Digital Asset Market Clarity Act

(a) Definitions. In this section:

(1) Commission. The term Commission means either of the Commissions, as the context requires.

(2) Commissions. The term Commissions means the Securities and Exchange Commission and the Commodity Futures Trading Commission.

(3) Eligible firm. The term eligible firm means a person that is eligible to participate in the Sandbox, in accordance with the requirements under this section.

(4) Innovative. The term innovative means new or emerging technology, or a novel application of technology, including artificial intelligence, that—

(A) provides a financial product, service, business model, or delivery mechanism to the public; and

(B) lacks—

(i) a substantially comparable, widely available analogue in common use in the United States; and

(ii) an analogous Federal regulatory regime.

(5) Person. The term person means a person, as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) or section 1a of the Commodity Exchange Act (7 U.S.C. 1a).

(6) Sandbox. The term Sandbox means the CFTC-SEC Micro-Innovation Sandbox established under subsection (b).

(7) Self-regulatory organization. The term self-regulatory organization means a self-regulatory organization, as defined in—

(A) section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)); or

(B) section 1.52(a)(2) of title 17, Code of Federal Regulations, or any successor regulation.

(b) Establishment. Not later than 360 days after the date of enactment of this Act, the Commissions shall, by joint notice and comment rulemaking, establish a CFTC-SEC Micro-Innovation Sandbox to enable eligible firms to test innovative activities within the United States, subject to—

(1) applicable Federal and State securities and commodities laws;

(2) other State laws that are not specific to the regulation of securities or commodities; and

(3) the limitations of this section.

(c) Eligible firm

(1) In general. A United States-based person shall be an eligible firm, and shall be eligible to participate in the Sandbox, if the person—

(A) submits an application under subsection (e) that is approved under that subsection;

(B) seeks to conduct an eligible and lawful innovative activity in the United States;

(C) is not subject to—

(i) a statutory disqualification, as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a));

(ii) a disqualification under section 8a(2) of the Commodity Exchange Act (7 U.S.C. 12a(2)); or

(iii) a disqualification under State law;

(D) does not have a criminal conviction for fraud;

(E) agrees to submit to the jurisdiction and oversight of the Commissions, to the extent that the person is not subject to that jurisdiction or oversight, for purposes of, and while participating in, the Sandbox;

(F) designates to the Commissions an individual as a point of contact with respect to activities that the person undertakes as an applicant and participant with respect to the Sandbox;

(G) employs not more than 25 employees; and

(H) has annual gross revenues of not more than $10,000,000 in any fiscal year.

(2) Application of requirements. The requirements under paragraph (1) shall be satisfied during the entire period in which an eligible firm participates in the Sandbox.

(d) Eligible activities and activity ceilings

(1) List of eligible activities

(A) In general. After providing notice and an opportunity for public comment, the Commissions shall maintain and publish a list of eligible innovative activities, which shall be—

(i) updated once every 2 years after providing notice and an opportunity for public comment;

(ii) reasonably tailored to include activities that—

(I) further the purposes of this section; and

(II) are consistent with the interests of the public and the protection of investors;

(iii) sufficiently flexible to accommodate evolving technological developments, including distributed ledger-based products and services; and

(iv) focused exclusively on activities for which specific provisions of the securities laws and commodities laws may create a material impediment to the proposed innovative activity.

(B) Identification of requirements

(i) In general. For each eligible innovative activity, the Commissions shall, consistent with existing (as of the day before the date of enactment of this Act) statutory and regulatory precedent concerning the respective jurisdiction of each Commission, identify the requirements that each Commission will administer.

(ii) Joint jurisdiction. With respect to an eligible innovative activity that is subject to the jurisdiction of both Commissions, the rulemaking under subsection (b) shall specify which requirements each Commission will administer and any coordinated conditions needed to protect investors and market integrity.

(2) Activity ceilings. For each eligible innovative activity, the Commissions shall, after public input and consultation, establish individual customer and monetary ceilings, which shall provide that an eligible firm may not raise or commit more than $20,000,000 in aggregate customer, investor, or counterparty funds in connection with Sandbox activities.

(3) Annual participation cap. Each of the Commissions may approve not more than 20 projects per year.

(e) Application

(1) In general. An eligible firm seeking to participate in the Sandbox shall submit to the Commission or Commissions, as applicable, an application that—

(A) describes the proposed innovative activity and the desired outcomes;

(B) subject to approval of the applicable Commission, identifies the provisions of the securities laws, or of the Commodity Exchange Act (7 U.S.C. 1 et seq.), from which the eligible firm proposes to be exempt during the period in which the eligible firm participates in the Sandbox, which—

(i) shall not include any Federal or State anti-fraud law or any other law that is not specific to the regulation of securities or commodities; and

(ii) shall be subject to the limitations of this section;

(C) sets forth how relief from the provisions of law identified under subparagraph (B) is reasonably necessary to engage in the innovative activity;

(D) identifies material risks to investors, customers, or market integrity and how the eligible firm will mitigate those risks;

(E) certifies that the eligible firm will comply with applicable Federal and State anti-fraud laws;

(F) states an exit objective of the eligible firm involving action from the applicable Commission, which may include registration, an exemptive order, interpretive guidance, a no-action letter, or a rulemaking petition, together with milestones and metrics the eligible firm will use to demonstrate readiness for that exit;

(G) states the agreement of the eligible firm to submit to the jurisdiction and oversight of the Commissions, to the extent that the eligible firm is not otherwise subject to that jurisdiction and oversight, for purposes of, and while participating in, the Sandbox;

(H) designates to the Commissions an individual as a point of contact with respect to activities that the eligible firm undertakes as an applicant and participant with respect to the Sandbox; and

(I) states the agreement of the eligible firm to abide by any condition that either of the Commissions may impose for engaging in an eligible innovative activity in the Sandbox.

(2) Deadline for decision. Not later than 180 business days after the date on which an eligible firm submits an application under this subsection, the Commission or Commissions, as applicable, shall make a decision with respect to the application, after which the eligible firm submitting the application may commence eligible innovative activities in the Sandbox unless the application is denied.

(3) Updates and status reports. Each eligible firm shall submit to the Commission or Commissions, as applicable, on a semi-annual basis while participating in the Sandbox, an updated application that—

(A) describes any material changes to the information originally provided under paragraph (1); and

(B) reports the progress of the eligible firm toward the stated exit objective described in paragraph (1)(F), including milestones achieved, remaining impediments, and any pending requests for official action before the applicable Commission or the Commissions.

(4) Unredacted and redacted versions

(A) In general. An eligible firm that submits an initial or updated application under this subsection may submit to the applicable Commission or the Commissions an unredacted version, together with a request for confidential treatment, pursuant to procedures the applicable Commission shall establish that are modeled on the rules of that Commission relating to the confidential treatment of information, which shall include—

(i) for the Securities and Exchange Commission, sections 200.83, 230.406, and 240.24b–2 of title 17, Code of Federal Regulations, or any successor regulations; and

(ii) for the Commodity Futures Trading Commission, section 145.9 of title 17, Code of Federal Regulations, or any successor regulations.

(B) Omitted information. An eligible firm may omit information granted confidential treatment under subparagraph (A) from any public posting under subsection (h) in accordance with the procedures established under subparagraph (A).

(C) Indication of confidential information. Any omission in a public posting under subsection (h) shall be clearly indicated by brackets with a prominent legend stating that—

(i) confidential information has been omitted; and

(ii) an unredacted version has been filed with the applicable Commission or the Commissions.

(f) Duration of participation

(1) Duration. Except as provided in paragraph (2), an eligible firm may participate in the Sandbox for a period of not more than 2 years, provided that the eligible firm does not exceed the ceilings established under subsection (d)(2).

(2) Extension

(A) Sole jurisdiction. If an eligible innovative activity is subject only to the jurisdiction of 1 Commission, that Commission may extend participation by an eligible firm in the Sandbox by not more than 1 additional year, if that Commission determines that the eligible firm—

(i) is actively pursuing the exit objective described in subsection (e)(1)(F) in good faith;

(ii) is making demonstrable progress toward achieving such an exit; and

(iii) establishes that such an extension is necessary to achieve such an exit.

(B) Joint jurisdiction. Where an eligible innovative activity is subject to the jurisdiction of both Commissions, an extension of participation by an eligible firm in the Sandbox by not more than 1 additional year shall be by joint order of the Commissions after making the findings described in clauses (i) through (iii) of subparagraph (A).

(g) Conditions and enforcement

(1) Conditions. An eligible firm shall comply with applicable regulatory conditions approved by the applicable Commission or the Commissions under subsection (e)(1)(B), which shall be consistent with applicable Federal and State anti-fraud laws.

(2) Monitoring. The Commissions shall monitor Sandbox activities and enforce compliance with applicable regulatory conditions and Federal anti-fraud laws.

(3) Coordination

(A) In general. The Commissions shall coordinate supervision, information requests, and examinations to avoid duplication while each Commission retains full authority under the provisions of law that such Commission administers.

(B) Cooperation with states. The Commissions may cooperate with any State in enforcing compliance with applicable regulatory conditions and Federal and State anti-fraud laws with respect to the operation of the Sandbox.

(4) Self-regulatory organizations. Each self-regulatory organization shall recognize and respect Sandbox conditions that are applicable to a participant in the Sandbox.

(5) Cessation of activities. The Commissions may, at any time during the participation of an eligible firm in the Sandbox, disqualify the eligible firm from continued participation in the Sandbox, order the eligible firm to cease engaging in a permitted activity in the Sandbox, revoke a grant of exemptive relief, or impose additional or more stringent conditions on continuing participation or engagement in a permitted activity in the Sandbox, if the Commissions find that the eligible firm has failed to comply with—

(A) the requirements of this section;

(B) the terms or conditions of participation established by the Commissions; or

(C) other applicable law.

(h) Public disclosure

(1) Initial posting. Each eligible firm shall post, in a prominent location on a public website of the eligible firm, the information required under subsection (e)(1), subject to confidential treatment under subsection (e)(4), not later than the date on which the notice becomes effective under subsection (e)(3).

(2) Updates. Each eligible firm shall post, in the same manner as under paragraph (1), the information required under subsection (e)(3), subject to confidential treatment under subsection (e)(4), concurrently with submission to the applicable Commission or the Commissions.

(3) Disclosure requirements. Each post under this subsection shall satisfy the disclosure requirements of both Commissions where the jurisdictions of both Commissions are implicated.

(i) Use of data by commissions. Each Commission may collect and share data from Sandbox activities with the other Commission to inform permanent, principles-based regulatory frameworks that advance the missions of the Commissions.

(j) Publication by commissions. Not less frequently than annually, each Commission shall publish on the public website of the Commission a report summarizing the activities conducted under this section, including—

(1) the number and general nature of eligible firms participating in the Sandbox;

(2) the categories of innovative activities tested;

(3) the impact of Sandbox participation on innovation, investor protection, market integrity, and the public interest;

(4) the disclosures posted by eligible firms under subsection (h)(1); and

(5) exit outcomes, including the types of relief requested and actions taken by the Commissions.

(k) Relationship of sandbox participation to state law

(1) Limited preemption for sandbox participants. This section, including participation in the Sandbox, and any exemption or relief granted under this section, shall supersede any State securities or commodities law requiring registration, qualification, or licensing as a condition of engaging in an approved activity or otherwise regulating that activity as a security or commodity.

(2) State enforcement preserved. Nothing in this section may be construed to prohibit or limit any State securities or commodities regulator, any State bank regulator, or any State law enforcement agency from conducting an investigation or bringing an administrative, civil, or criminal enforcement action under—

(A) a State law prohibiting fraud or deceit, or fraudulent, deceptive, manipulative, unethical, dishonest, or other unlawful conduct or practices, in connection with securities or securities transactions;

(B) the anti-fraud provisions of the Commodity Exchange Act (7 U.S.C. 1 et seq.) or State commodities laws; or

(C) any State law of general applicability, including such a law relating to banking, consumer protection, contracts, property, or criminal conduct.

(3) Notice filings. A State may require notice of any document filed with either of the Commissions in connection with participation in the Sandbox, together with consent to service of process and reasonable fees, consistent with section 18(c) of the Securities Act of 1933 (15 U.S.C. 77r(c)).