regulations).
(B) Contracts and instruments.--The
Commission shall approve a new contract or
other instrument unless the Commission finds
that the new contract or other instrument would
violate this Act (including regulations).
(C) Special rule for review and approval of
event contracts and swaps contracts.--
(i) Event contracts.--In connection
with the listing of agreements,
contracts, transactions, or swaps in
excluded commodities that are based
upon the occurrence, extent of an
occurrence, or contingency (other than
a change in the price, rate, value, or
levels of a commodity described in
section 1a(2)(i)), by a designated
contract market or swap execution
facility, the Commission may determine
that such agreements, contracts, or
transactions are contrary to the public
interest if the agreements, contracts,
or transactions involve--
(I) activity that is unlawful
under any Federal or State law;
(II) terrorism;
(III) assassination;
(IV) war;
(V) gaming; or
(VI) other similar activity
determined by the Commission,
by rule or regulation, to be
contrary to the public
interest.
(ii) Prohibition.--No agreement,
contract, or transaction determined by
the Commission to be contrary to the
public interest under clause (i) may be
listed or made available for clearing
or trading on or through a registered
entity.
(iii) Swaps contracts.--
(I) In general.--In
connection with the listing of
a swap for clearing by a
derivatives clearing
organization, the Commission
shall determine, upon request
or on its own motion, the
initial eligibility, or the
continuing qualification, of a
derivatives clearing
organization to clear such a
swap under those criteria,
conditions, or rules that the
Commission, in its discretion,
determines.
(II) Requirements.--Any such
criteria, conditions, or rules
shall consider--
(aa) the financial
integrity of the
derivatives clearing
organization; and
(bb) any other
factors which the
Commission determines
may be appropriate.
(iv) Deadline.--The Commission shall
take final action under clauses (i) and
(ii) in not later than 90 days from the
commencement of its review unless the
party seeking to offer the contract or
swap agrees to an extension of this
time limitation.
(D) Special rules for digital commodity
contracts.--In certifying any new rule or rule
amendment, or listing any new contract or
instrument, in connection with a contract of
sale of a commodity for future delivery,
option, swap, or other agreement, contract, or
transaction, that is based on or references a
digital commodity, a registered entity shall
make or rely on a certification under
subsection (d) for the digital commodity.
(d) Certifications for Digital Commodity Trading.--
(1) In general.--Notwithstanding subsection (c), for
the purposes of listing or offering a digital commodity
for trading in a digital commodity cash or spot market,
an eligible entity shall issue a written certification
that the digital commodity meets the requirements of
this Act (including regulations thereunder).
(2) Contents of the certification.--
(A) In general.--In making a written
certification under this paragraph, the
eligible entity shall furnish to the
Commission--
(i) an analysis of how the digital
commodity meets the requirements of
section 5i(c)(3);
(ii) information about the digital
commodity regarding--
(I) its purpose and use;
(II) its unit creation or
release process;
(III) its consensus
mechanism;
(IV) its governance
structure;
(V) its participation and
distribution; and
(VI) its current and proposed
functionality; and
(iii) any other information,
analysis, or documentation the
Commission may, by rule, require.
(B) Reliance on prior disclosures.--In making
a certification under this subsection, an
eligible entity may rely on the records and
disclosures of any relevant person registered
with the Securities and Exchange Commission or
other State or Federal agency.
(3) Modifications.--
(A) In general.--An eligible entity shall
modify a certification made under paragraph (1)
to--
(i) account for significant changes
in any information provided to the
Commission under paragraph (2)(A)(ii);
or
(ii) permit or restrict trading in
units of a digital commodity asset held
by a related person or an affiliated
person.
(B) Recertification.--Modifications required
by this subsection shall be subject to the same
disapproval and review process as a new
certification under paragraphs (4) and (5).
(4) Disapproval.--
(A) In general.--The written certification
described in paragraph (1) shall become
effective unless the Commission finds that the
digital asset does not meet the requirements of
this Act or the rules and regulations
thereunder.
(B) Analysis required.--The Commission shall
include, with any findings referred to in
subparagraph (A), a detailed analysis of the
factors on which the decision was based.
(C) Public findings.--The Commission shall
make public any disapproval decision, and any
related findings and analysis, made under this
paragraph.
(5) Review.--
(A) In general.--Unless the Commission makes
a disapproval decision under paragraph (4), the
written certification described in paragraph
(1) shall become effective, pursuant to the
certification by the eligible entity and notice
of the certification to the public (in a manner
determined by the Commission) on the date that
is--
(i) 20 business days after the date
the Commission receives the
certification (or such shorter period
as determined by the Commission by rule
or regulation), in the case of a
digital commodity that has not been
certified under this section or for
which a certification is being modified
under paragraph (3); or
(ii) 2 business days after the date
the Commission receives the
certification (or such shorter period
as determined by the Commission by rule
or regulation) for any digital
commodity that has been certified under
this section.
(B) Extensions.--The time for consideration
under subparagraph (A) may be extended through
notice to the eligible entity that there are
novel or complex issues that require additional
time to analyze, that the explanation by the
submitting eligible entity is inadequate, or of
a potential inconsistency with this Act--
(i) once, for 30 business days,
through written notice to the eligible
entity by the Chairman; and
(ii) once, for an additional 30
business days, through written notice
to the digital commodity exchange from
the Commission that includes a
description of any deficiencies with
the certification, including any--
(I) novel or complex issues
which require additional time
to analyze;
(II) missing information or
inadequate explanations; or
(III) potential
inconsistencies with this Act.
(6) Certification required.--Notwithstanding any
other requirement of this Act, a registered entity or
other entity registered with the Commission shall not
list for trading, accept for clearing, offer to enter
into, enter into, execute, confirm the execution of, or
conduct any office or business anywhere in the United
States, its territories or possessions, for the purpose
of soliciting, or accepting any order for, or otherwise
dealing in, any transaction in, or in connection with,
a digital asset, unless a certification has been made
under this section for the digital asset.
(7) Eligible entity defined.--In this subsection, the
term ``eligible entity'' means a registered entity or
group of registered entities acting jointly.
(e) Reservation of Emergency Authority.--Nothing in this
section shall limit or in any way affect the emergency powers
of the Commission provided in section 8a(9).
(f) Consistent with this Act, each designated contract market
and registered derivatives transaction execution facility shall
issue such rules as are necessary to avoid duplicative or
conflicting rules applicable to any futures commission merchant
registered with the Commission pursuant to section 4f(a) of
this Act (except paragraph (2) thereof), that is also
registered with the Securities and Exchange Commission pursuant
to section 15(b) of the Securities Exchange Act of 1934 (except
paragraph (11) thereof) with respect to the application of--
(1) rules of such designated contract market or
registered derivatives transaction execution facility
of the type specified in section 4d(e) involving
security futures products; and
(2) similar rules of national securities associations
registered pursuant to section 15A(a) of the Securities
Exchange Act of 1934 and national securities exchanges
registered pursuant to section 6(g) of such Act
involving security futures products.
* * * * * * *
SEC. 5I. REGISTRATION OF DIGITAL COMMODITY EXCHANGES.
(a) In General.--
(1) Registration.--
(A) In general.--A trading facility that
offers or seeks to offer a cash or spot market
in at least 1 digital commodity shall register
with the Commission as a digital commodity
exchange.
(B) Application.--A person desiring to
register as a digital commodity exchange shall
submit to the Commission an application in such
form and containing such information as the
Commission may require for the purpose of
making the determinations required for
approval.
(C) Exemptions.--A trading facility that
offers or seeks to offer a cash or spot market
in at least 1 digital commodity shall not be
required to register under this section if the
trading facility--
(i) permits no more than a de minimis
amount of trading activity; or
(ii) serves only customers in a
single State or territory.
(2) Additional registrations.--
(A) With the commission.--
(i) In general.--A registered digital
commodity exchange may also register
as--
(I) a designated contract
market; or
(II) a swap execution
facility.
(ii) Rules.--For an entity with
multiple registrations under clause
(i), the Commission--
(I) shall prescribe rules to
exempt the entity from
duplicative, conflicting, or
unduly burdensome provisions of
this Act and the rules under
this Act, to the extent such an
exemption would foster the
development of fair and orderly
cash or spot markets in digital
commodities, be necessary or
appropriate in the public
interest, and be consistent
with the protection of
customers; and
(II) may, after an analysis
of the risks and benefits,
prescribe rules to provide for
portfolio margining, as may be
necessary to protect market
participants, promote fair and
equitable trading in digital
commodity markets, and promote
responsible economic or
financial innovation.
(B) With the securities and exchange
commission.--A registered digital commodity
exchange may register with the Securities and
Exchange Commission as a digital asset trading
system to list or trade contracts of sale for
digital assets deemed securities.
(C) With a registered futures association.--
(i) In general.--A registered digital
commodity exchange shall also be a
member of a registered futures
association and comply with rules
related to such activity, if the
registered digital commodity exchange
accepts customer funds required to be
segregated under subsection (d).
(ii) Rulemaking required.--The
Commission shall require any registered
futures association with a digital
commodity exchange as a member to
provide such rules as may be necessary
to further compliance with subsection
(d), protect customers, and promote the
public interest.
(D) Registration required.--A person required
to be registered as a digital commodity
exchange under this section shall register with
the Commission as such regardless of whether
the person is registered as such with another
State or Federal regulator.
(b) Trading.--
(1) Prohibition on certain trading practices.--
(A) Section 4b shall apply to any agreement,
contract, or transaction in a digital commodity
as if the agreement, contract, or transaction
were a contract of sale of a commodity for
future delivery.
(B) Section 4c shall apply to any agreement,
contract, or transaction in a digital commodity
as if the agreement, contract, or transaction
were a transaction involving the purchase or
sale of a commodity for future delivery.
(2) Prohibition on acting as a counterparty.--A
registered digital commodity exchange or any affiliate
of such an exchange shall not act as counterparty to
any transaction executed on or subject to the rules of
the registered digital commodity exchange.
(3) Trading securities.--A registered digital
commodity exchange that is also registered with the
Securities and Exchange Commission may offer a contract
of sale of a digital asset deemed a security.
(4) Rules for certain digital asset sales.--The
digital commodity exchange shall have in place such
rules as may be necessary to reasonably ensure the
orderly sale of any unit of a digital commodity sold by
a related person or an affiliated person.
(c) Core Principles for Digital Commodity Exchanges.--
(1) Compliance with core principles.--
(A) In general.--To be registered, and
maintain registration, as a digital commodity
exchange, a digital commodity exchange shall
comply with--
(i) the core principles described in
this subsection; and
(ii) any requirement that the
Commission may impose by rule or
regulation pursuant to section 8a(5).
(B) Reasonable discretion of a digital
commodity exchange.--Unless otherwise
determined by the Commission by rule or
regulation, a digital commodity exchange
described in subparagraph (A) shall have
reasonable discretion in establishing the
manner in which the digital commodity exchange
complies with the core principles described in
this subsection.
(2) Compliance with rules.--A digital commodity
exchange shall--
(A) establish and enforce compliance with any
rule of the digital commodity exchange,
including--
(i) the terms and conditions of the
trades traded or processed on or
through the digital commodity exchange;
and
(ii) any limitation on access to the
digital commodity exchange;
(B) establish and enforce trading, trade
processing, and participation rules that will
deter abuses and have the capacity to detect,
investigate, and enforce those rules, including
means--
(i) to provide market participants
with impartial access to the market;
and
(ii) to capture information that may
be used in establishing whether rule
violations have occurred; and
(C) establish rules governing the operation
of the exchange, including rules specifying
trading procedures to be used in entering and
executing orders traded or posted on the
facility.
(3) Listing standards for digital commodities.--
(A) In general.--A digital commodity exchange
shall permit trading only in a digital
commodity that is not readily susceptible to
manipulation.
(B) Public information requirements.--
(i) In general.--A digital commodity
exchange shall permit trading only in a
digital commodity if the information
required in clause (ii) is correct,
current, and available to the public.
(ii) Required information.-- With
respect to a digital commodity and each
blockchain system to which the digital
commodity relates for which the digital
commodity exchange will make the
digital commodity available to the
customers of the digital commodity
exchange, the information required in
this clause is as follows:
(I) Source code.--The source
code for any blockchain system
to which the digital commodity
relates.
(II) Transaction history.--A
narrative description of the
steps necessary to
independently access, search,
and verify the transaction
history of any blockchain
system to which the digital
commodity relates.
(III) Digital asset
economics.--A narrative
description of the purpose of
any blockchain system to which
the digital asset relates and
the operation of any such
blockchain system, including--
(aa) information
explaining the launch
and supply process,
including the number of
digital assets to be
issued in an initial
allocation, the total
number of digital
assets to be created,
the release schedule
for the digital assets,
and the total number of
digital assets then
outstanding;
(bb) information
detailing any
applicable consensus
mechanism or process
for validating
transactions, method of
generating or mining
digital assets, and any
process for burning or
destroying digital
assets on the
blockchain system;
(cc) an explanation
of governance
mechanisms for
implementing changes to
the blockchain system
or forming consensus
among holders of the
digital assets; and
(dd) sufficient
information for a third
party to create a tool
for verifying the
transaction history of
the digital asset.
(IV) Additional
information.--Such additional
information as the Commission
may, by rule, determine to be
necessary for a customer to
understand the financial and
operational risks of a digital
commodity, and to be in the
public interest or in
furtherance of the requirements
of this Act.
(C) Additional listing considerations.--In
addition to the requirements of subparagraphs
(A) and (B), a digital commodity exchange shall
consider--
(i) if a sufficient percentage of the
units of the digital asset are units of
a digital commodity to permit robust
price discovery;
(ii) if it is reasonably unlikely
that the transaction history can be
fraudulently altered by any person or
group of persons acting collectively;
(iii) if the operating structure and
system of the digital commodity is
secure from cybersecurity threats;
(iv) if the functionality of the
digital commodity will protect holders
from operational failures;
(v) if sufficient public information
about the operation, functionality, and
use of the digital commodity is
available; and
(vi) any other factor which the
Commission has, by rule, determined to
be in the public interest or in
furtherance of the requirements of this
Act.
(D) Restricted digital assets.--A digital
commodity exchange shall not permit the trading
of a unit of a digital asset that is a
restricted digital asset.
(4) Treatment of customer assets.--A digital
commodity exchange shall establish standards and
procedures that are designed to protect and ensure the
safety of customer money, assets, and property.
(5) Monitoring of trading and trade processing.--
(A) In general.--A digital commodity exchange
shall provide a competitive, open, and
efficient market and mechanism for executing
transactions that protects the price discovery
process of trading on the exchange.
(B) Protection of markets and market
participants.--A digital commodity exchange
shall establish and enforce rules--
(i) to protect markets and market
participants from abusive practices
committed by any party, including
abusive practices committed by a party
acting as an agent for a participant;
and
(ii) to promote fair and equitable
trading on the exchange.
(C) Trading procedures.--A digital commodity
exchange shall--
(i) establish and enforce rules or
terms and conditions defining, or
specifications detailing--
(I) trading procedures to be
used in entering and executing
orders traded on or through the
facilities of the digital
commodity exchange; and
(II) procedures for trade
processing of digital
commodities on or through the
facilities of the digital
commodity exchange; and
(ii) monitor trading in digital
commodities to prevent manipulation,
price distortion, and disruptions of
the delivery or cash settlement process
through surveillance, compliance, and
disciplinary practices and procedures,
including methods for conducting real-
time monitoring of trading and
comprehensive and accurate trade
reconstructions.
(6) Ability to obtain information.--A digital
commodity exchange shall--
(A) establish and enforce rules that will
allow the facility to obtain any necessary
information to perform any of the functions
described in this section;
(B) provide the information to the Commission
on request; and
(C) have the capacity to carry out such
international information-sharing agreements as
the Commission may require.
(7) Emergency authority.--A digital commodity
exchange shall adopt rules to provide for the exercise
of emergency authority, in consultation or cooperation
with the Commission or a registered entity, as is
necessary and appropriate, including the authority to
facilitate the liquidation or transfer of open
positions in any digital commodity or to suspend or
curtail trading in a digital commodity.
(8) Timely publication of trading information.--
(A) In general.--A digital commodity exchange
shall make public timely information on price,
trading volume, and other trading data on
digital commodities to the extent prescribed by
the Commission.
(B) Capacity of digital commodity exchange.--
A digital commodity exchange shall have the
capacity to electronically capture and transmit
trade information with respect to transactions
executed on the exchange.
(9) Recordkeeping and reporting.--
(A) In general.--A digital commodity exchange
shall--
(i) maintain records of all
activities relating to the business of
the facility, including a complete
audit trail, in a form and manner
acceptable to the Commission for a
period of 5 years;
(ii) report to the Commission, in a
form and manner acceptable to the
Commission, such information as the
Commission determines to be necessary
or appropriate for the Commission to
perform the duties of the Commission
under this Act; and
(iii) keep any such records of
digital commodities which relate to a
security open to inspection and
examination by the Securities and
Exchange Commission.
(B) Information sharing.--Subject to section
8, and on request, the Commission shall share
information collected under subparagraph (A)
with--
(i) the Board;
(ii) the Securities and Exchange
Commission;
(iii) each appropriate Federal
banking agency;
(iv) each appropriate State bank
supervisor (within the meaning of
section 3 of the Federal Deposit
Insurance Act);
(v) the Financial Stability Oversight
Council;
(vi) the Department of Justice; and
(vii) any other person that the
Commission determines to be
appropriate, including--
(I) foreign financial
supervisors (including foreign
futures authorities);
(II) foreign central banks;
and
(III) foreign ministries.
(C) Confidentiality agreement.--Before the
Commission may share information with any
entity described in subparagraph (B), the
Commission shall receive a written agreement
from the entity stating that the entity shall
abide by the confidentiality requirements
described in section 8 relating to the
information on digital commodities that is
provided.
(D) Providing information.--A digital
commodity exchange shall provide to the
Commission (including any designee of the
Commission) information under subparagraph (A)
in such form and at such frequency as is
required by the Commission.
(10) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, a
digital commodity exchange shall not--
(A) adopt any rules or take any actions that
result in any unreasonable restraint of trade;
or
(B) impose any material anticompetitive
burden on trading.
(11) Conflicts of interest.--A registered digital
commodity exchange shall implement conflict-of-interest
systems and procedures that--
(A) establish structural and institutional
safeguards--
(i) to minimize conflicts of interest
that might potentially bias the
judgment or supervision of the digital
commodity exchange and contravene the
principles of fair and equitable
trading and the business conduct
standards described in this Act,
including conflicts arising out of
transactions or arrangements with
affiliates (including affiliates
engaging in digital commodity
activities) which may include
information partitions and the legal
separation of different persons or
entities involved in digital commodity
activities; and
(ii) to ensure that the activities of
any person within the digital commodity
exchange or any affiliated entity
relating to research or analysis of the
price or market for any digital
commodity or acting in a role of
providing dealing, brokering, or
advising activities are separated by
appropriate informational partitions
within the digital commodity exchange
or any affiliated entity from the
review, pressure, or oversight of
persons whose involvement in pricing,
trading, exchange, or clearing
activities might potentially bias their
judgment or supervision and contravene
the core principles of open access and
the business conduct standards
described in this Act; and
(B) address such other issues as the
Commission determines to be appropriate.
(12) Financial resources.--
(A) In general.--A digital commodity exchange
shall have adequate financial, operational, and
managerial resources, as determined by the
Commission, to discharge each responsibility of
the digital commodity exchange.
(B) Minimum amount of financial resources.--A
digital commodity exchange shall possess
financial resources that, at a minimum, exceed
the total amount that would enable the digital
commodity exchange to conduct an orderly wind-
down of its activities.
(13) Disciplinary procedures.--A digital commodity
exchange shall establish and enforce disciplinary
procedures that authorize the digital commodity
exchange to discipline, suspend, or expel members or
market participants that violate the rules of the
digital commodity exchange, or similar methods for
performing the same functions, including delegation of
the functions to third parties.
(14) Governance fitness standards.--
(A) Governance arrangements.--A digital
commodity exchange shall establish governance
arrangements that are transparent to fulfill
public interest requirements.
(B) Fitness standards.--A digital commodity
exchange shall establish and enforce
appropriate fitness standards for--
(i) directors; and
(ii) any individual or entity with
direct access to, or control of,
customer assets.
(15) System safeguards.--A digital commodity exchange
shall--
(A) establish and maintain a program of risk
analysis and oversight to identify and minimize
sources of operational and security risks,
through the development of appropriate controls
and procedures, and automated systems, that--
(i) are reliable and secure; and
(ii) have adequate scalable capacity;
(B) establish and maintain emergency
procedures, backup facilities, and a plan for
disaster recovery that allow for--
(i) the timely recovery and
resumption of operations; and
(ii) the fulfillment of the
responsibilities and obligations of the
digital commodity exchange; and
(C) periodically conduct tests to verify that
the backup resources of the digital commodity
exchange are sufficient to ensure continued--
(i) order processing and trade
matching;
(ii) price reporting;
(iii) market surveillance; and
(iv) maintenance of a comprehensive
and accurate audit trail.
(d) Holding of Customer Assets.--
(1) In general.--A digital commodity exchange shall
hold customer money, assets, and property in a manner
to minimize the risk of loss to the customer or
unreasonable delay in the access to the money, assets,
and property of the customer.
(A) Segregation of funds.--
(i) In general.--A digital commodity
exchange shall treat and deal with all
money, assets, and property that is
received by the digital commodity
exchange, or accrues to a customer as
the result of trading in digital
commodities, as belonging to the
customer.
(ii) Commingling prohibited.--Money,
assets, and property of a customer
described in clause (i) shall be
separately accounted for and shall not
be commingled with the funds of the
digital commodity exchange or be used
to margin, secure, or guarantee any
trades or accounts of any customer or
person other than the person for whom
the same are held.
(B) Exceptions.--
(i) Use of funds.--
(I) In general.--
Notwithstanding subparagraph
(A), money, assets, and
property of customers of a
digital commodity exchange
described in subparagraph (A)
may, for convenience, be
commingled and deposited in the
same account or accounts with
any bank, trust company,
derivatives clearing
organization, or qualified
digital commodity custodian.
(II) Withdrawal.--
Notwithstanding subparagraph
(A), such share of the money,
assets, and property described
in item (aa) as in the normal
course of business shall be
necessary to margin, guarantee,
secure, transfer, adjust, or
settle a contract of sale of a
digital commodity with a
registered entity may be
withdrawn and applied to such
purposes, including the payment
of commissions, brokerage,
interest, taxes, storage, and
other charges, lawfully
accruing in connection with the
contract of sale of a digital
commodity.
(ii) Commission action.--
Notwithstanding subparagraph (A), in
accordance with such terms and
conditions as the Commission may
prescribe by rule, regulation, or
order, any money, assets, or property
of the customers of a digital commodity
exchange described in subparagraph (A)
may be commingled and deposited in
customer accounts with any other money,
assets, or property received by the
digital commodity exchange and required
by the Commission to be separately
accounted for and treated and dealt
with as belonging to the customer of
the digital commodity exchange.
(2) Permitted investments.--Money described in
subparagraph (A) may be invested in obligations of the
United States, in general obligations of any State or
of any political subdivision of a State, and in
obligations fully guaranteed as to principal and
interest by the United States, or in any other
investment that the Commission may by rule or
regulation prescribe, and such investments shall be
made in accordance with such rules and regulations and
subject to such conditions as the Commission may
prescribe.
(3) Customer protection during bankruptcy.--
(A) Customer property.--All assets held on
behalf of a customer by a digital commodity
exchange, and all money, assets, and property
of any customer received by a digital commodity
exchange registered under section 5i of this
Act for trading or custody, or to facilitate,
margin, guarantee, or secure contracts of sale
of a digital commodity (including money,
assets, or property accruing to the customer as
the result of the transactions), shall be
considered customer property for purposes of
section 761 of title 11, United States Code.
(B) Transactions.--A transaction involving a
unit of a digital commodity occurring on or
subject to the rules of a digital commodity
exchange shall be considered a ``contract for
the purchase or sale of a commodity for future
delivery, on or subject to the rules of, a
contract market or board of trade'' for the
purposes of the definition of a ``commodity
contract'' in section 761 of title 11, United
States Code.
(C) Exchanges.--A digital commodity exchange
shall be considered a futures commission
merchant for purposes of section 761 of title
11, United States Code.
(4) Misuse of customer property.--
(A) In general.--It shall be unlawful--
(i) for any digital commodity
exchange that has received any customer
money, assets, or property for custody
to dispose of, or use any such money,
assets, or property as belonging to the
digital commodity exchange; or
(ii) for any other person, including
any depository, other digital commodity
exchange, or digital commodity
custodian that has received any
customer money, assets, or property for
deposit, to hold, dispose of, or use
any such money, assets, or property, or
property, as belonging to the
depositing digital commodity exchange
or any person other than the customers
of the digital commodity exchange.
(B) Use further defined.--For purposes of
this section, ``use'' of a digital commodity
includes utilizing any unit of a digital asset
to participate in a blockchain service defined
in paragraph (5) or a decentralized governance
system associated with the digital commodity or
the blockchain system to which the digital
commodity relates in any manner other than that
expressly directed by the customer from whom
the unit of a digital commodity was received.
(5) Participation in blockchain services.--
(A) In general.--A customer shall have the
right to waive the restrictions in paragraph
(1) for any unit of a digital commodity, by
affirmatively electing, in writing to the
digital commodity exchange, to waive the
restrictions.
(B) Use of funds.--Customer digital
commodities removed from segregation under
subparagraph (A) may be pooled and used by the
digital commodity exchange or its designee to
provide a blockchain service for a blockchain
system to which the unit of the digital asset
removed from segregation in subparagraph (A)
relates.
(C) Limitations.--The Commission may, by
rule, establish notice and disclosure
requirements, and any other limitations and
rules related to the waiving of any
restrictions under this paragraph that are
reasonably necessary to protect customers,
including eligible contract participants, non-
eligible contract participants, or any other
class of customers.
(D) Blockchain service defined.--In this
subparagraph, the term ``blockchain service''
means any activity relating to validating
transactions on a blockchain system, providing
security for a blockchain system, or other
similar activity required for the ongoing
operation of a blockchain system.
(e) Market Access Requirements.--
(1) In general.--A digital commodity exchange shall
require any person who is not an eligible contract
participant to access trading on the exchange through a
digital commodity broker.
(2) Affiliated commodity brokers.--A registered
digital commodity exchange may maintain an affiliated
digital commodity broker to facilitate access to the
digital commodity exchange, if--
(A) no other digital commodity brokers are
permitted to facilitate access to the exchange;
(B) the affiliated digital commodity broker
limits its activities only to providing
customer access to the digital commodity
exchange; and
(C) the affiliated digital commodity broker
is not also registered as a digital commodity
dealer.
(3) Direct access for eligible contract
participants.--Nothing in this section shall prohibit a
digital commodity exchange in compliance with this
section from permitting direct access for eligible
contract participants.
(4) Additional requirements.--
(A) In general.--The Commission may, by rule,
impose any additional requirements related to
the operations and activities of the digital
commodity exchange and the affiliated digital
commodity broker necessary to protect market
participants, promote fair and equitable
trading on the digital commodity exchange, and
promote responsible economic or financial
innovation.
(B) Delegation of authority.--The Commission
may delegate to a registered futures
association such oversight and regulatory
requirements as the Commission determines are
necessary to--
(i) supervise the activities of the
digital commodity exchange and an
affiliated digital commodity broker;
and
(ii) protect market participants,
promote fair and equitable trading on
the digital commodity exchange, and
promote responsible economic or
financial innovation.
(f) Designation of Chief Compliance Officer.--
(1) In general.--A digital commodity exchange shall
designate an individual to serve as a chief compliance
officer.
(2) Duties.--The chief compliance officer shall--
(A) report directly to the board or to the
senior officer of the exchange;
(B) review compliance with the core
principles in this subsection;
(C) in consultation with the board of the
exchange, a body performing a function similar
to that of a board, or the senior officer of
the exchange, resolve any conflicts of interest
that may arise;
(D) establish and administer the policies and
procedures required to be established pursuant
to this section;
(E) ensure compliance with this Act and the
rules and regulations issued under this Act,
including rules prescribed by the Commission
pursuant to this section; and
(F) establish procedures for the remediation
of noncompliance issues found during compliance
office reviews, look backs, internal or
external audit findings, self-reported errors,
or through validated complaints.
(3) Requirements for procedures.--In establishing
procedures under paragraph (2)(F), the chief compliance
officer shall design the procedures to establish the
handling, management response, remediation, retesting,
and closing of noncompliance issues.
(4) Annual reports.--
(A) In general.--In accordance with rules
prescribed by the Commission, the chief
compliance officer shall annually prepare and
sign a report that contains a description of--
(i) the compliance of the digital
commodity exchange with this Act; and
(ii) the policies and procedures,
including the code of ethics and
conflict of interest policies, of the
digital commodity exchange.
(B) Requirements.--The chief compliance
officer shall--
(i) submit each report described in
subparagraph (A) with the appropriate
financial report of the digital
commodity exchange that is required to
be submitted to the Commission pursuant
to this section; and
(ii) include in the report a
certification that, under penalty of
law, the report is accurate and
complete.
(g) Appointment of Trustee.--
(1) In general.--If a proceeding under section 5e
results in the suspension or revocation of the
registration of a digital commodity exchange, or if a
digital commodity exchange withdraws from registration,
the Commission, on notice to the digital commodity
exchange, may apply to the appropriate United States
district court where the digital commodity exchange is
located for the appointment of a trustee.
(2) Assumption of jurisdiction.--If the Commission
applies for appointment of a trustee under paragraph
(1)--
(A) the court may take exclusive jurisdiction
over the digital commodity exchange and the
records and assets of the digital commodity
exchange, wherever located; and
(B) if the court takes jurisdiction under
subparagraph (A), the court shall appoint the
Commission, or a person designated by the
Commission, as trustee with power to take
possession and continue to operate or terminate
the operations of the digital commodity
exchange in an orderly manner for the
protection of customers subject to such terms
and conditions as the court may prescribe.
(h) Qualified Digital Commodity Custodian.--A digital
commodity exchange shall hold in a qualified digital commodity
custodian each unit of a digital commodity that is--
(1) the property of a customer of the digital
commodity exchange;
(2) required to be held by the digital commodity
exchange under subsection (c)(12) of this section; or
(3) otherwise so required by the Commission to
reasonably protect customers or promote the public
interest.
(i) Exemptions.--In order to promote responsible economic or
financial innovation and fair competition, or protect
customers, the Commission may (on its own initiative or on
application of the registered digital commodity exchange)
exempt, either unconditionally or on stated terms or conditions
or for stated periods and either retroactively or
prospectively, or both, a registered digital commodity exchange
from the requirements of this section, if the Commission
determines that--
(1)(A) the exemption would be consistent with the
public interest and the purposes of this Act; and
(B) the exemption will not have a material adverse
effect on the ability of the Commission or the digital
commodity exchange to discharge regulatory or self-
regulatory duties under this Act; or
(2) the digital commodity exchange is subject to
comparable, comprehensive supervision and regulation by
the appropriate government authorities in the home
country of the exchange.
(j) Customer Defined.--In this section, the term ``customer''
means any person that maintains an account for the trading of
digital commodities directly with a digital commodity exchange
(other than a person that is owned or controlled, directly or
indirectly, by the digital commodity exchange) for its own
behalf or on behalf of other any person.
(k) Federal Preemption.--Notwithstanding any other provision
of law, the Commission shall have exclusive jurisdiction over
any digital commodity exchange registered under this section.
(l) Treatment Under the Bank Secrecy Act.--A registered
digital commodity exchange shall be treated as a financial
institution for purposes of the Bank Secrecy Act.
SEC. 5J. QUALIFIED DIGITAL COMMODITY CUSTODIANS.
(a) In General.--For purposes of this Act, a qualified
digital commodity custodian is a digital commodity custodian
who meets the following conditions:
(1) Supervision.--The digital commodity custodian is
subject to adequate supervision and appropriate
regulation.
(2) No prohibition.--The digital commodity custodian
is--
(A) subject to the supervision of--
(i) an appropriate Federal banking
agency;
(ii) a State bank supervisor (within
the meaning of section 3 of the Federal
Deposit Insurance Act); or
(iii) an appropriate foreign
governmental authority in the home
country of the digital commodity
custodian; and
(B) not prohibited by the applicable
supervisor referred to in subparagraph (A) from
engaging in any activity with respect to the
holding of digital commodities.
(3) Information sharing.--
(A) In general.--The digital commodity
custodian agrees to such periodic sharing of
information regarding customer accounts the
digital commodity custodian holds on behalf of
an entity registered with the Commission, as
the Commission determines by rule shall be
reasonably necessary to effectuate any of the
provisions, or to accomplish any of the
purposes, of this Act.
(B) Provision of information.--Any person
that is subject to regulation and examination
by a prudential regulator may satisfy any
information request described in subparagraph
(A), by providing the Commission with a
detailed listing, in writing, of the digital
commodities of a customer within the custody or
use of the person.
(b) Adequate Supervision and Appropriate Regulation Further
Defined.--
(1) In general.--In subsection (a), the terms
``adequate supervision'' and ``appropriate regulation''
mean such minimum standards for supervision and
regulation as are reasonably necessary to protect the
digital commodities of customers of an entity
registered with the Commission, including minimum
standards relating to--
(A) accessibility of customer assets;
(B) financial resources;
(C) risk management requirements;
(D) governance arrangements;
(E) fitness standards;
(F) recordkeeping;
(G) information sharing; and
(H) conflicts of interest.
(2) Deemed compliance.--For purposes of subsection
(a), a bank subject to the supervision of an
appropriate Federal banking agency or a State bank
supervisor (within the meaning of section 3 of the
Federal Deposit Insurance Act) is deemed to be subject
to adequate supervision and appropriate regulation.
(3) Rulemaking authority.--For purposes of subsection
(a), the Commission, by rule or order, may further
define the terms ``adequate supervision'' and
``appropriate regulation'' as necessary in the public
interest, as appropriate for the protection of
customers, and consistent with the purposes of this
Act.
(c) Authority To Temporarily Suspend Standards.--The
Commission may, by rule or order, temporarily suspend, in whole
or in part, any requirement imposed under, or any standard
referred to in, this section if the Commission determines that
the suspension would be consistent with the public interest and
the purposes of this Act.
Sec. 6. (a) Any person desiring to be designated or
registered as a contract market or derivatives transaction
execution facility shall make application to the Commission for
the designation or registration and accompany the same with a
showing that it complies with the conditions set forth in this
Act, and with a sufficient assurance that it will continue to
comply with the the requirements of this Act. The Commission
shall approve or deny an application for designation or
registration as a contract market or derivatives transaction
execution facility within 180 days of the filing of the
application. If the Commission notifies the person that its
application is materially incomplete and specifies the
deficiencies in the application, the running of the 180-day
period shall be stayed from the time of such notification until
the application is resubmitted in completed form: Provided,
That the Commission shall have not less than sixty days to
approve or deny the application from the time the application
is resubmitted in completed form. If the Commission denies an
application, it shall specify the grounds for the denial. In
the event of a refusal to designate or register as a contract
market or derivatives transaction execution facility any person
that has made application therefor, the person shall be
afforded an opportunity for a hearing on the record before the
Commission, with the right to appeal an adverse decision after
such hearing to the court of appeals as provided for in other
cases in subsection (b) of this section.
(b) The Commission is authorized to suspend for a period not
to exceed 6 months or to revoke the designation or registration
of any contract market or derivatives transaction execution
facility on a showing that the contract market or derivatives
transaction execution facility is not enforcing or has not
enforced its rules of government, made a condition of its
designation or registration as set forth in sections 5 through
5b or section 5f, or that the contract market or derivatives
transaction execution facility or electronic trading facility,
or any director, officer, agent, or employee thereof, otherwise
is violating or has violated any of the provisions of this Act
or any of the rules, regulations, or orders of the Commission
thereunder. Such suspension or revocation shall only be made
after a notice to the officers of the contract market or
derivatives transaction execution facility or electronic
trading facility affected and upon a hearing on the record:
Provided, That such suspension or revocation shall be final and
conclusive, unless within fifteen days after such suspension or
revocation by the Commission such person appeals to the court
of appeals for the circuit in which it has its principal place
of business, by filing with the clerk of such court a written
petition praying that the order of the Commission be set aside
or modified in the manner stated in the petition, together with
a bond in such sum as the court may determine, conditioned that
such person will pay the costs of the proceedings if the court
so directs. The clerk of the court in which such a petition is
filed shall immediately cause a copy thereof to be delivered to
the Commission and file in the court the record in such
proceedings, as provided in section 2112 of title 28, United
States Code. The testimony and evidence taken or submitted
before the Commission, duly filed as aforesaid as a part of the
record, shall be considered by the court of appeals as the
evidence in the case. Such a court may affirm or set aside the
order of the Commission or may direct it to modify its order.
No such order of the Commission shall be modified or set aside
by the court of appeals unless it is shown by the person that
the order is unsupported by the weight of the evidence or was
issued without due notice and a reasonable opportunity having
been afforded to such person for a hearing, or infringes the
Constitution of the United States, or is beyond the
jurisdiction of the Commission.
(c) Prohibition Regarding Manipulation and False
Information.--
(1) Prohibition against manipulation.--It shall be
unlawful for any person, directly or indirectly, to use
or employ, or attempt to use or employ, in connection
with any swap, or a contract of sale of any commodity
in interstate commerce, or for future delivery on or
subject to the rules of any registered entity, any
manipulative or deceptive device or contrivance, in
contravention of such rules and regulations as the
Commission shall promulgate by not later than 1 year
after the date of enactment of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, provided no
rule or regulation promulgated by the Commission shall
require any person to disclose to another person
nonpublic information that may be material to the
market price, rate, or level of the commodity
transaction, except as necessary to make any statement
made to the other person in or in connection with the
transaction not misleading in any material respect.
(A) Special provision for manipulation by
false reporting.--Unlawful manipulation for
purposes of this paragraph shall include, but
not be limited to, delivering, or causing to be
delivered for transmission through the mails or
interstate commerce, by any means of
communication whatsoever, a false or misleading
or inaccurate report concerning crop or market
information or conditions that affect or tend
to affect the price of any commodity in
interstate commerce, knowing, or acting in
reckless disregard of the fact that such report
is false, misleading or inaccurate.
(B) Effect on other law.--Nothing in this
paragraph shall affect, or be construed to
affect, the applicability of section 9(a)(2).
(C) Good faith mistakes.--Mistakenly
transmitting, in good faith, false or
misleading or inaccurate information to a price
reporting service would not be sufficient to
violate subsection (c)(1)(A).
(2) Prohibition regarding false information.--It
shall be unlawful for any person to make any false or
misleading statement of a material fact to the
Commission, including in any registration application
or any report filed with the Commission under this Act,
or any other information relating to a swap, or a
contract of sale of a commodity, in interstate
commerce, or for future delivery on or subject to the
rules of any registered entity, or to omit to state in
any such statement any material fact that is necessary
to make any statement of a material fact made not
misleading in any material respect, if the person knew,
or reasonably should have known, the statement to be
false or misleading.
(3) Other manipulation.--In addition to the
prohibition in paragraph (1), it shall be unlawful for
any person, directly or indirectly, to manipulate or
attempt to manipulate the price of any swap, or of any
commodity in interstate commerce, or for future
delivery on or subject to the rules of any registered
entity.
(4) Enforcement.--
(A) Authority of commission.--If the
Commission has reason to believe that any
person (other than a registered entity) is
violating or has violated this subsection, or
any other provision of this Act (including any
rule, regulation, or order of the Commission
promulgated in accordance with this subsection
or any other provision of this Act), the
Commission may serve upon the person a
complaint.
(B) Contents of complaint.--A complaint under
subparagraph (A) shall--
(i) contain a description of the
charges against the person that is the
subject of the complaint; and
(ii) have attached or contain a
notice of hearing that specifies the
date and location of the hearing
regarding the complaint.
(C) Hearing.--A hearing described in
subparagraph (B)(ii)--
(i) shall be held not later than 3
days after service of the complaint
described in subparagraph (A);
(ii) shall require the person to show
cause regarding why--
(I) an order should not be
made--
(aa) to prohibit the
person from trading on,
or subject to the rules
of, any registered
entity; and
(bb) to direct all
registered entities to
refuse all privileges
to the person until
further notice of the
Commission; and
(II) the registration of the
person, if registered with the
Commission in any capacity,
should not be suspended or
revoked; and
(iii) may be held before--
(I) the Commission; or
(II) an administrative law
judge designated by the
Commission, under which the
administrative law judge shall
ensure that all evidence is
recorded in written form and
submitted to the Commission.
(5) Subpoena.--For the purpose of securing effective
enforcement of the provisions of this Act, for the
purpose of any investigation or proceeding under this
Act, and for the purpose of any action taken under
section 12(f), any member of the Commission or any
Administrative Law Judge or other officer designated by
the Commission (except as provided in paragraph (7))
may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and
require the production of any books, papers,
correspondence, memoranda, or other records that the
Commission deems relevant or material to the inquiry.
(6) Witnesses.--The attendance of witnesses and the
production of any such records may be required from any
place in the United States, any State, or any foreign
country or jurisdiction at any designated place of
hearing.
(7) Service.--A subpoena issued under this section
may be served upon any person who is not to be found
within the territorial jurisdiction of any court of the
United States in such manner as the Federal Rules of
Civil Procedure prescribe for service of process in a
foreign country, except that a subpoena to be served on
a person who is not to be found within the territorial
jurisdiction of any court of the United States may be
issued only on the prior approval of the Commission.
(8) Refusal to obey.--In case of contumacy by, or
refusal to obey a subpoena issued to, any person, the
Commission may invoke the aid of any court of the
United States within the jurisdiction in which the
investigation or proceeding is conducted, or where such
person resides or transacts business, in requiring the
attendance and testimony of witnesses and the
production of books, papers, correspondence, memoranda,
and other records. Such court may issue an order
requiring such person to appear before the Commission
or member or Administrative Law Judge or other officer
designated by the Commission, there to produce records,
if so ordered, or to give testimony touching the matter
under investigation or in question.
(9) Failure to obey.--Any failure to obey such order
of the court may be punished by the court as a contempt
thereof. All process in any such case may be served in
the judicial district wherein such person is an
inhabitant or transacts business or wherever such
person may be found.
(10) Evidence.--On the receipt of evidence under
paragraph (4)(C)(iii), the Commission may--
(A) prohibit the person that is the subject
of the hearing from trading on, or subject to
the rules of, any registered entity and require
all registered entities to refuse the person
all privileges on the registered entities for
such period as the Commission may require in
the order;
(B) if the person is registered with the
Commission in any capacity, suspend, for a
period not to exceed 180 days, or revoke, the
registration of the person;
(C) assess such person--
(i) a civil penalty of not more than
an amount equal to the greater of--
(I) $140,000; or
(II) triple the monetary gain
to such person for each such
violation; or
(ii) in any case of manipulation or
attempted manipulation in violation of
this subsection or section 9(a)(2), a
civil penalty of not more than an
amount equal to the greater of--
(I) $1,000,000; or
(II) triple the monetary gain
to the person for each such
violation; and
(D) require restitution to customers of
damages proximately caused by violations of the
person.
(11) Orders.--
(A) Notice.--The Commission shall provide to
a person described in paragraph (10) and the
appropriate governing board of the registered
entity notice of the order described in
paragraph (10) by--
(i) registered mail;
(ii) certified mail; or
(iii) personal delivery.
(B) Review.--
(i) In general.--A person described
in paragraph (10) may obtain a review
of the order or such other equitable
relief as determined to be appropriate
by a court described in clause (ii).
(ii) Petition.--To obtain a review or
other relief under clause (i), a person
may, not later than 15 days after
notice is given to the person under
clause (i), file a written petition to
set aside the order with the United
States Court of Appeals--
(I) for the circuit in which
the petitioner carries out the
business of the petitioner; or
(II) in the case of an order
denying registration, the
circuit in which the principal
place of business of the
petitioner is located, as
listed on the application for
registration of the petitioner.
(C) Procedure.--
(i) Duty of clerk of appropriate
court.--The clerk of the appropriate
court under subparagraph (B)(ii) shall
transmit to the Commission a copy of a
petition filed under subparagraph
(B)(ii).
(ii) Duty of commission.--In
accordance with section 2112 of title
28, United States Code, the Commission
shall file in the appropriate court
described in subparagraph (B)(ii) the
record theretofore made.
(iii) Jurisdiction of appropriate
court.--Upon the filing of a petition
under subparagraph (B)(ii), the
appropriate court described in
subparagraph (B)(ii) may affirm, set
aside, or modify the order of the
Commission.
(d) If any person (other than a registered entity), is
violating or has violated subsection (c) or any other
provisions of this Act or of the rules, regulations, or orders
of the Commission thereunder, the Commission may, upon notice
and hearing, and subject to appeal as in other cases provided
for in subsection (c), make and enter an order directing that
such person shall cease and desist therefrom and, if such
person thereafter and after the lapse of the period allowed for
appeal of such order or after the affirmance of such order,
shall knowingly fail or refuse to obey or comply with such
order, such person, upon conviction thereof, shall be fined not
more than the higher of $140,000 or triple the monetary gain to
such person, or imprisoned for not more than 1 year, or both,
except that if such knowing failure or refusal to obey or
comply with such order involves any offense within subsection
(a) or (b) of section 9, such person, upon conviction thereof,
shall be subject to the penalties of said subsection (a) or
(b): Provided, That any such cease and desist order under this
subsection against any respondent in any case of manipulation
shall be issued only in conjunction with an order issued
against such respondent under subsection (c).
(e)(1) In determining the amount of the money penalty
assessed under subsection (c), the Commission shall consider
the appropriateness of such penalty to the gravity of the
violation.
(2) Unless the person against whom a money penalty is
assessed under subsection (c) shows to the satisfaction of the
Commission within fifteen days from the expiration of the
period allowed for payment of such penalty that either an
appeal as authorized by subsection (c) has been taken or
payment of the full amount of the penalty then due has been
made, at the end of such fifteen-day period and until such
person shows to the satisfaction of the Commission that payment
of such amount with interest thereon to date of payment has
been made--
(A) such person shall be prohibited automatically
from the privileges of all registered entities; and
(B) if such person is registered with the Commission,
such registration shall be suspended automatically.
(3) If a person against whom a money penalty is assessed
under subsection (c) takes an appeal and if the Commission
prevails or the appeal is dismissed, unless such person shows
to the satisfaction of the Commission that payment of the full
amount of the penalty then due has been made by the end of
thirty days from the date of entry of judgment on the appeal--
(A) such person shall be prohibited automatically
from the privileges of all registered entities; and
(B) if such person is registered with the Commission,
such registration shall be suspended automatically.
If the person against whom the money penalty is assessed fails
to pay such penalty after the lapse of the period allowed for
appeal or after the affirmance of such penalty, the Commission
may refer the matter to the Attorney General who shall recover
such penalty by action in the appropriate United States
district court.
(4) Any designated clearing organization that
knowingly or recklessly evades or participates in or
facilitates an evasion of the requirements of section
2(h) shall be liable for a civil money penalty in twice
the amount otherwise available for a violation of
section 2(h).
(5) Any swap dealer or major swap participant that
knowingly or recklessly evades or participates in or
facilitates an evasion of the requirements of section
2(h) shall be liable for a civil money penalty in twice
the amount otherwise available for a violation of
section 2(h).
(f)(1) Except as provided in paragraph (2), not later than
six months after the effective date of rules promulgated by the
Federal Trade Commission under section 3(a) of the
Telemarketing and Consumer Fraud and Abuse Prevention Act, the
Commission shall promulgate, or require each registered futures
association to promulgate, rules substantially similar to such
rules to prohibit deceptive and other abusive telemarketing
acts or practices by any person registered or exempt from
registration under this Act in connection with such person's
business as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, leverage
transaction merchant, floor broker, or floor trader, or a
person associated with any such person.
(2) The Commission is not required to promulgate rules under
paragraph (1) if it determines that--
(A) rules adopted by the Commission under this Act
provide protection from deceptive and abusive
telemarketing by persons described under paragraph (1)
substantially similar to that provided by rules
promulgated by the Federal Trade Commission under
section 3(a) of the Telemarketing and Consumer Fraud
and Abuse Prevention Act; or
(B) such a rule promulgated by the Commission is not
necessary or appropriate in the public interest, or for
the pro- tection of customers in the futures and
options markets, or would be inconsistent with the
maintenance of fair and orderly markets.
If the Commission determines that an exception described in
subparagraph (A) or (B) applies, the Commission shall publish
in the Federal Register its determination with the reasons for
it.
(g) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding
and a copy of any order entered by the Commission pursuant to
subsections (c) and (d) of this section against any futures
commission merchant or introducing broker registered pursuant
to section 4f(a)(2), any floor broker or floor trader exempt
from registration pursuant to section 4f(a)(3), any associated
person exempt from registration pursuant to [section 4k(6)]
section 4k(7), or any board of trade designated as a contract
market pursuant to section 5f.
* * * * * * *
Sec. 6c. (a) Whenever it shall appear to the Commission that
any registered entity or other person has engaged, is engaging,
or is about to engage in any act or practice constituting a
violation of any provision of this Act or any rule, regulation,
or order thereunder, or is restraining trading in any commodity
for future delivery or any swap, the Commission may bring an
action in the proper district court of the United States or the
proper United States court of any territory or other place
subject to the jurisdiction of the United States, to enjoin
such act or practice, or to enforce compliance with this Act,
or any rule, regulation or order thereunder, and said courts
shall have jurisdiction to entertain such actions: Provided,
That no restraining order (other than a restraining order which
prohibits any person from destroying, altering or disposing of,
or refusing to permit authorized representatives of the
Commission to inspect, when and as requested, any books and
records or other documents or which prohibits any person from
withdrawing, transferring, removing, dissipating, or disposing
of any funds, assets, or other property, and other than an
order appointing a temporary receiver to administer such
restraining order and to perform such other duties as the court
may consider appropriate) or injunction for violation of the
provisions of this Act shall be issued ex parte by said court.
(b) Upon a proper showing, a permanent or temporary
injunction or restraining order shall be granted without bond.
(c) Upon application of the Commission, the district courts
of the United States and the United States courts of any
territory or other place subject to the jurisdiction of the
United States shall also have jurisdiction to issue writs of
mandamus, or orders affording like relief, commanding any
person to comply with the provisions of this Act or any rule,
regulation, or order of the Commission thereunder, including
the requirement that such person take action as is necessary to
remove the danger of violation of this Act or any such rule,
regulation, or order: Provided, That no such writ of mandamus,
or order affording like relief, shall be issued ex parte.
(d) Civil Penalties.--
(1) In general.--In any action brought under this
section, the Commission may seek and the court shall
have jurisdiction to impose, on a proper showing, on
any person found in the action to have committed any
violation--
(A) a civil penalty in the amount of not more
than the greater of $100,000 or triple the
monetary gain to the person for each violation;
or
(B) in any case of manipulation or attempted
manipulation in violation of section 6(c),
6(d), or 9(a)(2), a civil penalty in the amount
of not more than the greater of $1,000,000 or
triple the monetary gain to the person for each
violation.
(2) If a person on whom such a penalty is imposed fails to
pay the penalty within the time prescribed in the court's
order, the Commission may refer the matter to the Attorney
General who shall recover the penalty by action in the
appropriate United States district court.
(3) Equitable remedies.--In any action brought under
this section, the Commission may seek, and the court
may impose, on a proper showing, on any person found in
the action to have committed any violation, equitable
remedies including--
(A) restitution to persons who have sustained
losses proximately caused by such violation (in
the amount of such losses); and
(B) disgorgement of gains received in
connection with such violation.
(e) Any action under this section may be brought in the
district wherein the defendant is found or is an inhabitant or
transacts business or in the district where the act or practice
occurred, is occurring, or is about to occur, and process in
such cases may be served in any district in which the defendant
is an inhabitant or wherever the defendant may be found.
(f) In lieu of bringing actions itself pursuant to this
section, the Commission may request the Attorney General to
bring the action.
(g) Where the Commission elects to bring the action, it shall
inform the Attorney General of such suit and advise him of
subsequent developments.
(h) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding
and a copy of any order entered by the Commission against any
futures commission merchant or introducing broker registered
pursuant to section 4f(a)(2), any floor broker or floor trader
exempt from registration pursuant to section 4f(a)(3), any
associated person exempt from registration pursuant to [section
4k(6)] section 4k(7), or any board of trade designated as a
contract market pursuant to section 5f.
* * * * * * *
Sec. 8. (a)(1) For the efficient execution of the provisions
of this Act, and in order to provide information for the use of
Congress, the Commission may make such investigations as it
deems necessary to ascertain the facts regarding the operations
of boards of trade and other persons subject to the provisions
of this Act. The Commission may publish from time to time the
results of any such investigation and such general statistical
information gathered therefrom as it deems of interest to the
public: Provided, That except as otherwise specifically
authorized in this Act, the Commission may not publish data and
information that would separately disclose the business
transactions or market positions of any person and trade
secrets or names of customers: Provided further, That the
Commission may withhold from public disclosure any data or
information concerning or obtained in connection with any
pending investigation of any person. The Commission shall not
be compelled to disclose any information or data obtained from
a foreign futures authority if--
(A) the foreign futures authority has in good faith
determined and represented to the Commission that
disclosure of such information or data by that foreign
futures authority would violate the laws applicable to
that foreign futures authority; and
(B) the Commission obtains such information pursuant
to--
(i) such procedure as the Commission may
authorize for use in connection with the
administration or enforcement of this Act; or
(ii) a memorandum of understanding with that
foreign futures authority;
except that nothing in this subsection shall prevent
the Commission from disclosing publicly any information
or data obtained by the Commission from a foreign
futures authority when such disclosure is made in
connection with a congressional proceeding, an
administrative or judicial proceeding commenced by the
United States or the Commission, in any receivership
proceeding involving a receiver appointed in a judicial
proceeding commenced by the United States or the
Commission, or in any proceeding under title 11 of the
United States Code in which the Commission has
intervened or in which the Commission has the right to
appear and be heard. Nothing in this subsection shall
be construed to authorize the Commission to withhold
information or data from Congress. For purposes of
section 552 of title 5, United States Code, this
subsection shall be considered a statute described in
subsection (b)(3)(B) of section 552.
(2) In conducting investigations authorized under this
subsection or any other provision of this Act, the Commission
shall continue, as the Commission determines necessary, to
request the assistance of and cooperate with the appropriate
Federal agencies in the conduct of such investigations,
including undercover operations by such agencies. The
Commission and the Department of Justice shall assess the
effectiveness of such undercover operations and, within two
years of the date of enactment of the Futures Trading Practices
Act of 1992, shall recommend to Congress any additional
undercover or other authority for the Commission that the
Commission or the Department of Justice believes to be
necessary.
(3) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding
and a copy of any order entered by the Commission against any
futures commission merchant or introducing broker registered
pursuant to section 4f(a)(2), any floor broker or floor trader
exempt from registration pursuant to section 4f(a)(3), any
associated person exempt from registration pursuant to [section
4k(6)] section 4k(7), or any board of trade designated as a
contract market pursuant to section 5f.
(b) The Commission may disclose publicly any data or
information that would separately disclose the market
positions, business transactions, trade secrets, or names of
customers of any person when such disclosure is made in
connection with a congressional proceeding, in an
administrative or judicial proceeding brought under this Act,
in any receivership proceeding involving a receiver appointed
in a judicial proceeding brought under this Act, or in any
bankruptcy proceeding in which the Commission has intervened or
in which the Commission has the right to appear and be heard
under title 11 of the United States Code. This subsection shall
not apply to the disclosure of data or information obtained by
the Commission from a foreign futures authority.
(c) The Commission may make or issue such reports as it deems
necessary, or such opinions or orders as may be required under
other provisions of law, relative to the conduct of any
registered entity or to the transactions of any person found
guilty of violating the provisions of this Act or the rules,
regulations, or orders of the Commission thereunder in
proceedings brought under section 6 of this Act. In any such
report or opinion, the Commission may set forth the facts as to
any actual transaction or any information referred to in
subsection (b) of this section, if such facts or information
have previously been disclosed publicly in connection with a
congressional proceeding, or in an administrative or judicial
proceeding brought under this Act.
(d) The Commission, upon its own initiative or in cooperation
with existing governmental agencies, shall investigate the
marketing conditions of commodities and commodity products and
byproducts, including supply and demand for these commodities,
cost to the consumer, and handling and transportation charges.
It shall also compile and furnish to producers, consumers, and
distributors, by means of regular or special reports, or by
such other methods as it deems most effective, information
respecting the commodity markets, together with information on
supply, demand, prices, and other conditions in this and other
countries that affect the markets.
(e) The Commission may disclose and make public, where such
information has previously been disclosed publicly in
accordance with the provisions of this section, the names and
addresses of all traders on the boards of trade on the
commodity markets with respect to whom the Commission has
information, and any other information in the possession of the
Commission relating to the amount of commodities purchased or
sold by each such trader. Upon the request of any committee of
either House of Congress, acting within the scope of its
jurisdiction, the Commission shall furnish to such committee
the names and addresses of all traders on such boards of trade
with respect to whom the Commission has information, and any
other information in the possession of the Commission relating
to the amount of any commodity purchased or sold by each such
trader. Upon the request of any department or agency of the
Government of the United States, acting within the scope of its
jurisdiction, the Commission may furnish to such department or
agency any information in the possession of the Commission
obtained in connection with the administration of this Act.
However, any information furnished under this subsection to any
Federal department or agency shall not be disclosed by such
department or agency except in any action or proceeding under
the laws of the United States to which it, the Commission, or
the United States is a party. Upon the request of any
department or agency of any State or any political subdivision
thereof, acting within the scope of its jurisdiction, any
foreign futures authority, or any department or agency of any
foreign government or any political subdivision thereof, acting
within the scope of its jurisdiction, the Commission may
furnish to such foreign futures authority, department or agency
any information in the possession of the Commission obtained in
connection with the administration of this Act. Any information
furnished to any department or agency of any State or political
subdivision thereof shall not be disclosed by such department
or agency except in connection with an adjudicatory action or
proceeding brought under this Act or the laws of such State or
political subdivision to which such State or political
subdivision or any department or agency thereof is a party. The
Commission shall not furnish any information to a foreign
futures authority or to a department, central bank and
ministries, or agency of a foreign government or political
subdivision thereof unless the Commission is satisfied that the
information will not be disclosed by such foreign futures
authority, department, central bank and ministries, or agency
except in connection with an adjudicatory action or proceeding
brought under the laws of such foreign government or political
subdivision to which such foreign government or political
subdivision or any department or agency thereof, or foreign
futures authority is a party.
(f) The Commission shall disclose information in its
possession pursuant to a subpoena or summons only if--
(1) a copy of the subpoena or summons has been mailed
to the last known home or business address of the
person who submitted the information that is the
subject of the subpoena or summons, if the address is
known to the Commission, or, if such mailing would be
unduly burdensome, the Commission provides other
appropriate notice of the subpoena or summons to such
person, and
(2) at least fourteen days have expired from the date
of such mailing of the subpoena or summons, or such
other notice.
This subsection shall not apply to congressional subpoenas or
congressional requests for information.
(g) The Commission shall provide any registration information
maintained by the Commission on any registrant upon reasonable
request made by any department or agency of any State or any
political subdivision thereof. Whenever the Commission
determines that such information may be appropriate for use by
any department or agency of a State or political subdivision
thereof, the Commission shall provide such information without
request.
(h) The Commission shall submit to Congress a written report
within one hundred and twenty days after the end of each fiscal
year detailing the operations of the Commission during such
fiscal year. The Commission shall include in such report such
information, data, and legislative recommendations as it deems
advisable with respect to the administration of this Act and
its powers and functions under this Act.
(i) The Comptroller General of the United States shall
conduct reviews and audits of the Commission and make reports
thereon. For the purpose of conducting such reviews and audits,
the Comptroller General shall be furnished such information
regarding the powers, duties, organizations, transactions,
operations, and activities of the Commission as the Comptroller
General may require and the Comptroller General and the duly
authorized representatives of the Comptroller General shall,
for the purpose of securing such information, have access to
and the right to examine any books, documents, papers, or
records of the Commission, except that in reports the
Comptroller General shall not include data and information that
would separately disclose the business transactions of any
person and trade secrets or names of customers, although such
data shall be provided upon request by any committee of either
House of Congress acting within the scope of its jurisdiction.
* * * * * * *
Sec. 18. (a) The Commission shall establish and maintain, as
part of its ongoing operations, research and information
programs to (1) determine the feasibility of trading by
computer, and the expanded use of modern information system
technology, electronic data processing, and modern
communication systems by commodity exchanges, boards of trade,
and by the Commission itself for purposes of improving,
strengthening, facilitating, or regulating futures trading
operations; (2) assist in the development of educational and
other informational materials regarding futures trading for
dissemination and use among producers, market users, and the
general public; and (3) carry out the general purposes of this
Act.
(b) The Commission shall include in its annual reports to
Congress plans and findings with respect to implementing this
section.
(c) LabCFTC.--
(1) Establishment.--There is established in the
Commission LabCFTC.
(2) Purpose.--The purposes of LabCFTC are to--
(A) promote responsible financial technology
innovation and fair competition for the benefit
of the American public;
(B) serve as an information platform to
inform the Commission about new financial
technology innovation; and
(C) provide outreach to financial technology
innovators to discuss their innovations and the
regulatory framework established by this Act
and the regulations promulgated thereunder.
(3) Director.--LabCFTC shall have a Director, who
shall be appointed by the Commission and serve at the
pleasure of the Commission. Notwithstanding section
2(a)(6)(A), the Director shall report directly to the
Commission and perform such functions and duties as the
Commission may prescribe.
(4) Duties.--LabCFTC shall--
(A) advise the Commission with respect to
rulemakings or other agency or staff action
regarding financial technology;
(B) provide internal education and training
to the Commission regarding financial
technology;
(C) advise the Commission regarding financial
technology that would bolster the Commission's
oversight functions;
(D) engage with academia, students, and
professionals on financial technology issues,
ideas, and technology relevant to activities
under this Act;
(E) provide persons working in emerging
technology fields with information on the
Commission, its rules and regulations, and the
role of a registered futures association; and
(F) encourage persons working in emerging
technology fields to engage with the Commission
and obtain feedback from the Commission on
potential regulatory issues.
(5) Access to documents.--The Commission shall ensure
that LabCFTC has full access to the documents and
information of the Commission and any self-regulatory
organization or registered futures association, as
necessary to carry out the functions of LabCFTC.
(6) Report to congress.--
(A) In general.--Not later than October 31 of
each year after 2024, LabCFTC shall submit to
the Committee on Agriculture of the House of
Representatives and the Committee on
Agriculture, Nutrition, and Forestry of the
Senate a report on its activities.
(B) Contents.--Each report required under
paragraph (1) shall include--
(i) the total number of persons that
met with LabCFTC;
(ii) a summary of general issues
discussed during meetings with the
person;
(iii) information on steps LabCFTC
has taken to improve Commission
services, including responsiveness to
the concerns of persons;
(iv) recommendations made to the
Commission with respect to the
regulations, guidance, and orders of
the Commission and such legislative
actions as may be appropriate; and
(v) any other information determined
appropriate by the Director of LabCFTC.
(C) Confidentiality.--A report under
paragraph (A) shall abide by the
confidentiality requirements in section 8.
(7) Systems of records.--
(A) In general.--The Commission shall
establish a detailed system of records (as
defined in section 552a of title 5, United
States Code) to assist LabCFTC in communicating
with interested parties.
(B) Persons covered by the system.--The
persons covered by the system of records shall
include persons submitting requests or
inquiries and other information to the
Commission through LabCFTC.
(C) Security and storage of records.--The
system of records shall store records
electronically or on paper in secure
facilities, and shall store electronic records
on the secure network of the Commission and on
other electronic media, such as encrypted hard
drives and back-up media, as needed.
* * * * * * *
----------
INVESTMENT ADVISERS ACT OF 1940
* * * * * * *
TITLE II--INVESTMENT ADVISERS
* * * * * * *
definitions
Sec. 202. (a) When used in this title, unless the context
otherwise requires, the following definitions shall apply:
(1) ``Assignment'' includes any direct or indirect
transfer or hypothecation of an investment advisory
contract by the assignor or of a controlling block of
the assignor's outstanding voting securities by a
security holder of the assignor; but if the investment
adviser is a partnership, no assignment of an
investment advisory contract shall be deemed to result
from the death or withdrawal of a minority of the
members of the investment adviser having only a
minority interest in the business of the investment
adviser, or from the admission to the investment
adviser of one or more members who, after such
admission, shall be only a minority of the members and
shall have only a minority interest in the business.
(2) ``Bank'' means (A) a banking institution
organized under the laws of the United States or a
Federal savings association, as defined in section 2(5)
of the Home Owners' Loan Act, (B) a member bank of the
Federal Reserve System, (C) any other banking
institution, savings association, as defined in section
2(4) of the Home Owners' Loan Act, or trust company,
whether incorporated or not, doing business under the
laws of any State or of the United States, a
substantial portion of the business of which consists
of receiving deposits or exercising fiduciary powers
similar to those permitted to national banks under the
authority of the Comptroller of the Currency, and which
is supervised and examined by State or Federal
authority having supervision over banks or savings
associations, and which is not operated for the purpose
of evading the provisions of this title, and (D) a
receiver, conservator, or other liquidating agent of
any institution or firm included in clauses (A), (B),
or (C) of this paragraph.
(3) The term ``broker'' has the same meaning as given
in section 3 of the Securities Exchange Act of 1934.
(4) ``Commission'' means the Securities and Exchange
Commission.
(5) ``Company'' means a corporation, a partnership,
an association, a joint-stock company, a trust, or any
organized group of persons, whether incorporated or
not; or any receiver, trustee in a case under title 11
of the United States Code, or similar official, or any
liquidating agent for any of the foregoing, in his
capacity as such.
(6) ``Convicted'' includes a verdict, judgment, or
plea of guilty, or a finding of guilt on a plea of nolo
contendere, if such verdict, judgment, plea, or finding
has not been reversed, set aside, or withdrawn, whether
or not sentence has been imposed.
(7) The term ``dealer'' has the same meaning as given
in section 3 of the Securities Exchange Act of 1934,
but does not include an insurance company or investment
company.
(8) ``Director'' means any director of a corporation
or any person performing similar functions, with
respect to any organization, whether incorporated or
unincorporated.
(9) ``Exchange'' means any organization, association,
or group of persons, whether incorporated or
unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange as
that term is generally understood, and includes the
market place and the market facilities maintained by
such exchange.
(10) ``Interstate commerce'' means trade, commerce,
transportation, or communication among the several
States, or between any foreign country and any State,
or between any State and any place or ship outside
thereof.
(11) ``Investment adviser'' means any person who, for
compensation, engages in the business of advising
others, either directly or through publications or
writings, as to the value of securities or as to the
advisability of investing in, purchasing, or selling
securities, or who, for compensation and as part of a
regular business, issues or promulgates analyses or
reports concerning securities; but does not include (A)
a bank, or any bank holding company as defined in the
Bank Holding Company Act of 1956, which is not an
investment company, except that the term ``investment
adviser'' includes any bank or bank holding company to
the extent that such bank or bank holding company
serves or acts as an investment adviser to a registered
investment company, but if, in the case of a bank, such
services or actions are performed through a separately
identifiable department or division, the department or
division, and not the bank itself, shall be deemed to
be the investment adviser; (B) any lawyer, accountant,
engineer, or teacher whose performance of such services
is solely incidental to the practice of his profession;
(C) any broker or dealer whose performance of such
services is solely incidental to the conduct of his
business as a broker or dealer and who receives no
special compensation therefor; (D) the publisher of any
bona fide newspaper, news magazine or business or
financial publication of general and regular
circulation; (E) any person whose advice, analyses, or
reports relate to no securities other than securities
which are direct obligations of or obligations
guaranteed as to principal or interest by the United
States, or securities issued or guaranteed by
corporations in which the United States has a direct or
indirect interest which shall have been designated by
the Secretary of the Treasury, pursuant to section
3(a)(12) of the Securities Exchange Act of 1934, as
exempted securities for the purposes of that Act; (F)
any nationally recognized statistical rating
organization, as that term is defined in section
3(a)(62) of the Securities Exchange Act of 1934, unless
such organization engages in issuing recommendations as
to purchasing, selling, or holding securities or in
managing assets, consisting in whole or in part of
securities, on behalf of others;; (G) any family
office, as defined by rule, regulation, or order of the
Commission, in accordance with the purposes of this
title; or (H) such other persons not within the intent
of this paragraph, as the Commission may designate by
rules and regulations or order.
(12) ``Investment company'', affiliated person, and
``insurance company'' have the same meanings as in the
Investment Company Act of 1940. ``Control'' means the
power to exercise a controlling influence over the
management or policies of a company, unless such power
is solely the result of an official position with such
company.
(13) ``Investment supervisory services'' means the
giving of continuous advice as to the investment of
funds on the basis of the individual needs of each
client.
(14) ``Means or instrumentality of interstate
commerce'' includes any facility of a national
securities exchange.
(15) ``National securities exchange'' means an
exchange registered under section 6 of the Securities
Exchange Act of 1934.
(16) ``Person'' means a natural person or a company.
(17) The term ``person associated with an investment
adviser'' means any partner, officer, or director of
such investment adviser (or any person performing
similar functions), or any person directly or
indirectly controlling or controlled by such investment
adviser, including any employee of such investment
adviser, except that for the purposes of section 203 of
this title (other than subsection (f) thereof), persons
associated with an investment adviser whose functions
are clerical or ministerial shall not be included in
the meaning of such term. The Commission may by rules
and regulations classify, for the purposes of any
portion or portions of this title, persons, including
employees controlled by an investment adviser.
(18) ``Security'' means any note, stock, treasury
stock, security future, bond, debenture, evidence of
indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or
subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option,
or privilege on any security (including a certificate
of deposit) or on any group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on a national securities
exchange relating to foreign currency, or, in general,
any interest or instrument commonly known as a
``security'', or any certificate of interest or
participation in, temporary or interim certificate for,
receipt for, guaranty of, or warrant or right to
subscribe to or purchase any of the foregoing. The term
does not include a digital commodity or permitted
payment stablecoin.
(19) ``State'' means any State of the United States,
the District of Columbia, Puerto Rico, the Virgin
Islands, or any other possession of the United States.
(20) ``Underwriter'' means any person who has
purchased from an issuer with a view to, or sells for
an issuer in connection with, the distribution of any
security, or participates or has a direct or indirect
participation in any such undertaking, or participates
or has a participation in the direct or indirect
underwriting of any such undertaking; but such term
shall not include a person whose interest is limited to
a commission from an underwriter or dealer not in
excess of the usual and customary distributor's or
seller's commission. As used in this paragraph the term
``issuer'' shall include in addition to an issuer, any
person directly or indirectly controlling or controlled
by the issuer, or any person under direct or indirect
common control with the issuer.
(21) ``Securities Act of 1933'', ``Securities
Exchange Act of 1934'', and ``Trust Indenture Act of
1939'', mean those Acts, respectively, as heretofore or
hereafter amended.
(22) ``Business development company'' means any
company which is a business development company as
defined in section 2(a)(48) of title I of this Act and
which complies with section 55 of title I of this Act,
except that--
(A) the 70 per centum of the value of the
total assets condition referred to in sections
2(a)(48) and 55 of title I of this Act shall be
60 per centum for purposes of determining
compliance therewith;
(B) such company need not be a closed-end
company and need not elect to be subject to the
provisions of sections 55 through 65 of title I
of this Act; and
(C) the securities which may be purchased
pursuant to section 55(a) of title I of this
Act may be purchased from any person.
For purposes of this paragraph, all terms in sections
2(a)(48) and 55 of title I of this Act shall have the
same meaning set forth in such title as if such company
were a registered closed-end investment company, except
that the value of the assets of a business development
company which is not subject to the provisions of
sections 55 through 65 of title I of this Act shall be
determined as of the date of the most recent financial
statements which it furnished to all holders of its
securities, and shall be determined no less frequently
than annually.
(23) ``Foreign securities authority'' means any
foreign government, or any governmental body or
regulatory organization empowered by a foreign
government to administer or enforce its laws as they
relate to securities matters.
(24) ``Foreign financial regulatory authority'' means
any (A) foreign securities authority, (B) other
governmental body or foreign equivalent of a self-
regulatory organization empowered by a foreign
government to administer or enforce its laws relating
to the regulation of fiduciaries, trusts, commercial
lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments
traded on or subject to the rules of a contract market,
board of trade or foreign equivalent, or other
financial activities, or (C) membership organization a
function of which is to regulate the participation of
its members in activities listed above.
(25) ``Supervised person'' means any partner,
officer, director (or other person occupying a similar
status or performing similar functions), or employee of
an investment adviser, or other person who provides
investment advice on behalf of the investment adviser
and is subject to the supervision and control of the
investment adviser.
(26) The term ``separately identifiable department or
division'' of a bank means a unit--
(A) that is under the direct supervision of
an officer or officers designated by the board
of directors of the bank as responsible for the
day-to-day conduct of the bank's investment
adviser activities for one or more investment
companies, including the supervision of all
bank employees engaged in the performance of
such activities; and
(B) for which all of the records relating to
its investment adviser activities are
separately maintained in or extractable from
such unit's own facilities or the facilities of
the bank, and such records are so maintained or
otherwise accessible as to permit independent
examination and enforcement by the Commission
of this Act or the Investment Company Act of
1940 and rules and regulations promulgated
under this Act or the Investment Company Act of
1940.
(27) The terms ``security future'' and ``narrow-based
security index'' have the same meanings as provided in
section 3(a)(55) of the Securities Exchange Act of
1934.
(28) The term ``credit rating agency'' has the same
meaning as in section 3 of the Securities Exchange Act
of 1934.
(29) The term ``private fund'' means an issuer that
would be an investment company, as defined in section 3
of the Investment Company Act of 1940 (15 U.S.C. 80a-
3), but for section 3(c)(1) or 3(c)(7) of that Act.
(30) The term ``foreign private adviser'' means any
investment adviser who--
(A) has no place of business in the United
States;
(B) has, in total, fewer than 15 clients and
investors in the United States in private funds
advised by the investment adviser;
(C) has aggregate assets under management
attributable to clients in the United States
and investors in the United States in private
funds advised by the investment adviser of less
than $25,000,000, or such higher amount as the
Commission may, by rule, deem appropriate in
accordance with the purposes of this title; and
(D) neither--
(i) holds itself out generally to the
public in the United States as an
investment adviser; nor
(ii) acts as--
(I) an investment adviser to
any investment company
registered under the Investment
Company Act of 1940; or
(II) a company that has
elected to be a business
development company pursuant to
section 54 of the Investment
Company Act of 1940 (15 U.S.C.
80a-53), and has not withdrawn
its election.
[(29)] (31) The terms ``commodity pool'', ``commodity
pool operator'', ``commodity trading advisor'', ``major
swap participant'', ``swap'', ``swap dealer'', and
``swap execution facility'' have the same meanings as
in section 1a of the Commodity Exchange Act (7 U.S.C.
1a).
(32) Digital asset-related terms.--The terms
``digital commodity'' and ``permitted payment
stablecoin'' have the meaning given those terms,
respectively, under section 2(a) of the Securities Act
of 1933 (15 U.S.C. 77b(a)).
(b) No provision in this title shall apply to, or be deemed
to include, the United States, a State, or any political
subdivision of a State, or any agency, authority, or
instrumentality of any one or more of the foregoing, or any
corporation which is wholly owned directly or indirectly by any
one or more of the foregoing, or any officer, agent, or
employee of any of the foregoing acting as such in the course
of his official duty, unless such provision makes specific
reference thereto.
(c) Consideration of Promotion of Efficiency, Competition,
and Capital Formation.--Whenever pursuant to this title the
Commission is engaged in rulemaking and is required to consider
or determine whether an action is necessary or appropriate in
the public interest, the Commission shall also consider, in
addition to the protection of investors, whether the action
will promote efficiency, competition, and capital formation.
* * * * * * *
----------
INVESTMENT COMPANY ACT OF 1940
TITLE I--INVESTMENT COMPANIES
* * * * * * *
general definitions
Sec. 2. (a) When used in this title, unless the context
otherwise requires--
(1) ``Advisory board'' means a board, whether elected
or appointed, which is distinct from the board of
directors or board of trustees, of an investment
company, and which is composed solely of persons who do
not serve such company in any other capacity, whether
or not the functions of such board are such as to
render its members ``directors'' within the definition
of that term, which board has advisory functions as to
investments but has no power to determine that any
security or other investment shall be purchased or sold
by such company.
(2) ``Affiliated company'' means a company which is
an affiliated person.
(3) ``Affiliated person'' of another person means (A)
any person directly or indirectly owning, controlling,
or holding with power to vote, 5 per centum or more of
the outstanding voting securities of such other person;
(B) any person 5 per centum or more of whose
outstanding voting securities are directly or
indirectly owned, controlled, or held with power to
vote, by such other person; (C) any person directly or
indirectly controlling, controlled by, or under common
control with, such other person; (D) any officer,
director, partner, copartner, or employee of such other
person; (E) if such other person is an investment
company, any investment adviser thereof or any member
of an advisory board thereof; and (F) if such other
person is an unincorporated investment company not
having a board of directors, the depositor thereof.
(4) ``Assignment'' includes any direct or indirect
transfer or hypothecation of a contract or chose in
action by the assignor, or of a controlling block of
the assignor's outstanding voting securities by a
security holder of the assignor; but does not include
an assignment of partnership interests incidental to
the death or withdrawal of a minority of the members of
the partnership having only a minority interest in the
partnership business or to the admission to the
partnership of one or more members who, after such
admission, shall be only a minority of the members and
shall have only a minority interest in the business.
(5) ``Bank'' means (A) a depository institution (as
defined in section 3 of the Federal Deposit Insurance
Act) or a branch or agency of a foreign bank (as such
terms are defined in section 1(b) of the International
Banking Act of 1978), (B) a member bank of the Federal
Reserve System, (C) any other banking institution or
trust company, whether incorporated or not, doing
business under the laws of any State or of the United
States, a substantial portion of the business of which
consists of receiving deposits or exercising fiduciary
powers similar to those permitted to national banks
under the authority of the Comptroller of the Currency,
and which is supervised and examined by State or
Federal authority having supervision over banks, and
which is not operated for the purpose of evading the
provisions of this title, and (D) a receiver,
conservator, or other liquidating agent of any
institution or firm included in clause (A), (B), or (C)
of this paragraph.
(6) The term ``broker'' has the same meaning as given
in section 3 of the Securities Exchange Act of 1934,
except that such term does not include any person
solely by reason of the fact that such person is an
underwriter for one or more investment companies.
(7) ``Commission'' means the Securities and Exchange
Commission.
(8) ``Company'' means a corporation, a partnership,
an association, a joint-stock company, a trust, a fund,
or any organized group of persons whether incorporated
or not; or any receiver, trustee in a case under title
11 of the United States Code or similar official or any
liquidating agent for any of the foregoing, in his
capacity as such.
(9) ``Control'' means the power to exercise a
controlling influence over the management or policies
of a company, unless such power is solely the result of
an official position with such company.
Any person who owns beneficially, either directly or
through one or more controlled companies, more than 25
per centum of the voting securities of a company shall
be presumed to control such company. Any person who
does not so own more than 25 per centum of the voting
securities of any company shall be presumed not to
control such company. A natural person shall be
presumed not to be a controlled person within the
meaning of this title. Any such presumption may be
rebutted by evidence, but except as hereinafter
provided, shall continue until a determination to the
contrary made by the Commission by order either on its
own motion or on application by an interested person.
If an application filed hereunder is not granted or
denied by the Commission within sixty days after filing
thereof, the determination sought by the application
shall be deemed to have been temporarily granted
pending final determination of the Commission thereon.
The Commission, upon its own motion or upon
application, may by order revoke or modify any order
issued under this paragraph whenever it shall find that
the determination embraced in such original order is no
longer consistent with the facts.
(10) ``Convicted'' includes a verdict, judgment, or
plea of guilty, or a finding of guilt on a plea of nolo
contendere, if such verdict, judgment, plea, or finding
has not been reversed, set aside, or withdrawn, whether
or not sentence has been imposed.
(11) The term ``dealer'' has the same meaning as
given in the Securities Exchange Act of 1934, but does
not include an insurance company or investment company.
(12) ``Director'' means any director of a corporation
or any person performing similar functions with respect
to any organization, whether incorporated or
unincorporated, including any natural person who is a
member of a board of trustees of a management company
created as a common-law trust.
(13) ``Employees' securities company'' means any
investment company or similar issuer all of the
outstanding securities of which (other than short-term
paper) are beneficially owned (A) by the employees or
persons on retainer of a single employer or of two or
more employers each of which is an affiliated company
of the other, (B) by former employees of such employer
or employers, (C) by members of the immediate family of
such employees, persons on retainer, or former
employees, (D) by any two or more of the foregoing
classes of persons, or (E) by such employer or
employers together with any one or more of the
foregoing classes of persons.
(14) ``Exchange'' means any organization,
association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange as
that term is generally understood, and includes the
market place and the market facilities maintained by
such exchange.
(15) ``Face-amount certificate'' means any
certificate, investment contract, or other security
which represents an obligation on the part of its
issuer to pay a stated or determinable sum or sums at a
fixed or determinable date or dates more than twenty-
four months after the date of issuance, in
consideration of the payment of periodic installments
of a stated or determinable amount (which security
shall be known as a face-amount certificate of the
``installment type''); or any security which represents
a similar obligation on the part of a face-amount
certificate company, the consideration for which is the
payment of a single lump sum (which security shall be
known as a ``fully paid'' face-amount certificate).
(16) ``Government security'' means any security
issued or guaranteed as to principal or interest by the
United States, or by a person controlled or supervised
by and acting as an instrumentality of the Government
of the United States pursuant to authority granted by
the Congress of the United States; or any certificate
of deposit for any of the foregoing.
(17) ``Insurance company'' means a company which is
organized as an insurance company, whose primary and
predominant business activity is the writing of
insurance or the reinsuring of risks underwritten by
insurance companies, and which is subject to
supervision by the insurance commissioner or a similar
official or agency of a State; or any receiver or
similar official or any liquidating agent for such a
company, in his capacity as such.
(18) ``Interstate commerce'' means trade, commerce,
transportation, or communication among the several
States, or between any foreign country and any State,
or between any State and any place or ship outside
thereof.
(19) ``Interested person'' of another person means--
(A) when used with respect to an investment
company--
(i) any affiliated person of such
company,
(ii) any member of the immediate
family of any natural person who is an
affiliated person of such company,
(iii) any interested person of any
investment adviser of or principal
underwriter for such company,
(iv) any person or partner or
employee of any person who at any time
since the beginning of the last two
completed fiscal years of such company
has acted as legal counsel for such
company,
(v) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
executed any portfolio transactions
for, engaged in any principal
transactions with, or distributed
shares for--
(I) the investment company;
(II) any other investment
company having the same
investment adviser as such
investment company or holding
itself out to investors as a
related company for purposes of
investment or investor
services; or
(III) any account over which
the investment company's
investment adviser has
brokerage placement discretion,
(vi) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
loaned money or other property to--
(I) the investment company;
(II) any other investment
company having the same
investment adviser as such
investment company or holding
itself out to investors as a
related company for purposes of
investment or investor
services; or
(III) any account for which
the investment company's
investment adviser has
borrowing authority, and
(vii) any natural person whom the
Commission by order shall have
determined to be an interested person
by reason of having had, at any time
since the beginning of the last two
completed fiscal years of such company,
a material business or professional
relationship with such company or with
the principal executive officer of such
company or with any other investment
company having the same investment
adviser or principal underwriter or
with the principal executive officer of
such other investment company:
Provided, That no person shall be deemed to be
an interested person of an investment company
solely by reason of (aa) his being a member of
its board of directors or advisory board or an
owner of its securities, or (bb) his membership
in the immediate family of any person specified
in clause (aa) of this proviso; and
(B) when used with respect to an investment
adviser of or principal underwriter for any
investment company--
(i) any affiliated person of such
investment adviser or principal
underwriter,
(ii) any member of the immediate
family of any natural person who is an
affiliated person of such investment
advisor or principal underwiter,
(iii) any person who knowingly has
any direct or indirect beneficial
interest in, or who is designated as
trustee, executor, or guardian of any
legal interest in, any security issued
either by such investment adviser or
principal underwriter or by a
controlling person of such investment
adviser or principal underwriter,
(iv) any person or partner or
employee of any person who at any time
since the beginning of the last two
completed fiscal years of such
investment company has acted as legal
counsel for such investment adviser or
principal underwriter,
(v) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
executed any portfolio transactions
for, engaged in any principal
transactions with, or distributed
shares for--
(I) any investment company
for which the investment
adviser or principal
underwriter serves as such;
(II) any investment company
holding itself out to
investors, for purposes of
investment or investor
services, as a company related
to any investment company for
which the investment adviser or
principal underwriter serves as
such; or
(III) any account over which
the investment adviser has
brokerage placement discretion,
(vi) any person or any affiliated
person of a person (other than a
registered investment company) that, at
any time during the 6-month period
preceding the date of the determination
of whether that person or affiliated
person is an interested person, has
loaned money or other property to--
(I) any investment company
for which the investment
adviser or principal
underwriter serves as such;
(II) any investment company
holding itself out to
investors, for purposes of
investment or investor
services, as a company related
to any investment company for
which the investment adviser or
principal underwriter serves as
such; or
(III) any account for which
the investment adviser has
borrowing authority, and
(vii) any natural person whom the
Commission by order shall have
determined to be an interested person
by reason of having had at any time
since the beginning of the last two
completed fiscal years of such
investment company a material business
or professional relationship with such
investment adviser or principal
underwriter or with the principal
executive officer or any controlling
person of such investment adviser or
principal underwriter.
For the purposes of this paragraph (19),
``member of the immediate family'' means any
parent, spouse of a parent, child, spouse of a
child, spouse, brother, or sister, and includes
step and adoptive relationships. The Commission
may modify or revoke any order issued under
clause (vii) of subparagaph (A) or (B) of this
paragraph whenever it finds that such order is
no longer consistent with the facts. No order
issued pursuant to clause (vii) of subparagraph
(A) or (B) of this paragraph shall become
effective until at least sixty days after the
entry thereof, and no such order shall affect
the status of any person for the purposes of
this title or for any other purpose for any
period prior to the effective date of such
order.
(20) ``Investment adviser'' of an investment company
means (A) any person (other than a bona fide officer,
director, trustee, member of an advisory board, or
employee of such company, as such) who pursuant to
contract with such company regularly furnishes advice
to such company with respect to the desirability of
investing in, purchasing or selling securities or other
property, or is empowered to determine what securities
or other property shall be purchased or sold by such
company, and (B) any other person who pursuant to
contract with a person described in clause (A)
regularly performs substantially all of the duties
undertaken by such person described in clause (A); but
does not include (i) a person whose advice is furnished
solely through uniform publications distributed to
subscribers thereto, (ii) a person who furnishes only
statistical and other factual information, advice
regarding economic factors and trends, or advice as to
occasional transactions in specific securities, but
without generally furnishing advice or making
recommendations regarding the purchase or sale of
securities, (iii) a company furnishing such services at
cost to one or more investment companies, insurance
companies, or other financial institutions, (iv) any
person the character and amount of whose compensation
for such services must be approved by a court, or (v)
such other persons as the Commission may by rules and
regulations or order determine not to be within the
intent of this definition.
(21) ``Investment banker'' means any person engaged
in the business of underwriting securities issued by
other persons, but does not include an investment
company, any person who acts as an underwriter in
isolated transactions but not as a part of a regular
business, or any person solely by reason of the fact
that such person is an underwriter for one or more
investment companies.
(22) ``Issuer'' means every person who issues or
proposes to issue any security, or has outstanding any
security which it has issued.
(23) ``Lend'' includes a purchase coupled with an
agreement by the vendor to repurchase; ``borrow''
includes a sale coupled with a similar agreement.
(24) ``Majority-owned subsidiary'' of a person means
a company 50 per centum or more of the outstanding
voting securities of which are owned by such person, or
by a company which, within the meaning of this
paragraph, is a majority-owned subsidiary of such
person.
(25) ``Means or instrumentality of interstate
commerce'' includes any facility of a national
securities exchange.
(26) ``National securities exchange'' means an
exchange registered under section 6 of the Securities
Exchange Act of 1934.
(27) ``Periodic payment plan certificate'' means (A)
any certificate, investment contract, or other security
providing for a series of periodic payments by the
holder, and representing an undivided interest in
certain specified securities or in a unit or fund of
securities purchased wholly or partly with the proceeds
of such payments, and (B) any security the issuer of
which is also issuing securities of the character
described in clause (A) and the holder of which has
substantially the same rights and privileges as those
which holders of securities of the character described
in clause (A) have upon completing the periodic
payments for which such securities provide.
(28) ``Person'' means a natural person or a company.
(29) ``Principal underwriter'' of or for any
investment company other than a closed-end company, or
of any security issued by such a company, means any
underwriter who as principal purchases from such
company, or pursuant to contract has the right (whether
absolute or conditional) from time to time to purchase
from such company, any such security for distribution,
or who as agent for such company sells or has the right
to sell any such security to a dealer or to the public
or both, but does not include a dealer who purchases
from such company through a principal underwriter
acting as agent for such company. ``Principal
underwriter'' of or for a closed-end company or any
issuer which is not an investment company, or of any
security issued by such a company or issuer, means any
underwriter who, in connection with a primary
distribution of securities, (A) is in privity of
contract with the issuer or an affiliated person of the
issuer; (B) acting alone or in concert with one or more
other persons, initiates or directs the formation of an
underwriting syndicate; or (C) is allowed a rate of
gross commission, spread, or other profit greater than
the rate allowed another underwriter participating in
the distribution.
(30) ``Promoter'' of a company or a proposed company
means a person who, acting alone or in concert with
other persons, is initiating or directing, or has
within one year initiated or directed, the organization
of such company.
(31) ``Prospectus'', as used in section 22, means a
written prospectus intended to meet the requirements of
section 10(a) of the Securities Act of 1933 and
currently in use. As used elsewhere, ``prospectus''
means a prospectus as defined in the Securities Act of
1933.
(32) ``Redeemable security'' means any security,
other than short-term paper, under the terms of which
the holder, upon its presentation to the issuer or to a
person designated by the issuer, is entitled (whether
absolutely or only out of surplus) to receive
approximately his proportionate share of the issuer's
current net assets, or the cash equivalent thereof.
(33) ``Reorganization'' means (A) a reorganization
under the supervision of a court of competent
jurisdiction; (B) a merger or consolidation; (C) a sale
of 75 per centum or more in value of the assets of a
company; (D) a restatement of the capital of a company,
or an exchange of securities issued by a company for
any of its own outstanding securities; (E) a voluntary
dissolution or liquidation of a company; (F) a
recapitalization or other procedure or transaction
which has for its purpose the alteration, modification,
or elimination of any of the rights, preferences, or
privileges of any class of securities issued by a
company, as provided in its charter or other instrument
creating or defining such rights, preferences, and
privileges; (G) an exchange of securities issued by a
company for outstanding securities issued by another
company or companies, preliminary to and for the
purpose of effecting or consummating any of the
foregoing; or (H) any exchange of securities by a
company which is not an investment company for
securities issued by a registered investment company.
(34) ``Sale'', ``sell'', ``offer to sell'', or
``offer for sale'' includes every contract of sale or
disposition of, attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest
in a security, for value. Any security given or
delivered with, or as a bonus on account of, any
purchase of securities or any other thing, shall be
conclusively presumed to constitute a part of the
subject of such purchase and to have been sold for
value.
(35) ``Sales load'' means the difference between the
price of a security to the public and that portion of
the proceeds from its sale which is received and
invested or held for investment by the issuer (or in
the case of a unit investment trust, by the depositor
or trustee), less any portion of such difference
deducted for trustee's or custodian's fee, insurance
premiums, issue taxes, or administrative expenses or
fees which are not properly chargeable to sales or
promotional activities. In the case of a periodic
payment plan certificate, ``sales load'' includes the
sales load on any investment company securities in
which the payments made on such certificate are
invested, as well as the sales load on the certificate
itself.
(36) ``Security'' means any note, stock, treasury
stock, security future, bond, debenture, evidence of
indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or
subsciption, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option,
or privilege on any security (including a certificate
of deposit) or on any group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on a national securities
exchange relating to foreign currency, or, in general,
any interest or instrument commonly known as a
``security'', or any certificate of interest or
participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing. The
term does not include a digital commodity or permitted
payment stablecoin.
(37) ``Separate account'' means an account
established and maintained by an insurance company
pursuant to the laws of any State or territory of the
United States, or of Canada or any province thereof,
under which income, gains and losses, whether or not
realized, from assets allocated to such account, are,
in accordance with the applicable contract, credited to
or charged against such account without regard to other
income, gains, or losses of the insurance company.
(38) ``Short-term paper'' means any note, draft, bill
of exchange, or banker's acceptance payable on demand
or having a maturity at the time of issuance of not
exceeding nine months, exclusive of days of grace, or
any renewal thereof payable on demand or having a
maturity likewise limited; and such other classes of
securities, of a commercial rather than an investment
character, as the Commission may designate by rules and
regulations.
(39) ``State'' means any State of the United States,
the District of Columbia, Puerto Rico, the Virgin
Islands, or any other possession of the United States.
(40) ``Underwriter'' means any person who has
purchased from an issuer with a view to, or sells for
an issuer in connection with, the distribution of any
security, or participates or has a direct or indirect
participation in any such undertaking, or participates
or has a participation in the direct or indirect
underwriting of any such undertaking; but such term
shall not include a person whose interest is limited to
a commission from an underwriter or dealer not in
excess of the usual and customary distributor's or
seller's commission. As used in this paragraph the term
``issuer'' shall include, in addition to an issuer, any
person directly or indirectly controlling or controlled
by the issuer, or any person under direct or indirect
common control with the issuer. When the distribution
of the securities in respect of which any person is an
underwriter is completed such person shall cease to be
an underwriter in respect of such securities or the
issuer thereof.
(41) ``Value'', with respect to assets of registered
investment companies, except as provided in subsection
(b) of section 28 of this title, means--
(A) as used in sections 3, 5, and 12 of this
title, (i) with respect to securities owned at
the end of the last preceding fiscal quarter
for which market quotations are readily
available, the market value at the end of such
quarter; (ii) with respect to other securities
and assets owned at the end of the last
preceding fiscal quarter, fair value at the end
of such quarter, as determined in good faith by
the board of directors; and (iii) with respect
to securities and other assets acquired after
the end of the last preceding fiscal quarter,
the cost thereof; and
(B) as used elsewhere in this title, (i) with
respect to securities for which market
quotations are readily available, the market
value of such securities; and (ii) with respect
to other securities and assets, fair value as
determined in good faith by the board of
directors;
in each case as of such time or times as determined
pursuant to this title, and the rules and regulations
issued by the Commission hereunder. Notwithstanding the
fact that market quotations for securities issued by
controlled companies are available, the board of
directors may in good faith determine the value of such
securities: Provided, That the value so determined is
not in excess of the higher of market value or asset
value of such securities in the case of majority-owned
subsidiaries, and is not in excess of market value in
the case of other controlled companies.
For purposes of the valuation of those assets of a registered
diversified company which are not subject to the limitations
provided for in section 5(b)(1), the Commission may, by rules
and regulations or orders, permit any security to be carried at
cost, if it shall determine that such procedure is consistent
with the general intent and purposes of this title. For
purposes of sections 5 and 12, in lieu of values determined as
provided in clause (A) above, the Commission shall by rules and
regulations permit valuation of securities at cost or other
basis in cases where it may be more convenient for such company
to make its computations on such basis by reason of the
necessity or desirability of complying with the provisions of
any United States revenue laws or rules and regulations issued
thereunder, or the laws or the rules and regulations issued
thereunder of any State in which the securities of such company
may be qualified for sale.
The foregoing definition shall not derogate from the
authority of the Commission with respect to the reports,
information, and documents to be filed with the Commission by
any registered company, or with respect to the accounting
policies and principles to be following by any such company, as
provided in sections 8, 30, and 31.
(42) ``Voting security'' means any security presently
entitling the owner or holder thereof to vote for the
election of directors of a company. A specified
percentage of the outstanding voting securities of a
company means such amount of its outstanding voting
securities as entitles the holder or holders thereof to
cast said specified percentage of the aggregate votes
which the holders of all the outstanding voting
securities of such company are entitled to cast. The
vote of a majority of the outstanding voting securities
of a company means the vote, at the annual or a special
meeting of the security holders of such company duly
called, (A) of 67 per centum or more of the voting
securities present at such meeting, if the holders of
more than 50 per centum of the outstanding voting
securities of such company are present or represented
by proxy; or (B) of more than 50 per centum of the
outstanding voting securities of such company,
whichever is the less.
(43) ``Wholly-owned subsidiary'' of a person means a
company 95 per centum or more of the outstanding voting
securities of which are owned by such person, or by a
company which, within the meaning of this paragraph, is
a wholly-owned subsidiary of such person.
(44) ``Securities Act of 1933'', ``Securities
Exchange Act of 1934'', and ``Trust Indenture Act of
1939'' means those Acts, respectively, as heretofore or
hereafter amended.
(45) ``Savings and loan association'' means a savings
and loan association, building and loan association,
cooperative bank, homestead association, or similar
institution, which is supervised and examined by State
or Federal authority having supervision over any such
institution, and a receiver, conservator, or other
liquidating agent of any such institution.
(46) ``Eligible portfolio company'' means any issuer
which--
(A) is organized under the laws of, and has
its principal place of business in, any State
or States;
(B) is neither an investment company as
defined in section 3 (other than a small
business investment company which is licensed
by the Small Business Administration to operate
under the Small Business Investment Act of 1958
and which is a wholly-owned subsidiary of the
business development company) nor a company
which would be an investment company except for
the exclusion from the definition of investment
company in section 3(c); and
(C) satisfies one of the following:
(i) it does not have any class of
securities with respect to which a
member of a national securities
exchange, broker, or dealer may extend
or maintain credit to or for a customer
pursuant to rules or regulations
adopted by the Board of Governors of
the Federal Reserve System under
section 7 of the Securities Exchange
Act of 1934;
(ii) it is controlled by a business
development company, either alone or as
part of a group acting together, and
such business development company in
fact exercises a controlling influence
over the management or policies of such
eligible portfolio company and, as a
result of such control, has an
affiliated person who is a director of
such eligible portfolio company;
(iii) it has total assets of not more
than $4,000,000, and capital and
surplus (shareholders' equity less
retained earnings) of not less than
$2,000,000, except that the Commission
may adjust such amounts by rule,
regulation, or order to reflect changes
in 1 or more generally accepted indices
or other indicators for small
businesses; or
(iv) it meets such other criteria as
the Commission may, by rule, establish
as consistent with the public interest,
the protection of investors, and the
purposes fairly intended by the policy
and provisions of this title.
(47) ``Making available significant managerial
assistance'' by a business development company means--
(A) any arrangement whereby a business
development company, through its directors,
officers, employees, or general partners,
offers to provide, and, if accepted, does so
provide, significant guidance and counsel
concerning the management, operations, or
business objectives and policies of a portfolio
company;
(B) the exercise by a business development
company of a controlling influence over the
management or policies of a portfolio company
by the business development company acting
individually or as part of a group acting
together which controls such portfolio company;
or
(C) with respect to a small business
investment company licensed by the Small
Business Administration to operate under the
Small Business Investment Act of 1958, the
making of loans to a portfolio company.
For purposes of subparagraph (A), the requirement that
a business development company make available
significant managerial assistance shall be deemed to be
satisfied with respect to any particular portfolio
company where the business development company
purchases securities of such portfolio company in
conjunction with one or more other persons acting
together, and at least one of the persons in the group
makes available significant managerial assistance to
such portfolio company, except that such requirement
will not be deemed to be satisfied if the business
development company, in all cases, makes available
significant managerial assistance solely in the manner
described in this sentence.
(48) ``Business development company'' means any
closed-end company which--
(A) is organized under the laws of, and has
its principal place of business in, any State
or States;
(B) is operated for the purpose of making
investments in securities described in
paragraphs (1) through (3) of section 55(a),
and makes available significant managerial
assistance with respect to the issuers of such
securities, provided that a business
development company must make available
significant managerial assistance only with
respect to the companies which are treated by
such business development company as satisfying
the 70 per centum of the value of its total
assets condition of section 55; and provided
further that a business development company
need not make available significant managerial
assistance with respect to any company
described in paragraph (46)(C)(iii), or with
respect to any other company that meets such
criteria as the Commission may by rule,
regulation, or order permit, as consistent with
the public interest, the protection of
investors, and the purposes of this title; and
(C) has elected pursuant to section 54(a) to
be subject to the provisions of sections 55
through 65.
(49) ``Foreign securities authority'' means any
foreign government or any governmental body or
regulatory organization empowered by a foreign
government to administer or enforce its laws as they
relate to securities matters.
(50) ``Foreign financial regulatory authority'' means
any (A) foreign securities authority, (B) other
governmental body or foreign equivalent of a self-
regulatory organization empowered by a foreign
government to administer or enforce its laws relating
to the regulation of fiduciaries, trusts, commercial
lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments
traded on or subject to the rules of a contract market,
board of trade or foreign equivalent, or other
financial activities, or (C) membership organization a
function of which is to regulate the participation of
its members in activities listed above.
(51)(A) ``Qualified purchaser'' means--
(i) any natural person (including any person
who holds a joint, community property, or other
similar shared ownership interest in an issuer
that is excepted under section 3(c)(7) with
that person's qualified purchaser spouse) who
owns not less than $5,000,000 in investments,
as defined by the Commission;
(ii) any company that owns not less than
$5,000,000 in investments and that is owned
directly or indirectly by or for 2 or more
natural persons who are related as siblings or
spouse (including former spouses), or direct
lineal descendants by birth or adoption,
spouses of such persons, the estates of such
persons, or foundations, charitable
organizations, or trusts established by or for
the benefit of such persons;
(iii) any trust that is not covered by clause
(ii) and that was not formed for the specific
purpose of acquiring the securities offered, as
to which the trustee or other person authorized
to make decisions with respect to the trust,
and each settlor or other person who has
contributed assets to the trust, is a person
described in clause (i), (ii), or (iv); or
(iv) any person, acting for its own account
or the accounts of other qualified purchasers,
who in the aggregate owns and invests on a
discretionary basis, not less than $25,000,000
in investments.
(B) The Commission may adopt such rules and
regulations applicable to the persons and trusts
specified in clauses (i) through (iv) of subparagraph
(A) as it determines are necessary or appropriate in
the public interest or for the protection of investors.
(C) The term ``qualified purchaser'' does not include
a company that, but for the exceptions provided for in
paragraph (1) or (7) of section 3(c), would be an
investment company (hereafter in this paragraph
referred to as an ``excepted investment company''),
unless all beneficial owners of its outstanding
securities (other than short-term paper), determined in
accordance with section 3(c)(1)(A), that acquired such
securities on or before April 30, 1996 (hereafter in
this paragraph referred to as ``pre-amendment
beneficial owners''), and all pre-amendment beneficial
owners of the outstanding securities (other than short-
term paper) of any excepted investment company that,
directly or indirectly, owns any outstanding securities
of such excepted investment company, have consented to
its treatment as a qualified purchaser. Unanimous
consent of all trustees, directors, or general partners
of a company or trust referred to in clause (ii) or
(iii) of subparagraph (A) shall constitute consent for
purposes of this subparagraph.
(52) The terms ``security future'' and ``narrow-based
security index'' have the same meanings as provided in
section 3(a)(55) of the Securities Exchange Act of
1934.
(53) The term ``credit rating agency'' has the same
meaning as in section 3 of the Securities Exchange Act
of 1934.
(54) The terms ``commodity pool'', ``commodity pool
operator'', ``commodity trading advisor'', ``major swap
participant'', ``swap'', ``swap dealer'', and ``swap
execution facility'' have the same meanings as in
section 1a of the Commodity Exchange Act (7 U.S.C.
1a).''.
(55) Digital asset-related terms.--The terms
``digital commodity'' and ``permitted payment
stablecoin'' have the meaning given those terms,
respectively, under section 2(a) of the Securities Act
of 1933 (15 U.S.C. 77b(a)).
(b) No provision in this title shall apply to, or be deemed
to include, the United States, a State, or any political
subdivision of a State, or any agency, authority, or
instrumentality of any one or more of the foregoing, or any
corporation which is wholly owned directly or indirectly by any
one or more of the foregoing, or any officer, agent, or
employee of any of the foregoing acting as such in the course
of his official duty, unless such provision makes specific
reference thereto.
(c) Consideration of Promotion of Efficiency, Competition,
and Capital Formation.--Whenever pursuant to this title the
Commission is engaged in rulemaking and is required to consider
or determine whether an action is consistent with the public
interest, the Commission shall also consider, in addition to
the protection of investors, whether the action will promote
efficiency, competition, and capital formation.
* * * * * * *
Minority Views
Securities and Exchange Commission (SEC) Chair Gary Gensler
has repeatedly and unambiguously stated that most digital
assets are in fact securities.\1\ Unfortunately, most digital
assets firms have chosen not to register with the SEC and in
response, Chair Gensler has been diligent in utilizing the
resources at his disposal to crack down on this mass
noncompliance.\2\ To the extent that Chair Gensler's
enforcement actions have been challenged in court,\3\ the SEC
has prevailed again and again with stunning consistency with
the exception of one outlier case that may yet be reversed on
appeal.\4\ Despite the lengths that SEC Chair Gensler has gone
to provide regulatory clarity for digital assets, the crypto
industry continues to insist that there is a lack of regulatory
clarity without providing much of any detail on how the current
securities law framework doesn't work for their industry.
---------------------------------------------------------------------------
\1\Most Cryptocurrencies Are Securities, Says SEC Chair,
Investopedia (Sept. 8, 2022).
\2\Gensler defends SEC's crypto crackdown in marathon House
hearing, CNBC (Apr. 18, 2023).
\3\Ripple says it will fight the SEC lawsuit `all the way through',
CNBC (Sept. 12, 2023); see also Crypto firms facing US SEC charges find
hope in Ripple ruling, experts say, Reuters (July 17, 2023).
\4\Judge grants SEC request to file motion for appeal in Ripple
case, CoinTelegraph (Aug. 17, 2023); see also Judge Rejects Ripple
Ruling Precedent in Denying Terraform Labs' Motion to Dismiss SEC
Lawsuit, CoinDesk (Aug. 1, 2023).
---------------------------------------------------------------------------
In response to ambiguous industry complaints, H.R. 4763
would create a new, alternative legal framework specifically
for digital assets. Rather than providing greater regulatory
clarity, this bill provides more than 200 pages of new
definitions and legal tests that only create more confusion and
uncertainty. For example, while the ``Howey'' test, which is
the current standard for determining whether something is a
security under current law, has decades of judicial precedent
to clarify how to apply it in different situations, the new
definitions and tests in this bill come with zero judicial
precedent, making it very unclear how these new standards would
be applied by the courts. The current securities law framework
has served us well for nearly a century, evolving with various
technological innovations in the industry. There is simply no
good reason to throw all of that away in favor of a complicated
new framework that caters to a single industry that refuses to
follow the rules.
We agree with federal regulators and the GAO who have
stated that there are discrete gaps in the current federal
regulatory regime regarding digital assets.\5\ This includes
providing spot market authority for the CFTC, ensuring the SEC
has extraterritorial reach overseas, and providing regulators
with oversight of affiliates and subsidiaries of digital asset
businesses. Such authorities could have helped the SEC act
against FTX, or its affiliated Alameda Research (which was
functioning as an unregistered hedge fund) before its collapse
and would provide similar oversight as authorities banking
regulators have to examine affiliates and subsidiaries of most
banks. We believe that we should be focusing on these discrete
issues and leveraging the current securities law framework
rather than throwing it out the window.
---------------------------------------------------------------------------
\5\See FSOC, Report on Digital Asset Financial Stability Risks and
Regulation (Oct. 3, 2022); U.S. Government Accountability Office,
Blockchain in Finance: Legislative and Regulatory Actions Are Needed to
Ensure Comprehensive Oversight of Crypto Assets (Jun. 22, 2023).
---------------------------------------------------------------------------
While H.R. 4763 creates a great deal of confusion, a few
things are crystal clear. First, this bill would exempt digital
assets from several consumer, investor, and market protections
that otherwise currently apply to them under existing
securities laws. Specifically, under the bill, it is likely
that most digital assets would be considered commodities soon
after they are issued on any of the current blockchains. By
shifting a substantial portion of the digital assets market to
the commodities regime, the bill removes several critical
protections that apply to securities and not commodities.
Simply put, the CFTC regulatory framework was created for and
operates for sophisticated and large institutional traders
while SEC's framework governs the issuance of investment
products meant for everyday retail investors and retirees. This
bill also does not require the structural separation that is
currently in place under securities laws of broker/dealers,
exchanges, and clearing houses to prevent conflicts of
interest. Furthermore, the Investment Company Act and the
Investment Advisers Act--regulations designed to minimize
conflicts of interest that can arise in complex operations--
would not apply to digital commodities in this bill.\6\
---------------------------------------------------------------------------
\6\Section 301(c) of the bill provides that the definition of the
term ``security'' in the Investment Advisers Act ``does not include a
digital commodity or a permitted payment stablecoin.'' Similarly,
Section 301(d) provides that the definition of the term ``security'' in
the Investment Company Act ``does not include a digital commodity or a
permitted payment stablecoin.'' H.R. 4763.
---------------------------------------------------------------------------
Second, this bill would allow the commingling of funds,
which was a major factor in the fall of FTX. Specifically,
while this bill establishes restrictions on the commingling of
consumer funds by digital asset broker/dealers, it creates a
procedure where consumers can waive this protection. It is not
difficult to imagine crypto exchanges or trading facilities
encouraging this waiver either as part of the service agreement
(not unlike the forced arbitration clauses that exist today) or
making it easy for consumers or investors to check a box
without realizing that doing so gives the trading firm ability
to commingle customer assets with that of the firm or its
affiliated hedge funds. When FTX collapsed in November 2022,
one of the shocking discoveries in the aftermath was that FTX
had been commingling customer funds to make undisclosed
investments and trade against its own customers. When the dust
had settled, over one million users were owed $8.7 billion in
bankruptcy proceedings.\7\ The collapse of FTX demonstrated the
scale of harm possible when commingling occurs, and H.R. 4763
would legitimize this practice.
---------------------------------------------------------------------------
\7\FTX Bankruptcy Team Says the Exchange Owed Customers $8.7B,
CoinDesk (June 26, 2023).
---------------------------------------------------------------------------
Third, H.R. 4763 would create new opportunities for
regulatory arbitrage. Specifically, the bill's definition of
``digital asset'' is overly broad, raising the possibility that
traditional financial instruments could get swept into the
lighter touch regulatory regime designed for digital assets
under this bill. Private industry may be incentivized to
structure assets and asset pools to avoid the specific
categories excluded from the definition.
Fourth, H.R. 4763 not only fails to provide any new funding
for the SEC, which would be responsible for implementing much
of this highly complicated new regime, but also rescinds $150
million from the SEC's Reserve Fund, a fund created by Dodd-
Frank to fund long term IT projects or to respond to unforeseen
events, like the 2010 Flash Crash and the pandemic. This bill
takes these funds and proposes $120 million in resources to the
CFTC over a 5-year period, which is significantly less than the
amount CFTC Chairman Rostin Behnam said would be needed.\8\ In
addition, the bill does not provide for ongoing funding for the
agency, such as fees that could be levied on crypto firms. At
the same time, Republicans are proposing cuts to these
agencies' budgets through the appropriations process. Earlier
this year, President Joe Biden requested that Congress provide
$411 million for the CFTC in fiscal year (FY) 2024, a 12.6%
increase from the FY 2023 enacted level\9\ and $2.436 billion
for the SEC.\10\ However, House Republicans have advanced steep
budget cuts through the Default on America Act.\11\ Their plan
revealed that Republicans would impose a 22% cut across the
board for non-defense spending.\12\ The Financial Services and
General Government Appropriations bill, released by the House
Appropriations Committee earlier this year, prohibits the
implementation of certain SEC rules and cuts the SEC's budget
by 8% from FY 2023.\13\ Chair Gensler has explained that ``that
funding level may not be enough to address staffing and
technological needs.''\14\
---------------------------------------------------------------------------
\8\House Ag Committee looks at digital assets regulatory bill, Dems
ask how to pay for it, CoinTelegraph (June 6, 2023).
\9\PL 117-328.
\10\Gensler Cheers $2.4B Funding Proposal for SEC in Biden Budget,
Blockworks (Mar. 31, 2023).
\11\Kevin McCarthy Speaker of the House, House GOP Leadership
Statement on the House GOP Plan to Address the Debt Ceiling (Apr. 19,
2023).
\12\The White House, State Fact Sheets: MAGA House Republicans'
Default on America Act Would Have Devastating Impacts Across America
(May 2, 2023).
\13\Womack Remarks at FY24 Financial Services and General
Government Markup, House Committee on Appropriations (June 22, 2023).
\14\SEC's Gensler Calls CFTC `Not As Robust' On Crypto, Law360
(July 19, 2023).
---------------------------------------------------------------------------
While Republicans accepted a few amendments, they rejected
critical changes Democrats proposed including:
Ranking Member Waters' amendment no. 3,
which would preserve the current securities law
framework and offer targeted and meaningful fixes to
address discrete issues in order to better protect
investors in the digital assets ecosystem. These narrow
fixes respond to recommendations from the FSOC to
provide the CFTC with spot market authority over
digital assets not deemed securities by the SEC and
provide the SEC with extraterritorial jurisdiction and
oversight into affiliates. This amendment also directs
the SEC to issue a report and provide testimony to
Congress on whether broader changes to the SEC's
oversight of digital assets are necessary.
Rep. Lynch's amendment no. 11, which would
strike Section 311 of the bill, ``Treatment of custody
activities by banking institutions.'' This section
conflicts with the SEC's SAB 121 which directs banks
and public companies to list digital assets as
liabilities on their balance sheets.
Rep. Lynch's amendment no. 13, which would
direct the SEC, CFTC, and CFPB to issue rules to ensure
investor and consumer protections for digital assets
that exist for securities and commodities.
Rep. Foster's amendment no. 1, which would
direct FinCEN to establish a method for the application
and issuance of a crypto license for individuals with
operational control over a digital wallet.
Rep. Sherman's amendment, which would strike
the bill and designates all digital assets and related
derivatives to be considered securities and subject to
the jurisdiction of the SEC, including all digital
asset exchanges as securities exchanges and subject to
the full jurisdiction of the SEC.
Rep. Lynch's amendment, which would
authorize such funding as may be necessary for the CFTC
and the SEC to execute this bill.
Rep. Pressley's amendment, which was
withdrawn, but would prevent Members of Congress, their
employees, and other federal employees from using non-
public information obtained through their official
positions for personal benefit, such as in stock market
trading.\15\ The STOCK Act provides for greater
transparency by requiring Congress and federal
employees to report certain investment activities,
while preventing insider trading, strengthening ethics,
and strengthening public trust. Rep. Pressley's
proposal would treat digital assets as the same for the
purposes of the STOCK Act. Republicans indicated an
interest in working with Democrats on this proposal.
---------------------------------------------------------------------------
\15\Public Law No. 112-105, 112th Congress (2011-2012); see also
STOCK Act: Meaning, Overview, Criticisms, Investopedia (Aug. 31, 2022).
---------------------------------------------------------------------------
Rep. Lynch's amendment, which would strike
part of Section 306 ``Requirements of Digital Asset
Brokers and Digital Asset Dealers,'' to protect
consumers from being directed to waive guardrails
around commingling their funds with the funds of the
entity.
Rep. Green amendment, no. 14,\16\ which was
withdrawn with the commitment that Rep. Hill would work
with him on whistleblower protections in the
legislation. His amendment would confirm that nothing
in the bill would prevent the SEC or CFTC from going
after bad actors in the digital asset ecosystem, even
in relation to entities filing a notice of intent to
register. This amendment also ensures that the SEC can
pursue enforcement in illegal market activities, such
as price manipulation, insider trading, Ponzi schemes,
fraud, wash trading, common ownership of tokens trading
on an exchange against consumers, and prop trading/
affiliated trading.
---------------------------------------------------------------------------
\16\HFSC, Rep. Green Amendment No. 14 to H.R. 4763 (July 26, 2023).
---------------------------------------------------------------------------
Finally, the following groups are opposed to the
legislation: American Association for Justice, American
Economic Liberties Project, Americans for Financial Reform,
Center for American Progress, Center for Responsible Lending,
Consumer Action, Consumer Federation of America, Consumer
Reports, Demand Progress, Institute for Agriculture and Trade
Policy, National Consumer Law Center (on behalf of its low-
income clients), National Community Reinvestment Coalition,
North American Securities Administrators Association, Open
Markets Institute, Public Citizen, Revolving Door Project, Rise
Economy (formerly California Reinvestment Coalition), Strong
Economy for All Coalition, Texas Appleseed, 20/20 Vision,
Woodstock Institute.
For these reasons, we strongly oppose H.R. 4763.
Sincerely,
Maxine Waters,
Ranking Member.
Nydia M. Velazquez,
David Scott,
Al Green,
Bill Foster,
Juan Vargas,
Brad Sherman,
Stephen F. Lynch,
Emanuel Cleaver, II,
Joyce Beatty,
Vicente Gonzalez,
Sean Casten,
Rashida Tlaib,
Nikema Williams,
Ayanna Pressley,
Sylvia R. Garcia,
Members of Congess.
