Digital Asset Market Clarity Act

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, as the Commission may determine by rule or regulation, in a digital commodity; or

(ii) serves only customers in a single State, territory, or possession of the United States.

(2) Additional registrations

(A) With the Commission. In order to foster the development of fair and orderly markets, protect customers, and promote responsible innovation, the Commission—

(i) shall prescribe rules to exempt an entity registered with the Commission under more than 1 section of this Act from duplicative, conflicting, or unduly burdensome provisions of this Act and the rules under this Act;

(ii) shall prescribe rules to address conflicts of interests and activities of the entity; and

(iii) may, after an analysis of the risks and benefits, prescribe rules to provide for portfolio margining.

(B) With a registered futures association

(i) In general. A registered digital commodity exchange shall become and remain 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.

(C) 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 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.

(C) Section 4b–1 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.

(2) Prohibition on acting as a counterparty

(A) In general. A digital commodity exchange or any affiliate of such an exchange shall not trade on or subject to the rules of the digital commodity exchange for its own account.

(B) Exceptions. Subject to any conditions, requirements, or limitations imposed by the Commission pursuant to subparagraph (C), a digital commodity exchange may engage in trading on the exchange so long as the trading is not solely for the purpose of the profit of the exchange, including the following:

(i) Customer direction. A transaction for, or entered into at the direction of, or for the benefit of, an unaffiliated customer.

(ii) Risk management. A transaction to manage the credit, market, and liquidity risks associated with the digital commodity business of the exchange.

(iii) Operational needs. A transaction related to the operational needs of the business of the digital commodity exchange or its affiliate.

(iv) Functional use. A transaction related to the functional operation of a blockchain system.

(C) Rulemaking. The Commission may, by rule, establish conditions, requirements, or other limitations on the activities of a digital commodity exchange and its affiliate permitted pursuant to subparagraph (B) that are necessary for the protection of customers, the promotion of innovation, or the maintenance of fair, orderly, and efficient markets.

(D) Notice requirement. In order for a digital commodity exchange or any affiliate of a digital commodity exchange to engage in trading on the affiliated exchange pursuant to subsection (B), notice must be given to the Commission that shall enumerate how any proposed activity is consistent with the exceptions in subsection (B) and the purposes of this Act.

(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 establish policies and procedures to permit trading in a digital commodity only if—

(i) reports with respect to the digital commodity required under, as applicable, section 4B(b)(3) or 4B(b)(5)(C) of the Securities Act of 1933 (or, with respect to a digital commodity not issued in reliance on section 4(a)(8) of the Securities Act of 1933, a comparable set of reports, where required by the Securities and Exchange Commission) have been filed with the Securities and Exchange Commission; or

(ii) such other similar information as the Commission may, by rule or regulation require, that is related to the ongoing development plan of the blockchain system and is able to be publicly ascertained, has been provided to the public.

(B) Public information requirements

(i) In general. A digital commodity exchange shall—

(I) permit trading in a digital commodity only if the digital commodity exchange reasonably determines that the information required by clause (ii) is correct, current, and available to the public; and

(II) establish policies and procedures to determine that the information provided pursuant to 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 following information:

(I) Source code. The source code for any blockchain system to which the digital commodity relates.

(II) 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 commodity relates, to the extent any such independent access, search, and verification activities are technically feasible with respect to the blockchain system.

(III) Digital commodity economics. A narrative description of the purpose of any blockchain system to which the digital commodity 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 commodities to be created, the release schedule for the digital commodities, and the total number of digital commodities then outstanding;

(bb) information detailing any applicable consensus mechanism or process for validating transactions, method of generating or mining digital commodities, and any process for burning or destroying digital commodities 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 commodities; and

(dd) sufficient information for a third party to create a tool for verifying the transaction history of the digital asset.

(IV) Trading volume and volatility. The trading volume and volatility of the digital commodity on the exchange.

(V) Additional information. Such additional information as the Commission may determine by rule to be necessary for a customer to understand the financial and operational risks of a digital commodity, and to be practically feasible to provide.

(iii) Format. The Commission shall prescribe rules and regulations for the standardization and simplification of disclosures under clause (ii), including requiring that disclosures—

(I) be conspicuous;

(II) use plain language comprehensible to customers;

(III) are not drafted in a way that presumes the customer already has a base knowledge, familiarity, or understanding of the basic terminology, operation, and function of blockchain systems; and

(IV) succinctly explain the information that is required to be communicated to the customer.

(iv) Reliance on previous disclosures. In complying with this subparagraph, a digital commodity exchange may rely on and make available to the public relevant information publicly disclosed to the Commission, the Securities and Exchange Commission, or an appropriate Federal banking agency.

(C) Digital commodities held by related and digital commodity affiliated persons. A digital commodity exchange shall establish policies and procedures designed to permit the trading of a unit of a digital commodity acquired from the issuer and held by a digital commodity affiliated person or a digital commodity related person, only in accordance with the requirements of section 4C of the Securities Act of 1933.

(4) Treatment of customer assets. A digital commodity exchange shall establish policies 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, 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 relating to the business of the exchange, 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. The digital commodity exchange shall establish and enforce rules—

(A) to minimize conflicts of interest in the decision making processes of the contract market; and

(B) to establish a process for resolving conflicts of interest referred to in subparagraph (A).

(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 sum of—

(i) the total amount that would enable the digital commodity exchange to cover the operating costs of the digital commodity exchange for a 1-year period, as calculated on a rolling basis; and

(ii) the total amount necessary to meet the financial obligations of the digital commodity exchange to all customers of the digital commodity exchange.

(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 and designed to permit consideration of the views of market participants.

(B) Fitness standards. A digital commodity exchange shall establish and enforce appropriate fitness standards for—

(i) officers and 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 in accordance with industry standards, that—

(i) are reliable and secure; and

(ii) have adequate scalable capacity;

(B) establish and maintain emergency procedures, backup resources, 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 customer access to the money, assets, and property of the customer.

(2) Segregation of funds

(A) 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.

(B) Commingling prohibited. Money, assets, and property described in subparagraph (A) 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.

(C) Exceptions

(i) Use of funds

(I) In general. Notwithstanding subparagraph (A), money, assets, and property 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 asset custodian.

(II) Withdrawal. Notwithstanding subparagraph (A), such share of the money, assets, and property described in subparagraph (A) 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.

(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 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.

(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, 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.

(4) 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 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 the sale of 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 purposes of the definition of 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.

(D) Assets removed from segregation. Assets removed from segregation due to a customer election under paragraph (6) 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 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 any person other than a customer of the digital commodity exchange; or

(ii) for any other person, including any depository, other digital commodity exchange, or digital asset 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 (6) 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) Use of funds. A digital commodity exchange (or a designee of a digital commodity exchange) may use a unit of a digital commodity belonging to a customer to provide a blockchain service for a blockchain system to which the unit of the digital commodity relates if—

(i) the customer expressly permits the use, in writing to the digital commodity exchange; and

(ii) the digital commodity exchange complies with subparagraph (B).

(B) Limitations

(i) In general. The Commission shall, by rule, establish notice and disclosure requirements, and may, by rule, establish any other limitations and rules related to a permission provided under subparagraph (A) that are reasonably necessary to protect customers, including eligible contract participants, non-eligible contract participants, or any other class of customers.

(ii) Customer choice. A digital commodity exchange may not require a customer to provide the permission referred to in subparagraph (A) as a condition of doing business on the exchange.

(C) Requirements. The Commission may, by rule, waive or modify the requirements of paragraph (2) or subsection (h), to facilitate the use of a unit of a digital commodity belonging to a customer to provide a blockchain service.

(D) Blockchain service defined. In this paragraph, 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, including protocol consensus participation activities described in section 2(a)(30)(B) of the Securities Act of 1933, required for the ongoing operation of a blockchain system.

(e) Market access requirements. The Commission may, by rule, impose any additional requirements related to the operations and activities of the digital commodity exchange and an affiliated digital commodity broker necessary to protect market participants, promote fair and equitable trading on the digital commodity exchange, and promote responsible 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 conflicts 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 asset custodian. A digital commodity exchange shall hold in a qualified digital asset custodian each unit of a digital asset 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.

(i) Exemptions

(1) In general. In order to promote responsible innovation and fair competition, or protect customers, the Commission may (on its own initiative or on application of the digital commodity exchange) exempt, either unconditionally or on stated terms or conditions or for stated periods and either retroactively or prospectively, or both, a digital commodity exchange from the requirements of this Act, if the Commission determines that—

(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.

(2) Foreign exchanges. The Commission may exempt, conditionally or unconditionally, a digital commodity exchange from registration under this section if the Commission finds that the digital commodity exchange is subject to comparable, comprehensive supervision and regulation on a consolidated basis by the appropriate governmental authorities in the home country of the facility.

(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 any other 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 with respect to activities and transactions subject to this Act.