Digital Asset Market Clarity Act

(a) Definitions. In this section:

(1) Certification covered party. The term certification covered party means, with respect to an ancillary asset—

(A) the ancillary asset originator;

(B) a subsidiary of the ancillary asset originator;

(C) a related person of the ancillary asset originator; or

(D) any entity that directly or indirectly controls or is controlled by a common entity with an ancillary asset originator.

(2) Covered token. The term covered token means any unit of an ancillary asset that was acquired from the ancillary asset originator with respect to that ancillary asset or an agent or underwriter thereof.

(3) Distributed ledger control person. The term distributed ledger control person means, with respect to a distributed ledger system, any person or group of persons under common control, other than a decentralized governance system, that has the unilateral authority, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, to control or materially alter the functionality, operation, or rules of consensus or agreement of the distributed ledger system or a related ancillary asset.

(b) Coordinated control

(1) In general. The Commission shall adopt rules, based on the criteria described in paragraph (2), to define the circumstances under which a distributed ledger system, together with a related ancillary asset, is considered to be under coordinated control.

(2) Considerations. In adopting rules under paragraph (1), the Commission shall consider the following criteria as indicia that a distributed ledger system described in that paragraph, together with the related ancillary asset, is considered to be under coordinated control:

(A) Open digital system. The extent to which the distributed ledger system is not—

(i) a distributed ledger, the protocol of which is freely and publicly available;

(ii) a distributed ledger application the source code of which is—

(I) freely and publicly available via open-source code; and

(II) recorded on a distributed ledger described in clause (i); or

(iii) an analogue to a distributed ledger or distributed ledger application described in clause (i) or (ii), as determined by the Commission by rule or order.

(B) Permissionless and credibly neutral digital system. The extent to which a person or group of persons under common control has—

(i) the unilateral authority, via operation of the distributed ledger system, to restrict, censor, or prohibit use of the distributed ledger system, including any applicable system-based user activity; or

(ii) private permissions, hard-coded privileges, or similar capabilities granted by the source code of the distributed ledger system that provides preferential treatment compared to other similarly situated persons.

(C) Distributed digital network. The extent to which a person or group of persons under common control has beneficial ownership of, in the aggregate, more than 49 percent of the total amount of outstanding units of the ancillary asset or voting power with respect to any governance system that relates to the distributed ledger system.

(D) Autonomous distributed ledger system. The extent to which—

(i) the distributed ledger system has not yet reached an autonomous state; and

(ii) a person or group of persons under common control has the unilateral authority, directly or indirectly, to alter or change the functionality, operation, or rules of consensus or agreement of the distributed ledger system.

(E) Economic independence. The extent to which the primary programmatic mechanisms of the distributed ledger system that are intended to facilitate substantial value accrual to the ancillary asset through the functioning of the distributed ledger system are not yet functional.

(3) Safe harbors

(A) In general. The Commission shall establish safe harbors under which a distributed ledger system, together with a related ancillary asset, will not be considered to be under coordinated control for the purposes of section 103(c)(2).

(B) Decentralized governance systems

(i) In general. For the purposes of this section, a decentralized governance system shall not be considered to be a person or a group of persons under common control.

(ii) Distributed ledger systems. For the purposes of this section, a distributed ledger system, together with any related ancillary asset, shall not be precluded from being considered to not be under coordinated control solely based on a functional, administrative, clerical, or ministerial action of a decentralized governance system, including any such action taken by a person acting on behalf of and at the direction of that decentralized governance system, as determined by the Commission and consistent with the protection of investors, maintenance of fair, orderly, and efficient markets, and the facilitation of capital formation.

(C) Emergency measures. For the purposes of this section, a pre-defined, temporary, rules-based cybersecurity emergency measure that is exercised by an incident response or security council exclusively in response to a specific and documented cybersecurity incident or imminent threat pursuant to publicly disclosed, on-chain authorization mechanisms, that is strictly limited in scope and duration solely to address that cybersecurity incident or imminent threat, and that is exercised without unilateral control by any single person, shall not alone constitute common control or an agreement to work in concert, if those rules and mechanisms, including the procedures and operational limits governing the emergency measure, are disclosed in publicly available written documentation reasonably available to the applicable Federal agency by a decentralized autonomous organization or similar legal entity sufficiently in advance of any exercise of the emergency measure.

(D) Nonexclusive. The safe harbors established under subparagraphs (A), (B), and (C) shall not be exclusive and the Commission shall consider such other circumstances as the Commission finds in the public interest or for the protection of investors.

(4) Evidence. The Commission may, in adopting rules under this subsection, require such certifications, third party verifications, or other evidence as the Commission determines necessary or appropriate to determine whether a distributed ledger system is under coordinated control for the purposes of section 103(c)(2).

(5) Rule of construction. For purposes of this subsection—

(A) the existence or termination of coordinated control shall be determined independently of whether entrepreneurial or managerial efforts described in section 4B of the Securities Act of 1933, as added by this Act, have been completed; and

(B) the elimination of coordinated control shall be a prerequisite to the completion of efforts described in subparagraph (A).

(c) Special restrictions on disposition. The Commission shall adopt rules that provide that, with respect to transactions involving an ancillary asset for which disclosures are required pursuant to section 4B(d) of the Securities Act of 1933, as added by this Act, when a sale of that ancillary asset is made by a related person, the following restrictions on that sale shall apply:

(1) Sales prior to certification. If the covered token was acquired after the effective date of this Act and principally relies on a distributed ledger system, the covered token may be sold by a related person before that distributed ledger system is certified as not subject to coordinated control, pursuant to subsection (d), if—

(A) with respect to that distributed ledger system, the disclosures required pursuant to section 4B(d) of the Securities Act of 1933, as added by this Act, have been furnished;

(B) the holder of the covered token has held the units for not less than 12 months; and

(C) the amount of covered tokens sold in any 12-month period by the related person is—

(i) not greater than an amount to be determined by the Commission pursuant to notice and comment rulemaking not later than 360 days after the date of enactment of this Act, which rulemaking shall consider what is necessary or appropriate in the public interest, including, among other things, the protection of investors, whether the action will promote efficiency, competition, and capital formation, and how to foster the development of distributed ledger systems that are not subject to coordinated control; and

(ii) in no case equal to or greater than the amount determined by the Commission pursuant to the rulemaking described in paragraph (2)(C).

(2) Sales after certification. If the covered token was acquired after the effective date of this Act and principally relies on a distributed ledger system that is certified as not subject to coordinated control pursuant to subsection (d), the covered token may be sold by a related person, if—

(A) with respect to that distributed ledger system, the disclosures required pursuant to section 4B(d) of the Securities Act of 1933, as added by this Act, have been furnished;

(B) the holder of the covered token has held the units for not less than 6 months; and

(C) the amount of covered tokens sold in any 12-month period by the related person is not greater than an amount to be determined by the Commission pursuant to rulemaking that shall not be less than 10 percent of the total amount of outstanding units of such ancillary assets.

(3) Sales of pre-existing covered tokens. If the covered token was acquired before the effective date of this Act and principally relies on a distributed ledger system, the covered token may be sold by a related person if—

(A) in the case that the distributed ledger system has not been certified as not subject to coordinated control pursuant to subsection (d)—

(i) the disclosures required pursuant to section 4B(d) of the Securities Act of 1933, as added by this Act, have been furnished; and

(ii) the holder of the covered token has held the units for not less than 12 months; and

(B) in the case that the distributed ledger system has been certified as not subject to coordinated control pursuant to subsection (d), the holder of the covered token has held the units for not less than 6 months.

(4) Limitations on transactions by distributed ledger control persons. If the holder of an ancillary asset that principally relies on a distributed ledger system that has been certified as not subject to coordinated control is a distributed ledger control person with respect to that distributed ledger system, that control person may resell that ancillary asset if—

(A) that control person furnishes notice to the Commission, in a form and manner determined by the Commission, that the person has or intends to obtain an authority described in subparagraph (B) with respect to the distributed ledger system;

(B) that distributed ledger control person furnishes disclosures to the Commission, in a form and manner determined by the Commission, describing the material activities, as determined by the Commission, of the control person;

(C) with respect to that distributed ledger system, disclosures have been furnished pursuant to section 4B(d) of the Securities Act of 1933, as added by this Act; and

(D) that control person has satisfied such other requirements applicable to that control person that may be established by the Commission to prevent manipulation or distortion of the value of the ancillary asset, including resale restrictions consistent with those applied to related persons that are not control persons.

(d) Certification of non-Control by related persons

(1) Submission. With respect to an ancillary asset, a certification covered party may furnish to the Commission a written certification, in such form and manner as the Commission may specify by rule consistent with subsection (b), stating that the distributed ledger system is not under coordinated control.

(2) Automatic effectiveness. A certification furnished under paragraph (1) shall become effective, and the distributed ledger system shall be deemed not to be under coordinated control, on the date that is the earlier of—

(A) the date on which the Commission notifies the certification covered party in writing that the Commission does not object to the certification; or

(B) if the Commission has not denied the certification under paragraph (3), the date that is 90 days after the date on which the certification is furnished, or such shorter period as the Commission may determine by rule.

(3) Denial

(A) In general. The Commission may deny a certification furnished under paragraph (1)—

(i) only during the 90-day period beginning on the date on which the certification is furnished, or such shorter period as the Commission may determine by rule, or upon determining, based on reasonable evidence, that a material change in circumstances has occurred after the furnishing of the certification; and

(ii) by providing to the certification covered party 10 days notice of the intent of the Commission to deny that certification.

(B) Requirements after notice of intent. After the 10-day period described in subparagraph (A)(ii), the Commission shall—

(i) conduct a hearing; and

(ii) vote to deny the certification if there is a finding that the applicable ancillary asset does not meet the standard for certification that the operations of the distributed ledger system are not under such coordinated control.

(C) Final agency action. Denial under this paragraph constitutes final agency action reviewable under applicable law.

(4) Verification. The Commission may, by rule, require appropriate third-party verification of a certification furnished under paragraph (1).

(e) Disgorgement

(1) In general. Any profit realized by a related person from the sale of an ancillary asset in violation of the restrictions under subsection (c) shall inure to, and be recoverable by, the holders of the ancillary asset, irrespective of any intention of holding the asset.

(2) Enforcement. An action to recover profit described in paragraph (1)—

(A) may be instituted at law or in equity in any court of competent jurisdiction of the United States by—

(i) the applicable ancillary asset originator;

(ii) the owner of any units of the applicable ancillary asset; or

(iii) the owner of any units of the applicable ancillary asset, in the name and on behalf of the ancillary asset originator, if the ancillary asset originator—

(I) fails or refuses to bring the action within 60 days after a written request by any owner of not less than 5 percent of the total amount of outstanding units of that ancillary asset; or

(II) fails to diligently prosecute the action; and

(B) shall be brought not later than 2 years after the date that profit was realized.

(f) Exemption from disposition restrictions. The Commission shall adopt rules that provide for the following exemptions from, or waivers to, disposition restrictions described in subsection (c):

(1) Material hardship exemption

(A) In general. Subject to subparagraph (B), the Commission shall adopt rules and procedures to exempt parties from related person restrictions with respect to an ancillary asset where those restrictions conflict with an obligation or requirement arising from one of the following material hardships on a related person with respect to the ancillary asset or the ancillary asset originator:

(i) The death of the related person.

(ii) The bankruptcy or insolvency of the related person.

(iii) The dissolution, merger, or acquisition of a corporate person.

(iv) Tax liability relating to the receipt of the applicable ancillary asset.

(v) Such other material hardships as may be designated by the Commission.

(B) Requirements. The rules and procedures adopted under subparagraph (A) shall be designed to mitigate the risk that parties may seek to structure holdings to evade resale restrictions and exempt or waive the application of resale restrictions only to the extent necessary to address the identified material hardship.

(2) Liquidity provision exemption. The Commission shall adopt rules to exempt from disposition restrictions parties buying or selling an ancillary asset through regular two-sided bidding and offering for the purposes of providing market liquidity, provided that such activities are not undertaken for the purpose of evading the requirements of this section.

(3) Agency exemption. The Commission shall adopt rules that exempt a party acting as a custodian, trading platform, broker, dealer or other agent from being treated as the owner of customer or client assets or from being restricted in facilitating sales on behalf of a customer or client if the agent is otherwise determined to be a related person.

(4) Exchange-traded product and passive fund exemption. The Commission shall adopt rules to exempt from disposition restrictions, as appropriate—

(A) exchange-traded products, the shares of which are created and redeemed by authorized participants and registered with the Commission; and

(B) passive pooled investment vehicles, whether or not the shares of which are registered with the Commission.

(g) Related person disclosure requirements. The Commission shall adopt rules that provide for reporting to the Commission certain information with respect to ancillary asset holdings or transactions relating to ancillary assets by related persons, subject to the disposition restrictions provided in subsection (c):

(1) Disclosure reports

(A) Disclosure of related person status. Any person, or group of persons under common control, directly or indirectly, that acquire beneficial ownership of 10 percent or more of the total amount of outstanding units of any such ancillary asset, measured as of the end of any calendar quarter, shall furnish initial and continuing reports as determined by the Commission.

(B) Sales of covered tokens by related person prior to certification of non-control. Quarterly reports relating to the number of ancillary assets sold by a related person in a form as required by the Commission.

(C) Sales of covered tokens by related person after certification of non-control. Quarterly reports relating to the number of ancillary assets sold by a related person that holds, at any point during the applicable calendar quarter, in excess of 5 percent of the total amount of outstanding units of such ancillary asset in a form as required by the Commission.

(D) Sales of pre-existing covered tokens by related person. Quarterly reports relating to the number of ancillary assets sold by a related person that holds in excess of 5 percent of the total amount of outstanding units of such ancillary asset in a form as required by the Commission.

(2) Confidential treatment. The Commission may provide for confidential treatment of information provided under this subsection, or may exempt certain related persons from the requirement to furnish a report required under this subsection, pursuant to procedures the Commission shall establish and that are modeled on or identical to section 230.406 of title 17, Code of Federal Regulations, or any successor regulation.

(3) Good-faith furnishing standard

(A) In general. Any obligation to furnish information under this section applies only to the furnisher acting on its own behalf and is limited to information that is material and known, or reasonably knowable after due inquiry, to that furnisher.

(B) Reliance. A furnisher described in subparagraph (A) may reasonably rely on public sources and third-party attestations where appropriate.

(C) Liability. Furnishing in good faith pursuant to this section shall not create liability for information outside the furnisher’s possession, custody, or control, or for omissions of information the furnisher could not reasonably obtain without breaching legal privilege, contractual confidentiality, or other applicable law.

(D) Other persons. Any person other than the furnisher may, in good faith and absent knowledge to the contrary, presume that a report required under paragraph (1) has been timely furnished.

(4) Life cycle event considerations. The Commission shall adopt rules establishing streamlined processes for the following life cycle events:

(A) Successor disclosures in corporate transactions. The transfer of disclosure obligations under this section to a successor entity in the event of a merger, acquisition, or sale of substantially all assets relating to the ancillary asset activities, including a notice of succession.

(B) Cessation of work. The cessation or suspension of ongoing disclosure obligations under this section where the ancillary asset originator or related person no longer engages, and does not reasonably expect to engage, in entrepreneurial or managerial efforts with respect to the ancillary asset or its associated distributed ledger system, including a notice of cessation of work.

(C) Contractual termination. The termination of disclosure obligations under this section that attach solely by virtue of a person’s status as a related person when a contractual arrangement with the ancillary asset originator or distributed ledger system has concluded, including a notice of cessation of contractual relationship.

(h) Rule of construction. Nothing in this section may be construed to—

(1) limit or impair the anti-fraud or anti-manipulation authorities of the Commission; or

(2) preclude reliance on Regulation Crypto, as adopted under section 103, or any other effective registration statement or exemption from registration under the Securities Act of 1933 (15 U.S.C. 77a et seq.), as amended by this Act.