Digital Asset Market Clarity Act

(a) Definitions. In this section:

(1) Decentralized finance trading protocol. The term decentralized finance trading protocol means a distributed ledger system through which multiple participants can execute a financial transaction—

(A) in accordance with an automated rule or algorithm that is predetermined and non-discretionary; and

(B) without reliance on a person other than the user to maintain custody or control of any digital assets subject to the financial transaction.

(2) Non-decentralized finance trading protocol

(A) In general. The term non-decentralized finance trading protocol means a decentralized finance trading protocol that meets 1 or more of the following:

(i) A person or group of persons under common control, or acting pursuant to an agreement, arrangement, or understanding to act in concert, has the 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 decentralized finance trading protocol.

(ii) The decentralized finance trading protocol does not operate, execute, and enforce its operations and transactions based solely on pre-established, transparent rules encoded directly within the source code of the distributed ledger system.

(iii) A person or group of persons under common control, or acting pursuant to an agreement, arrangement, or understanding to act in concert, has the authority, via operation of the decentralized finance trading protocol, to restrict, censor, or prohibit the use of the decentralized finance trading protocol, including any applicable system-based user activity.

(B) Special rule. For purposes of subparagraph (A), a decentralized governance system, solely by virtue of the operation of the decentralized governance system, shall not be considered to be a person or a group of persons under common control or acting pursuant to an agreement, arrangement, or understanding to act in concert.

(C) Exclusions. For purposes of this section, participation in an incident-response or security council, as described in subsection (f), shall not, by itself, be deemed to constitute control of a non-decentralized finance trading protocol.

(D) Scoping. In implementing this section, the Commission and the Department of the Treasury shall construe the term non-decentralized finance trading protocol in a manner consistent with section 15H of the Securities Exchange Act of 1934, as added by section 601.

(b) Rules

(1) In general. The Commission, in consultation with the Department of the Treasury, shall adopt tailored, clear, and specific rules, after notice and comment, that clarify how a person, or group of persons under common control, or acting pursuant to an agreement, arrangement, or understanding to act in concert, that controls a non-decentralized finance trading protocol and is subject to the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), as amended by this Act, shall comply with applicable requirements under that Act, including with respect to registration, conduct, disclosure, recordkeeping, supervision, and other requirements under the securities laws.

(2) Requirements. The rulemaking required under paragraph (1) shall—

(A) ensure that the rules adopted pursuant to that rulemaking are consistent with the purposes of the securities laws, including the public interest, the protection of investors, and the maintenance of fair and orderly markets;

(B) protect the rights of software developers, publishers, and users to create, publish, and use code and software in a manner consistent with the First Amendment to the Constitution of the United States;

(C) provide legal clarity for the development, publication, and operation of distributed ledger systems and the components therein in a manner consistent with the purposes of this section; and

(D) result in, by operation of law, the application and enforcement by the Department of the Treasury, where applicable and pursuant to existing law, as in effect on the day before the date of enactment of this Act, of anti-money laundering and countering the financing of terrorism requirements under the Bank Secrecy Act and other Federal law with respect to any person or group of persons that the Commission determines, through that rulemaking, is required to register, or comply as a registrant, under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).

(3) Application

(A) In general. Any person or group of persons determined under this subsection to be required to register, or comply as a registrant, under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (referred to in this paragraph as the Exchange Act) shall be subject to that Act and the Bank Secrecy Act to the extent applicable under existing law, as in effect on the day before the date of enactment of this Act, consistent with the treatment of similarly situated participants under the Exchange Act.

(B) Rulemaking. The Secretary of the Treasury, in consultation with the Commission, shall adopt tailored, clear, and specific rules, after providing notice and the opportunity to comment, that define compliance with obligations under the Bank Secrecy Act and other Federal laws relating to anti-money laundering and countering the financing of terrorism with respect to any person, or group of persons under common control (or acting pursuant to an agreement, arrangement, or understanding to act in concert), that—

(i) controls the operation of a non-decentralized finance trading protocol identified in the rulemaking conducted under paragraph (1);

(ii) is required to register, or comply as a registrant, under the Exchange Act, as determined in the rulemaking conducted under paragraph (1); and

(iii) is caused to be treated as a financial institution under the Bank Secrecy Act pursuant to existing law, as in effect on the day before the date of enactment of this Act, as a result of registration or compliance described in clause (ii).

(c) Activity-Based application. Rules adopted under subsection (b)(1) shall require the Commission to determine the applicable requirements only with respect to securities-related activities, based on the functions performed by the controlling person or group of persons, including brokerage, dealing, trading, execution, clearing, or custody of securities, without regard to technological form, distributed architecture, or purportedly decentralized characterization.

(d) Rules of construction

(1) Registration not required. Nothing in this section, nor any rule adopted under this section, may be construed to—

(A) require a distributed ledger system or any software code to register with the Commission in its own capacity; or

(B) prohibit the launch, deployment, or operation of a distributed ledger system.

(2) No expansion of statutory authority. Notwithstanding any rulemaking required under subsection (b), and notwithstanding any action the Commission or the Secretary of the Treasury may take under that subsection, nothing in this section, including any such rulemaking, may be construed to—

(A) expand or contract the statutory authority of the Commission or the Department of the Treasury, as in effect on the day before the date of enactment of this Act, under the Bank Secrecy Act; or

(B) limit the use of the authority described in subparagraph (A) to determine, pursuant to that rulemaking, the applicability of existing statutory requirements, as in effect on the day before the date of enactment of this Act, to persons or activities described in this section.

(3) No presumption of applicability. Nothing in this section may be construed to create a presumption that any person or activity described in this section is or is not subject to the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or the Bank Secrecy Act absent a determination made pursuant to a rulemaking required under this section.

(e) Preservation of existing authorities. Nothing in this section may be construed to—

(1) limit the authority of the Commission under the securities laws to investigate violations, bring actions, or issue subpoenas with respect to persons determined, pursuant to rulemaking, to be subject to the securities laws under this section; or

(2) limit the authority of the Secretary of the Treasury under the Bank Secrecy Act, including to investigate violations or bring actions with respect to persons determined, pursuant to rulemaking, to be subject to the Bank Secrecy Act.

(f) Non-Decentralized finance trading protocols

(1) In general. In adopting rules under subsection (b), the Commission shall treat a decentralized governance system and any person participating in the decentralized governance system as separate persons unless such persons are under common control or acting pursuant to an agreement, arrangement, or understanding to act in concert.

(2) Emergency measures

(A) In general. Pre-defined, temporary rules-based cybersecurity emergency measures exercised by an incident-response or security council exclusively in response to a specific and documented cybersecurity incident or imminent threat and pursuant to publicly disclosed, on-chain authorization mechanisms, strictly limited in scope and duration solely to address such specific and documented cybersecurity incident or imminent threat, and without unilateral control by any single person, shall not, by themselves, constitute common control or an agreement, arrangement, or understanding to act in concert, provided that such rules and authorities, including the procedures and operational limits governing such emergency measures, are disclosed in publicly available written documentation reasonably available to the applicable Federal regulator, by a decentralized governance system or similar legal entity sufficiently in advance of any exercise of such emergency powers.

(B) Prohibition. The emergency measures described in subparagraph (A) may not be used to implement protocol upgrades, governance decisions, or economic changes that are unrelated to the mitigation of the applicable cybersecurity incident or imminent threat, as described in that subparagraph.

(3) Standards. The standards criteria for temporary rules-based cybersecurity emergency measures under paragraph (2) shall be established by rulemaking pursuant to subsection (b).