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119TH CONGRESS REPT. 119–168
" HOUSE OF REPRESENTATIVES !
1st Session Part 1
DIGITAL ASSET MARKET CLARITY ACT
OF 2025
R E P O R T
OF THE
COMMITTEE ON AGRICULTURE
TOGETHER WITH
ADDITIONAL VIEWS
[TO ACCOMPANY H.R. 3633]
JUNE 23, 2025.—Ordered to be printed
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E:\Seals\Congress.#13
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DIGITAL ASSET MARKET CLARITY ACT OF 2025
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119TH CONGRESS REPT. 119–168
" HOUSE OF REPRESENTATIVES !
1st Session Part 1
DIGITAL ASSET MARKET CLARITY ACT
OF 2025
R E P O R T
OF THE
COMMITTEE ON AGRICULTURE
TOGETHER WITH
ADDITIONAL VIEWS
[TO ACCOMPANY H.R. 3633]
JUNE 23, 2025.—Ordered to be printed
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U.S. GOVERNMENT PUBLISHING OFFICE
60–751 WASHINGTON : 2025
E:\Seals\Congress.#13
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119TH CONGRESS REPT. 119–168
" HOUSE OF REPRESENTATIVES !
1st Session Part 1
DIGITAL ASSET MARKET CLARITY ACT OF 2025
JUNE 23, 2025.—Ordered to be printed
Mr. THOMPSON of Pennsylvania, from the Committee on
Agriculture, submitted the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 3633]
The Committee on Agriculture, to whom was referred the bill
(H.R. 3633) to provide for a system of regulation of the offer and
sale of digital commodities by the Securities and Exchange Com-
mission and the Commodity Futures Trading Commission, and for
other purposes, having considered the same, reports favorably
thereon with an amendment and recommends that the bill as
amended do pass.
The amendment is as follows:
Striking 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 ‘‘Digital Asset Market Clarity Act
of 2025’’ or the ‘‘CLARITY Act of 2025’’.
(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; PROVISIONAL REGISTRATION
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. Rulemakings.
Sec. 106. Registration for digital commodity exchanges, brokers, and dealers; provisional status.
Sec. 107. Commodity Exchange Act and securities laws savings provisions.
Sec. 108. Administrative requirements.
Sec. 109. International cooperation.
Sec. 110. Application of the Bank Secrecy Act.
Sec. 111. Implementation.
TITLE II—OFFERS AND SALES OF DIGITAL COMMODITIES
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Sec. 201. Treatment of investment contract assets.
Sec. 202. Exempted primary transactions in digital commodities.
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Sec. 203. Treatment of secondary transactions in digital commodities that originally involved investment con-
tracts.
Sec. 204. Requirements for offers and sales of digital commodities by digital commodity related persons and
digital commodity affiliated persons.
Sec. 205. Mature blockchain system requirements.
Sec. 206. Effective date.
TITLE III—REGISTRATION FOR INTERMEDIARIES AT THE SECURITIES AND EXCHANGE
COMMISSION
Sec. 301. Treatment of digital commodities and permitted payment stablecoins.
Sec. 302. Anti-fraud authority over permitted payment stablecoins and certain digital commodity transactions.
Sec. 303. Eligibility of alternative trading systems.
Sec. 304. Operation of alternative trading systems.
Sec. 305. Modernization of recordkeeping requirements.
Sec. 306. Exemptive authority.
Sec. 307. Additional registrations with the Commodity Futures Trading Commission.
Sec. 308. Exempting digital commodities from State securities laws.
Sec. 309. Exclusion for decentralized finance activities.
Sec. 310. Treatment of custody activities by banking institutions.
Sec. 311. Digital commodity activities that are financial in nature.
Sec. 312. Effective date; administration.
Sec. 313. Studies on foreign adversary participation.
TITLE IV—REGISTRATION FOR DIGITAL COMMODITY 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 asset custodians.
Sec. 403. Trading certification and approval for digital commodities.
Sec. 404. Registration of digital commodity exchanges.
Sec. 405. Qualified digital asset 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 decentralized finance activities.
Sec. 410. Resources for implementation and enforcement.
Sec. 411. Digital commodity activities by SEC-registered entities.
Sec. 412. Requirements related to control persons.
Sec. 413. Other tradable assets.
Sec. 414. Effective date.
Sec. 415. Sense of Congress.
TITLE V—INNOVATION AND TECHNOLOGY IMPROVEMENTS
Sec. 501. Findings; sense of Congress.
Sec. 502. Modernization of the Securities and Exchange Commission mission.
Sec. 503. Strategic Hub for Innovation and Financial Technology.
Sec. 504. Codification of LabCFTC.
Sec. 505. Study on decentralized finance.
Sec. 506. Study on non-fungible tokens.
Sec. 507. Study on expanding financial literacy amongst digital commodity holders.
Sec. 508. Study on financial market infrastructure improvements.
Sec. 509. Study on illicit use of digital assets.
Sec. 510. Conflict of interest rulemaking.
TITLE I—DEFINITIONS; RULEMAKING;
PROVISIONAL REGISTRATION
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) BLOCKCHAIN.—The term ‘blockchain’ means—
‘‘(A) any technology—
‘‘(i) where data is—
‘‘(I) shared across a network to create a distributed ledger of
independently verifiable transactions or information among net-
work participants;
‘‘(II) linked using cryptography to maintain the integrity of the
distributed ledger and to execute other functions; and
‘‘(III) propagated among network participants to reach consensus
on the state of the distributed ledger and any other functions; and
‘‘(ii) composed of source code that is publicly available; and
‘‘(B) any similar technology to the technology described in subparagraph
(A).
‘‘(21) BLOCKCHAIN APPLICATION.—The term ‘blockchain application’ means any
executable software deployed to a blockchain composed of source code that is
publicly available, including a smart contract or any network of smart contracts,
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or other similar technology.
‘‘(22) BLOCKCHAIN PROTOCOL.—The term ‘blockchain protocol’ means the free-
ly and publicly available source code of a blockchain that is executed by the net-
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work participants of a blockchain to facilitate its functioning, or other similar
technology.
‘‘(23) BLOCKCHAIN SYSTEM.—The term ‘blockchain system’ means any
blockchain, together with its blockchain protocol or any blockchain application
or network of blockchain applications.
‘‘(24) DECENTRALIZED GOVERNANCE SYSTEM.—
‘‘(A) IN GENERAL.—The term ‘decentralized governance system’ means,
with respect to a blockchain system, any transparent, rules-based system
permitting persons to form consensus or reach agreement in the develop-
ment, provision, publication, management, or administration of such
blockchain system, where participation is not limited to, or under the effec-
tive control of, any person or group of persons under common control.
‘‘(B) RELATIONSHIP OF PERSONS TO DECENTRALIZED GOVERNANCE SYS-
TEMS.—With respect to a decentralized governance system, the decentral-
ized governance system and any persons participating in the decentralized
governance system shall be treated as separate persons unless such persons
are under common control.
‘‘(C) LEGAL ENTITIES FOR DECENTRALIZED GOVERNANCE SYSTEMS.—The
term ‘decentralized governance system’ shall include a legal entity used to
implement the rules-based system described in subparagraph (A), provided
that the organizing and governing laws of such legal entity do not create
or require centralized and hierarchical management of such legal entity.
For the purposes of this subparagraph, the delegation of ministerial or ad-
ministrative authority at the direction of the participants in a decentralized
governance system shall not be construed to be centralized and hierarchical
management.
‘‘(25) DIGITAL ASSET.—The term ‘digital asset’ means any digital representa-
tion of value which is recorded on a cryptographically-secured distributed ledger
or other similar technology.
‘‘(26) 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).
‘‘(27) DIGITAL COMMODITY AFFILIATED PERSON.—The term ‘digital commodity
affiliated person’ means a person (including a digital commodity related person)
that, with respect to any digital commodity—
‘‘(A) acquires 5 percent or more of the total outstanding units of such dig-
ital commodity from a digital commodity issuer;
‘‘(B) is a founder of the digital commodity issuer; or
‘‘(C) is an executive director, director, trustee, or general partner of the
digital commodity issuer or held such role at any point in the previous 12-
month period.
‘‘(28) DIGITAL COMMODITY ISSUER.—With respect to a digital commodity, the
term ‘digital commodity issuer’ means any person that—
‘‘(A) proposes, issues, or causes to be issued a unit of such digital com-
modity to a person; or
‘‘(B) offers or sells a right to a future issuance of a unit of such digital
commodity to a person.
‘‘(29) DIGITAL COMMODITY RELATED PERSON.—
‘‘(A) IN GENERAL.—With respect to a digital commodity issuer, the term
‘digital commodity related person’ means—
‘‘(i) a person that is or was in the previous 6-month period a pro-
moter, senior employee, advisory board member, consultant, advisor, or
person serving in a similar capacity; and
‘‘(ii) a person that acquires 1 percent or more of the total outstanding
units of such digital commodity from a digital commodity issuer.
‘‘(B) SENIOR EMPLOYEE DEFINED.—In this paragraph and with respect to
a digital commodity issuer, the term ‘senior employee’ means any employee
materially involved in the management or planning of the digital com-
modity issuer or the development of the blockchain system to which the dig-
ital commodity relates.
‘‘(30) END USER DISTRIBUTION.—The term ‘end user distribution’ means a dis-
tribution of a unit of a digital commodity that—
‘‘(A) does not involve an exchange of more than a nominal value of cash,
property, or other assets; and
‘‘(B) is distributed in a broad and equitable manner based on conditions
capable of being satisfied by any participant in the blockchain system, in-
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cluding, as incentive-based rewards—
‘‘(i) to users of the digital commodity or any blockchain system to
which the digital commodity relates;
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‘‘(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 commodity, in propor-
tion to the total units of such other digital commodity as are held by
each person.
‘‘(31) MATURE BLOCKCHAIN SYSTEM.—The term ‘mature blockchain system’
means a blockchain system, together with its related digital commodity, that is
not controlled by any person or group of persons under common control.
‘‘(32) PERMITTED PAYMENT STABLECOIN.—
‘‘(A) IN GENERAL.—The term ‘permitted payment stablecoin’ means a dig-
ital asset—
‘‘(i) that is or is designed to be used as a means of payment or settle-
ment;
‘‘(ii) that is denominated in a national currency;
‘‘(iii) the issuer of which is subject to the regulatory and supervisory
authority of a State or Federal agency;
‘‘(iv) the issuer of which—
‘‘(I) is obligated to convert, redeem, or repurchase for a fixed
amount of monetary value; or
‘‘(II) represents that the digital asset will maintain or creates the
reasonable expectation that the digital asset will maintain a stable
value relative to the value of a fixed amount of monetary value;
and
‘‘(v) that is not—
‘‘(I) a national currency;
‘‘(II) a security issued by—
‘‘(aa) an investment company registered under section 8(a) of
the Investment Company Act of 1940 (15 U.S.C. 80a–8(a)); or
‘‘(bb) a person that would be an investment company under
the Investment Company Act of 1940 but for paragraphs (1)
and (7) of section 3(c) of that Act (15 U.S.C. 80a–3(c));
‘‘(III) a deposit (as defined under section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813)), regardless of the technology used
to record such deposit; or
‘‘(IV) an account (as defined in section 101 of the Federal Credit
Union Act (12 U.S.C. 1752)), regardless of the technology used to
record such account.
‘‘(B) MONETARY VALUE DEFINED.—The term ‘monetary value’—
‘‘(i) means—
‘‘(I) a national currency;
‘‘(II) a deposit (as defined in section 3 of the Federal Deposit In-
surance Act (12 U.S.C. 1813)) that is denominated in a national
currency; or
‘‘(III) an account (as defined in section 101 of the Federal Credit
Union Act (12 U.S.C. 1752)); and
‘‘(ii) does not include any agricultural or other physical commodity (as
defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)).
‘‘(33) 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)).’’.
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 amend-
ed—
(1) by redesignating the second paragraph (80) (relating to funding portals)
as paragraph (81); and
(2) 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) ADDITIONAL DIGITAL COMMODITY-RELATED TERMS.—
‘‘(A) SECURITIES ACT OF 1933.—The terms ‘blockchain system’, ‘decentral-
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ized governance system’, ‘digital asset’, ‘digital commodity affiliated person’,
‘digital commodity issuer’, ‘digital commodity related person’, ‘end user dis-
tribution’, ‘mature blockchain system’, and ‘permitted payment stablecoin’,
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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’, ‘digital commodity exchange’,
‘decentralized finance messaging system’, and ‘decentralized finance trading
protocol’ 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.
(a) IN GENERAL.—Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is
amended—
(1) in paragraph (10)—
(A) in subparagraph (A)—
(i) by redesignating clauses (iii) and (iv) as clauses (iv) and (v), re-
spectively; and
(ii) by inserting after clause (ii) the following:
‘‘(iii) digital commodity;’’; and
(B) by redesignating subparagraph (B) as subparagraph (C) and inserting
after subparagraph (A) the following:
‘‘(B) EXCLUSION.—For purposes of this paragraph, the term ‘trading in
commodity interests’ shall not include transacting in digital commodities for
the purpose of—
‘‘(i) acting as a digital commodity custodian;
‘‘(ii) establishing, maintaining, or managing inventory or payment in-
struments for commercial purposes; or
‘‘(iii) maintaining or supporting the operation of, or validating trans-
actions on, a blockchain system.’’;
(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.—For purposes of this paragraph, the term ‘trading in
commodity interests’ shall not include transacting in digital commodities for
the purpose of—
‘‘(i) acting as a digital commodity custodian;
‘‘(ii) establishing, maintaining, or managing inventory or payment in-
struments for commercial purposes; or
‘‘(iii) maintaining or supporting the operation of, or validating trans-
actions on, a blockchain system.’’;
(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) by redesignating paragraphs (16) through (51) as paragraphs (17) through
(52), respectively, and inserting after paragraph (15) the following:
‘‘(16) TERMS RELATED TO DIGITAL COMMODITIES.—
‘‘(A) ASSOCIATED PERSON OF A DIGITAL COMMODITY BROKER.—
‘‘(i) IN GENERAL.—Except as provided in clause (ii), the term ‘associ-
ated person of a digital commodity broker’ means a person who is asso-
ciated with a digital commodity broker as a partner, officer, employee,
or agent (or any person occupying a similar status or performing simi-
lar functions) in any capacity that involves—
‘‘(I) the solicitation or acceptance of an order for the purchase or
sale of a digital commodity; or
‘‘(II) the supervision of any person engaged in the solicitation or
acceptance of an order for the purchase or sale of a digital com-
modity.
‘‘(ii) 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.
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‘‘(B) ASSOCIATED PERSON OF A DIGITAL COMMODITY DEALER.—
‘‘(i) IN GENERAL.—Except as provided in clause (ii), the term ‘associ-
ated person of a digital commodity dealer’ means a person who is asso-
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ciated with a digital commodity dealer as a partner, officer, employee,
or agent (or any person occupying a similar status or performing simi-
lar functions) in any capacity that involves—
‘‘(I) the solicitation or acceptance of a contract for the purchase
or sale of a digital commodity; or
‘‘(II) the supervision of any person engaged in the solicitation or
acceptance of a contract for the purchase or sale of a digital com-
modity.
‘‘(ii) 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.
‘‘(C) BANK SECRECY ACT.—The term ‘Bank Secrecy Act’ means—
‘‘(i) section 21 of the Federal Deposit Insurance Act (12 U.S.C.
1829b);
‘‘(ii) chapter 2 of title I of Public Law 91–508 (12 U.S.C. 1951 et seq.);
and
‘‘(iii) subchapter II of chapter 53 of title 31, United States Code.
‘‘(D) DECENTRALIZED FINANCE MESSAGING SYSTEM.—
‘‘(i) IN GENERAL.—The term ‘decentralized finance messaging system’
means a software application that provides a user with the ability to
create or submit an instruction, communication, or message to a decen-
tralized finance trading protocol for the purpose of executing a trans-
action by the user.
‘‘(ii) ADDITIONAL REQUIREMENTS.—The term ‘decentralized finance
messaging system’ does not include any system that provides any per-
son other than the user with control over—
‘‘(I) the funds of the user; or
‘‘(II) the execution of the transaction of the user.
‘‘(E) DECENTRALIZED FINANCE TRADING PROTOCOL.—
‘‘(i) IN GENERAL.—The term ‘decentralized finance trading protocol’
means a blockchain system through which multiple participants can
execute a financial transaction—
‘‘(I) in accordance with an automated rule or algorithm that is
predetermined and non-discretionary; and
‘‘(II) without reliance on any other person to maintain control of
the digital assets of the user during any part of the financial trans-
action.
‘‘(ii) EXCLUSIONS.—
‘‘(I) IN GENERAL.—The term ‘decentralized finance trading pro-
tocol’ does not include a blockchain system if—
‘‘(aa) a person or group of persons under common control or
acting pursuant to an agreement to act in concert has the au-
thority, directly or indirectly, through any contract, arrange-
ment, understanding, relationship, or otherwise, to control or
materially alter the functionality, operation, or rules of con-
sensus or agreement of the blockchain system; or
‘‘(bb) the blockchain system does not operate, execute, and
enforce its operations and transactions based solely on pre-es-
tablished, transparent rules encoded directly within the source
code of the blockchain system.
‘‘(II) SPECIAL RULE.—For purposes of subclause (I), a decentral-
ized governance system shall not be considered to be a person or
a group of persons under common control or acting pursuant to an
agreement to act in concert.
‘‘(F) DIGITAL COMMODITY.—
‘‘(i) IN GENERAL.—The term ‘digital commodity’ means a digital asset
that is intrinsically linked to a blockchain system, and the value of
which is derived from or is reasonably expected to be derived from the
use of the blockchain system.
‘‘(ii) RELATIONSHIP TO A BLOCKCHAIN SYSTEM.—For purposes of this
subparagraph, a digital asset is intrinsically linked to a blockchain sys-
tem if the digital asset is directly related to the functionality or oper-
ation of the blockchain system or to the activities or services for which
the blockchain system is created or utilized, including where the digital
asset is—
‘‘(I) issued or generated by the programmatic functioning of the
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blockchain system;
‘‘(II) used to transfer value between participants in the
blockchain system;
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‘‘(III) used to access the activities or services of the blockchain
system;
‘‘(IV) used to participate in the decentralized governance system
of the blockchain system;
‘‘(V) used or removed from circulation in whole or in part to pay
fees or otherwise verify or validate transactions on the blockchain
system;
‘‘(VI) used as payment or incentive to participants in the
blockchain system to engage in the activities of the blockchain sys-
tem, provide services to other participants in the blockchain sys-
tem, or otherwise participate in the functionality of the blockchain
system; or
‘‘(VII) used as payment or incentive to participants in the
blockchain system to validate transactions, secure the blockchain
system, provide computational services, maintain or distribute in-
formation, or otherwise participate in the operations of the
blockchain system.
‘‘(iii) EXCLUSION.—The term ‘digital commodity’ does not include any
of the following:
‘‘(I) SECURITY.—
‘‘(aa) Any security, other than a note, an investment con-
tract, or a certificate of interest or participation in any profit-
sharing agreement.
‘‘(bb) A note, an investment contract, or a certificate of inter-
est or participation in any profit-sharing agreement that—
‘‘(AA) represents or gives the holder an ownership inter-
est or other interest in the revenues, profits, obligations,
debts, assets, or assets or debts to be acquired of the
issuer of the digital asset or another person (other than a
decentralized governance system);
‘‘(BB) makes the holder a creditor of the issuer of the
digital asset or another person; or
‘‘(CC) represents or gives the holder the right to receive
interest or the return of principal from the issuer of the
digital asset or another person.
‘‘(II) SECURITY DERIVATIVE.—A digital asset that, based on its
terms and other characteristics, is, represents, or is functionally
equivalent to an agreement, contract, or transaction that is—
‘‘(aa) a security future, as defined in section 2a of the Securi-
ties Act of 1933;
‘‘(bb) a security-based swap, as defined in section 2a of the
Securities Act of 1933;
‘‘(cc) a 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), as defined
in section 2a of the Securities Act of 1933; or
‘‘(dd) a put, call, straddle, option, or privilege on any secu-
rity, as defined in section 2a of the Securities Act of 1933.
‘‘(III) PERMITTED PAYMENT STABLECOIN.—A digital asset that is a
permitted payment stablecoin.
‘‘(IV) BANKING DEPOSIT.—
‘‘(aa) A deposit (as defined under section 3 of the Federal De-
posit Insurance Act (12 U.S.C. 1813)), regardless of the tech-
nology used to record the deposit.
‘‘(bb) An account (as defined in section 101 of the Federal
Credit Union Act (12 U.S.C. 1752)), regardless of the tech-
nology used to record the account.
‘‘(V) COMMODITY.—A digital asset that references, represents an
interest in, or is functionally equivalent to—
‘‘(aa) an agricultural commodity;
‘‘(bb) an excluded commodity, other than a security; or
‘‘(cc) an exempt commodity, other than the digital commodity
itself, as shall be further defined by the Commission.
‘‘(VI) COMMODITY DERIVATIVE.—A digital asset that, based on its
terms and other characteristics, is, represents, or is functionally
equivalent to an agreement, contract, or transaction that is—
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‘‘(aa) a contract of sale of a commodity for future delivery or
an option thereon;
‘‘(bb) a security futures product;
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‘‘(cc) a swap;
‘‘(dd) an agreement, contract, or transaction described in sec-
tion 2(c)(2)(C)(i) or 2(c)(2)(D)(i);
‘‘(ee) a commodity option authorized under section 4c; or
‘‘(ff) a leverage transaction authorized under section 19.
‘‘(VII) POOLED INVESTMENT VEHICLE.—
‘‘(aa) IN GENERAL.—A digital asset that, based on its terms
and other characteristics, is, represents, or is functionally
equivalent to—
‘‘(AA) a commodity pool, as defined in this Act; or
‘‘(BB) a pooled investment vehicle.
‘‘(bb) POOLED INVESTMENT VEHICLE DEFINED.—In this sub-
clause, the term ‘pooled investment vehicle’ means—
‘‘(AA) any investment company as defined in section 3(a)
of the Investment Company Act of 1940 (15 U.S.C. 80a–
3(a));
‘‘(BB) any company that would be an investment com-
pany under section 3(a) of such Act but for the exclusion
provided from that definition by paragraph (1), (7), or (9)
of section 3(c) of such Act (15 U.S.C. 80a–3(c)(1), (7), or
(9)); or
‘‘(CC) any entity or person that is not an investment
company but holds or will hold assets other than securi-
ties.
‘‘(VIII) GOOD, COLLECTIBLE, AND OTHER NON-COMMODITY ASSET.—
A digital asset that has value, utility, or significance beyond its
mere existence as a digital asset, including the digital equivalent
of a tangible or intangible good, such as—
‘‘(aa) a work of art, a musical composition, a literary work,
or other intellectual property;
‘‘(bb) collectibles, merchandise, virtual land, and video game
assets;
‘‘(cc) affinity, rewards, or loyalty points, including airline
miles or credit card points, that are not primarily speculative
in nature; or
‘‘(dd) rights, licenses, and tickets.
‘‘(iv) RULE OF CONSTRUCTION.—No presumption shall exist that a dig-
ital asset is a security, nor shall a digital asset be excluded from being
a digital commodity pursuant to clause (iii)(I), solely due to—
‘‘(I) the digital asset providing voting or economic rights with re-
spect to the blockchain system to which the digital asset relates or
the decentralized governance system of the blockchain system to
which the digital asset relates;
‘‘(II) the value of the digital asset having the potential to appre-
ciate or depreciate in response to the efforts, operations, or finan-
cial performance of the blockchain system to which the digital
asset relates or the decentralized governance system of the
blockchain system to which the digital asset relates; or
‘‘(III) the value of the digital asset appreciating or depreciating
due to the use of the blockchain system to which the digital asset
relates or the decentralized governance system of the blockchain
system to which the digital asset relates.
‘‘(G) DIGITAL COMMODITY BROKER.—
‘‘(i) IN GENERAL.—The term ‘digital commodity broker’ means any
person who, as a regular business—
‘‘(I) is engaged in—
‘‘(aa) soliciting or accepting an order from a customer for—
‘‘(AA) the purchase or sale of a digital commodity; or
‘‘(BB) an agreement, contract, or transaction described
in section 2(c)(2)(D)(iv); and
‘‘(bb) in conjunction with the activities in item (aa), accepts
or maintains control over—
‘‘(AA) the funds of any customer; or
‘‘(BB) the execution of any transaction of a customer;
‘‘(II) is engaged in soliciting or accepting orders from a customer
for the purchase or sale of a unit of a digital commodity on or sub-
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ject to the rules of a registered entity; or
‘‘(III) is registered with the Commission as a digital commodity
broker.
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‘‘(ii) EXCEPTIONS.—The term ‘digital commodity broker’ does not in-
clude a person solely because the person—
‘‘(I) solicits or accepts an order described in clause (i)(I)(aa)(AA)
from a customer who is an eligible contract participant;
‘‘(II) enters into 1 or more digital commodity transactions that
are attributable or solely incidental to making, sending, receiving,
or facilitating payments, whether involving a payment service pro-
vider or on a peer-to-peer basis; or
‘‘(III) is a bank (as defined under section 3(a) of the Securities
Exchange Act of 1934) engaging in certain banking activities with
respect to a digital commodity in the same or a similar manner as
a bank is excluded from the definition of a broker under such sec-
tion, as determined by the Commission.
‘‘(iii) FURTHER DEFINITION.—The Commission, by rule or regulation,
may exclude from the term ‘digital commodity broker’ any person or
class of persons if the Commission determines that the rule or regula-
tion will effectuate the purposes of this Act.
‘‘(H) DIGITAL COMMODITY DEALER.—
‘‘(i) IN GENERAL.—The term ‘digital commodity dealer’ means any per-
son who, as a regular business—
‘‘(I) is, or offers to be a counterparty to a person for the purchase
or sale of a digital commodity as a regular business, and in con-
junction with the activities, accepts or maintains control over the
funds of any counterparty; or
‘‘(II) is registered with the Commission as a digital commodity
dealer.
‘‘(ii) EXCEPTION.—The term ‘digital commodity dealer’ does not in-
clude a person solely because the person—
‘‘(I) is or offers to be a counterparty to a person who is an eligible
contract participant;
‘‘(II) enters into a digital commodity transaction with an eligible
contract participant;
‘‘(III) enters into a digital commodity transaction on or through
a registered digital commodity exchange, with a registered digital
commodity broker, or through a decentralized finance trading pro-
tocol;
‘‘(IV) 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;
‘‘(V) enters into 1 or more digital commodity transactions that
are attributable or solely incidental to making, sending, receiving,
or facilitating payments, whether involving a payment service pro-
vider or on a peer-to-peer basis; or
‘‘(VI) is a bank (as defined under section 3(a) of the Securities
Exchange Act of 1934) engaging in certain banking activities with
respect to a digital commodity in the same or a similar manner as
a bank is excluded from the definition of a dealer under section
3(a)(5) of such Act, as determined by the Commission.
‘‘(iii) FURTHER DEFINITION.—The Commission, by rule or regulation,
may exclude from the term ‘digital commodity dealer’ any person or
class of persons if the Commission determines that the rule or regula-
tion will effectuate the purposes of this Act.
‘‘(I) DIGITAL COMMODITY EXCHANGE.—The term ‘digital commodity ex-
change’ means a trading facility that offers or seeks to offer a cash or spot
market in at least 1 digital commodity.
‘‘(J) MIXED DIGITAL ASSET TRANSACTION.—The term ‘mixed digital asset
transaction’ means a transaction in which a digital commodity is traded for
a security.
‘‘(K) TERMS DEFINED UNDER THE SECURITIES ACT OF 1933.—The terms
‘blockchain system’, ‘decentralized governance system’, ‘digital asset’, ‘dig-
ital commodity issuer’, ‘digital commodity affiliated person’, ‘digital com-
modity related person’, ‘end user distribution’, ‘mature blockchain system’,
and ‘permitted payment stablecoin’ have the meaning given those terms, re-
spectively, under section 2(a) of the Securities Act of 1933 (15 U.S.C.
77b(a)).’’; and
dmwilson on DSK7X7S144PROD with REPORTS
(5) in paragraph (41) (as so redesignated by paragraph (4) of this sub-
section)—
(A) by striking ‘‘and’’ at the end of subparagraph (E);
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10
(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.’’.
(b) CONFORMING AMENDMENTS.—
(1) Each of the following provisions of law is amended by striking ‘‘1a(18)’’
and inserting ‘‘1a(19)’’:
(A) Section 4s(h)(5)(A)(i) of the Commodity Exchange Act (7 U.S.C.
6s(h)(5)(A)(i)).
(B) Section 5(e) of the Securities Act of 1933 (15 U.S.C. 77e(e)).
(C) Section 6(g)(5)(B) of the Securities Exchange Act of 1934 (15 U.S.C.
78f(g)(5)(B)).
(D) Section 15F(h)(5)(A)(i) of the Securities Exchange Act of 1934 (15
U.S.C. 78o–10(h)(5)(A)(i)).
(2) Section 752 of the Wall Street Transparency and Accountability Act of
2010 (15 U.S.C. 8325) is amended by striking ‘‘1a(39)’’ and inserting ‘‘1a(40)’’.
(3) Section 4s(f)(1)(D) of the Commodity Exchange Act (7 U.S.C. 6s(f)(1)(D))
is amended by striking ‘‘1a(47)(A)’’ and inserting ‘‘1a(48)(A)’’.
(4) Each of the following provisions of the Commodity Exchange Act is amend-
ed by striking ‘‘1a(47)(A)(v)’’ and inserting ‘‘1a(48)(A)(v)’’:
(A) Section 4t(b)(1)(C) (7 U.S.C. 6t(b)(1)(C)).
(B) Section 5(d)(23) (7 U.S.C. 7(d)(23)).
(C) Section 5b(k)(3) (7 U.S.C. 7a–1(k)(3)).
(D) Section 5h(f)(10)(A)(iii) (7 U.S.C. 7b–3(f)(10)(A)(iii)).
(5) Section 21(f)(4)(C) of the Commodity Exchange Act (7 U.S.C. 24a(f)(4)(C))
is amended by striking ‘‘1a(48)’’ and inserting ‘‘1a(49)’’.
(6) Section 403 of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C.
27a) is amended—
(A) in subsection (a)(2), by striking ‘‘1a(47)(A)(v)’’ and inserting
‘‘1a(48)(A)(v)’’; and
(B) in each of subsections (b)(1) and (c)(2), by striking ‘‘1a(47)’’ and insert-
ing ‘‘1a(48)’’.
(7) Section 712 of the Wall Street Transparency and Accountability Act of
2010 (15 U.S.C. 8302) is amended—
(A) in subsection (a)(8), by striking ‘‘1a(47)(D)’’ and inserting ‘‘1a(48)(D)’’;
and
(B) in subsection (d)(1), by striking ‘‘1a(47)(A)(v)’’ each place it appears
and inserting ‘‘1a(48)(A)(v)’’.
SEC. 104. DEFINITIONS UNDER THIS ACT.
In this Act:
(1) DEFINITIONS UNDER THE COMMODITY EXCHANGE ACT.—The terms ‘‘decen-
tralized finance messaging system’’, ‘‘decentralized finance trading protocol’’,
‘‘digital commodity’’, ‘‘digital commodity broker’’, ‘‘digital commodity dealer’’,
‘‘digital commodity exchange’’, and ‘‘mixed digital asset transaction’’ have the
meaning given those terms, respectively, under section 1a of the Commodity Ex-
change Act (7 U.S.C. 1a).
(2) DEFINITIONS UNDER THE SECURITIES ACT OF 1933.—The terms ‘‘blockchain’’,
‘‘blockchain system’’, ‘‘blockchain protocol’’, ‘‘decentralized governance system’’,
‘‘digital asset’’, ‘‘digital commodity issuer’’, ‘‘end user distribution’’, ‘‘mature
blockchain system’’, ‘‘permitted payment stablecoin’’, and ‘‘securities laws’’ 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’’, ‘‘securities laws’’, 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. RULEMAKINGS.
(a) DEFINITIONS.—The Commodity Futures Trading Commission and the Securi-
ties and Exchange Commission shall jointly issue rules to further define the fol-
lowing terms:
(1) The terms—
(A) ‘‘blockchain’’, ‘‘blockchain application’’, ‘‘blockchain system’’,
‘‘blockchain protocol’’, ‘‘decentralized governance system’’, ‘‘digital com-
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modity affiliated person’’, ‘‘digital commodity issuer’’, ‘‘digital commodity re-
lated person’’, ‘‘end user distribution’’, and ‘‘mature blockchain system’’, as
defined under section 2(a) of the Securities Act of 1933;
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11
(B) ‘‘unilateral authority’’, as such term is used in section 42 of the Secu-
rities Exchange Act of 1934 and section 1a of the Commodity Exchange Act;
and
(C) ‘‘programmatic functioning’’, as such term is used in sections 4C of
the Securities Act of 1933, section 42 of the Securities Exchange Act of
1934, and section 1a of the Commodity Exchange Act.
(2) The terms ‘‘digital commodity’’, ‘‘decentralized finance messaging system’’,
and ‘‘decentralized finance trading protocol’’ as defined under section 1a of the
Commodity Exchange Act.
(b) JOINT RULEMAKING FOR MIXED DIGITAL ASSET TRANSACTIONS.—The Securities
and Exchange Commission and the Commodity Futures Trading Commission shall
jointly issue rules applicable to mixed digital asset transactions under this Act and
the amendments made by this Act, including by further defining such term.
(c) PROTECTION OF SELF-CUSTODY.—
(1) IN GENERAL.—A United States individual shall retain the right to—
(A) maintain a hardware wallet or software wallet for the purpose of fa-
cilitating the individual’s own lawful custody of digital assets; and
(B) engage in direct, peer-to-peer transactions in digital assets with an-
other individual or entity for the individual’s own lawful purposes using a
hardware wallet or software wallet, if—
(i) such other individual or entity is not a financial institution (as de-
fined in section 5312 of title 31, United States Code); and
(ii) the transactions do not involve any property or interests in prop-
erty that are blocked pursuant to, or are otherwise prohibited by,
United States sanctions.
(2) APPLICATION.—This subsection—
(A) applies solely to personal use by individuals; and
(B) does not apply to individuals acting in a custodial or fiduciary capac-
ity for others.
(3) RULE OF CONSTRUCTION.—Nothing in this subsection shall be construed to
limit the authority of the Secretary of the Treasury, the Securities and Ex-
change Commission, the Commodity Futures Trading Commission, the Board of
Governors of the Federal Reserve System, the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, or the National Credit Union Adminis-
tration to carry out any enforcement action or special measure authorized under
applicable law, including—
(A) the Bank Secrecy Act, section 9714 of the Combating Russian Money
Laundering Act (31 U.S.C. 5318A note), and section 7213A of the Fentanyl
Sanctions Act (21 U.S.C. 2313a); or
(B) any other law relating to illicit finance, money laundering, terrorism
financing, or United States sanctions.
(d) JOINT RULEMAKING, PROCEDURES, OR GUIDANCE FOR DELISTING.—Not later
than 180 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 Commis-
sions) regarding the process to delist an asset for trading under section 106 of this
Act if the Commissions determine that the listing is inconsistent with the Com-
modity Exchange Act, the securities laws (including regulations under those laws),
or this Act.
(e) JOINT RULES FOR PORTFOLIO MARGINING DETERMINATIONS.—
(1) IN GENERAL.—Not later than 360 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 describing the process for per-
sons registered with either such Commission to seek a joint order or determina-
tion with respect to margin, customer protection, segregation, or other require-
ments as necessary to facilitate portfolio margining of securities (including re-
lated extensions of credit), security-based swaps, contracts for future delivery,
options on a contract for future delivery, swaps, and digital commodities, or any
subset thereof, in—
(A) a securities account carried by a registered broker or dealer or a secu-
rity-based swap account carried by a registered security-based swap dealer;
(B) a futures or cleared swap account carried by a registered futures com-
mission merchant;
(C) a swap account carried by a swap dealer; or
(D) a digital commodity account carried by a registered digital commodity
dmwilson on DSK7X7S144PROD with REPORTS
broker or digital commodity dealer that is also registered in such other ca-
pacity as is necessary to also carry the other customer or counterparty posi-
tions being held in the account.
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(2) PROCESS.—With respect to a joint order or determination described in
paragraph (1), the rules required to be issued pursuant to paragraph (1) shall
require—
(A) the joint order or determination to be issued only if the order or deter-
mination is in the public interest and provides for the appropriate protec-
tion of customers;
(B) applicants to file a standard application, in a form and manner deter-
mined by the Securities and Exchange Commission and the Commodity Fu-
tures Trading Commission, which shall include the information necessary
to make the joint order or determination;
(C) the Securities and Exchange Commission and the Commodity Futures
Trading Commission to make a final determination not later than 270 days
after the filing of a completed application;
(D) the Securities and Exchange Commission and the Commodity Futures
Trading Commission to consider the public interest of the joint order or de-
termination through the solicitation of public comments; and
(E) the Securities and Exchange Commission and the Commodity Futures
Trading Commission to consult with other relevant foreign or domestic reg-
ulators, including the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, and the Office of the Comp-
troller of the Currency, as appropriate.
SEC. 106. REGISTRATION FOR DIGITAL COMMODITY EXCHANGES, BROKERS, AND DEALERS;
PROVISIONAL STATUS.
(a) REGISTRATION.—
(1) IN GENERAL.—Unless exempted from registration under section 5k of the
Commodity Exchange Act, a person shall not act as a digital commodity broker,
digital commodity dealer, or digital commodity exchange after the end of the
270-day period beginning on the date of the enactment of this Act, unless, as
the case may be, the person is registered as a—
(A) digital commodity broker pursuant to section 4u of the Commodity
Exchange Act;
(B) digital commodity dealer pursuant to section 4u of the Commodity Ex-
change Act; or
(C) digital commodity exchange pursuant to section 5i of the Commodity
Exchange Act.
(2) EXPEDITED PROCESS.—Not less than 270 days after the date of the enact-
ment of this Act, the Commodity Futures Trading Commission shall adopt, by
rule, regulation, or order, a process for expedited registration of persons in pro-
visional status pursuant to subsection (b).
(b) PROVISIONAL STATUS.—
(1) IN GENERAL.—A person who is registered in accordance with subsection (a)
of this section shall be in provisional status until—
(A) in the case of a digital commodity broker or dealer, 270 days after
the final effective date of the rulemakings required under section 4u of the
Commodity Exchange Act; or
(B) in the case of a digital commodity exchange, 270 days after the final
effective date of the rulemakings required under section 5i of such Act.
(2) PAYMENT OF FEES.—A person in provisional status shall pay all fees and
penalties required under section 410.
(c) OPERATIONS PRIOR TO REGULATIONS.—
(1) REQUIREMENTS.—A person in provisional status shall apply and be subject
to the statutory requirements of this Act and any rules or regulations promul-
gated under this Act, as applicable.
(2) LISTINGS.—
(A) IN GENERAL.—Except as provided in subparagraph (B), a person in
provisional status may continue to offer, solicit, trade, facilitate, execute,
clear, report, or otherwise deal in any digital asset offered on or through
the facilities of the person before the date of registration under this section,
until such time as the joint rulemaking on definitions required under sec-
tion 105(a) is effective.
(B) DELISTING.—Before the effective date of the joint rulemaking on defi-
nitions under section 105(a), person in provisional status shall cease offer-
ing, soliciting, trading, facilitating, executing, clearing, reporting, or other-
wise dealing in any digital asset required to be delisted pursuant to a joint
delisting process established under section 105(d).
(3) EXEMPTIVE AUTHORITY.—In order to promote responsible innovation and
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fair competition, or protect customers, the Commodity Futures Trading Com-
mission may exempt any persons or class of persons registered pursuant to sub-
section (a) and in provisional status pursuant to subsection (b) from any re-
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13
quirements of this Act and any rules and regulations promulgated under this
Act.
(d) CUSTOMER DISCLOSURE BEFORE REGISTRATION.—
(1) IN GENERAL.—Beginning 30 days after the date of the enactment of this
Act, any person acting as a digital commodity exchange, digital commodity
broker, or digital commodity dealer shall disclose to the customers of the person
so acting, in the disclosure documents, offering documents, and promotional ma-
terial of the person so acting, in a prominent manner, that the person is not
registered with or regulated by the Commodity Futures Trading Commission.
(2) EXPIRATION.—Paragraph (1) of this subsection shall not apply to any per-
son who registers pursuant to subsection (a).
SEC. 107. COMMODITY EXCHANGE ACT AND SECURITIES LAWS 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 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;
(2) any agreement, contract, or transaction that is subject to the securities
laws as—
(A) a security-based swap;
(B) a security futures product; or
(C) an option on or based on the value of a security; or
(3) 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 au-
thorizes, 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 vir-
tue of being registered 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. 108. ADMINISTRATIVE REQUIREMENTS.
Section 4c(a) of the Commodity Exchange Act (7 U.S.C. 6c(a)) is amended—
(1) in paragraph (3)—
(A) in subparagraph (B), by striking ‘‘or’’ at the end;
(B) in subparagraph (C), by striking the period and inserting ‘‘; or’’; and
(C) by adding at the end the following:
‘‘(D) a contract of sale of a digital commodity.’’;
(2) in paragraph (4)—
(A) in subparagraph (A)—
(i) in clause (ii), by striking ‘‘or’’ at the end;
(ii) in clause (iii), by striking the period and inserting ‘‘; or’’; and
(iii) by adding at the end the following:
‘‘(iv) a contract of sale of a digital commodity.’’;
(B) in subparagraph (B)—
(i) in clause (ii), by striking ‘‘or’’ at the end;
(ii) in clause (iii), by striking the period and inserting ‘‘; or’’; and
(iii) by adding at the end the following:
‘‘(iv) a contract of sale of a digital commodity.’’; and
(C) in subparagraph (C)—
(i) in clause (ii), by striking ‘‘or’’ at the end;
(ii) by striking ‘‘(iii) a swap, provided however,’’ and inserting the fol-
lowing:
‘‘(iii) a swap; or
‘‘(iv) a contract of sale of a digital commodity,
dmwilson on DSK7X7S144PROD with REPORTS
provided, however,’’; and
(iii) by striking ‘‘clauses (i), (ii), or (iii)’’ and insert ‘‘any of clauses (i)
through (iv)’’.
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SEC. 109. INTERNATIONAL COOPERATION.
In order to promote greater consistency in effective and consistent global regula-
tion of digital assets, the Commodity Futures Trading Commission and the Securi-
ties and Exchange Commission, as appropriate—
(1) shall consult and coordinate with foreign regulatory authorities on the ap-
plication of consistent international standards with respect to the regulation of
digital assets; and
(2) may enter into such information-sharing arrangements as may be deemed
to be necessary or appropriate in the public interest or for the protection of in-
vestors, customers, and users of digital assets.
SEC. 110. APPLICATION OF THE BANK SECRECY ACT.
(a) IN GENERAL.—Section 5312(c)(1)(A) of title 31, United States Code, is amend-
ed—
(1) by inserting ‘‘digital commodity broker, digital commodity dealer,’’ after
‘‘futures commission merchant,’’; and
(2) by inserting before the period the following: ‘‘and any digital commodity
exchange registered, or required to register, under the Commodity Exchange
Act which permits direct customer access’’.
(b) GAO STUDY.—
(1) IN GENERAL.—The Comptroller General of the United States, in consulta-
tion with the Secretary of the Treasury, shall conduct a study to—
(A) assess the risks posed by centralized intermediaries that are pri-
marily located in foreign jurisdictions that provide services to U.S. persons
without regulatory requirements that are substantially similar to the re-
quirements of the Bank Secrecy Act; and
(B) provide any regulatory or legislative recommendations to address
these risks under subparagraph (A).
(2) REPORT.—Not later than 1 year after the date of enactment of this Act,
the Comptroller General shall issue a report to Congress containing all findings
and determinations made in carrying out the study required under paragraph
(1).
SEC. 111. 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 provi-
sions 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 para-
graph (1) shall not become effective before the effective date otherwise applica-
ble to the action under this Act.
TITLE II—OFFERS AND SALES OF DIGITAL
COMMODITIES
SEC. 201. TREATMENT OF INVESTMENT CONTRACT ASSETS.
(a) SECURITIES ACT OF 1933.—Section 2(a) of the Securities Act of 1933 (15 U.S.C.
77b(a)), as amended by section 101, is further amended—
(1) in paragraph (1), by adding at the end the following: ‘‘The term ‘invest-
dmwilson on DSK7X7S144PROD with REPORTS
ment contract’ does not include an investment contract asset.’’; and
(2) by adding at the end the following:
‘‘(36) The term ‘investment contract asset’ means a digital commodity—
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‘‘(A) that can be exclusively possessed and transferred, person to person,
without necessary reliance on an intermediary, and is recorded on a
blockchain; and
‘‘(B) sold or otherwise transferred, or intended to be sold or otherwise
transferred, pursuant to an investment contract.’’.
(b) INVESTMENT ADVISERS ACT OF 1940.—Section 202(a)(18) of the Investment Ad-
visers Act of 1940 (15 U.S.C. 80b–2(a)(18)) is amended by adding at the end the fol-
lowing: ‘‘The term ‘investment contract’ does not include an investment contract
asset (as such term is defined under section 2(a) of the Securities Act of 1933).’’.
(c) INVESTMENT COMPANY ACT OF 1940.—Section 2(a)(36) of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–2(a)(36)) is amended by adding at the end the fol-
lowing: ‘‘The term ‘investment contract’ does not include an investment contract
asset (as such term is defined under section 2(a) of the Securities Act of 1933).’’.
(d) SECURITIES EXCHANGE ACT OF 1934.—Section 3(a)(10) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)(10)) is amended by adding at the end the fol-
lowing: ‘‘The term ‘investment contract’ does not include an investment contract
asset (as such term is defined under section 2(a) of the Securities Act of 1933).’’.
(e) SECURITIES INVESTOR PROTECTION ACT OF 1970.—Section 16(14) of the Securi-
ties Investor Protection Act of 1970 (15 U.S.C. 78lll(14)) is amended by adding at
the end the following: ‘‘The term ‘investment contract’ does not include an invest-
ment contract asset (as such term is defined under section 2(a) of the Securities Act
of 1933).’’.
SEC. 202. EXEMPTED PRIMARY TRANSACTIONS IN DIGITAL COMMODITIES.
(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) the offer or sale of an investment contract involving units of a digital
commodity by its digital commodity issuer (including all entities controlled by
or under common control with the issuer), if—
‘‘(A) the blockchain system to which the digital commodity relates, to-
gether with the digital commodity, is certified as a mature blockchain sys-
tem under section 42 of the Securities Exchange Act of 1934 or the issuer
intends for the blockchain system to which the digital commodity relates to
be a mature blockchain system by the later of—
‘‘(i) the date that is four years after the first sale of the investment
contract involving such digital commodity; or
‘‘(ii) the date that is four years after the effective date of this para-
graph;
‘‘(B) the sum of all cash and other consideration to be received by the dig-
ital commodity issuer in reliance on the exemption provided under this
paragraph, during the 12-month period preceding the date of such offering,
including the amount received in such offering, is not more than
$75,000,000 (as such amount is annually adjusted by the Commission to re-
flect the change in the Consumer Price Index for All Urban Consumers pub-
lished by the Bureau of Labor Statistics of the Department of Labor);
‘‘(C) after the completion of the transaction, a purchaser does not own
more than 10 percent of the total amount of the outstanding units of the
digital commodity;
‘‘(D) the transaction does not involve the offer or sale of an investment
contract involving units of a digital commodity by its digital commodity
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 Invest-
ment 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
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‘‘(vi) is disqualified pursuant to section 230.262 of title 17, Code of
Federal Regulations; and
‘‘(E) the issuer meets the requirements of section 4B(b).’’; and
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(2) by inserting after section 4A the following:
‘‘SEC. 4B. REQUIREMENTS WITH RESPECT TO CERTAIN DIGITAL COMMODITY TRANSACTIONS.
‘‘(a) COMMISSION JURISDICTION.—For the purposes of this section:
‘‘(1) The Commission shall have jurisdiction and enforcement authority with
respect to disclosures described in this section.
‘‘(2) Section 17 shall apply to a statement made in an offering statement, dis-
closure, or report filed under this section to the same extent as such section 17
applies to a statement made in any other offering statement, disclosure, or re-
port filed under this Act.
‘‘(b) REQUIREMENTS FOR DIGITAL COMMODITY ISSUERS.—
‘‘(1) TERMS AND CONDITIONS.—A digital commodity issuer offering or selling
an investment contract involving units of a digital commodity in reliance on sec-
tion 4(a)(8) shall file with the Commission an offering statement and any re-
lated documents, in such form and with such content as prescribed by the Com-
mission, including financial information, a description of the issuer and the op-
erations of the issuer, the financial condition of the issuer, a description of the
plan of distribution of any unit of a digital commodity that is to be offered as
well as the intended use of the offering proceeds, and a description of the devel-
opment plan for the blockchain system, and the related digital commodity, to
become a mature blockchain system, if such blockchain system is not already
certified as a mature blockchain system pursuant to section 42 of the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.).
‘‘(2) INFORMATION REQUIRED FOR PURCHASERS.—A digital commodity issuer
that has filed a statement under paragraph (1) to offer and sell an investment
contract involving a unit of a digital commodity in reliance on section 4(a)(8)
shall include in such statement the following information:
‘‘(A) MATURITY STATUS.—Whether the blockchain system to which the dig-
ital commodity relates has been certified as a mature blockchain system
pursuant to section 42 of the Securities Exchange Act of 1934 (15 U.S.C.
78a et seq.) and, where such blockchain system is not so certified, a state-
ment of the digital commodity issuer’s intent for the blockchain system to
which the digital commodity relates to be a mature blockchain system with-
in the time period described in section 4(a)(8)(A).
‘‘(B) SOURCE CODE.—The source code, or a publicly accessible webpage
displaying such source code, for any blockchain system to which the digital
commodity relates, and whether the source code was sourced from an exter-
nal third party, whether there are any existing external dependencies, and
whether the code underwent a third-party security audit.
‘‘(C) TRANSACTION HISTORY.—A description of the steps necessary to inde-
pendently 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 such blockchain system.
‘‘(D) DIGITAL COMMODITY ECONOMICS.—A description of the purpose of
any blockchain system to which the digital commodity relates and the oper-
ation of any such blockchain system, including—
‘‘(i) information explaining the launch and supply process, including
the number of units of the digital commodity to be issued in an initial
allocation, the total number of units of the digital commodity to be cre-
ated, the release schedule for the units of the digital commodity, and
the total number of units of the digital commodity outstanding;
‘‘(ii) information explaining the technical requirements for holding,
accessing, and transferring the digital commodity;
‘‘(iii) information on any applicable consensus mechanism or process
for validating transactions, method of generating or mining digital com-
modities, and any process for burning or destroying units of the digital
commodity on the blockchain system;
‘‘(iv) an explanation of any mechanism for driving value to the digital
commodity of such blockchain system; and
‘‘(v) an explanation of governance mechanisms for implementing
changes to the blockchain system or forming consensus among holders
of units of such digital commodity.
‘‘(E) PLAN OF DEVELOPMENT.—The current state and timeline for the de-
velopment of any blockchain system to which the digital commodity relates,
detailing how and when the blockchain system is intended to be a mature
dmwilson on DSK7X7S144PROD with REPORTS
blockchain system, if the blockchain system is not yet certified as a mature
blockchain system, and the various roles that exist or are intended to exist
in connection with the blockchain system, such as users, service providers,
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developers, transaction validators, and governance participants, including a
discussion of any mechanisms by which control or authority are exerted
with respect to the blockchain system or its related digital commodity, and
any critical operational dependencies of the blockchain system or its related
digital commodity.
‘‘(F) OWNERSHIP DISCLOSURES.—
‘‘(i) IN GENERAL.—A list of all persons who are digital commodity re-
lated persons or digital commodity affiliated persons who have been
issued a unit of the digital commodity by the digital commodity issuer
or have a right to a unit of the digital commodity from the digital com-
modity issuer.
‘‘(ii) CONFIDENTIALITY.—The Commission shall keep each list de-
scribed under clause (i) confidential, consistent with what is necessary
or appropriate in the public interest or for the protection of investors.
‘‘(G) RISK FACTOR DISCLOSURES.—A description of the material risks sur-
rounding ownership of a unit of a digital commodity.
‘‘(3) ONGOING DISCLOSURE REQUIREMENTS FOR MATURING BLOCKCHAIN SYS-
TEMS.—Subject to paragraph (5), the issuer of a digital commodity related to a
blockchain system that is not yet certified as a mature blockchain system that
has filed a statement under paragraph (1) to offer and sell an investment con-
tract involving a unit of a digital commodity in reliance on section 4(a)(8) shall
file the following with the Commission:
‘‘(A) SEMIANNUAL REPORTS.—Every 6 months, a report containing—
‘‘(i) an updated description of the current state and timeline for the
development of the blockchain system to which the digital commodity
relates, showing how and when the blockchain is intended to be a ma-
ture blockchain system;
‘‘(ii) a description of the efforts of the issuer and digital commodity
related persons in developing the blockchain system to which the dig-
ital commodity relates; and
‘‘(iii) the amount of money raised by the digital commodity issuer in
reliance on section 4(a)(8), how much of that money has been spent,
and the general categories of activities for which that money has been
spent and amounts spent per category.
‘‘(B) CURRENT REPORTS.—A current report reflecting any material changes
relevant to the information previously reported to the Commission by the
digital commodity issuer, which shall be filed as soon as practicable after
the material change occurred, in accordance with such rules as the Com-
mission may prescribe as necessary or appropriate in the public interest or
for the protection of investors.
‘‘(4) RULEMAKING.—Not later than 360 days after the date of the enactment
of this section, the Commission shall prescribe rules on requirements applicable
to issuers of digital commodities in reliance on section 4(a)(8).
‘‘(5) TERMINATION OF CERTAIN REPORTING REQUIREMENTS; POST-MATURITY RE-
PORTING REQUIREMENTS.—
‘‘(A) IN GENERAL.—The ongoing reporting requirements under paragraph
(3) shall not apply to a digital commodity issuer 180 days after the end of
the covered fiscal year, if the information with respect to the digital com-
modity and the blockchain system to which it relates described in subpara-
graphs (A) through (C) of paragraph (2) is made publicly available and the
disclosure requirements under subparagraph (C) of this paragraph are sat-
isfied.
‘‘(B) COVERED FISCAL YEAR DEFINED.—In this paragraph, the term ‘cov-
ered fiscal year’ means, with respect to a digital commodity, the first fiscal
year of a digital commodity issuer in which the blockchain system to which
such digital commodity relates is certified as a mature blockchain system
under section 42 of the Securities Exchange Act of 1934.
‘‘(C) POST-MATURITY REPORTING REQUIREMENTS.—After the blockchain
system to which a digital commodity relates is certified as a mature
blockchain system under section 42 of the Securities Exchange Act of 1934,
any digital commodity issuer that has filed a statement under paragraph
(1) to offer and sell an investment contract involving a unit of a digital com-
modity in reliance on section 4(a)(8) and is engaged in material ongoing ef-
forts related to the mature blockchain system shall disclose, in a manner
reasonably calculated to inform the public, and at such frequency as the
Commission may prescribe, by rule, a description of such efforts, includ-
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ing—
‘‘(i) any participation in a decentralized governance system of such
blockchain system;
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‘‘(ii) any participation in alterations or proposed alterations to the
functionality or operation of such blockchain system;
‘‘(iii) the use or planned use of any funds raised in reliance on section
4(a)(8) or any rulemaking pursuant to section 202(d) of the CLARITY
Act of 2025 in such efforts;
‘‘(iv) the amount of units of the digital commodity, or rights thereto,
owned and controlled by such issuer and any use, sale, trading, or
other disposition thereof; and
‘‘(v) any affiliations of such issuer material to the efforts of such
issuer.
‘‘(D) RULE OF CONSTRUCTION.—Nothing in subparagraph (C) may be con-
strued to make any digital commodity described in such subparagraph a se-
curity.
‘‘(c) REQUIREMENTS FOR INTERMEDIARIES.—A person acting as an intermediary in
connection with the offer or sale of an investment contract involving units of a dig-
ital commodity in reliance on section 4(a)(8) shall—
‘‘(1) register with the Commission as a broker or dealer; and
‘‘(2) 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).
‘‘(d) 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).
‘‘(e) FAILURE TO MATURE.—
‘‘(1) IN GENERAL.—Not later than 270 days after the date of the enactment
of this section, the Commission shall issue rules applying such additional obli-
gations and disclosures for the digital commodity issuers, digital commodity re-
lated persons, and digital commodity affiliated persons of a blockchain system
described under subsection (b)(1) that does not become a mature blockchain sys-
tem within the time period described in section 4(a)(8)(A) as are necessary or
appropriate in the public interest or for the protection of investors. Such obliga-
tions and disclosures shall include the following:
‘‘(A) DISCLOSURES.—Disclosures regarding the following:
‘‘(i) FAILURE TO MATURE.—The material reasons that the blockchain
system has not become a mature blockchain system within the time pe-
riod described in section 4(a)(8)(A).
‘‘(ii) DEVELOPMENT PLANS.—The future plans of development of the
blockchain system, including information required under subsection
(b)(3).
‘‘(iii) RISK FACTOR DISCLOSURES.—The material risks surrounding
ownership of a unit of a digital commodity that relates to a blockchain
system described under subsection (b)(1) that has not become a mature
blockchain system within the time period described in section
4(a)(8)(A).
‘‘(B) OBLIGATIONS.—Transaction reporting and beneficial ownership dis-
closure obligations applicable to digital commodity related persons and dig-
ital commodity affiliated persons of such blockchain system.
‘‘(2) QUALIFICATION REQUIRED.—The Commission may not permit any addi-
tional raising of capital by the issuer of a digital commodity related to a
blockchain system described under subsection (a)(1) that has not become a ma-
ture blockchain system within the time period described in section 4(a)(8)(A) un-
less the Commission has qualified any offering statement related to such addi-
tional raising of capital.’’.
(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 sec-
tion 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 insert-
ing ‘‘section 4(a)(2)’’; and
(ii) by striking ‘‘or’’ at the end;
(D) in subparagraph (G), by striking the period and inserting ‘‘; or’’; and
dmwilson on DSK7X7S144PROD with REPORTS
(E) by adding at the end the following:
‘‘(H) section 4(a)(8).’’.
(c) PRIOR ISSUERS.—
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(1) REPORTING EXCEPTION.—With respect to a digital commodity, the digital
commodity issuer shall not be required to file the reports otherwise required
under section 4B(b)(3) 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 specified by the Securities and Exchange Commis-
sion), if the digital commodity issuer—
(A) last offered or sold an investment contract involving a unit of the dig-
ital commodity prior to January 1, 2020; or
(B) both—
(i) last offered or sold an investment contract involving a unit of the
digital commodity between January 1, 2020, and June 1, 2025; and
(ii) is no longer engaged in material ongoing efforts related to the
blockchain system to which the digital commodity relates.
(2) REPORTING APPLICATION DATE FOR CERTAIN PRIOR ISSUERS.—With respect
to a digital commodity, if the digital commodity issuer is engaged in material
ongoing efforts related to the blockchain system to which the digital commodity
relates and last offered and sold an investment contract involving a unit of the
digital commodity between January 1, 2020, and June 1, 2025, the digital com-
modity issuer shall file with the Commission a comparable set of reports to the
reports described under, as applicable, section 4B(b)(3) or 4B(b)(5)(C) of the Se-
curities Act of 1933, where required by the Commission, not later than one year
after the effective date of this section.
(d) USE OF OTHER EXEMPTIONS.—
(1) RULE OF CONSTRUCTION.—Nothing in this section or the amendments
made by this section may be construed as prohibiting the offer or sale of an in-
vestment contract involving units of a digital commodity in reliance on an ex-
emption provided under section 3, 4(a), or 19 of the Securities Act of 1933 other
than that provided under section 4(a)(8) of the Securities Act of 1933.
(2) RULEMAKING.—The Securities and Exchange Commission may issue
rules—
(A) to permit the issuer of a digital commodity related to a blockchain
system described under section 4B(b)(1) of the Securities Act of 1933 that
has not become a mature blockchain system within the time period de-
scribed in section 4(a)(8)(A) of such Act to raise capital pursuant to an ex-
empt offering, if the Commission qualifies any offering statement related to
such raising of capital; and
(B) for the offer and sale of investment contracts involving units of a dig-
ital commodity by issuers that are not organized under the laws of a State,
a territory of the United States, or the District of Columbia.
SEC. 203. TREATMENT OF SECONDARY TRANSACTIONS IN DIGITAL COMMODITIES THAT
ORIGINALLY INVOLVED INVESTMENT CONTRACTS.
(a) SECONDARY MARKET TREATMENT.—Notwithstanding any other provision of
law, the offer or sale of a digital commodity that originally involved an investment
contract by a person other than the issuer of such digital commodity, or an agent
or underwriter thereof, shall be deemed not to be an offer or sale of the investment
contract originally involving the digital commodity between the issuer of the invest-
ment contract involving the digital commodity, or an agent or underwriter thereof,
and the purchaser of such digital commodity under—
(1) the Securities Act of 1933 (15 U.S.C. 77a et seq.);
(2) the Investment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.);
(3) the Investment Company Act of 1940 (15 U.S.C. 80a–1 et seq.);
(4) the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);
(5) the Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa et seq.);
and
(6) any applicable provisions of State law.
(b) END USER DISTRIBUTIONS NOT AN OFFER OR SALE OF A SECURITY.—An end
user distribution does not involve the offer or sale of a security.
(c) AGENT DEFINED.—In this section and with respect to a digital commodity
issuer, the term ‘‘agent’’ means any person directly or indirectly controlled by the
issuer or under direct or indirect common control with the issuer.
SEC. 204. REQUIREMENTS FOR OFFERS AND SALES OF DIGITAL COMMODITIES BY DIGITAL
COMMODITY RELATED PERSONS AND DIGITAL COMMODITY AFFILIATED PERSONS.
The Securities Act of 1933 (15 U.S.C. 77a et seq.), as amended by section 202,
is further amended by inserting after section 4B the following:
‘‘SEC. 4C. REQUIREMENTS FOR OFFERS AND SALES OF DIGITAL COMMODITIES BY DIGITAL
dmwilson on DSK7X7S144PROD with REPORTS
COMMODITY RELATED PERSONS AND DIGITAL COMMODITY AFFILIATED PERSONS.
‘‘(a) IN GENERAL.—It shall be a violation of this Act for a digital commodity affili-
ated person or a digital commodity related person to offer or sell a digital commodity
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20
acquired directly from its issuer, or an agent or underwriter thereof, pursuant to
an investment contract in reliance on section 4(a)(8) or another exemption under
this Act, other than as provided in this section.
‘‘(b) COMMISSION JURISDICTION.—
‘‘(1) Where a digital commodity affiliated person or a digital commodity re-
lated person offers or sells a digital commodity acquired directly from its issuer,
or an agent or underwriter thereof, pursuant to an investment contract in reli-
ance on section 4(a)(8), or another exemption under this Act, other than as pro-
vided in this section, such digital commodity affiliated person or digital com-
modity related person shall be considered an issuer of such investment contract.
‘‘(2) For the purposes of this section, the Commission shall have jurisdiction
and enforcement authority with respect to an offer or sale of a digital com-
modity described in subsection (a).
‘‘(c) RESTRICTIONS ON DIGITAL COMMODITY RELATED PERSONS AND DIGITAL COM-
MODITY AFFILIATED PERSONS.—
‘‘(1) PRIOR TO BEING A MATURE BLOCKCHAIN SYSTEM.—Prior to the blockchain
system to which a digital commodity relates being certified as a mature
blockchain system under section 42 of the Securities Exchange Act of 1934,
units of the digital commodity acquired by a digital commodity related person
or digital commodity affiliated person directly from its issuer, or an agent or
underwriter thereof, pursuant to an investment contract in reliance on section
4(a)(8), or another exemption under this Act, may be offered or sold by such dig-
ital commodity related person or digital commodity affiliated person if—
‘‘(A) reports with respect to such digital commodity, where required under
section 4B(b)(3) (or, with respect to a digital commodity not issued in reli-
ance on section 4(a)(8), a comparable set of reports where required by the
Commission) have been filed with the Commission;
‘‘(B) the digital commodity related person or digital commodity affiliated
person has held the units for not less than 12 months from the date the
units were delivered; and
‘‘(C) the aggregate amount of the units of the digital commodity offered
or sold by the digital commodity related person or digital commodity affili-
ated person is—
‘‘(i) in any 12-month period, not greater than 15 percent of the total
units of the digital commodity acquired directly from its issuer by the
digital commodity related person or digital commodity affiliated person;
and
‘‘(ii) not greater than 50 percent of the total units of the digital com-
modity acquired directly from its issuer by the digital commodity re-
lated person or digital commodity affiliated person.
‘‘(2) AFTER BECOMING A MATURE BLOCKCHAIN SYSTEM.—After the blockchain
system to which a digital commodity relates is certified as a mature blockchain
system under section 42 of the Securities Exchange Act of 1934, units of the
digital commodity acquired by a digital commodity related person or digital
commodity affiliated person directly from its issuer, or the issuer’s agent or un-
derwriter, pursuant to an investment contract in reliance on section 4(a)(8) or
another exemption under this Act, may be—
‘‘(A) offered or sold by a digital commodity related person; or
‘‘(B) offered or sold by a digital commodity affiliated person if—
‘‘(i) information described in section 4B(b)(5)(C), where required (or,
with respect to a digital commodity not issued in reliance on section
4(a)(8), a comparable set of information, where required) is publicly
available;
‘‘(ii) the digital commodity affiliated person has held the units for not
less than the earlier of—
‘‘(I) 12 months from the date the units were delivered; or
‘‘(II) 3 months following the date on which the blockchain system
is certified as a mature blockchain system under section 42 of the
Securities Exchange Act of 1934; and
‘‘(iii) the aggregate amount of the units of the digital commodity of-
fered or sold by the digital commodity affiliated person in any 12-month
period does not exceed the greater of—
‘‘(I) 8 percent of the total outstanding amount of the digital com-
modity; or
‘‘(II) 25 percent of the total units of the digital commodity ac-
quired directly from its issuer by the digital commodity affiliated
dmwilson on DSK7X7S144PROD with REPORTS
person.
‘‘(d) USE OF A DIGITAL COMMODITY IN THE PROGRAMMATIC FUNCTIONING OF THE
BLOCKCHAIN SYSTEM.—For purposes of this section, the use of a digital commodity
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21
in the programmatic functioning of the blockchain system to which it relates is not
an offer or sale of a digital commodity.
‘‘(e) MANIPULATIVE AND DECEPTIVE DEVICES; REPORTING.—
‘‘(1) IN GENERAL.—It shall be unlawful for any digital commodity issuer, dig-
ital commodity related person, or digital commodity affiliated person, directly
or indirectly, by the use of any means or instrumentality of interstate commerce
or of the mails, to use or employ, in connection with the purchase or sale of
any digital commodity, 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 inves-
tors.
‘‘(2) AFFIRMATIVE DEFENSE.—Not later than 270 days after the date of the en-
actment of this section, the Commission shall issue rules to implement para-
graph (1), including by providing any affirmative defenses to an enforcement ac-
tion thereunder as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
‘‘(3) REPORTING.—Not later than 270 days after the date of the enactment of
this section, the Commission shall issue rules to prescribe such transaction re-
porting and beneficial ownership disclosure obligations applicable to digital
commodity related persons and digital commodity affiliated persons, as nec-
essary or appropriate in the public interest or for the protection of investors.
‘‘(4) DIFFERENTIATION BETWEEN PERSONS.—In issuing rules required under
paragraphs (2) and (3), the Commission shall differentiate between digital com-
modity related persons and digital commodity affiliated persons as necessary or
appropriate in the public interest or for the protection of investors.
‘‘(f) RULES FOR PREVIOUSLY-ISSUED DIGITAL COMMODITIES.—
‘‘(1) UNITS RECEIVED PRIOR TO JANUARY 1, 2020.—If a unit of a digital com-
modity was received by a digital commodity related person or digital commodity
affiliated person prior to January 1, 2020, the unit of the digital commodity may
be offered or sold by the digital commodity related person or digital commodity
affiliated person without condition.
‘‘(2) CERTAIN UNITS RELATED TO A NON-MATURE BLOCKCHAIN SYSTEM.—If a
unit of a digital commodity was received by a digital commodity related person
or digital commodity affiliated person between January 1, 2020, and June 1,
2025, and the blockchain system to which the digital commodity relates is not
certified as a mature blockchain system under section 42 of the Securities Ex-
change Act of 1934, the unit of the digital asset may be offered or sold by a
digital commodity related person or digital commodity affiliated person if—
‘‘(A) reports with respect to such digital commodity comparable to the re-
ports described under section 4B(b)(3), where required by the Commission,
have been filed with the Commission;
‘‘(B) the digital commodity related person or digital commodity affiliated
person meets any requirements pursuant to subsection (e)(3); and
‘‘(C) the digital commodity related person or digital commodity affiliated
person has held the units for not less than 12 months from the date the
units were delivered.
‘‘(3) CERTAIN UNITS RELATED TO A MATURE BLOCKCHAIN SYSTEM.—If a unit of
a digital commodity was received by a digital commodity related person or dig-
ital commodity affiliated person between January 1, 2020, and June 1, 2025,
and the blockchain system to which the digital commodity relates is certified
as a mature blockchain system under section 42 of the Securities Exchange Act
of 1934, it may be offered or sold by a digital commodity related person or dig-
ital commodity affiliated person if—
‘‘(A) information described in section 4B(b)(5)(C) or comparable thereto,
where required by the Commission, is publicly available; and
‘‘(B) the digital commodity related person or digital commodity affiliated
person has held the units for not less than 12 months from the date the
units were delivered.
‘‘(g) RULEMAKING ON FURTHER USAGE OF DIGITAL COMMODITIES.—Not later than
270 days after the date of enactment of this section, the Commission may issue
rules to exempt, unconditionally or on stated terms or conditions, a digital com-
modity related person or a digital commodity affiliated person from the require-
ments of this section for the offer or sale of a digital commodity in order to foster
the development of mature blockchain systems and fair and orderly markets.’’.
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SEC. 205. MATURE BLOCKCHAIN SYSTEM REQUIREMENTS.
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:
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‘‘SEC. 42. MATURE BLOCKCHAIN SYSTEMS.
‘‘(a) CERTIFICATION OF BLOCKCHAIN SYSTEMS.—
‘‘(1) CERTIFICATION.—For purposes of sections 4(a)(8), 4B, and 4C of the Secu-
rities Act of 1933 any digital commodity issuer, digital commodity related per-
son, digital commodity affiliated person, or decentralized governance system of
the blockchain system may certify to the Securities and Exchange Commission
that the blockchain system to which a digital commodity relates is a mature
blockchain system.
‘‘(2) FILING REQUIREMENTS.—A certification described under paragraph (1)
shall be filed with the Commission, and include such information that is reason-
ably necessary to establish that the blockchain system is not controlled by any
person or group of persons under common control, which may include informa-
tion regarding—
‘‘(A) the operation of the blockchain system;
‘‘(B) the functionality of the related digital commodity;
‘‘(C) how the market value of the digital commodity is substantially de-
rived from the programmatic functioning of such blockchain system;
‘‘(D) any decentralized governance system which relates to the blockchain
system; and
‘‘(E) the current roles, if any, of the digital commodity issuer, digital com-
modity affiliated persons, and digital commodity related persons where
such roles are material to the development or operation of such blockchain
system or the decentralized governance system of such blockchain system.
‘‘(3) REBUTTABLE PRESUMPTION.—The Commission may rebut a certification
described under paragraph (1) with respect to a blockchain system if the Com-
mission, within 60 days of receiving such certification, determines that the
blockchain system is not a mature blockchain system.
‘‘(4) CERTIFICATION REVIEW.—
‘‘(A) IN GENERAL.—Any blockchain system that relates to a digital com-
modity for which a certification has been made under paragraph (1) shall
be considered a mature blockchain system 60 days after the date on which
the Commission receives a certification under paragraph (1), unless the
Commission notifies the person who made the certification within such time
that the Commission is staying the certification due to—
‘‘(i) an inadequate explanation by the person making the certification;
or
‘‘(ii) any novel or complex issues which require additional time to con-
sider.
‘‘(B) PUBLIC NOTICE.—The Commission shall make the following available
to the public and provide a copy to the Commodity Futures Trading Com-
mission:
‘‘(i) Each certification received under paragraph (1).
‘‘(ii) Each stay of the Commission under this subsection, and the rea-
sons therefor.
‘‘(iii) Any response from a person making a certification under para-
graph (1) to a stay of the certification by the Commission.
‘‘(C) CONSOLIDATION.—The Commission may consolidate and treat as one
submission multiple certifications made under paragraph (1) for the same
blockchain system which relates to a digital commodity which are received
during the review period provided under this paragraph.
‘‘(5) STAY OF CERTIFICATION.—
‘‘(A) IN GENERAL.—A notification by the Commission pursuant to para-
graph (4)(A) shall stay the certification once for up to an additional 120
days from the date of the notification.
‘‘(B) PUBLIC COMMENT PERIOD.—Before the end of the 60-day period de-
scribed under paragraph (4)(A), the Commission may begin a public com-
ment period of at least 30 days in conjunction with a stay under this sub-
section.
‘‘(6) DISPOSITION OF CERTIFICATION.—A certification made under paragraph
(1) 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
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‘‘(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.
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‘‘(7) RECERTIFICATION.—With respect to a blockchain system for which a cer-
tification has been rebutted under this subsection, no person may make a cer-
tification under paragraph (1) with respect to such blockchain system during
the 90-day period beginning on the date of such rebuttal.
‘‘(8) APPEAL OF REBUTTAL.—
‘‘(A) 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.
‘‘(B) REVIEW.—In an appeal under subparagraph (A), the court shall have
de novo review of the determination to rebut the certification.
‘‘(b) MATURITY CRITERIA.—
‘‘(1) SENSE OF CONGRESS.—It is the sense of the Congress that protecting in-
vestors, maintaining fair, orderly, and efficient markets, and facilitating capital
formation necessitates establishing clear criteria for blockchain systems to be
deemed mature, as well as enabling the Commission to develop, without preju-
dice to any such criteria codified in statute, alternative criteria by which
blockchain systems may be considered not to be controlled by any person or
group of persons under common control in order to accommodate changes in
markets and technology.
‘‘(2) IN GENERAL.—The Commission may issue rules identifying conditions by
which a blockchain system, together with its related digital commodity, shall be
considered a mature blockchain system, consistent with the protection of inves-
tors, maintenance of fair, orderly, and efficient markets, and the facilitation of
capital formation.
‘‘(3) RULES OF CONSTRUCTION.—
‘‘(A) Nothing in this subsection may be construed to permit the Commis-
sion to impose additional criteria to the criteria in subsection (c) for certi-
fying that a blockchain system is a mature blockchain system pursuant to
subsection (c).
‘‘(B) Nothing in this subsection or subsection (c) may be construed to limit
the Commission’s ability to identify alternative conditions and criteria by
which a blockchain system may be considered a mature blockchain system.
‘‘(c) DEEMED MATURE.—
‘‘(1) IN GENERAL.—Notwithstanding subsection (b), for the purposes of sub-
section (a), a digital commodity issuer, digital commodity related person, digital
commodity affiliated person, or decentralized governance system of the
blockchain system may establish that a blockchain system, together with its re-
lated digital commodity, is not controlled by any person or group of persons
under common control, if the blockchain system, together with its related digital
asset, meets the requirements described in paragraph (2) or (3).
‘‘(2) CRITERIA FOR ANY BLOCKCHAIN SYSTEM.—The requirements described in
this paragraph are the following:
‘‘(A) SYSTEM VALUE.—
‘‘(i) MARKET VALUE.—The digital commodity has a value that is sub-
stantially derived from the adoption, use, and functioning of the
blockchain system.
‘‘(ii) DEVELOPMENT OF VALUE MECHANISM SUBSTANTIALLY COM-
PLETED.—Where the digital commodity issuer has made public a devel-
opment plan describing how the digital commodity’s value is reasonably
expected to be derived from the programmatic functioning of the
blockchain system, the development of such mechanisms has been sub-
stantially completed.
‘‘(B) FUNCTIONAL SYSTEM.—The blockchain system allows network partici-
pants to engage in the activities the blockchain system is intended to pro-
vide, including—
‘‘(i) using, transmitting, or storing value, or otherwise executing
transactions, on the blockchain system;
‘‘(ii) deploying, executing, or accessing software or services, or other-
wise offering or participating in services, deployed on or integrated
with the blockchain system;
‘‘(iii) participating in the consensus mechanism, transaction valida-
tion process, or decentralized governance system of the blockchain sys-
tem; or
‘‘(iv) operating any client, node, validator, sequencer, or other form of
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computational infrastructure with respect to the blockchain system.
‘‘(C) OPEN AND INTEROPERABLE SYSTEM.—The blockchain system—
‘‘(i) is composed of source code that is open source; and
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24
‘‘(ii) does not restrict or prohibit based on the exercise of unilateral
authority any person, other than a digital commodity issuer, digital
commodity related person, or a digital commodity affiliated person from
engaging in the activities the blockchain system is intended to provide,
including the activities described in subparagraph (B).
‘‘(D) PROGRAMMATIC SYSTEM.—The blockchain system operates, executes,
and enforces its operations and transactions based solely on pre-estab-
lished, transparent rules encoded directly within the source code of the
blockchain system.
‘‘(E) SYSTEM GOVERNANCE.—No person or group of persons under common
control—
‘‘(i) 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 con-
sensus or agreement of the blockchain system or its related digital com-
modity; or
‘‘(ii) has the unilateral authority to direct the voting, in the aggre-
gate, of 20 percent or more of the outstanding voting power of such
blockchain system by means of a related digital commodity, nodes or
validators, a decentralized governance system, or otherwise, in a
blockchain system which can be altered by a voting system.
‘‘(F) IMPARTIAL SYSTEM.—No person or group of persons under common
control possesses a unique permission or privilege to alter the functionality,
operation, or rules of consensus or agreement of the blockchain system or
its related digital commodity, unless such alteration—
‘‘(i) addresses errors, regular maintenance, or cybersecurity risks of
the blockchain system that affect the programmatic functioning of the
blockchain system; and
‘‘(ii) is adopted through the consensus or agreement of a decentral-
ized governance system.
‘‘(G) DISTRIBUTED OWNERSHIP.—No digital commodity issuer, digital com-
modity related person, or digital commodity affiliated person beneficially
owns, in the aggregate, 20 percent or more of the total amount of units of
the digital commodity.
‘‘(3) OPTIONAL CRITERIA FOR PREEXISTING BLOCKCHAIN SYSTEMS.—The require-
ments described in this paragraph are that the blockchain system—
‘‘(A) was created prior to the date of enactment of this section;
‘‘(B) met the requirements of subparagraphs (A) through (F) of paragraph
(2) prior to January 1, 2020; and
‘‘(C) at least 50 percent of the units of the digital commodity related to
the blockchain system are held by persons other than the digital commodity
issuer, a digital commodity related person, or a digital commodity affiliated
person.
‘‘(d) DECENTRALIZED GOVERNANCE SYSTEM.—
‘‘(1) For the purposes of this section, a decentralized governance system is not
a ‘person’ or a ‘group of persons under common control’.
‘‘(2) A blockchain system, together with its digital commodity, shall not be
precluded from being considered a mature blockchain system solely based on a
functional, administrative, clerical, or ministerial action of a decentralized gov-
ernance system, including any such action taken by a person acting on behalf
of and at the direction of the 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.
‘‘(e) RULEMAKING.—Not more than 270 days after the date of enactment of this
section, the Commission shall issue rules to carry out this section.’’.
SEC. 206. 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 im-
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plementing the provision.
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TITLE III—REGISTRATION FOR INTER-
MEDIARIES AT THE SECURITIES AND EX-
CHANGE COMMISSION
SEC. 301. TREATMENT OF DIGITAL COMMODITIES AND PERMITTED PAYMENT STABLECOINS.
(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)(10) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following:
‘‘The term does not include a digital commodity or permitted payment stablecoin.’’
(c) INVESTMENT ADVISERS ACT OF 1940.—Section 202(a) of the Investment Advis-
ers Act of 1940 (15 U.S.C. 80b–2(a)) 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); and
(3) by adding at the end, the following:
‘‘(32) DIGITAL COMMODITY-RELATED TERMS.—The terms ‘digital commodity’
and ‘permitted payment stablecoin’ have the meaning given those terms, respec-
tively, 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 COMMODITY-RELATED TERMS.—The terms ‘digital commodity’
and ‘permitted payment stablecoin’ have the meaning given those terms, respec-
tively, under section 2(a) of the Securities Act of 1933 (15 U.S.C. 77b(a)).’’.
(e) SECURITIES INVESTOR PROTECTION ACT OF 1970.—Section 16(14) of the Securi-
ties Investor Protection Act of 1970 (15 U.S.C. 78lll(14)) is amended by adding at
the end the following: ‘‘The term does not include a digital commodity or permitted
payment stablecoin, as such terms are defined, 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 AND CERTAIN
DIGITAL COMMODITY TRANSACTIONS.
(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 sub-
section (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, ma-
nipulation, or insider trading), and judicial precedents decided under subsection (b)
and rules promulgated thereunder that prohibit fraud, manipulation, or insider
trading, shall apply with respect to permitted payment stablecoin and digital com-
modity transactions engaged in by a broker or dealer or through an alternative trad-
ing system or, as applicable, a national securities exchange to the same extent as
they apply to securities transactions.
‘‘(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 and digital commodities with respect to those circumstances in
which the permitted payment stablecoins and digital commodities are brokered,
traded, or custodied by a broker or dealer or through an alternative trading system
or, as applicable, a national securities exchange to the same extent as they apply
to securities.’’.
(b) TREATMENT OF PERMITTED PAYMENT STABLECOINS.—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:
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‘‘SEC. 6A. 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
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26
custodied by a broker, dealer or through an alternative trading system or national
securities exchange.
‘‘(b) COMMISSION JURISDICTION.—The Commission shall only 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 or dealer;
‘‘(2) through a national securities exchange; or
‘‘(3) through an alternative trading system.
‘‘(c) LIMITATION.—Subsection (b) shall only apply to a transaction described in sub-
section (b) for the purposes of regulating the offer, execution, solicitation, or accept-
ance of a permitted payment stablecoin in those circumstances in which the per-
mitted payment stablecoin is brokered, traded, or custodied—
‘‘(1) by a broker or dealer;
‘‘(2) through a national securities exchange; or
‘‘(3) through an alternative trading system.
‘‘(d) RULE OF CONSTRUCTION.—Nothing in this section may be construed to pro-
hibit permitted payment stablecoins from being custodied by any person or entity
that is not a broker, dealer, alternative trading system, or national securities ex-
change.’’.
SEC. 303. ELIGIBILITY OF ALTERNATIVE TRADING SYSTEMS.
(a) IN GENERAL.—Section 5 of the Securities Exchange Act of 1934 (15 U.S.C. 78e)
is amended—
(1) by striking ‘‘It’’ and inserting the following:
‘‘(a) IN GENERAL.—It’’;
(2) by adding at the end the following:
‘‘(b) DIGITAL COMMODITY PROTECTIONS.—
‘‘(1) IN GENERAL.—The Commission may not preclude a trading platform from
operating pursuant to a covered exemption on the basis that the assets traded
or to be traded on such platform include—
‘‘(A) digital commodities or permitted payment stablecoins; and
‘‘(B) securities.
‘‘(2) COVERED EXEMPTION.—In this subsection, the term ‘covered exemption’
means an exemption—
‘‘(A) described in subsection (a)(2); or
‘‘(B) with respect to any other rule of the Commission relating to the defi-
nition of ‘exchange’.’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Section 3(a)(2) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)(2)) is amended by adding at the end the fol-
lowing: ‘‘An alternative trading system primarily facilitating the trading of digital
commodities, permitted payment stablecoins, or both, is not a ‘facility’ of an ex-
change.’’.
(c) RULE OF CONSTRUCTION.—Nothing in this section, the amendments made by
this section, or section 304 may be construed to—
(1) prohibit a national securities exchange from owning or operating any other
type of alternative trading system; or
(2) create a presumption that any other type of alternative trading system
owned or operated by a national securities exchange is a facility of that ex-
change.
SEC. 304. OPERATION OF ALTERNATIVE TRADING SYSTEMS.
(a) COMMISSION AUTHORITY.—The Securities and Exchange Commission shall
have jurisdiction over digital commodity activities and transactions engaged in by—
(1) a registered broker or registered dealer exempt from registration with the
Commodity Futures Trading Commission pursuant to section 5k of the Com-
modity Exchange Act; and
(2) a national securities exchange.
(b) RULEMAKING AUTHORITY.—The Securities and Exchange Commission shall
have authority to issue rules governing any digital commodity activities and trans-
actions engaged in by a broker, dealer, or national securities exchange registered
with the Securities and Exchange Commission and exempt from registration with
the Commodity Futures Trading Commission pursuant to section 5k of the Com-
modity Exchange Act, consistent with this section and what is necessary or appro-
priate in the public interest or for the protection of investors.
(c) NATIONAL SECURITIES EXCHANGES.—Not later than 270 days after the date of
the enactment of this Act, the Securities and Exchange Commission shall revise the
covered regulations to permit a national securities exchange or affiliate thereof to
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operate an alternative trading system that permits the trading of digital commod-
ities, permitted payment stablecoins, or both by registered brokers or registered
dealers that are exempt from registration with the Commodity Futures Trading
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27
Commission pursuant section 5k of the Commodity Exchange Act, consistent with
this section and what is necessary or appropriate in the public interest or for the
protection of investors.
(d) REGISTERED BROKERS AND REGISTERED DEALERS.—Not later than 270 days
after the date of the enactment of this Act, the Securities and Exchange Commission
shall revise the covered regulations to permit a registered broker or registered deal-
er that is exempt from registration with the Commodity Futures Trading Commis-
sion pursuant to section 5k of the Commodity Exchange Act to operate an alter-
native trading system that permits the trading of digital commodities, permitted
payment stablecoins, or both, consistent with this section and what is necessary or
appropriate in the public interest or for the protection of investors.
(e) PERMITTED TRADING.—
(1) IN GENERAL.—An alternative trading system operated pursuant to this
section and the regulations promulgated hereunder shall be permitted to trade
upon notice to the Securities and Exchange Commission in a manner prescribed
by the Securities and Exchange Commission any digital commodity that has
been listed by a digital commodity exchange in compliance with section 5i(c)(3)
of the Commodity Exchange Act.
(2) COMMISSION AUTHORITY.—Digital commodity transactions offered on an al-
ternative trading system operating pursuant to this section shall be subject to
the jurisdiction of the Securities and Exchange Commission. The Securities and
Exchange Commission shall have authority to promulgate rules governing such
digital commodity transactions of alternative trading systems, consistent with
this section and what is necessary or appropriate in the public interest or for
the protection of investors.
(3) SUSPENSION OF TRADING.—The Securities and Exchange Commission may
suspend the trading of a digital commodity by an alternative trading system op-
erating pursuant to this section as is necessary or appropriate in the public in-
terest and is consistent with the protection of investors.
(f) ORDER DISPLAY AND EXECUTION REPORTING.—Not later than 270 days after the
date of the enactment of this Act, the Securities and Exchange Commission shall
issue and revise rules, as necessary or appropriate in the public interest or for the
protection of investors, regarding whether alternative trading systems operating
pursuant to subsections (c) and (d) have an obligation to provide the prices and sizes
of orders displayed to more than one person in such alternative trading system of
digital commodities to self-regulatory organizations with members who trade in dig-
ital commodities or permitted payment stablecoins.
(g) PRINCIPLES OF TRADE.—Not later than 270 days after the date of the enact-
ment of this Act, the Securities and Exchange Commission shall issue and revise
rules, as necessary or appropriate in the public interest or for the protection of in-
vestors, to—
(1) apply the rules and standards promulgated pursuant to paragraph (2) to
the appropriate market participants, including—
(A) national securities exchanges operating an alternative trading system
described in subsection (c); and
(B) registered brokers and registered dealers operating or subscribing to
an alternative trading system described in subsection (d); and
(2) apply, as appropriate to the market participants described in subpara-
graph (1) and customers thereof rules and standards to—
(A) prevent fraudulent and manipulative acts and practices;
(B) foster cooperation and coordination with persons engaged in regu-
lating, settling, processing information with respect to, and facilitating
transactions in digital commodities or permitted payment stablecoins trad-
ed, as applicable, on or by any alternative trading system operating pursu-
ant to subsection (c) or (d), or any registered broker or registered dealer;
(C) remove impediments to and perfect the mechanism of a free and open
market in digital commodities or permitted payment stablecoins traded, as
applicable, on or by any alternative trading system operating pursuant to
subsection (c) or (d), or any registered broker or registered dealer;
(D) in general, protect investors and the public interest; and
(E) prohibit any unfair discrimination between—
(i) customers;
(ii) any market participants described in subparagraphs (A) and (B)
of paragraph (1); or
(iii) issuers of digital commodities.
(h) IMPLEMENTING ORGANIZATIONS.—The Securities and Exchange Commission
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shall require any registered national securities association that has as a member
a registered broker or registered dealer that operates an alternative trading system
pursuant to subsection (d) or otherwise transacts in digital commodities or per-
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28
mitted payment stablecoins to adopt such rules as may be necessary to further com-
pliance with this section, including subsection (g)(2), protect investors, maintain
fair, orderly, and efficient markets, and facilitate capital formation.
(i) RULE OF CONSTRUCTION.—The enumeration of any category of rules or regula-
tions in this section shall not be construed to limit the authority of the Securities
and Exchange Commission to promulgate such rules as may be necessary or appro-
priate to implement this section and the purposes of this Act, including over—
(1) system capacity, integrity, and security;
(2) examinations, inspections, and investigations;
(3) trade reporting; or
(4) written procedures for the confidential treatment of trading information.
(j) MEMORANDUM OF UNDERSTANDING.—Consistent with section 5k of the Com-
modity Exchange Act and to carry out this Act, the Securities and Exchange Com-
mission shall enter into a memorandum of understanding with the Commodity Fu-
tures Trading Commission to ensure—
(1) requirements imposed on registered brokers or registered dealers oper-
ating an alternative trading system pursuant to subsection (c) or otherwise
transacting in digital commodities or permitted payment stablecoins are con-
sistent with the substantive requirements under section 4u of the Commodity
Exchange Act;
(2) requirements imposed on alternative trading systems operating pursuant
to subsection (c) or (d) are not inconsistent with core principles of and are con-
sistent with the other substantive requirements under section 5i of the Com-
modity Exchange Act; and
(3) non-duplicative supervision and enforcement with respect to registrants of
the Securities and Exchange Commission notice registered with the Commodity
Futures Trading Commission.
(k) COVERED REGULATIONS DEFINED.—In this section, the term ‘‘covered regula-
tions’’ means sections 242.300, 242.301, 242.302, 242.303, 242.304, and 242.1000
through 242.1007 of title 17, Code of Federal Regulations.
(l) RULE OF CONSTRUCTION.—Nothing in this section shall be construed to limit
the anti-fraud, anti-manipulation, or false reporting enforcement authorities of the
Commodity Futures Trading Commission with respect to a contract of sale of a com-
modity and persons effecting such contracts.
SEC. 305. MODERNIZATION OF RECORDKEEPING REQUIREMENTS.
(a) IN GENERAL.—For purposes of books and records requirements for brokers,
dealers, and exchanges under the Securities and Exchange Act of 1934 (15 U.S.C.
78a et seq.), a person may consider records from a blockchain system.
(b) REVISION OF RULES.—Not later than 180 days after the date of enactment of
this Act, the Securities and Exchange Commission shall issue and revise such rules
as may be necessary to implement this section.
SEC. 306. EXEMPTIVE AUTHORITY.
Section 28 of the Securities Act of 1933 (15 U.S.C. 77z–3) is amended by striking
‘‘by rule or regulation’’ and inserting ‘‘by rule, regulation, or order’’.
SEC. 307. ADDITIONAL REGISTRATIONS WITH THE COMMODITY FUTURES TRADING COMMIS-
SION.
Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended by
adding at the end the following:
‘‘(p) ADDITIONAL REGISTRATIONS WITH THE COMMODITY FUTURES TRADING COM-
MISSION.—A registered broker or registered dealer shall be permitted to maintain
a registration with the Commodity Futures Trading Commission as a digital com-
modity broker or digital commodity dealer, to list or trade contracts of sale for dig-
ital commodities.’’.
SEC. 308. EXEMPTING DIGITAL COMMODITIES FROM STATE SECURITIES LAWS.
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 IN CONNECTION WITH DIGITAL COMMODITIES.—A digital com-
modity shall be treated as a covered security.’’.
SEC. 309. EXCLUSION FOR DECENTRALIZED FINANCE ACTIVITIES.
The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by insert-
ing after section 15G the following:
‘‘SEC. 15H. DECENTRALIZED FINANCE ACTIVITIES NOT SUBJECT TO THIS ACT.
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‘‘(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 based on
the person directly or indirectly engaging in any of the following activities, whether
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29
singly or in combination, in relation to the operation of a blockchain system or in
relation to a decentralized finance trading protocol:
‘‘(1) Compiling network transactions or relaying, searching, sequencing, vali-
dating, or acting in a similar capacity.
‘‘(2) Providing computational work, operating a node or oracle service, or pro-
curing, offering, or utilizing network bandwidth, or providing other similar inci-
dental services.
‘‘(3) Providing a user-interface that enables a user to read and access data
about a blockchain system.
‘‘(4) Developing, publishing, constituting, administering, maintaining, or oth-
erwise distributing a blockchain system or a decentralized finance trading pro-
tocol.
‘‘(5) Developing, publishing, constituting, administering, maintaining, or oth-
erwise distributing a decentralized finance messaging system, or operating or
participating in a liquidity pool, for the purpose of executing a contract of sale
of a digital commodity.
‘‘(6) Developing, publishing, constituting, administering, maintaining, or oth-
erwise distributing software or systems that create or deploy hardware or soft-
ware, including wallets or other systems, facilitating an individual user’s own
personal ability to keep, safeguard, or custody the user’s digital assets or re-
lated private keys.
‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply to the anti-fraud and anti-manip-
ulation authorities of the Commission.’’.
SEC. 310. TREATMENT OF CUSTODY ACTIVITIES BY BANKING INSTITUTIONS.
(a) TREATMENT OF CUSTODY ACTIVITIES.—The appropriate Federal banking agen-
cy, the National Credit Union Administration (in the case of a credit union), and
the Securities and Exchange Commission may not require a depository institution,
national bank, Federal credit union, State credit union, trust company, broker, or
dealer, or any affiliate thereof (the ‘‘entity’’)—
(1) to include assets held in custody that are not owned by the entity as a
liability on the financial statement or balance sheet of the entity, including dig-
ital commodity or permitted payment stablecoin custody or safekeeping services;
(2) to hold regulatory capital against assets, including reserves backing such
assets, in custody or safekeeping, except as necessary to mitigate against oper-
ational 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;
(D) a State credit union supervisor (as defined in section 6003 of the Anti-
Money Laundering Act of 2020 (31 U.S.C. 5311 note)); or
(E) the Securities and Exchange Commission (in the case of a broker or
dealer); and
(3) to recognize a liability for any obligations related to activities or services
performed with respect to digital commodities that the entity does not own 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) BANKING TERMS.—The terms ‘‘appropriate Federal banking agency’’, ‘‘de-
pository institution’’, ‘‘national bank’’, and ‘‘State bank supervisor’’ have the
meaning given those terms, respectively, under section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813).
(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 (12 U.S.C. 1752).
SEC. 311. DIGITAL COMMODITY ACTIVITIES THAT ARE FINANCIAL IN NATURE.
Section 4(k)(4) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)(4))
is amended—
(1) in subparagraph (A), by striking ‘‘or securities’’ and inserting ‘‘, securities,
or digital commodities’’; and
(2) in subparagraph (E), by inserting ‘‘or digital commodities’’ before the pe-
riod at the end.
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SEC. 312. EFFECTIVE DATE; ADMINISTRATION.
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,
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30
except that, to the extent a provision of this title requires a rulemaking, the provi-
sion 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 im-
plementing the provision.
SEC. 313. STUDIES ON FOREIGN ADVERSARY PARTICIPATION.
(a) IN GENERAL.—The Secretary of the Treasury, in consultation with the Com-
modity Futures Trading Commission and the Securities and Exchange Commission,
shall, not later than 1 year after date of the enactment of this section, conduct a
study and submit a report to the relevant congressional committees that—
(1) identifies any digital commodity registrants which are owned by govern-
ments of foreign adversaries;
(2) determines whether any governments of foreign adversaries are collecting
personal data or trading data about United States persons in the digital com-
modity markets; and
(3) evaluates whether any proprietary intellectual property of digital com-
modity registrants is being misused or stolen by any governments of foreign ad-
versaries.
(b) GAO STUDY AND REPORT.—
(1) IN GENERAL.—The Comptroller General shall, not later than 1 year after
date of the enactment of this section, conduct a study and submit a report to
the relevant congressional committees that—
(A) identifies any digital commodity registrants which are owned by gov-
ernments of foreign adversaries;
(B) determines whether any governments of foreign adversaries are col-
lecting personal data or trading data about United States persons in the
digital commodity markets; and
(C) evaluates whether any proprietary intellectual property of digital
commodity registrants is being misused or stolen by any governments of
foreign adversaries.
(c) DEFINITIONS.—In this section:
(1) DIGITAL COMMODITY REGISTRANT.—The term ‘‘digital commodity reg-
istrant’’ means any person required to register as a digital commodity exchange,
digital commodity broker, or digital commodity dealer under the Commodity Ex-
change Act.
(2) FOREIGN ADVERSARIES.—The term ‘‘foreign adversaries’’ means the foreign
governments and foreign non-government persons determined by the Secretary
of Commerce to be foreign adversaries under section 7.4(a) of title 15, Code of
Federal Regulations.
(3) RELEVANT CONGRESSIONAL COMMITTEES.—The term ‘‘relevant congres-
sional 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 Agri-
culture, Nutrition, and Forestry of the Senate.
TITLE IV—REGISTRATION FOR DIGITAL COM-
MODITY INTERMEDIARIES AT THE COM-
MODITY FUTURES TRADING COMMISSION
SEC. 401. COMMISSION JURISDICTION OVER DIGITAL COMMODITY TRANSACTIONS.
(a) SAVINGS CLAUSE.—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 CLARITY
Act of 2025 shall affect or apply to, or be interpreted to affect or apply to—
‘‘(i) any agreement, contract, or transaction that is subject to 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;
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‘‘(V) an agreement, contract, or transaction described in subpara-
graph (C)(i) or (D)(i) of subsection (c)(2) of this section; or
‘‘(VI) a leverage transaction authorized under section 19; or
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31
‘‘(ii) the activities of any person with respect to any such an agree-
ment, contract, or transaction.’’.
(b) LIMITATION ON AUTHORITY OVER PERMITTED PAYMENT STABLECOINS.—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) COMMISSION JURISDICTION OVER FINANCING AGREEMENTS.—Section 2(c)(2) of
the Commodity Exchange Act (7 U.S.C. 2(c)(2)) is amended—
(1) in subparagraph (D)—
(A) in clause (ii)(I), by inserting after ‘‘paragraph (1)’’ the following:
‘‘(other than an agreement, contract, or transaction in a permitted payment
stablecoin)’’; and
(B) by redesignating clause (iv) as clause (v) and inserting after clause
(iii) the following:
‘‘(iv) Notwithstanding clause (iii), a digital commodity broker may,
subject to the requirements of section 4u(c)(2), offer to or enter into an
agreement for margin financing with a customer for the purchase or
sale of a digital commodity, provided any purchase or sale made pursu-
ant to the agreement shall result in the delivery of the digital com-
modity into or from an account carried for the customer, as determined
by the Commission by rule or regulation, based on commercial spot
market practices.’’; and
(2) by adding at the end the following:
‘‘(F) COMMISSION JURISDICTION WITH RESPECT TO DIGITAL COMMODITY TRANS-
ACTIONS.—
‘‘(i) IN GENERAL.—Subject to sections 6d and 12(e), the Commission shall have
exclusive jurisdiction with respect to any account, agreement, contract, or trans-
action involving a contract of sale of a digital commodity in interstate com-
merce, including in a digital commodity cash or spot market, that is offered, so-
licited, 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—
‘‘(I) custodial or depository activities for a digital commodity of an entity
regulated by an appropriate Federal banking agency or a State bank super-
visor (within the meaning of section 3 of the Federal Deposit Insurance
Act); or
‘‘(II) an offer or sale of an investment contract involving a digital com-
modity or of a securities offer or sale involving a digital commodity.
‘‘(iii) MIXED DIGITAL ASSET TRANSACTIONS.—
‘‘(I) IN GENERAL.—Clause (i) shall not apply to a mixed digital asset
transaction.
‘‘(II) REPORTS ON MIXED DIGITAL ASSET TRANSACTIONS.—A digital com-
modity issuer, digital commodity related person, digital commodity affili-
ated person, or other person registered with the Securities and Exchange
Commission that engages in a mixed digital asset transaction, shall, on re-
quest of the Commission, open to inspection and examination by the Com-
mission all books and records relating to the mixed digital asset trans-
action, 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-REG-
ISTERED ENTITIES.—Subject to clauses (ii) and (iii), the Commission shall have
jurisdiction over a cash or spot agreement, contract, or transaction in a per-
mitted payment stablecoin that is offered, offered to enter into, entered into, ex-
ecuted, 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 with the Commission.
‘‘(ii) PERMITTED PAYMENT STABLECOIN TRANSACTION RULES.—This Act shall
apply to a transaction described in clause (i) only for the purpose of regulating
the offer, execution, solicitation, or acceptance of a cash or spot permitted pay-
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ment stablecoin transaction on a registered entity or by any other entity reg-
istered with the Commission, as if the permitted payment stablecoin were a dig-
ital commodity.
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‘‘(iii) NO AUTHORITY OVER PERMITTED PAYMENT STABLECOINS.—Notwith-
standing clauses (i) and (ii), the Commission shall not make a rule or regula-
tion, impose a requirement or obligation on a registered entity or other entity
registered with the Commission, or impose a requirement or obligation on a per-
mitted payment stablecoin issuer, regarding the operation of a permitted pay-
ment stablecoin issuer or a permitted payment 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 ‘‘subparagraphs (F) and (G) of sub-
section (c)(2) of this section or’’ before ‘‘section 19’’.
SEC. 402. REQUIRING FUTURES COMMISSION MERCHANTS TO USE QUALIFIED DIGITAL ASSET
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 in-
serting ‘‘any bank, trust company, or qualified digital asset custodian, as
applicable,’’; and
(B) by inserting ‘‘: Provided further, That any such property that is a dig-
ital asset shall be held in a qualified digital asset custodian’’ before the pe-
riod at the end; and
(2) in subsection (f)(3)(A)(i), by striking ‘‘any bank or trust company’’ and in-
serting ‘‘any bank, trust company, or qualified digital asset 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 ex-
change,’’ 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, op-
tion, 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 submit a written certification to the Commission
that the digital commodity meets the requirements of this Act (including the
regulations prescribed under this Act).
‘‘(2) CONTENTS OF THE CERTIFICATION.—
‘‘(A) IN GENERAL.—In making a written certification under this para-
graph, the eligible entity shall furnish to the Commission an analysis of
how the digital commodity meets the requirements of section 5i(c)(3).
‘‘(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 Com-
mission 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 held by
a digital commodity related person or a digital commodity affiliated
person.
‘‘(B) RECERTIFICATION.—Modifications required by this subsection shall be
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subject to the same disapproval and review process as a new certification
under paragraphs (4) and (5).
‘‘(4) DISAPPROVAL.—
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‘‘(A) IN GENERAL.—The written certification described in paragraph (1)
shall become effective unless the Commission finds that the listing of the
digital commodity is inconsistent with the requirements of this Act or the
rules and regulations prescribed under this Act.
‘‘(B) ANALYSIS REQUIRED.—The Commission shall include, with any find-
ings 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 dis-
approval 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 cer-
tification (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) 1 business day after the date the Commission receives the certifi-
cation (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 expla-
nation by the submitting eligible entity is inadequate, or of a potential in-
consistency with this Act—
‘‘(i) once, for 30 business days, through written notice to the eligible
entity by the Commission; and
‘‘(ii) once, for an additional 30 business days, through written notice
to the eligible entity 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 ana-
lyze;
‘‘(II) missing information or inadequate explanations; or
‘‘(III) potential inconsistencies with this Act.
‘‘(6) PRIOR APPROVAL BEFORE REGISTRATION.—
‘‘(A) IN GENERAL.—A person applying for registration with the Commis-
sion for the purposes of listing or offering a digital commodity for trading
in a digital commodity cash or spot market may request that the Commis-
sion grant prior approval for the person to list or offer the digital com-
modity on being registered with the Commission.
‘‘(B) REQUEST FOR PRIOR APPROVAL.—A person seeking prior approval
under subparagraph (A) shall furnish the Commission with a written cer-
tification that the digital commodity meets the requirements of this Act (in-
cluding the regulations prescribed under this Act) and the information de-
scribed in paragraph (2).
‘‘(C) DEADLINE.—The Commission shall take final action on a request for
prior approval not later than 90 business days after submission of the re-
quest, unless the person submitting the request agrees to an extension of
the time limitation established under this subparagraph.
‘‘(D) DISAPPROVAL.—
‘‘(i) IN GENERAL.—The Commission shall approve the listing of the
digital commodity unless the Commission finds that the listing is incon-
sistent with this Act (including any regulation prescribed under this
Act).
‘‘(ii) ANALYSIS REQUIRED.—The Commission shall include, with any
findings made under clause (i), a detailed analysis of the factors on
which the decision is based.
‘‘(iii) PUBLIC FINDINGS.—The Commission shall make public any dis-
approval decision, and any related findings and analysis, made under
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this paragraph.
‘‘(7) ELIGIBLE ENTITY DEFINED.—In this subsection, the term ‘eligible entity’
means a registered entity or group of registered entities acting jointly.’’.
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34
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 Com-
mission 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 reg-
ister 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 innova-
tion, the Commission—
‘‘(i) shall prescribe rules to exempt an entity registered with the Com-
mission under more than 1 section of this Act from duplicative, con-
flicting, or unduly burdensome provisions of this Act and the rules
under this Act;
‘‘(ii) shall prescribe rules to address conflicts of interests and activi-
ties 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 be-
come and remain a member of a registered futures association and
comply with rules related to such activity, if the registered digital com-
modity exchange accepts customer funds required to be segregated
under subsection (d).
‘‘(ii) RULEMAKING REQUIRED.—The Commission shall require any reg-
istered futures association with a digital commodity exchange as a
member to provide such rules as may be necessary to further compli-
ance with subsection (d), protect customers, and promote the public in-
terest.
‘‘(C) REGISTRATION REQUIRED.—A person required to be registered as a
digital commodity exchange under this section shall register with the Com-
mission 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 deliv-
ery.
‘‘(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 com-
modity exchange for its own account.
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‘‘(B) EXCEPTIONS.—Subject to any conditions, requirements, or limitations
imposed by the Commission pursuant to subparagraph (C), a digital com-
modity exchange may engage in trading on the exchange so long as the
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35
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 oper-
ation 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 dig-
ital 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.—Un-
less otherwise determined by the Commission by rule or regulation, a dig-
ital commodity exchange described in subparagraph (A) shall have reason-
able 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 com-
modity 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 mar-
ket; 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 or-
ders 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 sec-
tion 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;
‘‘(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; or
‘‘(iii) the blockchain system to which the digital commodity relates,
together with the digital commodity, is certified as a mature blockchain
system under section 42 of the Securities Exchange Act of 1934.
‘‘(B) PUBLIC INFORMATION REQUIREMENTS.—
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‘‘(i) IN GENERAL.—A digital commodity exchange shall—
‘‘(I) permit trading in a digital commodity only if the digital com-
modity exchange reasonably determines that the information re-
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36
quired by clause (ii) is correct, current, and available to the public;
and
‘‘(II) establish policies and procedures to determine that the in-
formation 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 fol-
lowing 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 com-
modity relates and the operation of any such blockchain system, in-
cluding—
‘‘(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 cre-
ated, the release schedule for the digital commodities, and the
total number of digital commodities then outstanding;
‘‘(bb) information detailing any applicable consensus mecha-
nism or process for validating transactions, method of gener-
ating or mining digital commodities, and any process for burn-
ing or destroying digital commodities on the blockchain sys-
tem;
‘‘(cc) an explanation of governance mechanisms for imple-
menting changes to the blockchain system or forming con-
sensus 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 cus-
tomer 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 al-
ready 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 appro-
priate Federal banking agency.
‘‘(C) DIGITAL COMMODITIES HELD BY RELATED AND DIGITAL COMMODITY AF-
FILIATED PERSONS.—A digital commodity exchange shall establish policies
and procedures designed to permit the trading of a unit of a digital com-
modity 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
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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.—
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‘‘(A) IN GENERAL.—A digital commodity exchange shall provide a competi-
tive, 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 com-
modity exchange shall establish and enforce rules—
‘‘(i) to protect markets and market participants from abusive prac-
tices 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 or-
ders traded on or through the facilities of the digital commodity ex-
change; 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 sec-
tion;
‘‘(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 coopera-
tion with the Commission or a registered entity, as is necessary and appro-
priate, 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 time-
ly 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, includ-
ing 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 Ex-
change 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 appro-
priate, including—
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‘‘(I) foreign financial supervisors (including foreign futures au-
thorities);
‘‘(II) foreign central banks; and
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‘‘(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 relat-
ing to the information on digital commodities that is provided.
‘‘(D) PROVIDING INFORMATION.—A digital commodity exchange shall pro-
vide to the Commission (including any designee of the Commission) infor-
mation 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 estab-
lish 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 fi-
nancial, operational, and managerial resources, as determined by the Com-
mission, 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 ex-
change 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 com-
modity exchange.
‘‘(13) DISCIPLINARY PROCEDURES.—A digital commodity exchange shall estab-
lish 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 per-
forming the same functions, including delegation of the functions to third par-
ties.
‘‘(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, cus-
tomer 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 sys-
tems 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 dig-
ital 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;
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‘‘(iii) market surveillance; and
‘‘(iv) maintenance of a comprehensive and accurate audit trail.
‘‘(d) HOLDING OF CUSTOMER ASSETS.—
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‘‘(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 com-
modity 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 com-
mingled with the funds of the digital commodity exchange or be used to
margin, secure, or guarantee any trades or accounts of any customer or per-
son other than the person for whom the same are held.
‘‘(C) EXCEPTIONS.—
‘‘(i) USE OF FUNDS.—
‘‘(I) IN GENERAL.—Notwithstanding subparagraph (A), money, as-
sets, and property described in subparagraph (A) may, for conven-
ience, be commingled and deposited in the same account or ac-
counts with any bank, trust company, derivatives clearing organi-
zation, or qualified digital asset custodian.
‘‘(II) WITHDRAWAL.—Notwithstanding subparagraph (A), such
share of the money, assets, and property described in subpara-
graph (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 with-
drawn and applied to such purposes, including the payment of com-
missions, brokerage, interest, taxes, storage, and other charges,
lawfully accruing in connection with the contract.
‘‘(ii) COMMISSION ACTION.—Notwithstanding subparagraph (A), in ac-
cordance with such terms and conditions as the Commission may pre-
scribe 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 prop-
erty 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 in-
vested 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 cus-
tomer received by a digital commodity exchange for trading or custody, or
to facilitate, margin, guarantee, or secure contracts of sale of a digital com-
modity (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 dig-
ital 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 com-
modity 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 fu-
tures commission merchant for purposes of section 761 of title 11, United
States Code.
‘‘(D) ASSETS REMOVED FROM SEGREGATION.—Assets removed from segrega-
tion 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.—
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‘‘(A) IN GENERAL.—It shall be unlawful—
‘‘(i) for any digital commodity exchange that has received any cus-
tomer money, assets, or property for custody to dispose of, or use any
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40
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 com-
modity exchange, or digital asset custodian that has received any cus-
tomer 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 dig-
ital commodity includes utilizing any unit of a digital asset to participate
in a blockchain service defined in paragraph (6) or a decentralized govern-
ance system associated with the digital commodity or the blockchain system
to which the digital commodity relates in any manner other than that ex-
pressly 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 restric-
tions in paragraph (2) for any unit of a digital commodity to be used under
subparagraph (B) of this paragraph, by affirmatively electing, in writing to
the digital commodity exchange, to waive the restrictions.
‘‘(B) USE OF FUNDS.—Customer digital commodities removed from seg-
regation 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 seg-
regation in subparagraph (A) relates.
‘‘(C) LIMITATIONS.—
‘‘(i) IN GENERAL.—The Commission shall, by rule, establish notice and
disclosure requirements, and may, by rule, establish any other limita-
tions and rules related to the waiving of any restrictions under this
paragraph that are reasonably necessary to protect customers, includ-
ing eligible contract participants, non-eligible contract participants, or
any other class of customers.
‘‘(ii) CUSTOMER CHOICE.—A digital commodity exchange may not re-
quire a waiver from a customer described in subparagraph (A) as a con-
dition of doing business on the exchange.
‘‘(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 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 com-
modity 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 es-
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tablish the handling, management response, remediation, retesting, and closing
of noncompliance issues.
‘‘(4) ANNUAL REPORTS.—
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41
‘‘(A) IN GENERAL.—In accordance with rules prescribed by the Commis-
sion, 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 con-
flicts 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 appro-
priate financial report of the digital commodity exchange that is re-
quired 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 appoint-
ment of a trustee.
‘‘(2) ASSUMPTION OF JURISDICTION.—If the Commission applies for appoint-
ment 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 termi-
nate 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 order to promote responsible innovation and fair competition, or pro-
tect 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 pro-
spectively, or both, a registered digital commodity exchange from the require-
ments of this section, 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 regu-
latory or self-regulatory duties under this Act.
‘‘(2) 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, comprehen-
sive supervision and regulation on a consolidated basis by the appropriate gov-
ernmental 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 dig-
ital 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.’’.
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SEC. 405. QUALIFIED DIGITAL ASSET 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:
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42
‘‘SEC. 5j. QUALIFIED DIGITAL ASSET CUSTODIANS.
‘‘(a) IN GENERAL.—A person is a qualified digital asset custodian for purposes of
this Act if the person—
‘‘(1) holds digital assets on behalf of a person registered under this Act or a
customer of a person registered under this Act; and
‘‘(2) is in compliance with subsections (b) and (c).
‘‘(b) SUPERVISION REQUIREMENT.—A person is in compliance with this subsection
if the person is subject to—
‘‘(1) supervision and examination for custody and safekeeping of digital assets
by an appropriate Federal banking agency, the National Credit Union Adminis-
tration, the Commission, or the Securities and Exchange Commission; or
‘‘(2) adequate supervision and appropriate regulation for custody and safe-
keeping of digital assets by—
‘‘(A) a State bank supervisor (within the meaning of section 3 of the Fed-
eral Deposit Insurance Act);
‘‘(B) a State credit union supervisor, as defined under section 6003 of the
Anti-Money Laundering Act of 2020; or
‘‘(C) an appropriate foreign governmental authority in the home country
of the digital commodity custodian.
‘‘(c) OTHER REQUIREMENTS.—A person shall be in compliance with this subsection
if:
‘‘(1) NOT OTHERWISE PROHIBITED.—The person has not been prohibited by its
supervisor from engaging in an activity with respect to the custody and safe-
keeping of digital assets.
‘‘(2) INFORMATION SHARING.—
‘‘(A) IN GENERAL.—The person shares information with the Commission
on request and complies with such requirements for periodic sharing of in-
formation regarding customer accounts that the person holds on behalf of
an entity registered with the Commission as the Commission determines by
rule are reasonably necessary to effectuate any of the provisions, or to ac-
complish any of the purposes, of this Act.
‘‘(B) PROVISION OF INFORMATION.—If the person is subject to regulation
and examination by an appropriate Federal banking agency, the person
may satisfy any information request described in subparagraph (A) by pro-
viding the Commission with a detailed listing, in writing, of the digital as-
sets of a customer in the custody of, or use by, the person.
‘‘(C) RULEMAKING FOR CFTC ENTITIES.—
‘‘(i) IN GENERAL.—The Commission shall prescribe rules to permit a
person registered with the Commission to be a qualified digital asset
custodian in compliance with this section.
‘‘(ii) CONTENT.—In prescribing the rules under subparagraph (A), the
Commission shall require a person registered with the Commission to—
‘‘(I) implement requirement consistent with the requirements in
subsection (d)(1);
‘‘(II) establish sufficient system safeguards;
‘‘(III) prevent or mitigate conflicts of interest, as appropriate; and
‘‘(IV) establish separate governance arrangements for the custo-
dial function of the entity.
‘‘(d) ADEQUATE SUPERVISION AND APPROPRIATE REGULATION.—
‘‘(1) IN GENERAL.—For purposes of subsection (b), the terms ‘adequate super-
vision’ and ‘appropriate regulation’ mean such minimum standards for super-
vision and regulation as are reasonably necessary to protect the digital assets
held by a person registered under this Act, including standards relating to the
licensing, examination, and supervisory processes that require the person to, at
a minimum—
‘‘(A) receive a review and evaluation of ownership, character and fitness,
conflicts of interest, business model, financial statements, funding re-
sources, and policies and procedures of the person;
‘‘(B) hold capital sufficient for the financial integrity of the person;
‘‘(C) protect customer assets;
‘‘(D) establish and maintain books and records regarding the business of
the person;
‘‘(E) submit financial statements and audited financial statements to the
applicable supervisor described in subsection (b);
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‘‘(F) provide disclosures to the applicable supervisor described in sub-
section (b) regarding actions, proceedings, and other items as determined
by the supervisor;
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‘‘(G) maintain and enforce policies and procedures for compliance with ap-
plicable State and Federal laws, including those related to anti-money laun-
dering and cybersecurity;
‘‘(H) establish a business continuity plan to ensure functionality in cases
of disruption; and
‘‘(I) establish policies and procedures to resolve complaints.
‘‘(2) RULEMAKING WITH RESPECT TO DEFINITIONS.—
‘‘(A) IN GENERAL.—For purposes of this section, the Commission may, by
rule, further define the terms ‘adequate supervision’ and ‘appropriate regu-
lation’ as necessary and appropriate for the protection of customers, and
consistent with the purposes of this Act.
‘‘(B) CONDITIONAL TREATMENT OF CERTAIN CUSTODIANS BEFORE RULE-
MAKING.—Before the effective date of a rulemaking under subparagraph
(A), a trust company is deemed subject to adequate supervision and appro-
priate regulation if—
‘‘(i) the trust company is expressly permitted by a State bank super-
visor to engage in the custody and safekeeping of digital assets;
‘‘(ii) the State bank supervisor has established licensing, examina-
tion, and supervisory processes that require the trust company to, at
a minimum, meet the conditions described in subparagraphs (A)
through (I) of paragraph (1); and
‘‘(iii) the trust company is in good standing with its State bank super-
visor.
‘‘(C) TRANSITION PERIOD FOR CERTAIN CUSTODIANS.—In implementing the
rulemaking under subparagraph (A), the Commission shall provide a tran-
sition period of not less than 2 years for any trust company that is deemed
subject to adequate supervision and appropriate regulation under subpara-
graph (B) on the effective date of the rulemaking.
‘‘(e) 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, or any requirement to utilize a
qualified digital asset custodian, 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 DEAL-
ERS.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by inserting after
section 4t the following:
‘‘SEC. 4u. REGISTRATION AND REGULATION OF DIGITAL COMMODITY BROKERS AND DEAL-
ERS.
‘‘(a) REGISTRATION.—
‘‘(1) REQUIREMENT.—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.
‘‘(2) ADDITIONAL REGISTRATION.—
‘‘(A) RULES.—In order to foster the development of fair and orderly mar-
kets, protect customers, and promote responsible innovation, the Commis-
sion—
‘‘(i) shall prescribe rules to exempt an entity registered with the Com-
mission under more than 1 section of this Act from duplicative, con-
flicting, or unduly burdensome provisions of this Act and the rules
under this Act;
‘‘(ii) shall prescribe rules to address conflicts of interests and the ac-
tivities of the entity; and
‘‘(iii) may after an analysis of the risks and benefits, prescribe rules
to provide for portfolio margining.
‘‘(B) WITH MEMBERSHIP IN A REGISTERED FUTURES ASSOCIATION.—Any per-
son required to be registered as a digital commodity broker or digital com-
modity dealer under this section shall become and remain a member of a
registered futures association.
‘‘(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 Commis-
sion.
‘‘(2) CONTENTS.—
‘‘(A) IN GENERAL.—The application shall be made in such form and man-
dmwilson on DSK7X7S144PROD with REPORTS
ner 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.
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‘‘(B) CONTINUAL REPORTING.—A person that is registered as a digital com-
modity broker or digital commodity dealer shall continue to submit to the
Commission reports that contain such information pertaining to the busi-
ness of the person as the Commission may require.
‘‘(3) STATUTORY DISQUALIFICATION.—Except to the extent otherwise specifi-
cally 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 asso-
ciated 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 of 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.
‘‘(c) 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 inter-
est that limit the activities of digital commodity brokers and digital commodity
dealers.
‘‘(2) FINANCING AGREEMENTS.—
‘‘(A) IN GENERAL.—The Commission shall prescribe rules and regulations
applicable to digital commodity brokers or digital commodity dealers which
shall set forth minimum requirements related to disclosure, recordkeeping,
margin financing arrangements, rehypothecation, capital, reporting, busi-
ness conduct, documentation, and supervision of employees and agents, in
connection with—
‘‘(i) an agreement described in section 2(c)(2)(D)(iv); or
‘‘(ii) any other margined, leveraged, or financing arrangement for the
purchase or sale of a digital commodity with an eligible contract partic-
ipant.
‘‘(B) SPECIFIC AUTHORITY.—Except as prohibited in section 2(c)(2)(G)(iii),
the Commission may also make, promulgate, and enforce such rules and
regulations as, in the judgment of the Commission, are reasonably nec-
essary to effectuate any of the provisions of, or to accomplish any of the
purposes of, this Act in connection with an agreement referred to in sub-
paragraph (A) of this paragraph.
‘‘(d) CAPITAL REQUIREMENTS.—
‘‘(1) IN GENERAL.—Each digital commodity broker and digital commodity deal-
er shall meet such minimum capital requirements as the Commission may pre-
scribe to address the risks associated with digital commodity trading and to en-
sure that the digital commodity broker or digital commodity dealer, respec-
tively, is able, at all times, to—
‘‘(A) meet, and continue to meet the obligations of such a registrant; and
‘‘(B) fulfill obligations to customers or counterparties for any margined,
leveraged, or financed transactions.
‘‘(2) FUTURES COMMISSION MERCHANTS AND OTHER DEALERS.—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.).
‘‘(e) REPORTING AND RECORDKEEPING.—Each digital commodity broker and 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 pe-
riod 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.
‘‘(f) DAILY TRADING RECORDS.—
‘‘(1) IN GENERAL.—Each digital commodity broker and digital commodity deal-
er shall maintain daily trading records of the transactions of the digital com-
modity broker or digital commodity dealer, respectively, and all related records
dmwilson on DSK7X7S144PROD with REPORTS
(including related forward or derivatives transactions) and recorded communica-
tions, including electronic mail, instant messages, and recordings of telephone
calls, for such period as the Commission may require by rule or regulation.
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‘‘(2) INFORMATION REQUIREMENTS.—The daily trading records shall include
such information as the Commission shall require by rule or regulation.
‘‘(3) COUNTERPARTY RECORDS.—Each digital commodity broker and digital
commodity dealer shall maintain daily trading records for each customer or
counterparty in a manner and form that is identifiable with each digital com-
modity transaction.
‘‘(4) AUDIT TRAIL.—Each digital commodity broker and digital commodity deal-
er shall maintain a complete audit trail for conducting comprehensive and accu-
rate trade reconstructions.
‘‘(g) BUSINESS CONDUCT STANDARDS.—
‘‘(1) IN GENERAL.—Each digital commodity broker and digital commodity deal-
er 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 com-
modity 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, pre-
scribe business conduct requirements which—
‘‘(A) require disclosure by a registered digital commodity broker and reg-
istered 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;
‘‘(ii) information about the material risks and characteristics of the
transaction;
‘‘(B) establish a duty for such a digital commodity broker and such a dig-
ital 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 broker and digital
commodity dealer marketing and advertising, including testimonials and
endorsements; and
‘‘(D) establish such other standards and requirements as the Commission
may determine are appropriate for the protection of customers.
‘‘(3) PROHIBITION ON FRAUDULENT PRACTICES.—It shall be unlawful for a dig-
ital commodity broker or 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 oper-
ates 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.
‘‘(h) DUTIES.—
‘‘(1) RISK MANAGEMENT PROCEDURES.—Each digital commodity broker and dig-
ital commodity dealer shall establish robust and professional risk management
systems adequate for managing the day-to-day business of the digital com-
modity broker or digital commodity dealer, respectively.
‘‘(2) DISCLOSURE OF GENERAL INFORMATION.—Each digital commodity broker
and digital commodity dealer shall disclose to the Commission information con-
cerning—
‘‘(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 com-
modity 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 digital commodity broker and
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 sec-
tion; and
‘‘(B) provide the information to the Commission, on request.
dmwilson on DSK7X7S144PROD with REPORTS
‘‘(4) CONFLICTS OF INTEREST.—Each digital commodity broker and digital com-
modity dealer shall establish, maintain, and enforce written policies and proce-
dures reasonably designed, taking into consideration the nature of the business
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46
of the person, to mitigate any conflicts of interest in transactions or arrange-
ments with affiliates.
‘‘(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 unreason-
able restraint of trade; or
‘‘(B) impose any material anticompetitive burden on trading or clearing.
‘‘(i) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
‘‘(1) IN GENERAL.—Each digital commodity broker and digital commodity deal-
er 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 de-
scribed in this section;
‘‘(C) in consultation with the board of directors, a body performing a func-
tion 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 re-
quired 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, man-
agement response, remediation, retesting, and closing of noncompliance
issues.
‘‘(3) ANNUAL REPORTS.—
‘‘(A) IN GENERAL.—In accordance with rules prescribed by the Commis-
sion, 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 reg-
istered digital commodity dealer with this Act (including regulations);
and
‘‘(ii) each policy and procedure of the registered digital commodity
broker or registered digital commodity dealer followed by the chief com-
pliance officer (including the code of ethics and conflict of interest poli-
cies).
‘‘(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 compli-
ance report is accurate and complete.
‘‘(j) SEGREGATION OF DIGITAL COMMODITIES.—
‘‘(1) HOLDING OF CUSTOMER ASSETS.—
‘‘(A) IN GENERAL.—Each digital commodity broker and digital commodity
dealer shall hold customer money, assets, and property in a manner to min-
imize 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 ASSET CUSTODIAN.—Each digital commodity
broker and digital commodity dealer shall hold in a qualified digital asset
custodian each unit of a digital asset that is—
‘‘(i) the property of a customer or counterparty of the digital com-
modity broker or digital commodity dealer, respectively;
‘‘(ii) required to be held by the digital commodity broker or digital
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commodity dealer under subsection (e); or
‘‘(iii) otherwise so required by the Commission to reasonably protect
customers or promote the public interest.
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‘‘(2) SEGREGATION OF FUNDS.—
‘‘(A) IN GENERAL.—Each digital commodity broker and digital commodity
dealer shall treat and deal with all money, assets, and property that is re-
ceived by the digital commodity broker or digital commodity dealer, or ac-
crues to a customer as the result of trading in digital commodities, as be-
longing to the customer.
‘‘(B) COMMINGLING PROHIBITED.—
‘‘(i) IN GENERAL.—Except as provided in clause (ii), each digital com-
modity broker and 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, respec-
tively, 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 digital commodity broker or 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 asset cus-
todian 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 busi-
ness 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 pur-
poses, including the payment of commissions, brokerage, inter-
est, taxes, storage, and other charges, lawfully accruing in con-
nection 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 digital
commodity broker or 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 belong-
ing to the customer of the digital commodity broker or digital com-
modity dealer, respectively.
‘‘(3) PERMITTED INVESTMENTS.—Money described in paragraph (2) may be in-
vested 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 com-
modity occurring with a digital commodity broker or digital commodity
dealer shall be considered a contract for the purchase or sale of a com-
modity 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 digital commodity broker and a digital
commodity dealer 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 segrega-
tion 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 broker or digital commodity dealer that
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has received any customer money, assets, or property for custody to dis-
pose of, or use any such money, assets, or property as belonging to the
digital commodity broker or digital commodity dealer, respectively, or
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any person other than a customer of 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 dig-
ital commodity includes utilizing any unit of a digital asset to participate
in a blockchain service defined in paragraph (6) or a decentralized govern-
ance system associated with the digital commodity or the blockchain system
to which the digital commodity relates in any manner other than that ex-
pressly 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 restric-
tions in paragraph (2) for any unit of a digital commodity to be used under
subparagraph (B) of this paragraph, by affirmatively electing, in writing to
the digital commodity broker or digital commodity dealer, to waive the re-
strictions.
‘‘(B) USE OF FUNDS.—Customer digital commodities removed from seg-
regation 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.—
‘‘(i) IN GENERAL.—The Commission shall, by rule, establish notice and
disclosure requirements, and may, by rule, establish any other limita-
tions and rules related to the waiving of any restrictions under this
paragraph that are reasonably necessary to protect customers, includ-
ing eligible contract participants, non-eligible contract participants, or
any other class of customers.
‘‘(ii) CUSTOMER CHOICE.—A digital commodity broker or digital com-
modity dealer may not require a waiver from a customer described in
subparagraph (A) as a condition of doing business with the broker or
dealer.
‘‘(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 required for the ongoing operation of a blockchain system.
‘‘(k) 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 with respect to activities sub-
ject to this Act.
‘‘(l) EXEMPTIONS.—In order to promote responsible innovation and fair competi-
tion, or protect customers, the Commission may (on its own initiative or on applica-
tion of the registered digital commodity broker or registered digital commodity deal-
er) 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 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.’’.
SEC. 407. REGISTRATION OF ASSOCIATED PERSONS.
(a) IN GENERAL.—Section 4k of the Commodity Exchange Act (7 U.S.C. 6k) is
amended—
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(1) by redesignating subsections (4) through (6) as subsections (5) through (7),
respectively;
(2) by inserting after subsection (3) the following:
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49
‘‘(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 pe-
riod of suspension has not expired), or been revoked.’’; and
(3) in subsection (5) (as so redesignated), by striking ‘‘or of a commodity trad-
ing advisor’’ and inserting ‘‘of a commodity trading advisor, of a digital com-
modity 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 ‘‘sec-
tion 4k(7)’’.
SEC. 408. REGISTRATION OF COMMODITY POOL OPERATORS AND COMMODITY TRADING AD-
VISORS.
(a) IN GENERAL.—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 com-
modity 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,’’.
(b) EXEMPTIVE AUTHORITY.—Section 4m of such Act (7 U.S.C. 6m) is amended by
adding at the end the following:
‘‘(4) EXEMPTIVE AUTHORITY.—The Commission shall promulgate rules to provide
appropriate exemptions for commodity pool operators and commodity trading advi-
sors, to provide relief from duplicative, conflicting, or unduly burdensome require-
ments or to promote responsible innovation, to the extent the exemptions foster the
development of fair and orderly cash or spot digital commodity markets, are nec-
essary or appropriate in the public interest, and are consistent with the protection
of customers.’’.
SEC. 409. EXCLUSION FOR DECENTRALIZED FINANCE 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. DECENTRALIZED FINANCE ACTIVITIES NOT SUBJECT TO THIS ACT.
‘‘(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 based on
the person directly or indirectly engaging in any of the following activities, whether
singly or in combination, in relation to the operation of a blockchain system or in
relation to decentralized finance trading protocol:
‘‘(1) Compiling network transactions or relaying, searching, sequencing, vali-
dating, or acting in a similar capacity.
‘‘(2) Providing computational work, operating a node or oracle service, or pro-
curing, offering, or utilizing network bandwidth, or other similar incidental
services.
‘‘(3) Providing a user-interface that enables a user to read, and access data
about a blockchain system.
‘‘(4) Developing, publishing, constituting, administering, maintaining, or oth-
erwise distributing a blockchain system other than a decentralized finance trad-
ing protocol.
‘‘(5) Developing, publishing, constituting, administering, maintaining, or oth-
erwise distributing a decentralized finance messaging system or decentralized
finance trading protocol, or operating or participating in a liquidity pool with
respect thereto, for the purpose of executing a spot contract for the purchase
or sale of a digital commodity.
‘‘(6) Developing, publishing, constituting, administering, maintaining, or oth-
erwise distributing software or systems that create or deploy hardware or soft-
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ware, including wallets or other systems, facilitating an individual user’s own
personal ability to keep, safeguard, or custody the user’s digital assets or re-
lated private keys.
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‘‘(b) EXCEPTIONS.—Subsection (a) shall not be interpreted to apply to the anti-
fraud, anti-manipulation, or false reporting enforcement authorities of the Commis-
sion.’’.
SEC. 410. RESOURCES FOR IMPLEMENTATION AND ENFORCEMENT.
(a) COLLECTION OF FEES.—
(1) IN GENERAL.—The Commodity Futures Trading Commission (in this sec-
tion referred to as the ‘‘Commission’’) shall charge and collect a fee from each
person in provisional status registered with the Commission pursuant to section
106, on—
(A) the filing of the initial application for registration; and
(B) an annual basis thereafter for maintaining provisional status.
(2) AMOUNT.—The fees authorized under paragraph (1) may be collected and
available for obligation only in the amounts provided in advance in an appro-
priation Act.
(3) AUTHORITY TO ADJUST FEES.—Notwithstanding the preceding provisions of
this subsection, to promote fair competition or innovation, the Commission, in
its sole discretion, may reduce or eliminate any fee otherwise required to be
paid by a small or medium filer under this subsection.
(b) FEE SCHEDULE.—
(1) IN GENERAL.—The Commission shall publish in the Federal Register a
schedule of the fees to be charged and collected under this section.
(2) CONTENT.—The fee schedule for a fiscal year shall include a written anal-
ysis of the estimate of the Commission of the total costs of carrying out the
functions of the Commission under this Act during the fiscal year.
(3) SUBMISSION TO CONGRESS.—Before publishing the fee schedule for a fiscal
year, the Commission shall submit a copy of the fee schedule to the Committees
on Agriculture and on Appropriations of the House of Representatives and the
Committees on Agriculture, Nutrition, and Forestry and on Appropriations of
the Senate.
(4) TIMING.—
(A) 1ST FISCAL YEAR.—The Commission shall publish the fee schedule for
the fiscal year in which this Act is enacted, within 30 days after the date
of the enactment of this Act.
(B) SUBSEQUENT FISCAL YEARS.—The Commission shall publish the fee
schedule for each subsequent fiscal year, not less than 90 days before the
due date prescribed by the Commission for payment of the annual fee for
the fiscal year.
(c) LATE PAYMENT PENALTY.—
(1) IN GENERAL.—The Commission may impose a penalty against a person
that fails to pay an annual fee charged under this section, within 30 days after
the due date prescribed by the Commission for payment of the fee.
(2) AMOUNT.—The amount of the penalty shall be—
(A) 5 percent of the amount of the fee due, multiplied by
(B) the whole number of consecutive 30-day periods that have elapsed
since the due date.
(d) REIMBURSEMENT OF EXCESS FEES.—To the extent that the total amount of fees
collected under this section during a fiscal year that begins after the date of the en-
actment of this Act exceeds the amount provided under subsection (a)(2) with re-
spect to the fiscal year, the Commission shall reimburse the excess amount to the
persons who have timely paid their annual fees, on a pro-rata basis that excludes
penalties, and shall do so within 60 days after the end of the fiscal year.
(e) DEPOSIT OF FEES INTO THE TREASURY.—All amounts collected under this sec-
tion shall be credited to the currently applicable appropriation, account, or fund of
the Commission as discretionary offsetting collections, and shall be available for the
purposes authorized in subsection (f) only to the extent and in the amounts provided
in advance in appropriations Acts.
(f) AUTHORIZATION OF APPROPRIATIONS.—In addition to amounts otherwise author-
ized to be appropriated to the Commission, there is authorized to be appropriated
to the Commission amounts collected under this section to cover the costs of car-
rying out the functions of the Commission under this Act.
(g) EXPEDITED HIRING AUTHORITY.—
(1) APPOINTMENT AUTHORITY.—The Chairman, pursuant to section 6(a), may
appoint individuals to a position described in paragraph (2) of this subsection—
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(A) in accordance with the statutes, rules, and regulations governing ap-
pointments to positions in the excepted service (as defined in section 2103
of title 5, United States Code); and
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(B) without regard to any statute, rule, or regulation governing appoint-
ments to positions in the competitive service (as defined in section 2102 of
such title).
(2) POSITION DESCRIBED.—A position referred to in subparagraph (1) is a posi-
tion at the Commission that—
(A) is in the competitive service (as defined in section 2102 of such title);
and
(B) requires specialized knowledge of digital commodities markets, finan-
cial and capital market formation or regulation, financial market structures
or surveillance, data collection or analysis, or information technology, cyber-
security, or system safeguards.
(3) RULE OF CONSTRUCTION.—The appointment of a candidate to a position
under this subsection shall not be considered to cause the position to be con-
verted from the competitive service to the excepted service.
(h) SUNSET.—The authorities provided by this section shall expire at the end of
the 4th fiscal year that begins after the date of the enactment of this Act.
SEC. 411. DIGITAL COMMODITY ACTIVITIES BY SEC-REGISTERED ENTITIES.
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 5j the following:
‘‘SEC. 5k. EXEMPTION FOR CERTAIN REGISTERED ENTITIES ENGAGED IN DIGITAL COM-
MODITY ACTIVITIES.
‘‘(a) BY ALTERNATIVE TRADING SYSTEMS.—
‘‘(1) IN GENERAL.—On receipt by the Commission from an alternative trading
system of a written or electronic notice that contains such information as the
Commission, by rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors, the alternative trading system shall
be exempt from registration as a digital commodity exchange pursuant to sec-
tion 5i if—
‘‘(A) the alternative trading system does not list any retail commodity
transactions pursuant to section 2(c)(2)(D);
‘‘(B) the provider, or an affiliated person of the provider, of the alternative
trading system is not otherwise registered under this Act;
‘‘(C) the alternative trading system lists or trades no other contracts of
sale of commodities, except for digital commodities, currencies, and securi-
ties; and
‘‘(D) the registration of the alternative trading system is not suspended
pursuant to an order by the Securities and Exchange Commission.
‘‘(2) FURTHER REQUIREMENTS.—An alternative trading system that provides
notice to the Commission pursuant to paragraph (1) of this subsection shall be
exempt from the requirements of section 5i to the extent that the alternative
trading system—
‘‘(A) is in compliance with requirements consistent with the requirements
of section 5i and imposed on the alternative trading system by the Securi-
ties and Exchange Commission;
‘‘(B) annually files with the Commission, in a form and manner accept-
able to the Commission, a notice that demonstrates compliance with this
paragraph and contains any other information the Commission determines
to be necessary or appropriate to perform the duties of the Commission
under this Act; and
‘‘(C) has total trading volume in digital commodities during any calendar
quarter in either of its 2 most recently completed fiscal years that does not
exceed the lesser of—
‘‘(i) 25 percent of the total trading volume for all transactions over
the same period; or
‘‘(ii) $50,000,000,000.
‘‘(3) ENFORCEMENT.—This subsection shall not be construed to limit any juris-
diction that the Commission may otherwise have under any other provision of
this Act with respect to a contract of sale of a digital commodity or persons ef-
fecting contracts of sale of digital commodities.
‘‘(b) BY REGISTERED INTERMEDIARIES.—
‘‘(1) IN GENERAL.—On receipt by the Commission, from a broker or dealer that
is registered with the Securities and Exchange Commission, of a written or elec-
tronic notice that contains such information as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or for the protection
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of investors, the broker or dealer shall be exempt from registration as a digital
commodity broker or digital commodity dealer pursuant to section 4u of this Act
if—
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‘‘(A) the broker or dealer does not offer or engage in any retail commodity
transactions pursuant to section 2(c)(2)(D) of this Act;
‘‘(B) the broker or dealer, or an affiliated person of the broker or dealer,
is not otherwise registered under this Act;
‘‘(C) the broker or dealer does not offer or engage in any other contracts
of sale of commodities, except for digital commodities, currencies, and secu-
rities;
‘‘(D) the broker or dealer is not subject to a statutory disqualification, as
defined under section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)); and
‘‘(E) the broker or dealer is a member of a national securities association
registered pursuant to section 15A of the Securities Exchange Act of 1934.
‘‘(2) FURTHER REQUIREMENTS.—A broker or dealer that provides notice to the
Commission pursuant to paragraph (1) shall be exempt from the requirements
of section 4u to the extent that the broker or dealer—
‘‘(A) is in compliance with requirements consistent with the requirements
of section 4u and imposed on the broker or dealer by the Securities and Ex-
change Commission;
‘‘(B) annually files with the Commission, in a form and manner accept-
able to the Commission, a notice that demonstrates compliance with this
subsection and contains any other information the Commission determines
to be necessary or appropriate to perform the duties of the Commission
under this Act; and
‘‘(C) has consolidated annual gross financial revenues in either of its 2
most recently completed fiscal years from sales, commissions or other ac-
tivities in digital commodities that do not exceed the lesser of—
‘‘(i) 10 percent of the total annual gross revenues during the same pe-
riod; or
‘‘(ii) $100,000,000.
‘‘(3) ENFORCEMENT.—This subsection shall not be construed to limit any juris-
diction that the Commission may otherwise have under any other provision of
this Act with respect to a contract of sale of a digital commodity and persons
effecting contracts of sale of digital commodities.’’.
SEC. 412. REQUIREMENTS RELATED TO CONTROL PERSONS.
The Commodity Exchange Act (7 U.S.C. 1 et seq.), as amended the preceding pro-
visions of this Act, is amended by inserting after section 4v the following:
‘‘SEC. 4w. LIMITATION ON TRANSACTIONS BY BLOCKCHAIN CONTROL PERSONS.
‘‘(a) LIMITATION.—It shall be unlawful for a blockchain control person with respect
to a blockchain system certified as a mature blockchain system in accordance with
section 42 of the Securities Exchange Act of 1934 to sell a unit of a digital com-
modity related to the blockchain system unless the person files notice with the Com-
mission, in a form and manner determined by the Commission, that the person has
or intends to obtain an authority described in subsection (b)(1) with respect to the
blockchain system, and complies with rules adopted by the Commission that re-
quire—
‘‘(1) disclosure of information to the Commission and the public about the ma-
terial activities, as determined by the Commission, of the blockchain control
person; and
‘‘(2)(A) the use of a digital commodity broker to effect the sale; or
‘‘(B) such other sales restrictions applicable to the blockchain control person,
or any affiliated blockchain control person, to prevent manipulation and distor-
tion of the value of the digital commodity and promote further maturity of the
blockchain system to which the digital commodity relates.
‘‘(b) DEFINITIONS.—In this section:
‘‘(1) BLOCKCHAIN CONTROL PERSON.—The term ‘blockchain control person’
means, with respect to a blockchain system, any person or group of persons
under common control, other than a decentralized governance system, who—
‘‘(A) has the unilateral authority, directly or indirectly, through any con-
tract, arrangement, understanding, relationship, or otherwise, to control or
materially alter the functionality, operation, or rules of consensus or agree-
ment of the blockchain system or its related digital commodity; or
‘‘(B) has the unilateral authority to direct the voting, in the aggregate,
of 20 percent or more of the outstanding voting power of the blockchain sys-
tem by means of a related digital commodity, nodes or validators, a decen-
tralized governance system, or otherwise, in a blockchain system which can
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be altered by a voting system.
‘‘(2) AFFILIATED BLOCKCHAIN CONTROL PERSON.—The term ‘affiliated
blockchain control person’ means any person directly or indirectly controlling,
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controlled by, or under common control with a blockchain control person, as the
Commission by rule or regulation, may determine will effectuate the purposes
of this section.’’.
SEC. 413. OTHER TRADABLE ASSETS.
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 4w the following:
‘‘SEC. 4x. TRADING REQUIREMENTS FOR OTHER TRADABLE ASSETS.
‘‘(a) LIMITATION.—A tradable asset shall not be offered, solicited, traded, facili-
tated, executed, cleared, reported, or otherwise dealt in, on or subject to the rules
of a registered entity, or by any other entity registered with the Commission, except
in accordance with subsection (b).
‘‘(b) REQUIREMENTS.—
‘‘(1) A tradable asset that is offered, solicited, traded, facilitated, executed,
cleared, reported, or otherwise dealt in on or subject to the rules of a registered
entity, or by any other entity registered with the Commission, shall be treated
as a digital commodity for purposes of this Act.
‘‘(2) In addition to the other requirements of this Act, the Commission may,
by rule or regulation, impose additional obligations on any person registered
under this Act offering, soliciting, trading, facilitating, executing, clearing, re-
porting, or otherwise dealing in a tradable asset, or class thereof, pursuant to
paragraph (1) as are necessary for the protection of customers, the promotion
of innovation, and the maintenance of fair, orderly, and efficient markets, in-
cluding additional obligations related to—
‘‘(A) disclosure;
‘‘(B) recordkeeping;
‘‘(C) capital;
‘‘(D) reporting;
‘‘(E) business conduct;
‘‘(F) documentation;
‘‘(G) supervision of employees; and
‘‘(H) segregation.
‘‘(3) PROHIBITION ON TRADING.—A tradable asset, the primary purpose of
which is to be used to commit fraud or market manipulation, or engage in any
other conduct that would result in abusive practices or be disruptive to market
integrity, shall not be offered, solicited, traded, facilitated, executed, cleared, re-
ported, or otherwise dealt in on or subject to the rules of a registered entity,
or by any other entity registered with the Commission.
‘‘(c) TRADABLE ASSET DEFINED.—In this section, the term ‘tradable asset’ means
a digital asset other than—
‘‘(1) a digital commodity that is treated as such other than by reason of sub-
section (b)(1) of this section; or
‘‘(2) a digital asset excluded from the definition of digital commodity pursuant
to subclause (I) through (VII) of section 1a(16)(F)(iii).
‘‘(d) GUIDANCE ON FRAUDULENT, MANIPULATIVE, OR DISRUPTIVE TRADABLE AS-
SETS.—The Commission may, after public notice and comment, issue guidance estab-
lishing criteria for determining if the primary purpose of a tradable asset is to be
used to commit fraud or market manipulation, or engage in any other conduct that
would result in abusive practices or be disruptive to market integrity.’’.
SEC. 414. EFFECTIVE DATE.
Unless otherwise provided in this title, this title and the amendments made by
this title shall take effect 270 days after the date of the enactment of this Act.
SEC. 415. SENSE OF CONGRESS.
It is the sense of Congress that nothing in this Act or any amendment made by
this Act should be interpreted to authorize any entity to regulate any commodity,
other than a digital commodity, on any spot market.
TITLE V—INNOVATION AND TECHNOLOGY
IMPROVEMENTS
SEC. 501. FINDINGS; SENSE OF CONGRESS.
(a) FINDINGS.—Congress finds the following:
(1) Entrepreneurs and innovators are building and deploying this next gen-
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eration of the internet.
(2) Digital commodity networks represent a new way for people to join to-
gether and cooperate with one another to undertake certain activities.
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(3) Digital commodities have the potential to be the foundational building
blocks of these systems, aligning the economic incentive for individuals to co-
operate with one another to achieve a common purpose.
(4) The digital commodity 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 deci-
sion making.
(5) Blockchain systems and the digital commodities they empower provide
control, enhance transparency, reduce transaction costs, and increase efficiency
if proper protections are put in place for investors, consumers, our financial sys-
tem, 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 commodity 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 commodities and provide safe-
guards for consumers.
(8) Digital commodities, despite the purported anonymity, provide law en-
forcement 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 commodities 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 op-
portunities 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
commodities 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 un-
derstand how to enact a functional framework tailored to the specific risks and
unique benefits of different digital commodity-related activities, distributed
ledger technology, distributed networks, and mature blockchain systems;
(5) Congress should enact a functional framework tailored to the specific risks
of different digital commodity-related activities and unique benefits of distrib-
uted ledger technology, distributed networks, and mature blockchain systems;
and
(6) consumers and market participants will benefit from a framework for dig-
ital commodities consistent with longstanding investor protections in securities
and commodities markets, yet tailored to the unique benefits and risks of the
digital commodity ecosystem.
SEC. 502. MODERNIZATION OF THE SECURITIES AND EXCHANGE COMMISSION MISSION.
(a) SECURITIES ACT OF 1933.—Section 2(b) of the Securities Act of 1933 (15 U.S.C.
77(b)) is amended—
(1) in the heading, by inserting ‘‘INNOVATION,’’ after ‘‘EFFICIENCY,’’; and
(2) by inserting ‘‘innovation,’’ after ‘‘efficiency,’’.
(b) SECURITIES EXCHANGE ACT OF 1934.—Section 3(f) of the Securities Exchange
Act of 1934 (15 U.S.C. 78(c)) is amended—
(1) in the heading, by inserting ‘‘INNOVATION,’’ after ‘‘EFFICIENCY,’’; and
(2) by inserting ‘‘innovation,’’ after ‘‘efficiency,’’.
(c) INVESTMENT ADVISERS ACT OF 1940.—Section 202(c) of the Investment Advis-
ers Act of 1940 (15 U.S.C. 80b–2) is amended—
(1) in the heading, by inserting ‘‘INNOVATION,’’ after ‘‘EFFICIENCY,’’; and
(2) by inserting ‘‘innovation,’’ after ‘‘efficiency,’’.
(d) INVESTMENT COMPANY ACT OF 1940.—Section 2(c) of the Investment Company
Act of 1940 (15 U.S.C. 80a–2) is amended—
(1) in the heading, by inserting ‘‘INNOVATION,’’ after ‘‘EFFICIENCY,’’; and
(2) by inserting ‘‘innovation,’’ after ‘‘efficiency,’’.
SEC. 503. STRATEGIC HUB FOR INNOVATION AND FINANCIAL TECHNOLOGY.
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Section 4 of the Securities Exchange Act of 1934 (15 U.S.C. 78d) is amended by
adding at the end the following:
‘‘(k) STRATEGIC HUB FOR INNOVATION AND FINANCIAL TECHNOLOGY.—
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‘‘(1) ESTABLISHMENT.—Not later than 180 days after the date of the enact-
ment of this subsection, the Securities and Exchange Commission shall estab-
lish a committee to be known as the Strategic Hub for Innovation and Financial
Technology (referred to in this subsection as the ‘FinHub’) to support engage-
ment on emerging technologies in the financial sector.
‘‘(2) MEMBERS.—The composition of FinHub shall be determined by the Com-
mission, drawing from relevant divisions as appropriate, including the Division
of Trading and Markets, Division of Corporate Finance, and Division of Invest-
ment Management.
‘‘(3) RESPONSIBILITIES.—FinHub shall—
‘‘(A) serve as a resource for the Commission on emerging financial tech-
nology advancements;
‘‘(B) engage with market participants working on emerging financial tech-
nologies; and
‘‘(C) facilitate communication between the Commission and businesses
working in emerging financial technology fields with information on the
Commission, its rules, and regulations.
‘‘(4) REPORT TO THE COMMISSION.—
‘‘(A) IN GENERAL.—Not later than October 31 of each year after 2025,
FinHub shall provide an annual summary of its engagement activities to
the Commission, which shall be included in the Commission’s annual report
to Congress.
‘‘(B) CONFIDENTIALITY.—Each report submitted under this paragraph
shall not contain confidential information.’’.
SEC. 504. 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 competi-
tion 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 per-
form 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 tech-
nology issues, ideas, and technology relevant to activities under this Act;
‘‘(E) provide persons working in emerging technology fields with informa-
tion on the Commission, its rules and regulations, and the role of a reg-
istered futures association; and
‘‘(F) encourage persons working in emerging technology fields to engage
with the Commission and obtain feedback from the Commission on poten-
tial regulatory issues.
‘‘(5) REPORT TO CONGRESS.—
‘‘(A) IN GENERAL.—Not later than October 31 of each year after 2025,
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 in-
clude—
‘‘(i) the total number of persons that met with LabCFTC;
‘‘(ii) a summary of general issues discussed during meetings with the
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person;
‘‘(iii) information on steps LabCFTC has taken to improve Commis-
sion services, including responsiveness to the concerns of persons;
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‘‘(iv) recommendations made to the Commission with respect to the
regulations, guidance, and orders of the Commission and such legisla-
tive 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.
‘‘(6) RECORDS AND ENGAGEMENT.—The Commission shall—
‘‘(A) maintain systems of records to track engagements with the public
through LabCFTC;
‘‘(B) store communications and materials received in connection with any
such engagement in accordance with Commission policies and procedures
on data retention and confidentiality; and
‘‘(C) take reasonable steps to protect any confidential or proprietary infor-
mation received through LabCFTC engagement.’’.
(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 imple-
ment 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 en-
actment of this Act.
SEC. 505. STUDY ON DECENTRALIZED FINANCE.
(a) IN GENERAL.—The Commodity Futures Trading Commission, the Securities
and Exchange Commission, and the Secretary of the Treasury shall jointly carry out
a study on decentralized finance that analyzes—
(1) the nature, size, role, and use of decentralized finance blockchain applica-
tions;
(2) the operation of blockchain applications that comprise decentralized fi-
nance;
(3) the interoperability of blockchain applications and other blockchain sys-
tems;
(4) the interoperability of blockchain applications and software-based systems,
including websites and wallets;
(5) the decentralized governance systems through which blockchain applica-
tions 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 benefits and risks of the decentralized governance
system; and
(B) any procedures, requirements, or best practices that would mitigate
the risks identified in subparagraph (A)(ii);
(6) the benefits of decentralized finance, including—
(A) operational resilience and availability of blockchain systems;
(B) interoperability of blockchain systems;
(C) market competition and innovation;
(D) transaction efficiency;
(E) transparency and traceability of transactions; and
(F) 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 tradi-
tional financial markets and any potential risks or improvements to the sta-
bility 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) methods for addressing illicit activity in decentralized finance and tradi-
tional markets that are tailored to the unique attributes of each;
(11) how decentralized finance may increase the accessibility of cross-border
transactions; and
(12) the feasibility of embedding self-executing compliance and risk controls
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into decentralized finance.
(b) CONSULTATION.—In carrying out the study required under subsection (a), the
Commodity Futures Trading Commission and the Securities and Exchange Commis-
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57
sion shall consult with the Secretary of the Treasury on the factors described under
paragraphs (7) through (10) of subsection (a).
(c) REPORT.—Not later than 1 year after the date of enactment of this Act, the
Commodity Futures Trading Commission and the Securities and Exchange Commis-
sion shall jointly submit to the relevant congressional committees a report that in-
cludes the results of the study required by subsection (a).
(d) 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 (12) 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).
(e) DEFINITIONS.—In this section:
(1) DECENTRALIZED FINANCE.—
(A) IN GENERAL.—The term ‘‘decentralized finance’’ means blockchain ap-
plications (including decentralized finance trading protocols and related de-
centralized finance messaging systems) that allow users to engage in finan-
cial transactions in a self-directed manner so that a third-party inter-
mediary does not effectuate the transactions or take custody of digital com-
modities of a user during any part of the transactions.
(B) RELATIONSHIP TO EXCLUDED ACTIVITIES.—The term ‘‘decentralized fi-
nance’’ shall not be interpreted to limit or exclude any activity from the ac-
tivities described in section 15I(a) of the Securities Exchange Act of 1934
or section 4v(a) of the Commodity Exchange Act.
(2) RELEVANT CONGRESSIONAL COMMITTEES.—The term ‘‘relevant congres-
sional 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 Agri-
culture, Nutrition, and Forestry of the Senate.
SEC. 506. STUDY ON NON-FUNGIBLE TOKENS.
(a) IN GENERAL.—The Comptroller General of the United States shall carry out
a study of non-fungible tokens that analyzes—
(1) the nature, size, role, purpose, and use of non-fungible tokens;
(2) the similarities and differences between non-fungible tokens and other dig-
ital commodities, including digital commodities and permitted payment
stablecoins, and how the markets for those digital commodities intersect with
each other;
(3) how non-fungible tokens are minted by issuers and subsequently adminis-
tered to purchasers;
(4) how non-fungible tokens are stored after being purchased by a consumer;
(5) the interoperability of non-fungible tokens between different blockchain
systems;
(6) the scalability of different non-fungible tokens marketplaces;
(7) the benefits of non-fungible tokens, 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 tokens have integrated with traditional
marketplaces, including those for music, real estate, gaming, events, and travel;
(10) whether and how non-fungible tokens can be used to facilitate commerce
or other activities through the representation of documents, identification, con-
tracts, 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 tokens markets.
(b) REPORT.—Not later than 1 year after the date of the enactment of this Act,
the Comptroller General, shall make publicly available a report that includes the
results of the study required by subsection (a).
SEC. 507. STUDY ON EXPANDING FINANCIAL LITERACY AMONGST DIGITAL COMMODITY
HOLDERS.
(a) IN GENERAL.—The Commodity Futures Trading Commission with the Securi-
ties and Exchange Commission shall jointly conduct a study to identify—
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(1) the existing level of financial literacy among retail digital commodity hold-
ers, including subgroups of investors identified by the Commodity Futures Trad-
ing Commission with the Securities and Exchange Commission;
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(2) methods to improve the timing, content, and format of financial literacy
materials regarding digital commodities 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 agen-
cies, 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 com-
munities and communities with majority minority populations;
(5) the most useful and understandable relevant information, including clear
disclosures, that retail digital commodity holders need to make informed finan-
cial decisions before engaging with or purchasing a digital commodity or service
that is typically sold to retail investors of digital commodities;
(6) the most effective public-private partnerships in providing financial lit-
eracy regarding digital commodities to consumers;
(7) the most relevant metrics to measure successful improvement of the finan-
cial 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 commodities.
(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 Com-
mission 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 Rep-
resentatives and the Committees on Banking, Housing, and Urban Affairs and on
Agriculture, Nutrition, and Forestry of the Senate.
SEC. 508. STUDY ON FINANCIAL MARKET INFRASTRUCTURE IMPROVEMENTS.
(a) IN GENERAL.—The Commodity Futures Trading Commission and the Securi-
ties and Exchange Commission shall jointly conduct a study to assess whether addi-
tional guidance or rules are necessary to facilitate the development of tokenized se-
curities and derivatives products, and to the extent such guidance or rules would
foster the development of fair and orderly financial markets, be necessary or appro-
priate 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 re-
port 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 Agri-
culture, Nutrition, and Forestry of the Senate.
SEC. 509. STUDY ON ILLICIT USE OF DIGITAL ASSETS.
(a) IN GENERAL.—One year after the date of the enactment of this Act, the Securi-
ties and Exchange Commission and the Commodity Futures Trading Commission,
in conjunction with the Secretary of the Treasury, shall conduct a comprehensive
review of how Foreign Terrorist Organizations and Transnational Criminal Syn-
dicates utilize digital assets in connection with illicit activities.
(b) SCOPE.—This review shall include an analysis of whether the Securities and
Exchange Commission and the Commodity Futures Trading Commission have the
necessary tools and resources to effectively detect, disrupt, and deter illicit financial
activity.
(c) REPORT.—The two Commissions shall jointly issue a report to the Committees
on Agriculture and on Financial Services of the House of Representatives and the
Committees on Agriculture, Nutrition, and Forestry and on Banking, Housing, and
Urban Affairs of the Senate on the findings of the Commissions.
SEC. 510. CONFLICT OF INTEREST RULEMAKING.
No later than 360 days after the date of the enactment of this Act, the Commodity
Futures Trading Commission shall issue rules establishing requirements for the
identification, mitigation, and resolution of conflicts of interest among and across
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registered entities (within the meaning of the Commodity Exchange Act) and per-
sons required to be registered with the Commission, including conflicts of interest
related to vertically integrated market structures and their varying responsibilities.
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PURPOSE AND SUMMARY
Introduced on May 29, 2025, by Chairman French Hill (R–AR),
H.R. 3633, the Digital Asset Market Clarity Act of 2025 (CLARITY
Act), provides the Commodity Futures Trading Commission (CFTC)
with jurisdiction over digital commodities and clarifies the Securi-
ties and Exchange Commission’s (SEC) jurisdiction over investment
contracts involving digital commodities. Additionally, the bill clari-
fies the regulatory treatment of secondary market trading of digital
commodities that were initially offered as part of an investment
contract. Finally, the bill implements customer protections on all
entities required to be registered with the CFTC and the SEC.
BACKGROUND AND NEED FOR LEGISLATION
H.R. 3633, as reported, establishes a digital asset market struc-
ture framework that is consistent with existing regulatory financial
market requirements and recognizes the unique characteristics of
digital assets. This functional framework provides digital asset
firms with regulatory certainty, establishes clear jurisdictional
lines between the SEC and CFTC, and ensures Americans have
comparable protections in digital asset markets to those in the tra-
ditional financial system. The reported legislation will ensure the
United States sets the global standard for the future of innovation.
INNOVATION
Digital assets and blockchain technology have the potential to
make our financial system more efficient and accessible to con-
sumers. At a May 6, 2025, Joint Roundtable of the House Com-
mittee on Financial Services (HFSC) Subcommittee on Digital As-
sets, Financial Technology, and Artificial Intelligence and the
House Committee on Agriculture (HAC) Subcommittee on Com-
modity Markets, Digital Assets, and Rural Development (May 2025
Joint Roundtable), James Rathmell, General Counsel of Haun Ven-
tures, explained, ‘‘With crypto, we believe money, assets, and mar-
kets will become like everything else on the internet: transferable
at the speed of information, accessible, programmable, transparent,
and auditable.’’
Because digital assets can be accessed from anywhere, at any
time, by anyone with an internet connection, digital assets solve
some of the accessibility constraints associated with traditional fi-
nancial services. At an April 9, 2025, hearing before the HFSC
Subcommittee on Digital Assets, Financial Technology, and Artifi-
cial Intelligence (April 2025 HFSC Hearing), Jacob Werrett, Chief
Legal Officer of Polygon Labs, testified, ‘‘Unlike traditional finan-
cial services, blockchains do not typically require users to meet spe-
cific eligibility criteria such as credit checks, geographic restric-
tions, or minimum financial thresholds. Whether for saving, invest-
ing, or borrowing, blockchains offer the opportunity for greater fi-
nancial freedom and access, particularly in regions where tradi-
tional banking infrastructure is lacking or unavailable.’’
At a February 11, 2025, hearing before the Subcommittee on Dig-
ital Assets, Financial Technology, and Artificial Intelligence, (Feb-
ruary 2025 HFSC Hearing), Ji Hun Kim, President and Acting
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CEO of the Crypto Council for Innovation, testified, ‘‘We are in the
early innings of increased traditional finance adoption of digital
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asset and blockchain technologies to enhance the efficiency, trans-
parency, and security of market infrastructure.’’ At the same hear-
ing, former CFTC Chairman Timothy Massad, who currently
serves as a Research Fellow and Director of the Digital Assets Pol-
icy Project at the Kennedy School of Government at Harvard Uni-
versity, provided an explanation for traditional firms staying on the
sidelines of the digital asset ecosystem. He explained, ‘‘the absence
of a clear regulatory framework has caused some institutions to re-
frain from making investments that might lead to applications of
greater utility.’’ Mr. Kim further emphasized the need for regu-
latory and legislative clarity to preserve digital asset innovation in
the United States, emphasizing, ‘‘It is important for the U.S. to
build upon the progress made during the 118th Congress and en-
sure U.S. leadership in digital assets at the global level . . . in-
creased clarity regarding regulatory expectations will unleash fur-
ther innovation and ensure that American markets remain the
envy of the world.’’
Mark Tague, Co-Founder and Chief Revenue Officer of
CattleProof Verified LLC, testified at an April 9 HAC Sub-
committee on Commodity Markets, Digital Assets, and Rural De-
velopment hearing (April 2025 HAC Hearing) stating, ‘‘other juris-
dictions are actively creating regulatory certainty for digital assets
and blockchain technology. The U.S. risks falling behind if it does
not foster an environment that encourages and supports innovation
in this space.’’ At the same hearing, Mike Horton, Project Creator
at the GEODNET Foundation, testified that, ‘‘it is imperative that
future innovators have absolute clarity around how digital assets
are to be regulated. A lack of clarity stifles innovation and discour-
ages investment in the U.S.’’
At a June 4, 2025, hearing before the HAC (June 2025 HAC
Hearing), Dr. Avery Ching, the CEO and Co-Founder of blockchain
developer Aptos Labs, also spoke on the importance of supporting
innovation:
‘‘Just as the internet rewired everyday life, decentralized
networks will form the core infrastructure of the coming
digital economy—delivering systems that are transparent,
interoperable, designed for innovation, and will redefine
how we engage with the world around us.
Tokens serve a vital role in every application built on a
blockchain. For blockchain innovation to expand respon-
sibly in the U.S., developers need clear regulatory guid-
ance around token issuance and distributions. We’re ready
to help realize that mission, and we’re grateful for the
Committee’s leadership in making it possible.
Market structure legislation and well-defined, consistent
rules around token issuance and distribution will ensure
that networks like Aptos can function as designed, U.S.
builders can innovate while staying compliant and com-
petitive, and regulators can enforce meaningful consumer
protections.
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The infrastructure is ready. Regulatory clarity will en-
sure U.S. leadership in the next era of the internet.’’
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ECONOMIC IMPACT
The lack of a comprehensive federal regulatory framework for
digital assets incentivizes digital asset innovators to move offshore
to pursue development overseas, at the expense of U.S. economic
growth. Other countries have built frameworks and become devel-
opmental hubs for the digital asset ecosystem. Currently, the larg-
est trading platform and the largest stablecoin issuer are based
outside of the United States.
Many jurisdictions are successfully building digital asset regu-
latory frameworks and incorporating distributed ledger technology
into their financial systems. For example, the European Union ap-
proved its Markets in Crypto-Assets (MiCA) framework, and the
United Kingdom has worked towards its own digital asset regu-
latory framework.
At the February 2025 HFSC Hearing, Coy Garrison, Partner at
Steptoe LLP and former counsel to SEC Commissioner Hester
Peirce, testified, ‘‘On the global stage, the U.S. ceded leadership in
this technology to other jurisdictions as entrepreneurs and capital
flew to jurisdictions willing to provide regulatory certainty for the
industry, including the European Union, United Arab Emirates,
and Hong Kong.’’ During the May 2025 Joint Roundtable, Greg
Tusar, Vice President of Institutional Product of Coinbase Global,
Inc., further emphasized the competitive disadvantage the United
States faces in the absence of market structure legislation:
‘‘While Singapore, Switzerland, and the European Union
have adopted unified frameworks that attract talent and
capital, the fragmented U.S. regulatory landscape coupled
by an enforcement-first approach has pushed innovators
overseas. Without a clear, consistent roadmap for compli-
ance across all states, developers and businesses find
themselves focusing on jurisdictions where regulations are
predictable and accessible, leaving the United States at a
competitive disadvantage.’’
During the April 2025 HAC Hearing, Bill Hughes, Senior Coun-
sel and Director of Global Regulatory Matters of Consensys Soft-
ware Inc., highlighted the potential of blockchain projects, saying,
‘‘new computer networks like Ethereum have enticed meaningful
computer engineering talent to migrate to the blockchain space to
build the apps that will impact our future. What we see with
Ethereum is the building of a new world computer.’’ He added,
‘‘Blockchain unlocks a software application frontier that can mean-
ingfully impact the real world in ways the current internet simply
cannot.’’
CONSUMER PROTECTION
The current regulatory framework for digital assets fails to pro-
vide adequate consumer protection. At a June 4, 2025, hearing be-
fore the HFSC (June 2025 HFSC Hearing), former CFTC Chairman
Rostin Behnam, who currently serves as a Distinguished Fellow at
the Psaros Center for Financial Markets & Policy at Georgetown
University, explained, ‘‘for far too long, the vast majority of the dig-
dmwilson on DSK7X7S144PROD with REPORTS
ital asset market [has been] unregulated and American investors
vulnerable to fraud and manipulation.’’ Digital commodities, as de-
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62
fined in the CLARITY Act, account for roughly 70 percent of the
total market capitalization on digital assets traded today. Because
there is no direct federal oversight of the digital commodity mar-
ketplace, there are no federally mandated customer protections, in-
cluding requirements pertaining to customer disclosures, segrega-
tion of customer funds, and conflicts of interest. Additionally, with-
out registration and oversight of digital commodity intermediaries
and trading platforms, customers are unable to discern the rep-
utable firms from the disreputable. Consequently, customers face
significant risks with respect to the digital commodities they pur-
chase, how they purchase those digital commodities, how an inter-
mediary or trading platform custodies their cash, securities, and
digital commodities, and their ability to access those digital com-
modities, especially if the intermediary or trading platform holding
their digital commodities dissolves.
At the February 2025 HFSC Hearing, Coy Garrison outlined how
the lack of a comprehensive market structure framework for digital
assets has impacted consumers: ‘‘Americans who hold and trade
digital assets are left unprotected with no regulatory framework
imposing baseline protections.’’ During the June 2025 HFSC Hear-
ing, Vivek Raman, Co-Founder and CEO of Etherealize, testified,
‘‘the lack of clarity harms the very investors we aim to protect. A
prime example is the collapse of offshore exchanges or issuers that
were not subject to robust oversight and U.S. regulatory standards.
Regulatory clarity will raise the bar for conduct in this industry by
bringing serious players into compliance and weeding out bad ac-
tors.’’
At the June 2025 HFSC Hearing, Katherine Minarik, Chief
Legal Officer at Uniswap Labs, explained why all Americans—even
those that are crypto skeptics—should want comprehensive digital
asset legislation stating, ‘‘If you are deeply skeptical of crypto, then
you should want this legislation even more. Because without it, we
are not protecting the public, we are abandoning them.’’
Daniel J. Davis, former General Counsel at the CFTC, partici-
pating in the May 2025 Joint Roundtable, stated that, ‘‘there are
significant rules [at the CFTC] regarding the segregation and pro-
tection of customer funds.’’ He added that, ‘‘[t]he CFTC also has ex-
tensive rules to protect retail customers engaging in certain foreign
exchange transactions.’’ Chelsea Pizzola, Partner at Willkie Farr &
Gallagher LLP, highlighted at the June 2025 HAC Hearing how
CFTC oversight provides necessary consumer protections in her
testimony:
‘‘The CFTC’s oversight of digital asset markets is not
only long-running, but also battle-tested: in the 2022 fail-
ure of digital asset exchange operator FTX, while other
FTX trading platforms revealed a total $8.9 billion short-
fall in customer funds and went into bankruptcy, FTX’s
CFTC-regulated DCM, swap execution facility (‘‘SEF’’), and
[derivatives clearing organization] survived without any
loss of customer assets and remain in operation today
under new ownership.’’
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Ryne Miller, Partner at Lowenstein Sandler LLP and Former
General Counsel of FTX US, illustrated the vital nature of a com-
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prehensive market structure framework to consumer protection at
the June 2025 HAC Hearing:
‘‘Had the regulatory structure provided for in the bill
currently being considered by this Committee and ulti-
mately Congress applied to FTX, the story I just told
would almost certainly have a much different ending. Ex-
aminations, governance requirements, audits, reporting,
recordkeeping, and customer asset segregation require-
ments directly address the shortfalls that have allowed
various digital asset industry failures and thefts to occur.’’
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 there-
under 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 reg-
istration and regulatory requirements for exchanges and inter-
mediaries. Under the CEA, the CFTC also has ‘‘after-the-fact’’ en-
forcement jurisdiction over fraud and manipulation in the cash or
spot commodity markets (e.g., buying or selling a commodity, in-
cluding 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 J. Davis, former General Counsel at the CFTC, explained
at the May 2025 Joint Roundtable that, ‘‘neither the CFTC nor any
other federal regulator has plenary regulatory authority over the
trading of digital assets that qualify as commodities . . . there ap-
pears to be a significant gap at the federal level in the regulation
of spot digital assets.’’ At the June 2025 HAC Hearing, Mrs.
Pizzola, Partner at Willkie Farr & Gallagher LLP, shared this
view, testifying, ‘‘[t]hough the CFTC currently does not have ple-
nary regulatory authority over spot commodity markets, it has
anti-fraud and anti-manipulation authority over such markets.’’
During the June 2025 HFSC Hearing, former CFTC Chairman
Behnam testified about the longstanding nature of the spot market
gap and its detrimental impact:
‘‘The principal objective of market structure legislation
. . . should be to provide regulatory oversight of the spot
market for digital asset tokens that are not securities.
That structural gap in our regulatory framework has led
to the high degree of fraud, manipulation and lack of in-
vestor protection, as well as rampant speculation, that has
characterized the digital asset sector to date. I have spo-
ken about this gap since shortly after I became chairman
of the [CFTC] in 2014 and we declared bitcoin to be a com-
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modity.’’
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COMMODITY VS. SECURITY
Under the Biden Administration, former SEC Chairman Gary
Gensler opined on numerous occasions that the, ‘‘test to determine
whether a crypto asset is a security is clear.’’ However, SEC Com-
missioner Hester Peirce and former SEC Commissioner and Acting
Chairman Elad Roisman disagreed, citing requests the SEC re-
ceived for clarity and the consistent outreach to the Commission
staff for no-action and other relief. During Chairman Gensler’s ten-
ure at the SEC, Commissioner Peirce repeatedly emphasized her
concerns with the SEC’s enforcement-centric approach and high-
lighted the importance of regulatory clarity for the digital asset
markets.
Under the Securities Act of 1933 (Securities Act) and the Securi-
ties Exchange Act of 1934 (Exchange Act), the SEC has full regu-
latory authority over the offer, sale, and the trading of securities,
including investment contracts, and many 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
broadly in statute. The federal securities laws define the term ‘‘se-
curity’’ 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 CEA defines ‘‘commodity’’ broadly to include all ‘‘goods and
articles and all services, rights, and interests . . . in which con-
tracts for future delivery are presently or in the future dealt in.’’
In 2015, during the Obama Administration, the CFTC clarified
that bitcoin and certain other virtual currencies are commodities
under the CEA.
Because these legal definitions are broad and overlapping, the
boundary between a security and commodity can be unclear, and
it can be difficult to determine whether a digital asset is offered as
part of an investment contract or falls under the definition of com-
modity in the CEA. As Tiffany Smith, Partner at WilmerHale,
pointed out during the April 2025 HFSC Hearing, the SEC’s broad
interpretation of its authority has made determining the legal clas-
sification of digital asset difficult:
‘‘The term ‘digital assets’ has broadly been used by the
SEC to refer to ‘an asset that is issued and transferred
using distributed ledger or blockchain technology’ and in-
cludes virtual currency, coins, and tokens. The SEC also
used the term ‘crypto asset security’ to refer to digital as-
sets that meet the definition of ‘security’ under the federal
securities laws and that rely on cryptographic protocols.
Importantly, these broad terms combined with the expan-
sive past views of SEC officials that most digital assets are
offered and sold as securities, failed to distinguish between
different types of digital assets, including those that are
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intended to be offered and sold as securities, like tokenized
securities and security tokens, versus assets that were not
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intended to be offered and sold as securities, like many
other types of crypto assets.’’
Until there is a consistent, clear framework in place, market par-
ticipants, consumers, and investors will continue to seek regulatory
clarity given the requirements that stem from the classification of
a particular digital asset. This is a reality reiterated by Greg
Tusar, Vice President of Institutional Product of Coinbase Global,
Inc., during the May 2025 Joint Roundtable:
‘‘The root of the current regulatory confusion is token
classification . . . current frameworks fail to offer objective
criteria for determining how assets should be classified,
forcing developers and market participants to operate in
regulatory gray areas . . . the need for Congress to ad-
dress the issue of token classification is absolutely critical
to the healthy functioning of markets. The United States
needs a consistent framework for token classification that
reflects the unique qualities of digital assets whose value
and functionality is derived from a blockchain network,
and Congress has a critical role in bringing this about.’’
Similarly, Dr. Chris Brummer’s, Sesquicentennial Professor of Fi-
nancial Technology at Georgetown University Law Center, testi-
mony at the April 2025 HAC hearing echoed the need for a com-
prehensive digital asset market framework from Congress to define
jurisdiction:
‘‘In the course of my research, I asked the SEC on many
occasions to rethink and modernize its approach, like
many of you today. And I hoped and waited for the CFTC
to be empowered legislatively to do what it does best—to
innovate. But the SEC’s leadership had no interest, and
the CFTC was left wanting for basic powers over spot mar-
kets to be able to deliver on its end.’’
At the June 2025 HAC Hearing, Mrs. Pizzola, Partner at Willkie
Farr & Gallagher LLP, affirmed the CFTC’s experience and exper-
tise are best-suited to fill this void:
‘‘The [CLARITY Act] applies many of the same remedies
that cured the problem in 2000, including a core principles
framework for digital commodity exchanges and a self- cer-
tification listing process. This flexible, adaptable frame-
work is particularly well-suited for the relatively novel and
constantly evolving nature of digital asset markets. There
is no better agency to implement such a regulatory frame-
work in furtherance of responsible innovation than the one
that has done so for the last twenty-five years, allowing
the markets under its jurisdiction to become by far the
largest, and the most vibrant and robust, of their kind in
the world.’’
INCOMPATIBILITY OF SECURITIES LAWS
Under the Biden Administration, many digital asset brokers and
dealers, and issuers, asserted that the SEC did not provide a viable
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path for the registration of digital asset intermediaries and the of-
fering of securities. Moreover, the SEC’s regulations are heavily de-
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pendent on the roles of intermediaries and therefore directly at
odds with transactions based on decentralized blockchain tech-
nology.
At the June 2025 HFSC Hearing, Elad Roisman, Partner at
Cravath and a former Commissioner and Acting Chairman of the
SEC, explained:
‘‘The primary challenge in regulating digital assets is
the reality that the existing federal securities statutory
and regulatory framework does not, in many cases, square-
ly address whether the many types of digital assets—with
varying characteristics—should be covered . . . As digital
assets have evolved, it has become clear that many of
these assets are unlike the traditional assets for which the
existing statutory and SEC regulatory frameworks were
designed.’’
Roisman further testified that, ‘‘clarity has been sparse regarding
the status of market intermediaries and their ability to hold, trans-
act in, and act as custodian of digital asset securities.’’
During the May 2025 Joint Roundtable, Alex Miller, CEO of Hiro
Systems PBC, described his company’s experience attempt to raise
capital through one of the exempt offering pathways at the SEC:
‘‘We approached the SEC with the intention of com-
plying with the federal securities laws. To date, we have
spent well more than $15 million dollars on the offering
process, compliance with the reporting regime, and our de-
fense against an unwarranted investigation triggered by
our attempts to work with the Staff. That amount rep-
resents more than the entire amount raised through the
offering. Though we walked willingly into the SEC’s doors,
we were in many ways left with a competitive disadvan-
tage relative to other projects, especially those based out-
side the U.S. Based on our experience, I believe that there
is limited efficacy for existing registration and qualifica-
tion processes as a mechanism for a tailored disclosure re-
gime without significant substantive amendments.’’
At the April 2025 HFSC Hearing, Rodrigo Seira, Special Counsel
at Cooley LLP, highlighted the incompatibility of the SEC’s exist-
ing disclosure regime with digital assets and blockchain technology
testifying, ‘‘the current securities disclosure forms focus on irrele-
vant corporate and financial information while ignoring critical
crypto-specific aspects like governance mechanisms, network de-
sign, tokenomics, cybersecurity, and the network utility of the as-
sets. As a result, forcing crypto into the traditional securities dis-
closure regime is harmful to the very public securities laws are in-
tended to protect because it fails to provide purchasers with the
material information they need to determine the value and risks of
their crypto holdings.’’
At the same hearing, Tiffany Smith, Partner at WilmerHale,
highlighted additional areas of incompatibility between the digital
asset ecosystem and the U.S. securities laws:
‘‘My comments are focused on crypto assets that were
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not initially offered and sold as securities. With respect to
these assets, there are many complex challenges to com-
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plying with the federal securities laws, and I want to high-
light a few . . . securities intermediaries cannot offer or
sell crypto assets that were not sold in compliance with the
Securities Act, market structure for crypto differs from tra-
ditional securities, and custody practices for crypto assets
differ from traditional securities.’’
Coy Garrison, former counsel to SEC Commissioner Hester
Peirce, testified at the April 2025 HAC Hearing, underscoring the
novel and contested application of current securities laws to the
digital asset marketplace perpetuated by the Biden Administration
SEC:
‘‘The SEC under Gary Gensler adopted a broad and
shifting interpretation suggesting that a digital asset em-
bodies an ‘investment contract’ in secondary market trans-
actions and went so far as to coin the term ‘crypto asset
security’ in court filings alleging that major centralized
spot market exchanges were operating as unregistered se-
curities exchanges, broker-dealers, and clearing agencies.
Multiple district courts reprimanded the agency for its
legal imprecision, with one court describing the label ‘un-
clear at best and confusing at worst . . .’ ’’
Michael S. Piwowar, former SEC Commissioner and Acting
Chairman testified at the June 2025 HAC Hearing on the merits
of the CLARITY Act complementing existing securities laws while
tailoring them to digital assets:
‘‘The SEC’s experience striking the right balance of dis-
closures for investors, giving them just what they need—
not too much, not too little—to make informed investment
decisions to buy, sell, or hold securities, is exactly what is
needed in the digital asset markets. A similar consider-
ation for striking the right balance for issuers of securi-
ties—not too burdensome, not too sparse—is also what is
needed for capital-raising issuers of digital assets that fall
under the SEC’s jurisdiction.
‘‘The CLARITY Act establishes a critical role for the
SEC to provide transparency for new digital commodity
issuances. Like primary offerings of public companies, the
SEC will ensure that investors have helpful information
about primary offerings of digital assets to make informed
decisions. The CLARITY Act also recognizes that meaning-
ful information about the digital commodity issuer changes
over the maturation of the blockchain system. It provides
for a ratcheting down of disclosure requirements as the
digital commodity issuer is no longer in control of the
blockchain system and eventually no longer a meaningful
part of the development process.’’
LASTING REGULATORY CLARITY
At the June 2025 HFSC Hearing, Katherine Minarik, Chief
Legal Officer at Uniswap Labs, underscored the need to change the
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United States’ current approach to digital assets by enacting legis-
lation:
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‘‘The absence of an initial legislative framework for dig-
ital asset and blockchain technology from Congress has al-
ready led to irreparable harm to America’s digital asset
and blockchain industry. What began as attempts to
stretch existing authority conferred to regulators to their
limits evolved quickly into conflicting interpretations of
those laws, refusals by some regulators to share their in-
terpretations of those laws before launching enforcement
actions, and even at times misrepresentations by regu-
latory agency lawyers in court leading to sanctions.
Against this backdrop of expansive enforcement investiga-
tion and actions against multiple American companies
building in good faith, other regulators took steps to cut off
these companies’ access to basic operational banking serv-
ices. It is no surprise that courts called for help from Con-
gress. And now Congressional action is necessary to put an
end to this chapter.’’
While the SEC has changed its approach under the current
Trump Administration, creating a Crypto Task Force, rescinding
and reviewing many of the previous rulemakings and guidance,
and changing its approach to enforcement, comprehensive market
structure legislation is needed to solve the most pressing issues fac-
ing the ecosystem.
At the April 2025 HFSC Hearing, Tiffany Smith, Partner at
WilmerHale, underscored the need for legislation to provide lasting
clarity to the digital asset ecosystem:
‘‘Because the jurisdiction of the SEC and other federal
agencies is limited, Congressional intervention is nec-
essary to create a comprehensive and clear regulatory
framework for digital assets. In addition, Congress should
consider codifying guidance of the SEC and other agencies
to create regulatory certainty. As seen through recent ac-
tions, guidance issued by agencies can be proposed and re-
scinded, thus Congressional action could provide more reg-
ulatory certainty and consistency.’’
During the April 2025 HAC Hearing, Bill Hughes, Senior Coun-
sel and Director of Global Regulatory Matters of Consensys Soft-
ware Inc., emphasized that, ‘‘durable clarity on the law is what we
need today to ensure we can capture the opportunities presented
by blockchain technology. What we can build is limited only by our
imagination and the law.’’
At the June 2025 HAC Hearing Ryne Miller, Partner at
Lowenstein Sandler LLP and former General Counsel of FTX US,
echoed these benefits of legislative clarity saying, ‘‘[a] federal
framework, especially one that preempts duplicative state regula-
tion, would level the playing field and bring clarity to innovators
and investors alike. It would allow regulators to concentrate exper-
tise and resources where they are most needed.’’
Under the Biden Administration, the SEC pursued enforcement
actions against entities in the digital asset market while failing to
develop comprehensive regulations that would bring digital asset
intermediaries under their jurisdiction. This approach led many en-
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trepreneurs to warn against doing business in the United States
and advocate for digital asset companies to move offshore. Congress
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must act to ensure that consumers have adequate protections and
developers can build and innovate in the United States for the fore-
seeable future.
THE COMMITTEE-REPORTED LEGISLATION
The House Agriculture Committee (HAC) and House Financial
Services Committee (HFSC) have worked toward establishing a
workable framework for digital assets over several congresses by
introducing bills, holding hearings and roundtables, and engaging
industry and federal agencies. In the 118th Congress, the HAC and
HFSC began a strong partnership to further their work and craft
comprehensive digital asset market structure legislation.
The Committees worked together throughout the 118th Congress
to draft legislation that sought to address some of the most press-
ing issues facing digital asset markets. The HFSC held three hear-
ings and the HAC held two hearings. The Committees also held a
historic joint hearing. On July 20, 2023, HAC Chairman Thompson
introduced H.R. 4763, the Financial Innovation and Technology for
the 21st Century Act (FIT21), with Representatives French Hill,
Dusty Johnson, Warren Davidson, and Tom Emmer as original co-
sponsors. The bill passed through both the HAC and HFSC and
passed the House Floor on a bipartisan basis by a recorded vote of
279–136.
Since the House passage of FIT21 during the 118th Congress,
the Committees have worked to refine and update the legislation.
At the start of the 119th Congress, HAC Chairman Thompson and
HFSC Chairman Hill published a blueprint for digital asset market
structure legislation, reaffirming their commitment to working to-
gether to provide clarity to the digital asset markets. The Commit-
tees received feedback from a range of stakeholders and worked to
refine and simplify FIT21. This work included two hearings in the
HAC and four hearings in the HFSC on digital asset market struc-
ture, as well as a joint public roundtable, to examine regulatory
gaps with respect to digital assets.
In the 119th Congress, the Committees have received testimony
regarding digital asset market structure from former CFTC Chair-
men Rostin Behnam and Timothy Massad, former SEC Commis-
sioners and Acting Chairmen Michael S. Piwowar and Elad
Roisman, other former government officials, legal experts in com-
modities and securities laws, and various digital asset ecosystem
participants, including trading platforms, digital asset projects, and
blockchain developers. Almost all witnesses testified that there is
a regulatory gap over the digital asset spot market and significant
ambiguity as to where digital assets fall between the SEC’s juris-
diction over securities and the CFTC’s jurisdiction over commodity
derivatives that must be addressed through legislation. Indeed,
rather than hiding from regulation, market participants called on
Congress to resolve the regulatory gap.
During the June 2025 HAC Hearing, Ryne Miller, Partner at
Lowenstein Sandler LLP and Former General Counsel of FTX US,
urged Congress to act, saying, ‘‘[o]n the legislative side, I am con-
fident in suggesting to this Committee that the Digital Asset Mar-
ket Clarity (CLARITY) Act is good to go; it is ready. A decade of
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legislative inaction in pursuit of perfection has already wrought its
damage.’’
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The work of both Committees culminated in the release of a dis-
cussion draft of digital asset market structure legislation on May
5, 2025. The Committees revised the bill to address feedback from
federal agencies, market participants, and Members of Congress on
both sides of the aisle. The CLARITY Act was introduced on May
29, 2025. Finally, changes were made to the bill through amend-
ments, including comprehensive amendments in the nature of a
substitute, during each mark-up, which are reflected in this Report.
The Committee-reported bill addresses the issues that have
plagued the digital asset ecosystem and answers the calls for regu-
lation from various agencies and stakeholders by establishing a
comprehensive regulatory framework for the United States’s digital
asset markets.
SECTION-BY-SECTION
TITLE I—DEFINITIONS; RULEMAKING; PROVISIONAL REGISTRATION
Section 101. Definitions under the Securities Act of 1933
Section 101 amends Section 2(a) of the Securities Act of 1933 by
adding definitions for the following terms, listed with their respec-
tive paragraph number: (20) Blockchain; (21) Blockchain Applica-
tion; (22) Blockchain Protocol; (23) Blockchain System; (24) Decen-
tralized Governance System; (25) Digital Asset; (26) Digital Com-
modity; (27) Digital Commodity Affiliated Person; (28) Digital Com-
modity Issuer; (29) Digital Commodity Related Person; (30) End
User Distribution; (31) Mature Blockchain System; (32) Permitted
Payment Stablecoin; and (33) Securities Laws.
Section 102. Definitions under the Securities Act of 1934
Section 102 amends Section 3(a) of the Securities Act of 1934 by
adding definitions for the following terms, listed with their respec-
tive paragraph number: (82) Bank Secrecy Act; and (83) Additional
Digital Commodity-Related Terms.
Section 103. Definitions under the Commodity Exchange Act
Subsection (a) of section 101 amends section 1a of the Com-
modity Exchange Act. Paragraphs (1), (2), and (3) amend para-
graphs 1a (10), (11), and (12), respectively, of such Act by adding
‘‘digital commodity’’ as a commodity for purposes of defining ‘‘Com-
modity pool’’, ‘‘Commodity pool operator’’, and ‘‘Commodity trading
advisor’’. Paragraphs (1) and (2) of the bill also add clarifying lan-
guage explicitly excluding from ‘‘Commodity pool’’ and ‘‘Commodity
pool operators’’’ transactions in digital commodities for the purpose
of acting as a custodian, managing inventory or payment instru-
ments, or maintaining or supporting the operation (or validating
transactions on) a blockchain system. Paragraph (4) adds a new
paragraph (16) to such Act of new ‘‘Terms Related to Digital Com-
modities’’’, including definitions for: (A) Associated Person of a Dig-
ital Commodity Broker; (B) Associated Person of a Digital Com-
modity Dealer; (C) Bank Secrecy Act; (D) Decentralized Finance
Messaging System; (E) Decentralized Finance Trading Protocol; (F)
Digital Commodity; (G) Digital Commodity Broker; (H) Digital
Commodity Dealer; (I) Digital Commodity Exchange; (J) Mixed Dig-
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ital Asset Transaction; and (K) Terms Defined Under the Securities
Act of 1933. Paragraph (5) adds digital commodity exchanges under
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the definition of ‘‘registered entity’’ as defined by section 1a of the
Commodity Exchange Act.
Subsection (b) lists multiple conforming amendments.
Section 104. Definitions under this Act
Section 104 lists numerous definitions from the Commodity Ex-
change Act, the Securities Act of 1933, and the Securities Act of
1934, and provides that those defined terms will have the same
meaning under the CLARITY Act.
Section 105. Rulemakings
Subsection (a) provides that the CFTC and the SEC shall jointly
issue rules to further define numerous listed terms.
Subsection (b) requires the CFTC and SEC to jointly issue rules
applicable to mixed digital asset transactions, including by further
defining such term.
Subsection (c) retains for U.S. individuals the rights to and pro-
tection of self-custody of digital assets.
Subsection (d) requires the CFTC and SEC to jointly issue rules,
procedures, or guidance relating to delisting assets for trading
under section 106 within 180 days of enactment of this Act.
Subsection (e) requires the CFTC and SEC to issue joint rules for
portfolio margining within 360 days of enactment of this Act.
Section 106. Registration for digital commodity exchanges, brokers,
and dealers; provisional status
Subsection (a) provides that a person shall not act as a digital
commodity broker, digital commodity dealer, or digital commodity
exchange after the end of 270 days after enactment of this Act un-
less the person is registered as such, as appropriate, under the
Commodity Exchange Act. It also directs the CFTC to develop a
process to expedite availability of such registration.
Subsection (b) allows a person registered in accordance with sub-
section (a) to have a provisional status until 270 days after final
rulemakings required under section 4u or 5i of the Commodity Ex-
change Act have gone into effect.
Subsection (c) provides that a person in provisional status shall
apply and be subject to the statutory requirements of this Act and
any rules or regulations promulgated under this Act, as applicable.
Subsection (d) requires any person acting as a digital commodity
exchange, broker, or dealer to disclose to the customers of the per-
son so acting that the person is not registered with or regulated by
the Commission.
Section 107. Commodity Exchange Act and securities laws savings
provisions
Subsection (a) provides that nothing in this Act shall apply to or
effect: a contract of sale of a commodity for future delivery or an
option on such contract; a swap; a security futures product; an op-
tion authorized under section 4c of the Commodity Exchange Act;
an agreement, contract, or transaction described in section
2(c)(2)(C)(i) of such Act; a leverage transaction authorized under
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section 19 of such Act; a security-based swap; a security futures
product; an option on or based on the value of a security; or the
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activities of any person with respect to any such agreement, con-
tract, or transaction.
Subsection (b) provides that this Act shall not authorize a digital
commodity exchange, broker, or dealer to engage in any activities
involving any transaction, contract, or agreement described in sub-
section (a)(1), solely by virtue of being registered or filing a state-
ment of provisional registration as a digital commodity exchange,
broker, or dealer.
Section 108. Administrative requirements
Section 108 amends section 4c(a) of the Commodity Exchange Act
to prohibit certain government employees from using certain gov-
ernmental information as a means to personally profit from a con-
tract of sale of a digital commodity or to impart nonpublic informa-
tion to assist another person in entering a contract of sale of a dig-
ital commodity. It further provides it shall be unlawful for a person
to knowingly use or steal such information to enter into for per-
sonal gain a contract of sale of a digital commodity.
Section 109. International cooperation
Section 109 provides that the CFTC and SEC shall consult and
coordinate with foreign regulatory authorities on the application of
consistent international standards with respect to the regulation of
digital assets, and may enter into such information-sharing ar-
rangements as may be deemed to be necessary or appropriate in
the public interest.
Section 110. Application of the Bank Secrecy Act
Subsection (a) adds ‘‘digital commodity broker,’’ ‘‘digital com-
modity dealer,’’ and ‘‘and any digital commodity exchange reg-
istered, or required to register, under the Commodity Exchange Act
which permits direct customer access’’ to the ‘‘Additional defini-
tions’’ subsection of the Bank Secrecy Act (31 U.S.C. 5312(c)).
Subsection (b) requires the Comptroller General of the United
States to conduct a study and issue a report to Congress on the
risks posed by centralized intermediaries that are primarily located
in foreign jurisdictions that provide services to U.S. persons with-
out regulatory requirements that are substantially similar to the
requirements of the Bank Secrecy Act.
Section 111. Implementation
Subsection (a) provides that unless otherwise provided, the CFTC
and SEC shall promulgate rules and regulations required under
this Act not later than 360 days of enactment.
Subsection (b) allows the CFTC or SEC to prepare for the Act’s
implementation before any effective date provided in the Act.
TITLE II—OFFERS AND SALES OF DIGITAL COMMODITIES
Section 201. Treatment of investment contract assets
Subsection (a) amends section 2(a) of the Securities Act by add-
ing in paragraph (1) that the term ‘‘investment contract’’ does not
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include an investment contract asset. It also adds a new paragraph
(36) defining the term ‘‘investment contract asset’’.
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Subsections (b) through (e) make conforming amendments to the
Investment Advisers Act of 1940, the Investment Company Act of
1940, the Securities Exchange Act of 1934, and the Securities In-
vestor Protection Act of 1970, respectively.
Section 202. Exempted primary transaction in digital commodities
Subsection (a)(1) amends section 4(a) of the Securities Act of
1933 by adding a new paragraph (8) exempting from section (5) of
such Act (Prohibitions Relating to Interstate Commerce and the
Mails) the offer or sale of an investment contract involving units
of a digital commodity by its digital commodity issuer under cer-
tain conditions.
Subsection (a)(2) amends the Securities Act of 1933 by adding a
new section 4B: ‘‘Requirements with Respect to Certain Digital
Commodity Transactions’’. Section 4B(a) provides for SEC jurisdic-
tion on disclosures described in the section. Section 4B(b) lists in
detail the terms and conditions for a digital commodity issuer offer-
ing or selling an investment contract involving units of a digital
commodity. Section 4B(c) provides requirements for a person acting
as an intermediary in connection with the offer or sale of an invest-
ment contract involving units of a digital commodity. Section 4B(d)
directs the SEC to issue rules to apply the disqualification provi-
sions under section 230.262 of title 17, Code of Federal Regula-
tions, to the exemption provided under section 4(a)(8). Section
4B(e)(1) directs the SEC to issue rules applying additional obliga-
tions to digital commodity issuers, digital commodity related per-
sons, and digital commodity affiliated persons of a blockchain sys-
tem that does not timely become a mature blockchain system; para-
graph (2) of such section forbids the SEC from permitting addi-
tional raising of capital for a blockchain system that has failed to
mature, unless the SEC has qualified any offering statement re-
lated to such additional raising of capital.
Subsection (b) makes conforming amendments to section 12(g)(6)
of the Securities Exchange Act of 1934 and section 18(b)(4) of the
Securities Act of 1933.
Subsection (c) addresses digital commodity issuer requirements
for prior issuers.
Subsection (d)(1) provides a rule of construction that this section
may not be construed as prohibiting the offer or sale of an invest-
ment contract involving units of a digital commodity in reliance on
an exemption provided under section 3, 4(a), or 19 of the Securities
Act of 1933 other than that provided under section 4(a)(8) of the
Securities Act of 1933. Paragraph (2) permits the SEC to issue cer-
tain rules relating to capital raising of a blockchain system that
has not matured, and for the offer and sale of investment contracts
involving units of a digital commodity by foreign issuers.
Section 203. Treatment of secondary transaction in digital commod-
ities that originally involved investment contracts
Subsection (a) provides that the offer or sale of a digital com-
modity that originally involved an investment contract by a person
other than the issuer of such digital commodity shall be deemed
not to be an offer or sale of the investment contract originally in-
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volving the digital commodity between the issuer of the investment
contract involving the digital commodity and the purchaser of such
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digital commodity under myriad securities, investment, and state
laws.
Subsection (b) states that an end user distribution does not in-
volve the offer or sale of a security.
Subsection (c) defines ‘‘agent’’ for this section.
Section 204. Requirements for offers and sales of digital commod-
ities by digital commodity related persons and digital com-
modity affiliated persons.
Section 204 adds a new section 4C to the Securities Act of 1933.
Subsection (a) of section 4C states that it shall be a violation of
this Act for a digital commodity affiliated person or a digital com-
modity related person to offer or sell a digital commodity acquired
directly from its issuer pursuant to an investment contract other
than as provided in this section.
Subsection (b) provides SEC jurisdiction over offers or sales of
digital commodities described in subsection (a).
Subsection (c) provides restrictions on digital commodity related
and affiliated persons prior to, and after blockchain system matu-
rity.
Subsection (d) clarifies that for purposes of this section, the use
of a digital commodity in the programmatic functioning of the
blockchain system to which it relates is not an offer or sale of a
digital commodity.
Subsection (e) makes it unlawful for any digital commodity
issuer, related person, or affiliated person, to use or employ, in con-
nection with the purchase or sale of any digital commodity, any
manipulative or deceptive device or contrivance in contravention of
such rules and regulations as the SEC may prescribe as necessary
or appropriate in the public interest or for the protection of inves-
tors.
Subsection (f) provides rules for previously issued digital com-
modities.
Subsection (g) provides rulemaking authority to the SEC to ex-
empt a digital commodity related or affiliated person from the re-
quirements of this section for the offer or sale of a digital com-
modity in order to foster the development of mature blockchain sys-
tems and fair and orderly markets.
Section 205. Mature blockchain system requirements
Section 205 amends Title I of the Security Exchange Act of 1934
by adding at the end a new section 42: ‘‘Mature Blockchain Sys-
tems.’’ Subsection (a) provides rules for the certification by the SEC
that the blockchain system to which a digital commodity relates is
a mature blockchain system.
Subsection (b) provides that the SEC may issue rules identifying
conditions by which a blockchain system, together with its related
digital commodity, shall be considered a mature blockchain system.
Subsection (c) provides that a blockchain system may be deemed
mature if certain criteria are met relating to system value,
functionality, openness, programming, governances, impartiality,
and distribution.
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Subsection (d) clarifies what a decentralized government system
is, and how a blockchain system may not be precluded from being
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considered a mature blockchain system solely due to its decentral-
ized governance system.
Subsection (e) provides that the SEC shall issue rules to carry
out this section within 270 days of enactment.
Section 206. Effective date
Section 206 provides an effective date of Title II of 360 days from
enactment, unless a provision requires a rulemaking, in which
case, the provision shall take effect on the later of 360 days after
the date of enactment of this Act or 60 days after the publication
in the Federal Register of the final rule implementing the provi-
sion.
TITLE III—REGISTRATION OF DIGITAL COMMODITIES AND PERMITTED
PAYMENT STABLECOINS
Section 301. Treatment of digital commodities and permitted pay-
ment stablecoins
Subsection (a) amends section 2(a)(1) of the Securities Act of
1933 to exclude from the term ‘‘security’’ a digital commodity or
permitted payment stablecoin.
Subsection (b) amends section 3(a)(10) of the Securities Exchange
Act of 1934 to exclude from the term ‘‘security’’ a digital commodity
or permitted payment stablecoin.
Subsection (c) amends section 202(a) of the Investment Advisors
Act of 1940 to exclude from the term ‘‘security’’ a digital commodity
or permitted payment stablecoin, and adds a new paragraph (32)
for digital commodity-related terms, defining the terms ‘‘digital
commodity’’ and ‘‘permitted payment stablecoin’’.
Subsection (d) amends section 2(a) of the Investment Company
Act of 1940 to exclude from the term ‘‘security’’ a digital commodity
or permitted payment stablecoin, and adds a new paragraph (55)
for digital commodity-related terms, defining the terms ‘‘digital
commodity’’ and ‘‘permitted payment stablecoin’’.
Subsection (e) amends the Securities Investment Protection Act
of 1970 to exclude from the term ‘‘security’’ a digital commodity or
permitted payment stablecoin.
Section 302. Anti-fraud authority over permitted payment
stablecoins and certain digital commodity transactions
Subsection (a) amends section 10 of the Securities Exchange Act
of 1934 by adding a new subsection (e) requiring rules that prohibit
fraud, manipulation, or insider trading, and related judicial prece-
dents, shall apply to permitted payment stablecoins and digital
commodities.
Subsection (b) adds a new section 6A to Title I of the Securities
Exchange Act of 1934. Section 6A(a) provides that permitted pay-
ment stablecoins may be brokered, traded, or custodied by a
broker, dealer or through an alternative trading system or national
securities exchange. Sections 6A(b) and (c) detail when the SEC
shall have jurisdiction over permitted payment stablecoin trans-
actions. Section 6A(d) is a rule of construction making clear that
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nothing in this section may be construed to prohibit permitted pay-
ment stablecoins from being custodied by any person or entity that
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76
is not a broker, dealer, alternative trading system, or national se-
curities exchange.
Section 303. Eligibility of alternative trading systems
Subsection (a) amends section 5 of the Securities Exchange Act
of 1934 to add a new subsection (b) preventing the SEC from pre-
cluding a trading platform from operating pursuant to a covered
exemption (defined in paragraph (2)) on the basis that the assets
traded or to be traded on such platform include digital commodities
or permitted payment stablecoins, and securities.
Subsection (b) amends section 3(a)(2) of the Securities Exchange
Act of 1934 to amend the term ‘‘facility’’ by adding that an alter-
native trading system primarily facilitating the trading of digital
commodities, permitted payment stablecoins, or both, is not a ‘‘fa-
cility’’ of an exchange.
Subsection (c) is a rule of construction clarifying that nothing in
this section or section 304 may be construed to prohibit a national
securities exchange from owning or operating any other type of al-
ternative trading system, or create a presumption that any other
type of alternative trading system owned or operated by a national
securities exchange is a facility of that exchange.
Section 304. Operations of alternative trading systems
Subsection (a) provides that the SEC shall have jurisdiction over
digital commodity activities engaged in by a registered broker or
registered dealer exempt from registration with the CFTC, and na-
tional securities exchanges.
Subsection (b) provides the SEC with rulemaking authority over
digital commodity activities and transactions engaged in by a
broker, dealer, or national securities exchange registered with the
SEC and exempt from registration with the CFTC.
Subsection (c) requires the SEC to revise the covered regulations
to permit a national securities exchange or affiliate thereof to oper-
ate an alternative trading system that permits the trading of dig-
ital commodities, permitted payment stablecoins, or both by reg-
istered brokers or registered dealers that are exempt from registra-
tion with the CFTC.
Subsection (d) requires the SEC to revise the covered regulations
to permit a registered broker or registered dealer that is exempt
from registration with the CFTC to operate an alternative trading
system that permits the trading of digital commodities, permitted
payment stablecoins, or both.
Subsection (e) permits alternative trading systems to trade upon
notice to the SEC in a manner prescribed by the SEC any digital
commodity that has been listed by a digital commodity exchange in
compliance with section 5i(c)(3) of the Commodity Exchange Act.
Subsection (f) requires the SEC to issue and revise rules regard-
ing whether alternative trading systems have an obligation to pro-
vide the prices and sizes of orders displayed to more than one per-
son in such alternative trading system of digital commodities to
self-regulatory organizations with members who trade in digital
commodities or permitted payment stablecoins.
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Subsection (g) requires the SEC to issue and revise rules relating
to listed principles of trade.
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Subsection (h) provides that the SEC shall require any registered
national securities association that has as a member a registered
broker or registered dealer that operates an alternative trading
system or otherwise transacts in digital commodities or permitted
payment stablecoins to adopt such rules as may be necessary to
further compliance with this section.
Subsection (i) is a rule of construction that enumeration of any
category of rules or regulations in this section shall not be con-
strued to limit the authority of the SEC to promulgate such rules
as may be necessary or appropriate to implement this section and
the purposes of this Act.
Subsection (j) requires the SEC and CFTC to enter into a memo-
randum of understanding relating to enforcement of section 5k of
the Commodity Exchange Act and this Act.
Subsection (k) defines ‘‘covered regulations’’ for purposes of this
section.
Subsection (l) is a rule of construction that nothing in this sec-
tion shall be construed to limit the anti-fraud, anti-manipulation,
or false reporting enforcement authorities of the CFTC with respect
to a contract of sale of a commodity and persons effecting such con-
tracts.
Section 305. Modernization of recordkeeping requirements
Subsection (a) provides that a person may consider records from
a blockchain system for purposes of books and records require-
ments for brokers, dealers, and exchanges under the Securities and
Exchange Act of 1934.
Subsection (b) requires the SEC to issue and revise such rules as
may be necessary to implement this section.
Section 306. Exemptive authority
Section 306 amends section 28 of the Securities Act of 1933 by
adding ‘‘orders’’ of the SEC to its exemptive authority under that
section.
Section 307. Additional registrations with the Commodity Futures
Trading Commission
Section 307 amends section 15 of the Securities Exchange Act of
1934 by adding a new subsection (p), which provides that a reg-
istered broker or registered dealer shall be permitted to maintain
a registration with the CFTC as a digital commodity broker or dig-
ital commodity dealer, to list or trade contracts of sale for digital
commodities.
Section 308. Exempting Digital commodities from state securities
laws
Section 308 amends section 18(b) of the Securities Act of 1933 by
adding a new paragraph (5) providing that a digital commodity
shall be treated as a covered security exempt from State securities
laws.
Section 309. Exclusion for decentralized finance activities
Section 309 amends the Securities Exchange Act of 1934 by add-
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ing a new section 15H: ‘‘Decentralized Finance Activities Not Sub-
ject to this Act.’’ Section 15H(a) lists decentralized finance activities
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that will not be subject to such Act. Section 15H(b) excepts from
subsection (a) the anti-fraud and anti-manipulation authorities of
the SEC.
Section 310. Treatment of custody activities by banking institutions
Subsection (a) limits certain requirements and liabilities of enti-
ties engaged in custody activities of digital commodities or per-
mitted payment stablecoins.
Subsection (b) defines certain banking and credit union terms for
purposes of this section.
Section 311. Digital commodity activities that are financial in na-
ture
Section 311 amends sections 4(k)(4)(A) and (E) of the Bank Hold-
ing Company Act of 1956 to include certain digital commodity ac-
tivities as being financial in nature for purposes of that Act.
Section 312. Effective date; administration
Section 312 provides an effective date for this title of 360 days
after enactment of this Act, or 60 days after final rule publication,
if applicable.
Section 313. Studies on foreign adversary participation
Subsection (a) provides that the Secretary of the Treasury, in
consultation with the CFTC and SEC, shall conduct a study and
submit a report to Congress on foreign government adversary par-
ticipation, ownership, and use of digital commodity markets.
Subsection (b) directs the Comptroller General to conduct a study
and submit a report to Congress on foreign government adversary
participation, ownership, and use of digital commodity markets.
TITLE IV—REGISTRATION FOR DIGITAL COMMODITY INTERMEDIARIES
AT THE COMMODITY FUTURES TRADING COMMISSION
Section 401. Commission jurisdiction over digital commodity trans-
actions
Subsection (a) amends section 2(a)(1) of the Commodity Ex-
change Act by adding a new subparagraph (J) regarding this Act
and the jurisdiction of the CFTC.
Subsection (b) amends section 2(c)(1) of the Commodity Exchange
Act to exclude from CFTC jurisdiction permitted payment
stablecoins.
Subsection (c)(1) amends section 2(c)(2) of the Commodity Ex-
change Act to allow a digital commodity broker to offer to or enter
into an agreement for margin financing with a customer for the
purchase or sale of a digital commodity. Paragraph (2) adds a new
subparagraph (F) to such Act providing for CFTC jurisdiction with
respect to digital commodity transactions. It also adds a new sub-
paragraph (G) providing the CFTC with certain limited jurisdiction
over a cash or spot agreement, contract, or transaction in a per-
mitted payment stablecoin that is on a registered entity.
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Subsection (d) makes a conforming amendment to section
2(a)(1)(A) of the Commodity Exchange Act.
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Section 402. Requiring futures commission merchants to use quali-
fied digital asset custodians
Section 402 amends section 4d of the Commodity Exchange Act
to allow futures commission merchants to use qualified digital
asset custodians.
Section 403. Trading certification and approval for digital commod-
ities
Section 403 amends section 5c of the Commodity Exchange Act
to include digital commodity exchanges under common provisions
applicable to registered entities. Paragraph (3) adds a new section
5c(c)(5) in such Act to provide special rules for digital commodity
contracts. Paragraph (4) adds a new section (d) in such Act to pro-
vide for the certification for digital commodity trading.
Section 404. Registration of digital commodity exchanges
Section 404 amends the Commodity Exchange Act by adding a
new section 5i: ‘‘Registration of Digital Commodity Exchanges’’.
Section 5i(a) provides generally that a trading facility that offers
or seeks to offer a cash or spot market in at least 1 digital com-
modity shall register with the CFTC as a digital commodity ex-
change.
Section 5i(b) applies prohibitions on certain trading practices re-
lating to digital commodity transactions and prohibits a digital
commodity exchange from acting as its own counterparty, with ex-
ceptions.
Section 5i(c) requires generally that to be registered, a digital
commodity exchange must comply with the CFTC’s core principles
and other applicable requirements the CFTC may impose by rule
or regulation, including rules relating to listing standards, stand-
ards on treatment of customer assets, trading and trade processing
monitoring, the ability for the exchange to obtain certain informa-
tion, the exercise of emergency authority, the timely publication of
trading information, recordkeeping and reporting, antitrust consid-
erations, conflicts of interest, financial resources, disciplinary pro-
cedures, governance fitness standards, and system safeguards.
Section 5i(d) provides generally that a digital commodity ex-
change shall hold customer money, assets, and property in a man-
ner to minimize the risk of loss to the customer or unreasonable
delay in customer access to the money, assets, and property of the
customer. Paragraph (2) provides rules on the segregation of cus-
tomer funds. Paragraph (3) lists permitted investments of customer
funds described in paragraph (2). Paragraph (4) describes customer
protection during bankruptcy. Paragraph (5) states certain unlaw-
ful uses of customer funds. Paragraph (6) provides that a customer
shall have the right to waive restrictions and participate in
blockchain services, with certain limitations.
Section 5i(e) provides that the CFTC 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.
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Section 5i(f) requires digital commodity exchanges to designate a
chief compliance officer.
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Section 5i(g) allows for the CFTC to appoint a trustee over a dig-
ital commodity exchange under certain circumstances.
Section 5i(h) requires digital commodity exchanges to hold cus-
tomer property with a qualified digital asset custodian.
Section 5i(i) allows that the CFTC may exempt a registered dig-
ital commodity exchange from certain requirements of this section
if the CFTC makes certain determinations.
Section 5i(j) defines the term ‘‘customer’’ for this section.
Section 5i(k) provides for federal preemption and exclusive CFTC
jurisdiction over any digital commodity exchange registered under
this section with respect to activities and transactions subject to
this Act.
Section 405. Qualified digital asset custodians
Section 405 amends the Commodity Exchange Act by creating a
new section 5j: ‘‘Qualified Digital Asset Custodians.’’
Section 5j(a) offers the general definition of a qualified digital
asset custodian as a person who holds digital assets on behalf of
a person registered under this Act or a customer of a person reg-
istered under this Act.
Sections 5j(b) and (c) provide supervision and other requirements
over qualified digital asset custodians.
Section 5j(d) defines the terms ‘‘adequate supervision’’ and ‘‘ap-
propriate regulation’’ for purposes of subsection (b).
Section 5j(e) provides the CFTC with the authority to tempo-
rarily suspend requirements to utilize a qualified digital asset cus-
todian.
Section 406. Registration and regulation of digital commodity bro-
kers and dealers
Section 406 amends the Commodity Exchange Act by creating a
new section 4u: ‘‘Registration and Regulation of Digital Commodity
Brokers and Dealers.’’
Section 4u(a) provides that it shall be unlawful for any person to
act as a digital commodity broker or digital commodity dealer un-
less the person is registered as such with the CFTC.
Section 4u(b) lists the required contents of the application for a
person registering with the CFTC as a digital commodity broker or
dealer.
Section 4u(c) provides the CFTC with general and specific rule-
making authority over digital commodity brokers and registered
digital commodity dealers.
Section 4u(d) directs the CFTC to prescribe rules for minimum
capital requirements for digital commodity brokers and dealers.
Section 4u(e) requires certain reporting and recordkeeping by
digital commodity brokers and dealers.
Section 4u(f) requires digital commodity brokers and dealers to
maintain daily trading records.
Section 4u(g) requires digital commodity brokers and dealers to
conform with applicable business conduct standards the CFTC pre-
scribes.
Section 4u(h) lists the duties of digital commodity brokers and
dealers relating to: (1) risk management procedures; (2) disclosure
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of general information; (3) ability to obtain information; (4) conflicts
of interest; and (5) antitrust considerations.
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Section 4u(i) requires digital commodity brokers and dealers to
designate a chief compliance officer.
Section 4u(j) lists rules relating to digital commodity brokers and
dealers including: (1) holding of customer assets; (2) segregation of
funds; (3) permitted investments; (4) customer protection during
bankruptcy; (5) the misuse of customer property; and (6) participa-
tion in blockchain services.
Section 4u(k) provides for federal preemption and exclusive
CFTC jurisdiction over any digital commodity broker or dealer reg-
istered under this section with respect to activities and subject to
this Act.
Section 4u(l) allows that the CFTC may exempt a registered dig-
ital commodity broker or dealer from certain requirements of this
section if the CFTC makes certain determinations.
Section 407. Registration of associated persons
Subsection (a) amends section 4k of the Commodity Exchange
Act to make it unlawful for any person to act as an associated per-
son of a digital commodity broker or an associated person of a dig-
ital commodity dealer unless the person is registered with the
CFTC. Paragraph (3) amends section 4k(5) of such act to require
persons desiring to be registered as an associated person of a dig-
ital commodity broker or dealer to apply to the CFTC.
Subsection (b) makes conforming amendments.
Section 408. Registration of commodity pool operators and com-
modity trading advisors
Subsection (a) amends section 4m(3) of the Commodity Exchange
Act to add commodity pool operator or commodity trading advisor
as a category exempted from the prohibition on entities not reg-
istered with the CFTC from engaging in interstate commerce in
that business if they are registered with the SEC.
Subsection (b) amends section 4m of the Commodity Exchange
Act by adding a new paragraph (4) requiring the CFTC to promul-
gate rules to provide appropriate exemptions for commodity pool
operators and commodity trading advisors, to provide relief from
duplicative, conflicting, or unduly burdensome requirements or to
promote responsible innovation.
Section 409. Exclusion for decentralized finance activities
Section 409 amends the Commodity Exchange Act by adding a
new section 4v: ‘‘Decentralized Finance Activities Not Subject to
this Act.’’
Section 4v(a) list decentralized finance activities not subject to
the Commodity Exchange Act.
Section 4v(b) provides an exception to subsection (a) for anti-
fraud, anti-manipulation, or false reporting enforcement authorities
of the CFTC.
Section 410. Resources for implementation and enforcement
Subsection (a) requires the CFTC to charge and collect a fee from
each person who files with the CFTC an application for registration
and is in provisional status as a digital commodity exchange, dig-
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ital commodity broker, or digital commodity dealer. There shall be
an initial filing fee and an annual fee thereafter. The fees author-
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ized may be collected and available for obligation only in the
amounts provided in advance in an appropriation Act.
Subsection (b) requires the CFTC to publish a fee schedule with
certain requirements.
Subsection (c) allows the CFTC to impose a late payment pen-
alty.
Subsection (d) provides for the reimbursement of excess fees to
persons who have timely paid their annual fees.
Subsection (e) provides that amounts collected under this section
shall be credited to the currently applicable appropriation, account,
or fund of the CFTC as discretionary offsetting collections, and
shall be available for the purposes authorized in subsection (f) only
to the extent and in the amounts provided in advance in appropria-
tions Acts.
Subsection (f) authorizes appropriations to the CFTC amounts
collected under this section to cover the costs of carrying out the
functions of the Commission under this Act.
Subsection (g) provides the CFTC with expedited hiring authority
for certain positions.
Subsection (h) is a sunset provision ending the authorities under
this section four fiscal years after the date of enactment of this Act.
Section 411. Digital commodity activities by SEC-registered entities
Section 411 amends the Commodity Exchange Act by adding a
new section 5k: ‘‘Exemption for Certain Registered Entities in Dig-
ital Commodity Activities’’.
Section 5k(a) provides that on receipt by the CFTC from an alter-
native trading system of notice that contains such information as
the CFTC may prescribe, the alternative trading system shall be
exempt from registration as a digital commodity exchange if certain
requirements are met.
Section 5k(b) provides that on receipt by the CFTC from a broker
or dealer that is registered with the SEC of notice that contains
such information as the CFTC may prescribe as necessary, the
broker or dealer shall be exempt from registration as a digital com-
modity broker or digital commodity dealer if certain requirements
are met.
Section 412. Requirements related to control persons
Section 412 amends the Commodity Exchange Act by adding a
new section 4w: ‘‘Limitation on Transactions by Blockchain Control
Persons.’’
Section 4w(a) makes it unlawful for a blockchain control person
with respect to a blockchain system certified as a mature
blockchain system to sell a unit of a digital commodity related to
the blockchain system unless the person files notice with the CFTC
and complies with all applicable rules.
Section 4w(b) provides definitions for ‘‘blockchain control person’’
and ‘‘affiliated blockchain control person’’.
Section 413. Other tradable assets
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Section 413 amends the Commodity Exchange Act by adding a
new section 4x: ‘‘Trading Requirements for Other Tradable Assets’’.
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Section 4x(a) provides that a tradable asset shall not be dealt in,
on, or subject to the rules of a registered entity except in accord-
ance with subsection (b).
Section 4x(b)(1) provides that tradable assets dealt in, on, or sub-
ject to the rules of a registered entity shall be treated as a digital
commodity for purposes of this Act. Paragraph (2) lists possible re-
quirements the CFTC may impose on persons engaged in tradable
assets.
Section 4x(c) defines ‘‘tradable asset’’.
Section 4x(d) allows the CFTC to issue guidance establishing cri-
teria for determining if the primary purpose of a tradable asset is
to be used to commit fraud or market manipulation.
Section 414. Effective date
Section 414 provides that this title shall take effect 270 days
after the date of enactment of this Act.
Section 415. Sense of Congress
Section 415 provides the sense of Congress that nothing in this
Act or any amendment made by this Act should be interpreted to
authorize any entity to regulate any commodity, other than a dig-
ital commodity, on any spot market.
TITLE V—INNOVATION AND TECHNOLOGY IMPROVEMENTS
Section 501. Findings; sense of Congress
Subsection (a) lists nine findings of Congress.
Subsection (b) lists six senses of Congress.
Section 502. Modernization of the Securities and Exchange Commis-
sion mission
Section 502 updates the SEC Commission Mission in: (a) the Se-
curities Act of 1933; (b) the Securities Act of 1934; (c) the Invest-
ment Advisers Act of 1940; and (d) the Investment Company Act
of 1940, to include ‘‘innovation’’, so that the SEC’s mission state-
ment will be to promote efficiency, innovation, competition, and
capital formation.
Section 503. Strategic Hub for Innovation and Financial Tech-
nology
Section 504 amends section 4 of the Securities Exchange Act of
1934 by adding a new subsection (k) directing the SEC to establish
a committee to be known as the Strategic Hub for Innovation and
Financial Technology.
Section 504. Codification of LabCFTC
Subsection (a) amends section 18 of the Commodity Exchange
Act by adding a new subsection (c), which directs the CFTC to es-
tablish ‘‘LabCFTC’’. Paragraphs (2) and (4) list the purposes and
duties of LabCFTC.
Subsection (b) makes conforming amendments to Section
2(a)(6)(A) of the Commodity Exchange Act.
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Subsection (c) requires the CFTC to implement the amendments
made by this section within 180 days of enactment.
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Section 505. Study on decentralized finance
Subsection (a) directs the CFTC, SEC, and Secretary of the
Treasury to jointly carry out a study on decentralized finance.
Subsection (b) requires the CFTC and SEC to consult the Sec-
retary of the Treasury on the factors listed in paragraph (7)
through (10) of subsection (a).
Subsection (c) requires the CFTC and SEC to submit a report to
Congress.
Subsection (d) requires the Comptroller General of the United
States to conduct the same study described in subsection (a) and
file a report with Congress.
Subsection (e) defines ‘‘decentralized finance’’ and relevant con-
gressional committees’’ for this section.
Section 506. Study on non-fungible tokens
Subsection (a) requires the Comptroller General of the United
States to carry out a study on non-fungible tokens.
Subsection (b) requires the Comptroller General to make a report
with their findings available to the public within one year of enact-
ment of this Act.
Section 507. Study on expanding financial literacy amongst digital
commodity holders
Subsection (a) requires the CFTC and SEC to jointly conduct a
study on how to improve financial literacy amongst digital com-
modity holders.
Subsection (b) requires the CFTC and SEC to submit a written
report on their study to Congress within one year of enactment of
this Act.
Section 508. Study on financial market infrastructure improvements
Subsection (a) requires the CFTC and SEC to jointly conduct a
study to assess whether additional guidance or rules are necessary
to facilitate the development of tokenized securities and derivatives
products.
Subsection (b) requires the CFTC and SEC to submit a written
report on their study to Congress within one year of enactment of
this Act.
Section 509. Study on illicit use of digital assets
Subsection (a) provides that the SEC, CFTC, and Secretary of
the Treasury shall conduct a comprehensive review of how Foreign
Terrorist Organizations and Transnational Criminal Syndicates
utilize digital assets in connection with illicit activities.
Subsection (b) requires the review to include an analysis of
whether the SEC and CFTC have the necessary tools and resources
to effectively detect, disrupt, and deter illicit financial activity.
Subsection (c) requires the SEC and CFTC to file a report on
their findings to Congress.
Section 510. Conflict of interest rulemaking
Section 510 requires the CFTC to issue rules establishing re-
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quirements for the identification, mitigation, and resolution of con-
flicts of interest among and across registered entities.
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RELATED HEARINGS
Pursuant to clause 3(c)(6) of rule XIII, the following committee
hearings were used to develop H.R. 3633. On April 9, 2025, the
Subcommittee on Commodity Markets, Digital Assets, and Rural
Development met for its hearing titled ‘‘American Innovation and
the Future of Digital Assets: On-Chain Tools for an Off-Chain
World.’’ And on June 4, 2025, the full Committee met for a hearing
titled ‘‘American Innovation and the Future of Digital Assets: From
Blueprint to a Functional Framework.’’
COMMITTEE CONSIDERATION
On June 10, 2025, the Committee on Agriculture met pursuant
to notice, with a quorum present, to consider H.R. 3633, the Digital
Asset Market Clarity Act of 2025. Chairman Thompson made an
opening statement, as did Ranking Member Craig. Without objec-
tion, H.R. 3633 was placed before the Committee for consideration,
a first reading of the bill was waived, and it was open for amend-
ment at any point.
Chairman Thompson recognized himself to offer an amendment
in the nature of a substitute, and in addition a manager’s amend-
ment, to H.R. 3633. Without objection, the reading of the amend-
ment were waived and the substitute, as amended by the man-
ager’s amendment, was considered as the original text for purposes
of amendment.
Eight amendments were offered, all by the minority.
Ms. McDonald Rivet offered an amendment which would elimi-
nate the sunset for collection of fees for registrants to ensure ongo-
ing funding for the CFTC. Ms. McDonald Rivet’s amendment was
not agreed to by a voice vote.
Mrs. McClain Delaney offered an amendment which stated that
if annual funding of the CFTC ever falls to a level that the Chair
of the CFTC determines threatens the mission of the CFTC in re-
gard to investor protection, anti-money laundering, or financial sta-
bility, then they can draw up to $100 million in funding per year
from the Federal Reserve surplus account. Mrs. McClain Delaney
withdrew her amendment.
Mrs. McClain Delaney offered an amendment which would en-
sure the CFTC will be able to collect filing and registration fees
from the entities that are created in this Act and required to reg-
ister with the agency. Mrs. McClain Delaney’s amendment was
adopted by a voice vote.
Mrs. McClain Delaney offered an amendment that would strike
Sec. 411, which allows SEC-registrants to engage in digital com-
modity activities without registering with the CFTC. Mrs. McClain
Delaney called for a recorded vote and pursuant to Committee Rule
III(i)(2) further proceedings on the amendment were postponed.
Mr. David Scott offered an amendment which would reauthorize
the Commodity Futures Trading Commission from FY 2026
through FY 2031. Mr. David Scott called for a recorded vote and
pursuant to Committee Rule III(i)(2) further proceedings on the
amendment were postponed.
Mr. David Scott offered an amendment which would prohibit the
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President of the United States from owning, issuing, promoting, or
controlling any digital asset, including meme coins, stablecoins,
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86
and other digital tokens. It also would require the direct family of
the President to place any digital assets they own in a blind trust.
Mr. David Scott called for a recorded vote and pursuant to Com-
mittee Rule III(i)(2) further proceedings of the amendment were
postponed.
Mr. Vindman offered an amendment which would strengthen the
crypto industry by prohibiting entities seeking registration or ex-
emption under this Act from holding, trading, or facilitating meme-
based assets associated with public officials, including the Presi-
dent and Vice President, when those individuals have a financial
interest in the asset. Mr. Vindman called for a recorded vote and
pursuant to Committee Rule III(i)(2) further proceedings on the
amendment were postponed.
Ms. Craig offered an amendment which would expand the appli-
cation of existing current law prohibitions to ‘‘executive branch em-
ployees’’ against trading CFTC regulated products using non-public
information acquired from position in the government. Ms. Craig
withdrew her amendment.
The Committee considered the proceedings of the amendments
that were postponed, and Members recorded their votes by elec-
tronic device.
Amendment #07, offered by Mrs. McClain Delaney, was not
agreed to by a vote of 24 yeas and 29 nays, 1 not voting.
Amendment #01, offered by Mr. David Scott, was not agreed to
by a vote of 24 yeas and 29 nays, 1 not voting.
Amendment #02, offered by Mr. David Scott, was not agreed to
by a vote of 24 yeas and 29 nays, 1 not voting.
Amendment #04, offered by Mr. Vindman, was not agreed to by
a vote of 24 yeas and 29 nays, 1 not voting.
The Committee voted on the adoption of the amendment in the
nature of a substitute, as amended, including as amended by the
manager’s amendment offered by Chairman Thompson. A recorded
vote was requested and the amendment in the nature of a sub-
stitute, as amended, including the manager’s amendment was
adopted by a vote of 29 yeas and 24 nays, 1 not voting.
Mr. Davis of North Carolinas moved to report H.R. 3633, as
amended, favorably to the House with the recommendation that it
pass. A recorded vote was requested and the motion was agreed to
by a vote of 47 yeas and 6 nays, 1 not voting.
Chairman Thompson advised Members that, consistent with
Committee and House rules, Members would have until noon on
Friday, May 13, 2025, to file such views with the Committee. With-
out objection, staff were given the authority to make any necessary
clerical, technical, or conforming changes to the legislation to re-
flect the intent of the Committee. Chairman Thompson thanked
the Members and the Committee meeting was adjourned.
COMMITTEE VOTES
Roll Call No. 1
Summary: Amendment #07
Offered By: Representative April McClain Delaney of Maryland
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Results: Failed by a recorded vote of 24 yeas, 29 nays, and 1 not
voting.
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YEAS
1. Ms. Craig 13. Mr. Vasquez
2. Mr. David Scott 14. Mr. Jackson of Illinois
3. Mr. Costa 15. Mr. Thanedar
4. Ms. Adams 16. Mr. Gray
5. Mrs. Hayes 17. Ms. McDonald Rivet
6. Ms. Brown 18. Mr. Figures
7. Ms. Davids of Kansas 19. Mr. Vindman
8. Ms. Salinas 20. Mr. Riley
9. Mr. Davis of North Carolina 21. Mr. Mannion
10. Ms. Tokuda 22. Mrs. McClain Delaney
11. Ms. Budzinski 23. Ms. Pingree
12. Mr. Sorensen 24. Mr. Carbajal
NAYS
1. Mr. Thompson 16. Mr. Moore
2. Mr. Lucas 17. Mrs. Cammack
3. Mr. Austin Scott 18. Mr. Finstad
4. Mr. Crawford 19. Mr. Rose
5. Mr. DesJarlais 20. Mr. Jackson of Texas
6. Mr. LaMalfa 21. Ms. De La Cruz
7. Mr. Rouzer 22. Mr. Nunn
8. Mr. Kelly 23. Mr. Van Orden
9. Mr. Bacon 24. Mr. Newhouse
10. Mr. Bost 25. Mr. Wied
11. Mr. Johnson 26. Mr. Bresnahan
12. Mr. Baird 27. Mr. Messmer
13. Mr. Mann 28. Mr. Harris
14. Mr. Feenstra 29. Mr. Taylor
15. Mrs. Miller
NOT VOTING
1. Mr. McGovern
Roll Call No. 2
Summary: Amendment #01
Offered By: Representative David Scott of Georgia
Results: Failed by a recorded vote of 24 yeas, 29 nays, and 1 not
voting.
YEAS
1. Ms. Craig 13. Mr. Vasquez
2. Mr. David Scott 14. Mr. Jackson of Illinois
3. Mr. Costa 15. Mr. Thanedar
4. Ms. Adams 16. Mr. Gray
5. Mrs. Hayes 17. Ms. McDonald Rivet
6. Ms. Brown 18. Mr. Figures
7. Ms. Davids of Kansas 19. Mr. Vindman
8. Ms. Salinas 20. Mr. Riley
9. Mr. Davis of North Carolina 21. Mr. Mannion
10. Ms. Tokuda 22. Mrs. McClain Delaney
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11. Ms. Budzinski 23. Ms. Pingree
12. Mr. Sorensen 24. Mr. Carbajal
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NAYS
1. Mr. Thompson 16. Mr. Moore
2. Mr. Lucas 17. Mrs. Cammack
3. Mr. Austin Scott 18. Mr. Finstad
4. Mr. Crawford 19. Mr. Rose
5. Mr. DesJarlais 20. Mr. Jackson of Texas
6. Mr. LaMalfa 21. Ms. De La Cruz
7. Mr. Rouzer 22. Mr. Nunn
8. Mr. Kelly 23. Mr. Van Orden
9. Mr. Bacon 24. Mr. Newhouse
10. Mr. Bost 25. Mr. Wied
11. Mr. Johnson 26. Mr. Bresnahan
12. Mr. Baird 27. Mr. Messmer
13. Mr. Mann 28. Mr. Harris
14. Mr. Feenstra 29. Mr. Taylor
15. Mrs. Miller
NOT VOTING
1. Mr. McGovern
Roll Call No. 3
Summary: Amendment #02
Offered By: Representative David Scott of Georgia
Results: Failed by a recorded vote of 24 yeas, 29 nays, and 1 not
voting.
YEAS
1. Ms. Craig 13. Mr. Vasquez
2. Mr. David Scott 14. Mr. Jackson of Illinois
3. Mr. Costa 15. Mr. Thanedar
4. Ms. Adams 16. Mr. Gray
5. Mrs. Hayes 17. Ms. McDonald Rivet
6. Ms. Brown 18. Mr. Figures
7. Ms. Davids of Kansas 19. Mr. Vindman
8. Ms. Salinas 20. Mr. Riley
9. Mr. Davis of North Carolina 21. Mr. Mannion
10. Ms. Tokuda 22. Mrs. McClain Delaney
11. Ms. Budzinski 23. Ms. Pingree
12. Mr. Sorensen 24. Mr. Carbajal
NAYS
1. Mr. Thompson 16. Mr. Moore
2. Mr. Lucas 17. Mrs. Cammack
3. Mr. Austin Scott 18. Mr. Finstad
4. Mr. Crawford 19. Mr. Rose
5. Mr. DesJarlais 20. Mr. Jackson of Texas
6. Mr. LaMalfa 21. Ms. De La Cruz
7. Mr. Rouzer 22. Mr. Nunn
8. Mr. Kelly 23. Mr. Van Orden
9. Mr. Bacon 24. Mr. Newhouse
10. Mr. Bost 25. Mr. Wied
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11. Mr. Johnson 26. Mr. Bresnahan
12. Mr. Baird 27. Mr. Messmer
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13. Mr. Mann 28. Mr. Harris
14. Mr. Feenstra 29. Mr. Taylor
15. Mrs. Miller
NOT VOTING
1. Mr. McGovern
Roll Call No. 4
Summary: Amendment #04
Offered By: Representative Eugene Vindman of Virginia
Results: Failed by a recorded vote of 24 yeas, 29 nays, and 1 not
voting.
YEAS
1. Ms. Craig 13. Mr. Vasquez
2. Mr. David Scott 14. Mr. Jackson of Illinois
3. Mr. Costa 15. Mr. Thanedar
4. Ms. Adams 16. Mr. Gray
5. Mrs. Hayes 17. Ms. McDonald Rivet
6. Ms. Brown 18. Mr. Figures
7. Ms. Davids of Kansas 19. Mr. Vindman
8. Ms. Salinas 20. Mr. Riley
9. Mr. Davis of North Carolina 21. Mr. Mannion
10. Ms. Tokuda 22. Mrs. McClain Delaney
11. Ms. Budzinski 23. Ms. Pingree
12. Mr. Sorensen 24. Mr. Carbajal
NAYS
1. Mr. Thompson 16. Mr. Moore
2. Mr. Lucas 17. Mrs. Cammack
3. Mr. Austin Scott 18. Mr. Finstad
4. Mr. Crawford 19. Mr. Rose
5. Mr. DesJarlais 20. Mr. Jackson of Texas
6. Mr. LaMalfa 21. Ms. De La Cruz
7. Mr. Rouzer 22. Mr. Nunn
8. Mr. Kelly 23. Mr. Van Orden
9. Mr. Bacon 24. Mr. Newhouse
10. Mr. Bost 25. Mr. Wied
11. Mr. Johnson 26. Mr. Bresnahan
12. Mr. Baird 27. Mr. Messmer
13. Mr. Mann 28. Mr. Harris
14. Mr. Feenstra 29. Mr. Taylor
15. Mrs. Miller
NOT VOTING
1. Mr. McGovern
Roll Call No. 5
Summary: Adoption of the Amendment in the Nature of a Sub-
stitute, as amended, including as amended by the Manager’s
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Amendment
Offered By: Representative Glenn Thompson of Pennsylvania
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Results: Passed by a recorded vote of 29 yeas, 24 nays, and 1 not
voting.
YEAS
1. Mr. Thompson 16. Mr. Moore
2. Mr. Lucas 17. Mrs. Cammack
3. Mr. Austin Scott 18. Mr. Finstad
4. Mr. Crawford 19. Mr. Rose
5. Mr. DesJarlais 20. Mr. Jackson of Texas
6. Mr. LaMalfa 21. Ms. De La Cruz
7. Mr. Rouzer 22. Mr. Nunn
8. Mr. Kelly 23. Mr. Van Orden
9. Mr. Bacon 24. Mr. Newhouse
10. Mr. Bost 25. Mr. Wied
11. Mr. Johnson 26. Mr. Bresnahan
12. Mr. Baird 27. Mr. Messmer
13. Mr. Mann 28. Mr. Harris
14. Mr. Feenstra 29. Mr. Taylor
15. Mrs. Miller
NAYS
1. Ms. Craig 13. Mr. Vasquez
2. Mr. David Scott 14. Mr. Jackson of Illinois
3. Mr. Costa 15. Mr. Thanedar
4. Ms. Adams 16. Mr. Gray
5. Mrs. Hayes 17. Ms. McDonald Rivet
6. Ms. Brown 18. Mr. Figures
7. Ms. Davids of Kansas 19. Mr. Vindman
8. Ms. Salinas 20. Mr. Riley
9. Mr. Davis of North Carolina 21. Mr. Mannion
10. Ms. Tokuda 22. Mrs. McClain Delaney
11. Ms. Budzinski 23. Ms. Pingree
12. Mr. Sorensen 24. Mr. Carbajal
NOT VOTING
1. Mr. McGovern
Roll Call No. 6
Summary: Motion to report H.R. 3633, as amended, favorably to
the House with the recommendation that it pass
Offered By: Representative Don Davis of North Carolina
Results: Passed by a recorded vote of 47 yeas, 6 nays, and 1 not
voting.
YEAS
1. Mr. Thompson 25. Mr. Wied
2. Mr. Lucas 26. Mr. Bresnahan
3. Mr. Austin Scott 27. Mr. Messmer
4. Mr. Crawford 28. Mr. Harris
5. Mr. DesJarlais 29. Mr. Taylor
6. Mr. LaMalfa 30. Ms. Craig
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7. Mr. Rouzer 31. Mr. Costa
8. Mr. Kelly 32. Ms. Brown
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9. Mr. Bacon 33. Ms. Salinas
10. Mr. Bost 34. Mr. Davis of North Carolina
11. Mr. Johnson 35. Ms. Budzinski
12. Mr. Baird 36. Mr. Sorensen
13. Mr. Mann 37. Mr. Vasquez
14. Mr. Feenstra 38. Mr. Jackson of Illinois
15. Mrs. Miller 39. Mr. Thanedar
16. Mr. Moore 40. Mr. Gray
17. Mrs. Cammack 41. Ms. McDonald Rivet
18. Mr. Finstad 42. Mr. Figures
19. Mr. Rose 43. Mr. Vindman
20. Mr. Jackson of Texas 44. Mr. Riley
21. Ms. De La Cruz 45. Mr. Mannion
22. Mr. Nunn 46. Mrs. McClain Delaney
23. Mr. Van Orden 47. Mr. Carbajal
24. Mr. Newhouse
NAYS
1. Mr. David Scott 4. Ms. Davids of Kansas
2. Ms. Adams 5. Ms. Tokuda
3. Mrs. Hayes 6. Ms. Pingree
NOT VOTING
1. Mr. McGovern
COMMITTEE OVERSIGHT FINDINGS
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House
of Representatives, the Committee on Agriculture’s oversight find-
ings and recommendations are reflected in the body of this report.
NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY,
AND TAX EXPENDITURES
The Committee has requested but not received from the Director
of the Congressional Budget Office an estimate. However, pursuant
to clause 3(c)(2) of rule XIII of the Rules of the House of Represent-
atives, once an estimate has been prepared by the Director of the
Congressional Budget Office, as required by section 402 of the Con-
gressional 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.
CONGRESSIONAL BUDGET OFFICE ESTIMATES
The Committee has requested but not received from the Director
of the Congressional Budget Office a cost estimate. However, pur-
suant 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.
EARMARK STATEMENT
H.R. 3633 does not contain any congressional earmarks, limited
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tax benefits, or limited tariff benefits as defined in clause 9(e), 9(f),
or 9(g) of rule XXI of the Rules of the House Representatives.
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PERFORMANCE GOALS AND OBJECTIVES
Pursuant to clause 3(c)(4) of rule XIII, the objectives of H.R. 3633
are to provide the Commodity Futures Trading Commission (CFTC)
with jurisdiction over digital commodities and clarifies the Securi-
ties and Exchange Commission’s (SEC) jurisdiction over digital
commodities offered as part of an investment contract. Addition-
ally, 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.
ADVISORY COMMITTEE STATEMENT
Pursuant to 5 U.S.C 1004(b), H.R. 3633 proposes no new advi-
sory committees, the functions of which are being or could be per-
formed by one or more agencies or by an advisory committee al-
ready in existence, or by enlarging the mandate of an existing advi-
sory committee.
APPLICABILITY TO THE 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 Con-
gressional Accountability Act (Public Law 104–1).
FEDERAL MANDATES STATEMENT
The Committee has requested but not received from the Director
of the Congressional Budget Office an estimate of the Federal man-
dates pursuant to section 423 of the Unfunded Mandates Reform
Act. The Committee will adopt the estimate once it has been pre-
pared by the Director.
DUPLICATION OF FEDERAL PROGRAMS
This bill does not establish or reauthorize a program of the Fed-
eral Government known to be duplicative of another Federal pro-
gram, a program that was included in any report from the Govern-
ment Accountability Office to Congress pursuant to section 21 of
Public Law 111–139, or a program related to a program identified
in the most recent Catalog of Federal Domestic Assistance.
PREEMPTION OF STATE, LOCAL, OR TRIBAL LAW
Pursuant to section 423(e) of the Congressional Budget and Im-
poundment Control Act of 1974, H.R. 3633 provides exclusive juris-
diction to the CFTC over any digital commodity exchange, digital
commodity broker, or digital commodity dealer registered under
with the CFTC with respect to activities and transactions subject
to the Commodity Exchange Act, as amended by H.R. 3633.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of the
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House of Representatives, changes in existing law made by the bill,
as reported, are shown as follows (existing law proposed to be omit-
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93
ted 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 con-
text 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 de-
posit 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 secu-
rities (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 cur-
rency, or, in general, any interest or instrument commonly
known as a ‘‘security’’, or any certificate of interest or partici-
pation in, temporary or interim certificate for, receipt for, guar-
antee of, or warrant or right to subscribe to or purchase, any
of the foregoing. The term ‘‘investment contract’’ does not in-
clude an investment contract asset. 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 sub-
division 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 pre-
liminary 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,
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any purchase of securities or any other thing, shall be conclu-
sively presumed to constitute a part of the subject of such pur-
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chase 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 fu-
tures product by or on behalf of the issuer of the securities un-
derlying 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 under-
writer, shall constitute a contract for sale of, sale of, offer for
sale, or offer to sell such securities. The publication or distribu-
tion by a broker or dealer of a research report about an emerg-
ing growth company that is the subject of a proposed public of-
fering 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 in-
cludes 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 suffi-
cient upon which to base an investment decision.
(4) The term ‘‘issuer’’ means every person who issues or pro-
poses to issue any security; except that with respect to certifi-
cates of deposit, voting-trust certificates, or collateral-trust cer-
tificates, or with respect to certificates of interest or shares in
an unincorporated investment trust not having a board of di-
rectors (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 unin-
corporated 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 secu-
rity 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
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the equipment or property is or is to be used; and except that
with respect to fractional undivided interests in oil, gas, or
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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 pur-
pose of public offering.
(5) The term ‘‘Commission’’ means the Securities and Ex-
change Commission.
(6) The term ‘‘Territory’’ means Puerto Rico, the Virgin Is-
lands, and the insular possessions of the United States.
(7) The term ‘‘interstate commerce’’ means trade or com-
merce in securities or any transportation or communication re-
lating 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, cir-
cular, advertisement, letter, or communication, written or by
radio or television, which offers any security for sale or con-
firms the sale of any security; except that (a) a communication
sent or given after the effective date of the registration state-
ment (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 communica-
tion in respect of a security shall not be deemed to be a pro-
spectus if it states from whom a written prospectus meeting
the requirements of section 10 may be obtained and, in addi-
tion, 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 regula-
tions 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 pur-
chased 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 control-
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ling or controlled by the issuer, or any person under direct or
indirect common control with the issuer.
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(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 pre-
dominant 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 Dis-
trict of Columbia; or any receiver or similar official or any liq-
uidating agent for such company, in his capacity as such.
(14) The term ‘‘separate account’’ means an account estab-
lished and maintained by an insurance company pursuant to
the laws of any State or territory of the United States, the Dis-
trict 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 insur-
ance 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 invest-
ment 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 Invest-
ment Company licensed by the Small Business Adminis-
tration; or an employee benefit plan, including an indi-
vidual retirement account, which is subject to the provi-
sions of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fidu-
ciary, as defined in section 3(21) of such Act, which is ei-
ther a bank, insurance company, or registered investment
adviser; or
(ii) any person who, on the basis of such factors as finan-
cial sophistication, net worth, knowledge, and experience
in financial matters, or amount of assets under manage-
ment 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
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transfer or conveyance of, or extinguishing of rights or obliga-
tions under, a security-based swap, as the context may require.
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(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 Con-
sumer 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 Bu-
reau of Labor Statistics, setting the threshold to the near-
est 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 com-
mon equity securities of the issuer pursuant to an effective
registration statement under this title;
(C) the date on which such issuer has, during the pre-
vious 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) BLOCKCHAIN.—The term ‘‘blockchain’’ means—
(A) any technology—
(i) where data is—
(I) shared across a network to create a distrib-
uted ledger of independently verifiable transactions
or information among network participants;
(II) linked using cryptography to maintain the
integrity of the distributed ledger and to execute
other functions; and
(III) propagated among network participants to
reach consensus on the state of the distributed
ledger and any other functions; and
(ii) composed of source code that is publicly avail-
able; and
(B) any similar technology to the technology described in
subparagraph (A).
(21) BLOCKCHAIN APPLICATION.—The term ‘‘blockchain appli-
cation’’ means any executable software deployed to a blockchain
composed of source code that is publicly available, including a
smart contract or any network of smart contracts, or other simi-
lar technology.
(22) BLOCKCHAIN PROTOCOL.—The term ‘blockchain protocol’
means the freely and publicly available source code of a
blockchain that is executed by the network participants of a
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blockchain to facilitate its functioning, or other similar tech-
nology.
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(23) BLOCKCHAIN SYSTEM.—The term ‘‘blockchain system’’
means any blockchain, together with its blockchain protocol or
any blockchain application or network of blockchain applica-
tions.
(24) DECENTRALIZED GOVERNANCE SYSTEM.—
(A) IN GENERAL.—The term ‘‘decentralized governance
system’’ means, with respect to a blockchain system, any
transparent, rules-based system permitting persons to form
consensus or reach agreement in the development, provi-
sion, publication, management, or administration of such
blockchain system, where participation is not limited to, or
under the effective control of, any person or group of per-
sons under common control.
(B) RELATIONSHIP OF PERSONS TO DECENTRALIZED GOV-
ERNANCE SYSTEMS.—With respect to a decentralized govern-
ance system, the decentralized governance system and any
persons participating in the decentralized governance sys-
tem shall be treated as separate persons unless such per-
sons are under common control.
(C) LEGAL ENTITIES FOR DECENTRALIZED GOVERNANCE
SYSTEMS.—The term ‘‘decentralized governance system’’
shall include a legal entity used to implement the rules-
based system described in subparagraph (A), provided that
the organizing and governing laws of such legal entity do
not create or require centralized and hierarchical manage-
ment of such legal entity. For the purposes of this subpara-
graph, the delegation of ministerial or administrative au-
thority at the direction of the participants in a decentral-
ized governance system shall not be construed to be central-
ized and hierarchical management.
(25) DIGITAL ASSET.—The term ‘‘digital asset’’ means any dig-
ital representation of value which is recorded on a cryp-
tographically-secured distributed ledger or other similar tech-
nology.
(26) 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).
(27) DIGITAL COMMODITY AFFILIATED PERSON.—The term
‘‘digital commodity affiliated person’’ means a person (including
a digital commodity related person) that, with respect to any
digital commodity—
(A) acquires 5 percent or more of the total outstanding
units of such digital commodity from a digital commodity
issuer;
(B) is a founder of the digital commodity issuer; or
(C) is an executive director, director, trustee, or general
partner of the digital commodity issuer or held such role at
any point in the previous 12-month period.
(28) DIGITAL COMMODITY ISSUER.—With respect to a digital
commodity, the term ‘‘digital commodity issuer’’ means any per-
son that—
(A) proposes, issues, or causes to be issued a unit of such
digital commodity to a person; or
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(B) offers or sells a right to a future issuance of a unit
of such digital commodity to a person.
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(29) DIGITAL COMMODITY RELATED PERSON.—
(A) IN GENERAL.—With respect to a digital commodity
issuer, the term ‘‘digital commodity related person’’
means—
(i) a person that is or was in the previous 6-month
period a promoter, senior employee, advisory board
member, consultant, advisor, or person serving in a
similar capacity; and
(ii) a person that acquires 1 percent or more of the
total outstanding units of such digital commodity from
a digital commodity issuer.
(B) SENIOR EMPLOYEE DEFINED.—In this paragraph and
with respect to a digital commodity issuer, the term ‘‘senior
employee’’ means any employee materially involved in the
management or planning of the digital commodity issuer or
the development of the blockchain system to which the dig-
ital commodity relates.
(30) END USER DISTRIBUTION.—The term ‘‘end user distribu-
tion’’ means a distribution of a unit of a digital commodity
that—
(A) does not involve an exchange of more than a nominal
value of cash, property, or other assets; and
(B) is distributed in a broad and equitable manner based
on conditions capable of being satisfied by any participant
in the blockchain system, including, as incentive-based re-
wards—
(i) to users of the digital commodity or any
blockchain system to which the digital commodity re-
lates;
(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 com-
modity, in proportion to the total units of such other
digital commodity as are held by each person.
(31) MATURE BLOCKCHAIN SYSTEM.—The term ‘mature
blockchain system’ means a blockchain system, together with its
related digital commodity, that is not controlled by any person
or group of persons under common control.
(32) PERMITTED PAYMENT STABLECOIN.—
(A) IN GENERAL.—The term ‘‘permitted payment
stablecoin’’ means a digital asset—
(i) that is or is designed to be used as a means of
payment or settlement;
(ii) that is denominated in a national currency;
(iii) the issuer of which is subject to the regulatory
and supervisory authority of a State or Federal agency;
(iv) the issuer of which—
(I) is obligated to convert, redeem, or repurchase
for a fixed amount of monetary value; or
(II) represents that the digital asset will main-
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tain or creates the reasonable expectation that the
digital asset will maintain a stable value relative
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100
to the value of a fixed amount of monetary value;
and
(v) that is not—
(I) a national currency;
(II) a security issued by—
(aa) an investment company registered
under section 8(a) of the Investment Company
Act of 1940 (15 U.S.C. 80a–8(a)); or
(bb) a person that would be an investment
company under the Investment Company Act
of 1940 but for paragraphs (1) and (7) of sec-
tion 3(c) of that Act (15 U.S.C. 80a–3(c));
(III) a deposit (as defined under section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813)),
regardless of the technology used to record such de-
posit; or
(IV) an account (as defined in section 101 of the
Federal Credit Union Act (12 U.S.C. 1752)), re-
gardless of the technology used to record such ac-
count.
(B) MONETARY VALUE DEFINED.—The term ‘‘monetary
value’’—
(i) means—
(I) a national currency;
(II) a deposit (as defined in section 3 of the Fed-
eral Deposit Insurance Act (12 U.S.C. 1813)) that
is denominated in a national currency; or
(III) an account (as defined in section 101 of the
Federal Credit Union Act (12 U.S.C. 1752)); and
(ii) does not include any agricultural or other phys-
ical commodity (as defined in section 1a of the Com-
modity Exchange Act (7 U.S.C. 1a)).
(33) SECURITIES LAWS.—The term ‘‘securities laws’’ has the
meaning given that term under section 3(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78c(a)).
(36) The term ‘‘investment contract asset’’ means a digital
commodity—
(A) that can be exclusively possessed and transferred, per-
son to person, without necessary reliance on an inter-
mediary, and is recorded on a blockchain; and
(B) sold or otherwise transferred, or intended to be sold
or otherwise transferred, pursuant to an investment con-
tract.
(b) CONSIDERATION OF PROMOTION OF EFFICIENCY, INNOVATION,
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 appro-
priate in the public interest, the Commission shall also consider, in
addition to the protection of investors, whether the action will pro-
mote efficiency, innovation, competition, and capital formation.
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* * * * * * *
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EXEMPTED TRANSACTIONS
SEC. 4. (a) The provisions of section 5 shall not apply to—
(1) transactions by any person other than an issuer, under-
writer, or dealer.
(2) transactions by an issuer not involving any public offer-
ing.
(3) transactions by a dealer (including an underwriter no
longer acting as an underwriter in respect of the security in-
volved 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 expira-
tion of forty days after the effective date of such registra-
tion statement or prior to the expiration of forty days after
the first date upon which the security was bona fide of-
fered to the public by the issuer or by or through an un-
derwriter after such effective date, whichever is later (ex-
cluding in the computation of such forty days any time
during which a stop order issued under section 8 is in ef-
fect as to the security), or such shorter period as the Com-
mission 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 securi-
ties by the issuer or by or through an underwriter.
With respect to transactions referred to in clause (B), if securi-
ties 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 pe-
riod 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 so-
licitation 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 para-
graph does not exceed the amount allowed under section
3(b)(1) of this title, if there is no advertising or public solicita-
tion 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 ex-
emption provided under this paragraph during the 12-
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month period preceding the date of such transaction, is not
more than $1,000,000;
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102
(B) the aggregate amount sold to any investor by an
issuer, including any amount sold in reliance on the ex-
emption 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 in-
vestor 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 an-
nual 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 sec-
tion 4A(a); and
(D) the issuer complies with the requirements of section
4A(b).
(7) transactions meeting the requirements of subsection (d).
(8) the offer or sale of an investment contract involving units
of a digital commodity by its digital commodity issuer (includ-
ing all entities controlled by or under common control with the
issuer), if—
(A) the blockchain system to which the digital commodity
relates, together with the digital commodity, is certified as
a mature blockchain system under section 42 of the Securi-
ties Exchange Act of 1934 or the issuer intends for the
blockchain system to which the digital commodity relates to
be a mature blockchain system by the later of—
(i) the date that is four years after the first sale of
the investment contract involving such digital com-
modity; or
(ii) the date that is four years after the effective date
of this paragraph;
(B) the sum of all cash and other consideration to be re-
ceived by the digital commodity issuer in reliance on the ex-
emption provided under this paragraph, during the 12-
month period preceding the date of such offering, including
the amount received in such offering, 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);
(C) after the completion of the transaction, a purchaser
does not own more than 10 percent of the total amount of
the outstanding units of the digital commodity;
(D) the transaction does not involve the offer or sale of an
investment contract involving units of a digital commodity
by its digital commodity issuer that—
(i) is not organized under the laws of a State, a terri-
tory of the United States, or the District of Columbia;
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(ii) is a development stage company that either—
(I) has no specific business plan or purpose; or
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(II) has indicated that the business plan of the
company is to merge with or acquire an unidenti-
fied 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 Com-
mission entered pursuant to section 12(j) of the Securi-
ties Exchange Act of 1934 during the 5-year period be-
fore the filing of the offering statement; or
(vi) is disqualified pursuant to section 230.262 of
title 17, Code of Federal Regulations; and
(E) the issuer meets the requirements of section 4B(b).
(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 reg-
istration 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, gen-
eral 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 per-
son co-invests in such securities; or
(C) that person or any person associated with that per-
son provides ancillary services with respect to such securi-
ties.
(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 con-
nection 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 serv-
ices’’ means—
(A) the provision of due diligence services, in connection with
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the offer, sale, purchase, or negotiation of such security, so
long as such services do not include, for separate compensa-
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104
tion, investment advice or recommendations to issuers or in-
vestors; and
(B) the provision of standardized documents to the issuers
and investors, so long as such person or entity does not nego-
tiate the terms of the issuance for and on behalf of third par-
ties and issuers are not required to use the standardized docu-
ments as a condition of using the service.
(d) CERTAIN ACCREDITED INVESTOR TRANSACTIONS.—The trans-
actions 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 suc-
cessor regulation).
(2) PROHIBITION ON GENERAL SOLICITATION OR ADVER-
TISING.—Neither the seller, nor any person acting on the sell-
er’s behalf, offers or sells securities by any form of general so-
licitation 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 des-
ignated by the seller obtain from the issuer, upon request of
the seller, and the seller in all cases makes available to a pro-
spective 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 prede-
cessor (if any).
(B) The address of the issuer’s principal executive of-
fices.
(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 securi-
ties outstanding as of the end of the issuer’s most recent
fiscal year.
(F) The name and address of the transfer agent, cor-
porate secretary, or other person responsible for transfer-
ring 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 in-
directly, 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
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loss statement and similar financial statements, which
shall—
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105
(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 accept-
ed accounting principles or, in the case of a foreign
private issuer, be prepared in accordance with gen-
erally accepted accounting principles or the Inter-
national Financial Reporting Standards issued by the
International Accounting Standards Board;
(iii) be presumed reasonably current if—
(I) with respect to the balance sheet, the bal-
ance sheet is as of a date less than 16 months be-
fore the transaction date; and
(II) with respect to the profit and loss state-
ment, such statement is for the 12 months pre-
ceding 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 pe-
riod 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 na-
ture 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 regula-
tions.
(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 per-
son that has been or will be paid (directly or indirectly) remu-
neration 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 disqualifica-
tion described under section 3(a)(39) of the Securities Ex-
change Act of 1934.
(6) BUSINESS REQUIREMENT.—The issuer is engaged in busi-
ness, is not in the organizational stage or in bankruptcy or re-
ceivership, and is not a blank check, blind pool, or shell com-
pany that has no specific business plan or purpose or has indi-
cated 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 redis-
tribution.
(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
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transaction.
(e) ADDITIONAL REQUIREMENTS.—
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106
(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 involv-
ing any public offering.
(B) Such transaction shall be deemed not to be a dis-
tribution 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 estab-
lishing an exemption from the registration requirements of sec-
tion 5.
* * * * * * *
SEC. 4B. REQUIREMENTS WITH RESPECT TO CERTAIN DIGITAL COM-
MODITY TRANSACTIONS.
(a) COMMISSION JURISDICTION.—For the purposes of this section:
(1) The Commission shall have jurisdiction and enforcement
authority with respect to disclosures described in this section.
(2) Section 17 shall apply to a statement made in an offering
statement, disclosure, or report filed under this section to the
same extent as such section 17 applies to a statement made in
any other offering statement, disclosure, or report filed under
this Act.
(b) REQUIREMENTS FOR DIGITAL COMMODITY ISSUERS.—
(1) TERMS AND CONDITIONS.—A digital commodity issuer of-
fering or selling an investment contract involving units of a dig-
ital commodity in reliance on section 4(a)(8) shall file with the
Commission an offering statement and any related documents,
in such form and with such content as prescribed by the Com-
mission, including financial information, a description of the
issuer and the operations of the issuer, the financial condition
of the issuer, a description of the plan of distribution of any
unit of a digital commodity that is to be offered as well as the
intended use of the offering proceeds, and a description of the
development plan for the blockchain system, and the related
digital commodity, to become a mature blockchain system, if
such blockchain system is not already certified as a mature
blockchain system pursuant to section 42 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78a et seq.).
(2) INFORMATION REQUIRED FOR PURCHASERS.—A digital
commodity issuer that has filed a statement under paragraph
(1) to offer and sell an investment contract involving a unit of
a digital commodity in reliance on section 4(a)(8) shall include
in such statement the following information:
(A) MATURITY STATUS.—Whether the blockchain system
to which the digital commodity relates has been certified as
a mature blockchain system pursuant to section 42 of the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
and, where such blockchain system is not so certified, a
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statement of the digital commodity issuer’s intent for the
blockchain system to which the digital commodity relates to
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be a mature blockchain system within the time period de-
scribed in section 4(a)(8)(A).
(B) SOURCE CODE.—The source code, or a publicly acces-
sible webpage displaying such source code, for any
blockchain system to which the digital commodity relates,
and whether the source code was sourced from an external
third party, whether there are any existing external depend-
encies, and whether the code underwent a third-party secu-
rity audit.
(C) 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 inde-
pendent access, search, and verification activities are tech-
nically feasible with respect to such blockchain system.
(D) DIGITAL COMMODITY ECONOMICS.—A description of
the purpose of any blockchain system to which the digital
commodity relates and the operation of any such
blockchain system, including—
(i) information explaining the launch and supply
process, including the number of units of the digital
commodity to be issued in an initial allocation, the
total number of units of the digital commodity to be
created, the release schedule for the units of the digital
commodity, and the total number of units of the digital
commodity outstanding;
(ii) information explaining the technical require-
ments for holding, accessing, and transferring the dig-
ital commodity;
(iii) information on any applicable consensus mecha-
nism or process for validating transactions, method of
generating or mining digital commodities, and any
process for burning or destroying units of the digital
commodity on the blockchain system;
(iv) an explanation of any mechanism for driving
value to the digital commodity of such blockchain sys-
tem; and
(v) an explanation of governance mechanisms for im-
plementing changes to the blockchain system or form-
ing consensus among holders of units of such digital
commodity.
(E) PLAN OF DEVELOPMENT.—The current state and
timeline for the development of any blockchain system to
which the digital commodity relates, detailing how and
when the blockchain system is intended to be a mature
blockchain system, if the blockchain system is not yet cer-
tified as a mature blockchain system, and the various roles
that exist or are intended to exist in connection with the
blockchain system, such as users, service providers, devel-
opers, transaction validators, and governance participants,
including a discussion of any mechanisms by which control
or authority are exerted with respect to the blockchain sys-
tem or its related digital commodity, and any critical oper-
dmwilson on DSK7X7S144PROD with REPORTS
ational dependencies of the blockchain system or its related
digital commodity.
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(F) OWNERSHIP DISCLOSURES.—
(i) IN GENERAL.—A list of all persons who are digital
commodity related persons or digital commodity affili-
ated persons who have been issued a unit of the digital
commodity by the digital commodity issuer or have a
right to a unit of the digital commodity from the dig-
ital commodity issuer.
(ii) CONFIDENTIALITY.—The Commission shall keep
each list described under clause (i) confidential, con-
sistent with what is necessary or appropriate in the
public interest or for the protection of investors.
(G) RISK FACTOR DISCLOSURES.—A description of the ma-
terial risks surrounding ownership of a unit of a digital
commodity.
(3) ONGOING DISCLOSURE REQUIREMENTS FOR MATURING
BLOCKCHAIN SYSTEMS.—Subject to paragraph (5), the issuer of
a digital commodity related to a blockchain system that is not
yet certified as a mature blockchain system that has filed a
statement under paragraph (1) to offer and sell an investment
contract involving a unit of a digital commodity in reliance on
section 4(a)(8) shall file the following with the Commission:
(A) SEMIANNUAL REPORTS.—Every 6 months, a report
containing—
(i) an updated description of the current state and
timeline for the development of the blockchain system
to which the digital commodity relates, showing how
and when the blockchain is intended to be a mature
blockchain system;
(ii) a description of the efforts of the issuer and dig-
ital commodity related persons in developing the
blockchain system to which the digital commodity re-
lates; and
(iii) the amount of money raised by the digital com-
modity issuer in reliance on section 4(a)(8), how much
of that money has been spent, and the general cat-
egories of activities for which that money has been
spent and amounts spent per category.
(B) CURRENT REPORTS.—A current report reflecting any
material changes relevant to the information previously re-
ported to the Commission by the digital commodity issuer,
which shall be filed as soon as practicable after the mate-
rial change occurred, in accordance with such rules as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
(4) RULEMAKING.—Not later than 360 days after the date of
the enactment of this section, the Commission shall prescribe
rules on requirements applicable to issuers of digital commod-
ities in reliance on section 4(a)(8).
(5) TERMINATION OF CERTAIN REPORTING REQUIREMENTS;
POST-MATURITY REPORTING REQUIREMENTS.—
(A) IN GENERAL.—The ongoing reporting requirements
under paragraph (3) shall not apply to a digital commodity
issuer 180 days after the end of the covered fiscal year, if
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the information with respect to the digital commodity and
the blockchain system to which it relates described in sub-
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109
paragraphs (A) through (C) of paragraph (2) is made pub-
licly available and the disclosure requirements under sub-
paragraph (C) of this paragraph are satisfied.
(B) COVERED FISCAL YEAR DEFINED.—In this paragraph,
the term ‘‘covered fiscal year’’ means, with respect to a dig-
ital commodity, the first fiscal year of a digital commodity
issuer in which the blockchain system to which such digital
commodity relates is certified as a mature blockchain sys-
tem under section 42 of the Securities Exchange Act of
1934.
(C) POST-MATURITY REPORTING REQUIREMENTS.—After
the blockchain system to which a digital commodity relates
is certified as a mature blockchain system under section 42
of the Securities Exchange Act of 1934, any digital com-
modity issuer that has filed a statement under paragraph
(1) to offer and sell an investment contract involving a unit
of a digital commodity in reliance on section 4(a)(8) and is
engaged in material ongoing efforts related to the mature
blockchain system shall disclose, in a manner reasonably
calculated to inform the public, and at such frequency as
the Commission may prescribe, by rule, a description of
such efforts, including—
(i) any participation in a decentralized governance
system of such blockchain system;
(ii) any participation in alterations or proposed alter-
ations to the functionality or operation of such
blockchain system;
(iii) the use or planned use of any funds raised in re-
liance on section 4(a)(8) or any rulemaking pursuant to
section 202(d) of the CLARITY Act of 2025 in such ef-
forts;
(iv) the amount of units of the digital commodity, or
rights thereto, owned and controlled by such issuer and
any use, sale, trading, or other disposition thereof; and
(v) any affiliations of such issuer material to the ef-
forts of such issuer.
(D) RULE OF CONSTRUCTION.—Nothing in subparagraph
(C) may be construed to make any digital commodity de-
scribed in such subparagraph a security.
(c) REQUIREMENTS FOR INTERMEDIARIES.—A person acting as an
intermediary in connection with the offer or sale of an investment
contract involving units of a digital commodity in reliance on sec-
tion 4(a)(8) shall—
(1) register with the Commission as a broker or dealer; and
(2) 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).
(d) 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).
(e) FAILURE TO MATURE.—
(1) IN GENERAL.—Not later than 270 days after the date of
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the enactment of this section, the Commission shall issue rules
applying such additional obligations and disclosures for the
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digital commodity issuers, digital commodity related persons,
and digital commodity affiliated persons of a blockchain system
described under subsection (b)(1) that does not become a mature
blockchain system within the time period described in section
4(a)(8)(A) as are necessary or appropriate in the public interest
or for the protection of investors. Such obligations and disclo-
sures shall include the following:
(A) DISCLOSURES.—Disclosures regarding the following:
(i) FAILURE TO MATURE.—The material reasons that
the blockchain system has not become a mature
blockchain system within the time period described in
section 4(a)(8)(A).
(ii) DEVELOPMENT PLANS.—The future plans of devel-
opment of the blockchain system, including informa-
tion required under subsection (b)(3).
(iii) RISK FACTOR DISCLOSURES.—The material risks
surrounding ownership of a unit of a digital com-
modity that relates to a blockchain system described
under subsection (b)(1) that has not become a mature
blockchain system within the time period described in
section 4(a)(8)(A).
(B) OBLIGATIONS.—Transaction reporting and beneficial
ownership disclosure obligations applicable to digital com-
modity related persons and digital commodity affiliated
persons of such blockchain system.
(2) QUALIFICATION REQUIRED.—The Commission may not per-
mit any additional raising of capital by the issuer of a digital
commodity related to a blockchain system described under sub-
section (a)(1) that has not become a mature blockchain system
within the time period described in section 4(a)(8)(A) unless the
Commission has qualified any offering statement related to
such additional raising of capital.
SEC. 4C. REQUIREMENTS FOR OFFERS AND SALES OF DIGITAL COM-
MODITIES BY DIGITAL COMMODITY RELATED PERSONS
AND DIGITAL COMMODITY AFFILIATED PERSONS.
(a) IN GENERAL.—It shall be a violation of this Act for a digital
commodity affiliated person or a digital commodity related person
to offer or sell a digital commodity acquired directly from its issuer,
or an agent or underwriter thereof, pursuant to an investment con-
tract in reliance on section 4(a)(8) or another exemption under this
Act, other than as provided in this section.
(b) COMMISSION JURISDICTION.—
(1) Where a digital commodity affiliated person or a digital
commodity related person offers or sells a digital commodity ac-
quired directly from its issuer, or an agent or underwriter there-
of, pursuant to an investment contract in reliance on section
4(a)(8), or another exemption under this Act, other than as pro-
vided in this section, such digital commodity affiliated person
or digital commodity related person shall be considered an
issuer of such investment contract.
(2) For the purposes of this section, the Commission shall
have jurisdiction and enforcement authority with respect to an
offer or sale of a digital commodity described in subsection (a).
dmwilson on DSK7X7S144PROD with REPORTS
(c) RESTRICTIONS ON DIGITAL COMMODITY RELATED PERSONS AND
DIGITAL COMMODITY AFFILIATED PERSONS.—
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(1) PRIOR TO BEING A MATURE BLOCKCHAIN SYSTEM.—Prior to
the blockchain system to which a digital commodity relates
being certified as a mature blockchain system under section 42
of the Securities Exchange Act of 1934, units of the digital com-
modity acquired by a digital commodity related person or dig-
ital commodity affiliated person directly from its issuer, or an
agent or underwriter thereof, pursuant to an investment con-
tract in reliance on section 4(a)(8), or another exemption under
this Act, may be offered or sold by such digital commodity re-
lated person or digital commodity affiliated person if—
(A) reports with respect to such digital commodity, where
required under section 4B(b)(3) (or, with respect to a digital
commodity not issued in reliance on section 4(a)(8), a com-
parable set of reports where required by the Commission)
have been filed with the Commission;
(B) the digital commodity related person or digital com-
modity affiliated person has held the units for not less than
12 months from the date the units were delivered; and
(C) the aggregate amount of the units of the digital com-
modity offered or sold by the digital commodity related per-
son or digital commodity affiliated person is—
(i) in any 12-month period, not greater than 15 per-
cent of the total units of the digital commodity ac-
quired directly from its issuer by the digital commodity
related person or digital commodity affiliated person;
and
(ii) not greater than 50 percent of the total units of
the digital commodity acquired directly from its issuer
by the digital commodity related person or digital com-
modity affiliated person.
(2) AFTER BECOMING A MATURE BLOCKCHAIN SYSTEM.—After
the blockchain system to which a digital commodity relates is
certified as a mature blockchain system under section 42 of the
Securities Exchange Act of 1934, units of the digital commodity
acquired by a digital commodity related person or digital com-
modity affiliated person directly from its issuer, or the issuer’s
agent or underwriter, pursuant to an investment contract in re-
liance on section 4(a)(8) or another exemption under this Act,
may be—
(A) offered or sold by a digital commodity related person;
or
(B) offered or sold by a digital commodity affiliated per-
son if—
(i) information described in section 4B(b)(5)(C),
where required (or, with respect to a digital commodity
not issued in reliance on section 4(a)(8), a comparable
set of information, where required) is publicly avail-
able;
(ii) the digital commodity affiliated person has held
the units for not less than the earlier of—
(I) 12 months from the date the units were deliv-
ered; or
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(II) 3 months following the date on which the
blockchain system is certified as a mature
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112
blockchain system under section 42 of the Securi-
ties Exchange Act of 1934; and
(iii) the aggregate amount of the units of the digital
commodity offered or sold by the digital commodity af-
filiated person in any 12-month period does not exceed
the greater of—
(I) 8 percent of the total outstanding amount of
the digital commodity; or
(II) 25 percent of the total units of the digital
commodity acquired directly from its issuer by the
digital commodity affiliated person.
(d) USE OF A DIGITAL COMMODITY IN THE PROGRAMMATIC FUNC-
TIONING OF THE BLOCKCHAIN SYSTEM.—For purposes of this section,
the use of a digital commodity in the programmatic functioning of
the blockchain system to which it relates is not an offer or sale of
a digital commodity.
(e) MANIPULATIVE AND DECEPTIVE DEVICES; REPORTING.—
(1) IN GENERAL.—It shall be unlawful for any digital com-
modity issuer, digital commodity related person, or digital com-
modity affiliated person, directly or indirectly, by the use of any
means or instrumentality of interstate commerce or of the mails,
to use or employ, in connection with the purchase or sale of any
digital commodity, any manipulative or deceptive device or con-
trivance 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) AFFIRMATIVE DEFENSE.—Not later than 270 days after the
date of the enactment of this section, the Commission shall
issue rules to implement paragraph (1), including by providing
any affirmative defenses to an enforcement action thereunder as
the Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.
(3) REPORTING.—Not later than 270 days after the date of the
enactment of this section, the Commission shall issue rules to
prescribe such transaction reporting and beneficial ownership
disclosure obligations applicable to digital commodity related
persons and digital commodity affiliated persons, as necessary
or appropriate in the public interest or for the protection of in-
vestors.
(4) DIFFERENTIATION BETWEEN PERSONS.—In issuing rules re-
quired under paragraphs (2) and (3), the Commission shall dif-
ferentiate between digital commodity related persons and dig-
ital commodity affiliated persons as necessary or appropriate in
the public interest or for the protection of investors.
(f) RULES FOR PREVIOUSLY-ISSUED DIGITAL COMMODITIES.—
(1) UNITS RECEIVED PRIOR TO JANUARY 1, 2020.—If a unit of
a digital commodity was received by a digital commodity re-
lated person or digital commodity affiliated person prior to
January 1, 2020, the unit of the digital commodity may be of-
fered or sold by the digital commodity related person or digital
commodity affiliated person without condition.
(2) CERTAIN UNITS RELATED TO A NON-MATURE BLOCKCHAIN
SYSTEM.—If a unit of a digital commodity was received by a
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digital commodity related person or digital commodity affili-
ated person between January 1, 2020, and June 1, 2025, and
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113
the blockchain system to which the digital commodity relates is
not certified as a mature blockchain system under section 42 of
the Securities Exchange Act of 1934, the unit of the digital asset
may be offered or sold by a digital commodity related person or
digital commodity affiliated person if—
(A) reports with respect to such digital commodity com-
parable to the reports described under section 4B(b)(3),
where required by the Commission, have been filed with the
Commission;
(B) the digital commodity related person or digital com-
modity affiliated person meets any requirements pursuant
to subsection (e)(3); and
(C) the digital commodity related person or digital com-
modity affiliated person has held the units for not less than
12 months from the date the units were delivered.
(3) CERTAIN UNITS RELATED TO A MATURE BLOCKCHAIN SYS-
TEM.—If a unit of a digital commodity was received by a digital
commodity related person or digital commodity affiliated per-
son between January 1, 2020, and June 1, 2025, and the
blockchain system to which the digital commodity relates is cer-
tified as a mature blockchain system under section 42 of the Se-
curities Exchange Act of 1934, it may be offered or sold by a
digital commodity related person or digital commodity affili-
ated person if—
(A) information described in section 4B(b)(5)(C) or com-
parable thereto, where required by the Commission, is pub-
licly available; and
(B) the digital commodity related person or digital com-
modity affiliated person has held the units for not less than
12 months from the date the units were delivered.
(g) RULEMAKING ON FURTHER USAGE OF DIGITAL COMMODITIES.—
Not later than 270 days after the date of enactment of this section,
the Commission may issue rules to exempt, unconditionally or on
stated terms or conditions, a digital commodity related person or a
digital commodity affiliated person from the requirements of this
section for the offer or sale of a digital commodity in order to foster
the development of mature blockchain systems and fair and orderly
markets.
PROHIBITIONS RELATING TO INTERSTATE COMMERCE AND THE MAILS
SEC. 5. (a) Unless a registration statement is in effect as to a se-
curity, it shall be unlawful for any person, directly or indirectly—
(1) to make use of any means or instruments of transpor-
tation or communication in interstate commerce or of the mails
to sell such security through the use or medium of any pro-
spectus or otherwise; or
(2) to carry or cause to be carried through the mails or in
interstate commerce, by any means or instruments of transpor-
tation, any such security for the purpose of sale or for delivery
after sale.
(b) It shall be unlawful for any person, directly or indirectly—
(1) to make use of any means or instruments of transpor-
tation or communication in interstate commerce or of the mails
dmwilson on DSK7X7S144PROD with REPORTS
to carry or transmit any prospectus relating to any security
with respect to which a registration statement has been filed
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114
under this title, unless such prospectus meets the require-
ments of section 10; or
(2) to carry or cause to be carried through the mails or in
interstate commerce any such security for the purpose of sale
or for delivery after sale, unless accompanied or preceded by a
prospectus that meets the requirements of subsection (a) of
section 10.
(c) It shall be unlawful for any person, directly or indirectly, to
make use of any means or instruments of transportation or commu-
nication in interstate commerce or of the mails to offer to sell or
offer to buy through the use or medium of any prospectus or other-
wise any security, unless a registration statement has been filed as
to such security, or while the registration statement is the subject
of a refusal order or stop order or (prior to the effective date of the
registration statement) any public proceeding or examination under
section 8.
(d) LIMITATION.—Notwithstanding any other provision of this sec-
tion, an emerging growth company or any person authorized to act
on behalf of an emerging growth company may engage in oral or
written communications with potential investors that are qualified
institutional buyers or institutions that are accredited investors, as
such terms are respectively defined in section 230.144A and section
230.501(a) of title 17, Code of Federal Regulations, or any successor
thereto, to determine whether such investors might have an inter-
est in a contemplated securities offering, either prior to or following
the date of filing of a registration statement with respect to such
securities with the Commission, subject to the requirement of sub-
section (b)(2).
(e) Notwithstanding the provisions of section 3 or 4, unless a reg-
istration statement meeting the requirements of section 10(a) is in
effect as to a security-based swap, it shall be unlawful for any per-
son, directly or indirectly, to make use of any means or instru-
ments of transportation or communication in interstate commerce
or of the mails to offer to sell, offer to buy or purchase or sell a
security-based swap to any person who is not an eligible contract
participant as defined in section ø1a(18)¿ 1a(19) of the Commodity
Exchange Act (7 U.S.C. 1a(18)).
* * * * * * *
SEC. 18. EXEMPTION FROM STATE REGULATION OF SECURITIES OF-
FERINGS.
(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 trans-
actions, 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 sub-
dmwilson on DSK7X7S144PROD with REPORTS
section (b), any offering document that is prepared by or
on behalf of the issuer; or
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115
(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 reg-
istered 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 administra-
tive actions of the State of incorporation of the issuer; or
(3) shall directly or indirectly prohibit, limit, or impose condi-
tions, 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 fol-
lowing are covered securities:
(1) EXCLUSIVE FEDERAL REGISTRATION OF NATIONALLY TRAD-
ED SECURITIES.—A security is a covered security if such secu-
rity 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 na-
tional securities exchange (or tier or segment thereof); or
(B) a security of the same issuer that is equal in senior-
ity or that is a senior security to a security described in
subparagraph (A).
(2) EXCLUSIVE FEDERAL REGISTRATION OF INVESTMENT COM-
PANIES.—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 Invest-
ment Company Act of 1940.
(3) SALES TO QUALIFIED PURCHASERS.—A security is a cov-
ered 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 cat-
egories of securities, consistent with the public interest and the
protection of investors.
(4) EXEMPTION IN CONNECTION WITH CERTAIN EXEMPT OFFER-
INGS.—A security is a covered security with respect to a trans-
action that is exempt from registration under this title pursu-
ant 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) øsection 4(4)¿ section 4(a)(4);
(C) øsection 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 de-
fined by the Commission pursuant to paragraph (3)
with respect to that purchase or sale;
dmwilson on DSK7X7S144PROD with REPORTS
(E) section 3(a), other than the offer or sale of a security
that is exempt from such registration pursuant to para-
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116
graph (4), (10), or (11) of such section, except that a munic-
ipal security that is exempt from such registration pursu-
ant to paragraph (2) of such section is not a covered secu-
rity 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 øsec-
tion 4(2)¿ section 4(a)(2), except that this subparagraph
does not prohibit a State from imposing notice filing re-
quirements that are substantially similar to those required
by rule or regulation under øsection 4(2)¿ section 4(a)(2)
that are in effect on September 1, 1996; øor¿
(G) section 4(a)(7)ø.¿; or
(H) section 4(a)(8).
(5) EXEMPTION IN CONNECTION WITH DIGITAL COMMODITIES.—
A digital commodity shall be treated as a covered security.
(c) PRESERVATION OF AUTHORITY.—
(1) FRAUD AUTHORITY.—Consistent with this section, the se-
curities 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 sec-
tion 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 re-
quiring the filing of any document filed with the Commis-
sion 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 ac-
tion 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 subpara-
graph shall be paid, and all necessary supporting data
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on sales or offers for sales required under subpara-
graph (A), shall be reported on the same
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117
schedule as would have been applicable had the issuer
not relied on the exemption provided in subsection (a).
(C) AVAILABILITY OF PREEMPTION CONTINGENT ON PAY-
MENT 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 commis-
sion (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 re-
quired 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 re-
fusal to pay fees.
(D) FEES NOT PERMITTED ON LISTED SECURITIES.—Not-
withstanding 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 SECURI-
TIES.—Notwithstanding subparagraphs (A), (B), and (C),
no filing or fee may be required with respect to any secu-
rity that is a covered security pursuant to subsection
(b)(4)(B), or will be such a covered security upon comple-
tion of the transaction, except for the securities commis-
sion (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, pro-
vided that for purposes of this subparagraph, the term
‘‘State’’ includes the District of Columbia and the terri-
tories of the United States.
(3) ENFORCEMENT OF REQUIREMENTS.—Nothing in this sec-
tion 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 defi-
nitions shall apply:
(1) OFFERING DOCUMENT.—The term ‘‘offering document’’—
(A) has the meaning given the term ‘‘prospectus’’ in sec-
tion 2(a)(10), but without regard to the provisions of sub-
paragraphs (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
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than 6 months after the date of enactment of the National Se-
curities Markets Improvement Act of 1996, the Commission
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118
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 con-
stituting 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.
* * * * * * *
SEC. 28. GENERAL EXEMPTIVE AUTHORITY.
The Commission, øby rule or regulation¿ by rule, regulation, or
order, may conditionally or unconditionally exempt any person, se-
curity, or transaction, or any class or classes of persons, securities,
or transactions, from any provision or provisions of this title or of
any rule or regulation issued under this title, to the extent that
such exemption is necessary or appropriate in the public interest,
and is consistent with the protection of investors.
SCHEDULE A(1) THE NAME UNDER WHICH THE ISSUER IS DOING OR
INTENDS TO DO BUSINESS;
(2) the name of the State or other sovereign power under which
the issuer is organized;
(3) the location of the issuer’s principal business office, and if the
issuer is a foreign or territorial person, the name and address of
its agent in the United States authorized to receive notice;
(4) the names and addresses of the directors or persons per-
forming similar functions, and the chief executive, financial and ac-
counting officers, chosen or to be chosen if the issuer be a corpora-
tion, association, trust, or other entity; of all partners, if the issuer
be a partnership; and of the issuer, if the issuer be an individual;
and of the promoters in the case of a business to be formed, or
formed within two years prior to the filing of the registration state-
ment;
(5) the names and addresses of the underwriters;
(6) the names and addresses of all persons, if any, owning of
record or beneficially, if known, more than 10 per centum of any
class of stock of the issuer, or more than 10 per centum in the ag-
gregate of the outstanding stock of the issuer as of a date within
twenty days prior to the filing of the registration statement;
(7) the amount of securities of the issuer held by any person
specified in paragraphs (4), (5), and (6) of this schedule, as of a
date within twenty days prior to the filing of the registration state-
ment, and, if possible, as of one year prior thereto, and the amount
of the securities, for which the registration statement is filed, to
which such persons have indicated their intention to subscribe;
(8) the general character of the business actually transacted or
to be transacted by the issuer;
(9) a statement of the capitalization of the issuer, including the
authorized and outstanding amounts of its capital stock and the
proportion thereof paid up, the number and classes of shares in
which such capital stock is divided, par value thereof, or if it has
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no par value, the stated or assigned value thereof, a description of
the respective voting rights, preferences, conversion and exchange
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119
rights, rights to dividends, profits, or capital of each class, with re-
spect to each other class, including the retirement and liquidation
rights or values thereof;
(10) a statement of the securities, if any, covered by options out-
standing or to be created in connection with the security to be of-
fered, together with the names and addresses of all persons, if any,
to be allotted more than 10 per centum in the aggregate of such
options;
(11) the amount of capital stock of each class issued or included
in the shares of stock to be offered;
(12) the amount of the funded debt outstanding and to be created
by the security to be offered, with a brief description of the date,
maturity, and character of such debt, rate of interest, character of
amortization provisions, and the security, if any, therefor. If substi-
tution of any security is permissible, a summarized statement of
the conditions under which such substitution is permitted. If sub-
stitution is permissible without notice, a specific statement to that
effect;
(13) the specific purposes in detail and the approximate amounts
to be devoted to such purposes, so far as determinable, for which
the security to be offered is to supply funds, and if the funds are
to be raised in part from other sources, the amounts thereof and
the sources thereof, shall be stated;
(14) the remuneration, paid or estimated to be paid, by the issuer
or its predecessor, directly or indirectly, during the past year and
ensuing year to (a) the directors or persons performing similar
functions, and (b) its officers and other persons, naming them
wherever such remuneration exceeded $25,000 during any such
year;
(15) the estimated net proceeds to be derived from the security
to be offered;
(16) the price at which it is proposed that the security shall be
offered to the public or the method by which such price is computed
and any variation therefrom at which any portion of such security
is proposed to be offered to any persons or classes of persons, other
than the underwriters, naming them or specifying the class. A vari-
ation in price may be proposed prior to the date of the public offer-
ing of the security, but the Commission shall immediately be noti-
fied of such variation;
(17) all commissions or discounts paid or to be paid, directly or
indirectly, by the issuer to the underwriters in respect of the sale
of the security to be offered. Commissions shall include all cash, se-
curities, contracts, or anything else of value, paid, to be set aside,
disposed of, or understandings with or for the benefit of any other
persons in which any underwriter is interested, made, in connec-
tion with the sale of such security. A commission paid or to be paid
in connection with the sale of such security by a person in which
the issuer has an interest or which is controlled or directed by, or
under common control with, the issuer shall be deemed to have
been paid by the issuer. Where any such commission is paid the
amount of such commission paid to each underwriter shall be stat-
ed;
(18) the amount or estimated amounts, itemized in reasonable
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detail, of expenses, other than commissions specified in paragraph
(17) of this schedule, incurred or borne by or for the account of the
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120
issuer in connection with the sale of the security to be offered or
properly chargeable thereto, including legal, engineering, certifi-
cation, authentication, and other charges;
(19) the net proceeds derived from any security sold by the issuer
during the two years preceding the filing of the registration state-
ment, the price at which such security was offered to the public,
and the names of the principal underwriters of such security;
(20) any amount paid within two years preceding the filing of the
registration statement or intended to be paid to any promoter and
the consideration for any such payment;
(21) the names and addresses of the vendors and the purchase
price of any property, or good will, acquired or to be acquired, not
in the ordinary course of business, which is to be defrayed in whole
or in part from the proceeds of the security to be offered, the
amount of any commission payable to any person in connection
with such acquisition, and the name or names of such person or
persons, together with any expense incurred or to be incurred in
connection with such acquisition, including the cost of borrowing
money to finance such acquisition;
(22) full particulars of the nature and extent of the interest, if
any, of every director, principal executive officer, and of every
stockholder holding more than 10 per centum of any class of stock
or more than 10 per centum in the aggregate of the stock of the
issuer, in any property acquired, not in the ordinary course of busi-
ness of the issuer, within two years preceding the filing of the reg-
istration statement or proposed to be acquired at such date;
(23) the names and addresses of counsel who have passed on the
legality of the issue;
(24) dates of and parties to, and the general effect concisely stat-
ed of every material contract made, not in the ordinary course of
business, which contract is to be executed in whole or in part at
or after the filing of the registration statement or which contract
has been made not more than two years before such filing. Any
management contract or contract providing for special bonuses or
profit-sharing arrangements, and every material patent or contract
for a material patent right, and every contract by or with a public
utility company or an affiliate thereof, providing for the giving or
receiving of technical or financial advice or service (if such contract
may involve a charge to any party thereto at a rate in excess of
$2,500 per year in cash or securities or anything else of value),
shall be deemed a material contract;
(25) a balance sheet as of a date not more than ninety days prior
to the date of the filing of the registration statement showing all
of the assets of the issuer, the nature and cost thereof, whenever
determinable, in such detail and in such form as the Commission
shall prescribe (with intangible items segregated), including any
loan in excess of $20,000 to any officer, director, stockholder or per-
son directly or indirectly controlling or controlled by the issuer, or
person under direct or indirect common control with the issuer. All
the liabilities of the issuer in such detail and such form as the
Commission shall prescribe, including surplus of the issuer show-
ing how and from what sources such surplus was created, all as of
a date not more than ninety days prior to the filing of the registra-
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tion statement. If such statement be not certified by an inde-
pendent public or certified accountant, in addition to the balance
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121
sheet required to be submitted under this schedule, a similar de-
tailed balance sheet of the assets and liabilities of the issuer, cer-
tified by an independent public or certified accountant, of a date
not more than one year prior to the filing of the registration state-
ment, shall be submitted;
(26) a profit and loss statement of the issuer showing earnings
and income, the nature and source thereof, and the expenses and
fixed charges in such detail and such form as the Commission shall
prescribe for the latest fiscal year for which such statement is
available and for the two preceding fiscal years, year by year, or,
if such issuer has been in actual business for less than three years,
then for such time as the issuer has been in actual business, year
by year. If the date of the filing of the registration statement is
more than six months after the close of the last fiscal year, a state-
ment from such closing date to the latest practicable date. Such
statement shall show what the practice of the issuer has been dur-
ing the three years or lesser period as to the character of the
charges, dividends or other distributions made against its various
surplus accounts, and as to depreciation, depletion, and mainte-
nance charges, in such detail and form as the Commission shall
prescribe, and if stock dividends or avails from the sale of rights
have been credited to income, they shall be shown separately with
a statement of the basis upon which the credit is computed. Such
statement shall also differentiate between any recurring and non-
recurring income and between any investment and operating in-
come. Such statement shall be certified by an independent public
or certified accountant;
(27) if the proceeds, or any part of the proceeds, of the security
to be issued is to be applied directly or indirectly to the purchase
of any business, a profit and loss statement of such business cer-
tified by an independent public or certified accountant, meeting the
requirements of paragraph (26) of this schedule, for the three pre-
ceding fiscal years, together with a balance sheet, similarly cer-
tified, of such business, meeting the requirements of paragraph
(25) of this schedule of a date not more than ninety days prior to
the filing of the registration statement or at the date such business
was acquired by the issuer if the business was acquired by the
issuer more than ninety days prior to the fiing of the registration
statement;
(28) a copy of any agreement or agreements (or, if identical
agreements are used, the forms thereof) made with any under-
writer, including all contracts and agreements referred to in para-
graph (17) of this schedule;
(29) a copy of the opinion or opinions of counsel in respect to the
legality of the issue, with a translation of such opinion, when nec-
essary, into the English language;
(30) a copy of all material contracts referred to in paragraph (24)
of this schedule, but no disclosure shall be required of any portion
of any such contract if the Commission determines that disclosure
of such portion would impair the value of the contract and would
not be necessary for the protection of the investors;
(31) unless previously filed and registered under the provisions
of this title, and brought up to date, (a) a copy of its articles of in-
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corporation, with all amendments thereof and of its existing bylaws
or instruments corresponding thereto, whatever the name, if the
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122
issuer be a corporation; (b) copy of all instruments by which the
trust is created or declared, if the issuer is a trust; (c) a copy of
its articles of partnership or association and all other papers per-
taining to its organization, if the issuer is a partnership, unincor-
porated association, joint-stock company, or any other form of orga-
nization; and
(32) a copy of the underlying agreements or indentures affecting
any stock, bonds, or debentures offered or to be offered.
In case of certificates of deposit, voting trust certificates, collat-
eral trust certificates, certificates of interest or shares in unincor-
porated investment trusts, equipment trust certificates, interim or
other receipts for certificates, and like securities, the Commission
shall establish rules and regulations requiring the submission of
information of a like character applicable to such cases, together
with such other information as it may deem appropriate and nec-
essary regarding the character, financial or otherwise, of the actual
issuer of the securities and/or the person performing the acts and
assuming the duties of depositor or manager.
SCHEDULE B
(1) Name of borrowing government or subdivision thereof;
(2) specific purposes in detail and the approximate amounts to be
devoted to such purposes, so far as determinable, for which the se-
curity to be offered is to supply funds, and if the funds are to be
raised in part from other sources, the amounts thereof and the
sources thereof, shall be stated;
(3) the amount of the funded debt and the estimated amount of
the floating debt outstanding and to be created by the security to
be offered, excluding intergovernmental debt, and a brief descrip-
tion of the date, maturity, character of such debt, rate of interest,
character of amortization provisions, and the security, if any, there-
for. If substitution of any security is permissible, a statement of the
conditions under which such substitution is permitted. If substi-
tution is permissible without notice, a specific statement to that ef-
fect;
(4) whether or not the issuer or its predecessor has, within a pe-
riod of twenty years prior to the filing of the registration state-
ment, defaulted on the principal or interest of any external secu-
rity, excluding intergovernmental debt, and, if so, the date,
amount, and circumstances of such default, and the terms of the
succeeding arrangement, if any;
(5) the receipts, classified by source, and the expenditures, classi-
fied by purpose, in such detail and form as the Commission shall
prescribe for the latest fiscal year for which such information is
available and the two preceding fiscal years, year by year;
(6) the names and addresses of the underwriters;
(7) the name and address of its authorized agent, if any, in the
United States;
(8) the estimated net proceeds to be derived from the sale in the
United States of the security to be offered;
(9) the price at which it is proposed that the security shall be of-
fered in the United States to the public or the method by which
such price is computed. A variation in price may be proposed prior
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to the date of the public offering of the security, but the Commis-
sion shall immediately be notified of such variation;
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(10) all commissions paid or to be paid, directly or indirectly, by
the issuer to the underwriters in respect of the sale of the security
to be offered. Commissions shall include all cash, securities, con-
tracts, or anything else of value, paid, to be set aside, disposed of,
or understandings with or for the benefit of any other persons in
which the underwriter is interested, made, in connection with the
sale of such security. Where any such commission is paid, the
amount of such commission paid to each underwriter shall be stat-
ed;
(11) the amount or estimated amounts, itemized in reasonable
detail, of expenses, other than the commission specified in para-
graph (10) of this schedule, incurred or borne by or for the account
of the issuer in connection with the sale of the security to be of-
fered or properly chargeable thereto, including legal, engineering,
certification, and other charges;
(12) the names and addresses of counsel who have passed upon
the legality of the issue;
(13) a copy of any agreement or agreements made with any un-
derwriter governing the sale of the security within the United
States; and
(14) an agreement of the issuer to furnish a copy of the opinion
or opinions of counsel in respect to the legality of the issue, with
a translation, where necessary, into the English language. Such
opinion shall set out in full all laws, decrees, ordinances, or other
acts of Government under which the issue of such security has
been authorized.
* * * * * * *
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, associa-
tion, or group of persons, whether incorporated or unincor-
porated, 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 securi-
ties 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.
(2) The term ‘‘facility’’ when used with respect to an ex-
change 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
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the consent of the exchange), and any right of the exchange to
the use of any property or service. An alternative trading sys-
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124
tem primarily facilitating the trading of digital commodities,
permitted payment stablecoins, or both, is not a ‘‘facility’’ of an
exchange.
(3)(A) The term ‘‘member’’ when used with respect to a na-
tional securities exchange means (i) any natural person per-
mitted to effect transactions on the floor of the exchange with-
out 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 regu-
lated 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 ex-
change also means, to the extent of the rules of the exchange
specified by the Commission, any person required by the Com-
mission to comply with such rules pursuant to section 6(f) of
this title.
(B) The term ‘‘member’’ when used with respect to a reg-
istered 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 there-
under, and its own rules.
(4) BROKER.—
(A) IN GENERAL.—The term ‘‘broker’’ means any person
engaged in the business of effecting transactions in securi-
ties for the account of others.
(B) EXCEPTION FOR CERTAIN BANK ACTIVITIES.—A bank
shall not be considered to be a broker because the bank en-
gages 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 ar-
rangement with a broker or dealer registered under
this title under which the broker or dealer offers bro-
kerage 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 adver-
tise or promote generally the availability of bro-
kerage services under the arrangement clearly in-
dicate that the brokerage services are being pro-
vided by the broker or dealer and not by the bank;
(IV) any materials used by the bank to advertise
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or promote generally the availability of brokerage
services under the arrangement are in compliance
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with the Federal securities laws before distribu-
tion;
(V) bank employees (other than associated per-
sons of a broker or dealer who are qualified pursu-
ant 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 per-
sons of a broker or dealer, except that bank em-
ployees may forward customer funds or securities
and may describe in general terms the types of in-
vestment 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 un-
less 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 contin-
gent on whether the referral results in a trans-
action;
(VII) such services are provided by the broker or
dealer on a basis in which all customers that re-
ceive any services are fully disclosed to the broker
or dealer;
(VIII) the bank does not carry a securities ac-
count 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 obli-
gations 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 trans-
actions in a trustee capacity, or effects transactions in
a fiduciary capacity in its trust department or other
department that is regularly examined by bank exam-
iners 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
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for trustee and fiduciary customers, or any com-
bination of such fees; and
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126
(II) does not publicly solicit brokerage business,
other than by advertising that it effects trans-
actions in securities in conjunction with adver-
tising 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 se-
curity 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 activi-
ties, 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 de-
fined in section 2 of the Bank Holding Company
Act of 1956), if the bank does not solicit trans-
actions 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 connec-
tion 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 trans-
actions, as part of its transfer agency activities, in
the securities of an issuer as part of a plan or pro-
gram 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 connec-
tion with the plan or program; and
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(bb) the bank does not net shareholders’
buy and sell orders, other than for programs
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127
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 Commis-
sion.
(v) SWEEP ACCOUNTS.—The bank effects transactions
as part of a program for the investment or reinvest-
ment of deposit funds into any no-load, open-end man-
agement investment company registered under the In-
vestment 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 there-
under;
(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 activi-
ties, other than with respect to exempted securi-
ties; and
(III) if the bank is not affiliated with a broker
or dealer, does not effect any primary offering de-
scribed 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 govern-
ment securities or municipal securities.
(viii) SAFEKEEPING AND CUSTODY ACTIVITIES.—
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(I) IN GENERAL.—The bank, as part of cus-
tomary banking activities—
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(aa) provides safekeeping or custody serv-
ices with respect to securities, including the
exercise of warrants and other rights on be-
half of customers;
(bb) facilitates the transfer of funds or secu-
rities, 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 pursu-
ant to division (aa) or (bb) or invests cash col-
lateral pledged in connection with such trans-
actions;
(dd) holds securities pledged by a customer
to another person or securities subject to pur-
chase or resale agreements involving a cus-
tomer, or facilitates the pledging or transfer
of such securities by book entry or as other-
wise 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, retire-
ment, profit sharing, bonus, thrift savings, in-
centive, or other similar benefit plan.
(II) EXCEPTION FOR CARRYING BROKER ACTIVI-
TIES.—The exception to being considered a broker
for a bank engaged in activities described in sub-
clause (I) shall not apply if the bank, in connec-
tion 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 there-
under) for any broker or dealer, unless such car-
rying broker activities are engaged in with respect
to government securities (as defined in paragraph
(42) of this subsection).
(ix) IDENTIFIED BANKING PRODUCTS.—The bank ef-
fects transactions in identified banking products as de-
fined in section 206 of the Gramm-Leach-Bliley Act.
(x) MUNICIPAL SECURITIES.—The bank effects trans-
actions 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 ef-
fected by an employee of the bank who is also an em-
ployee 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)
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shall not apply if the activities described in such provi-
sions result in the trade in the United States of any secu-
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129
rity 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 prin-
ciples 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, adminis-
trator, registrar of stocks and bonds, transfer agent,
guardian, assignee, receiver, or custodian under a uni-
form 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 in-
vestment 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 security-based swaps, other than security-
based swaps with or for persons that are not eligible con-
tract participants) for such person’s own account through
a broker or otherwise.
(B) EXCEPTION FOR PERSON NOT ENGAGED IN THE BUSI-
NESS 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 en-
gages in any of the following activities under the condi-
tions described:
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(i) PERMISSIBLE SECURITIES TRANSACTIONS.—The
bank buys or sells—
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130
(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 se-
curity 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 TRANS-
ACTIONS.—The bank buys or sells securities for invest-
ment 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 en-
gages in the issuance or sale to qualified investors,
through a grantor trust or other separate entity, of se-
curities 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 pre-
dominantly 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-re-
lated receivables.
(iv) IDENTIFIED BANKING PRODUCTS.—The bank buys
or sells identified banking products, as defined in sec-
tion 206 of the Gramm-Leach-Bliley Act.
(6) The term ‘‘bank’’ means (A) a banking institution orga-
nized 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 de-
fined 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 hav-
ing supervision over banks or savings associations, and which
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is not operated for the purpose of evading the provisions of this
title, and (D) a receiver, conservator, or other liquidating agent
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131
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 pro-
poses to issue any security; except that with respect to certifi-
cates of deposit for securities, voting-trust certificates, or col-
lateral-trust certificates, or with respect to certificates of inter-
est 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 per-
forming the acts and assuming the duties of depositor or man-
ager pursuant to the provisions of the trust or other agreement
or instrument under which such securities are issued; and ex-
cept that with respect to equipment-trust certificates or like se-
curities, 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, strad-
dle, option, or privilege entered into on a national securities ex-
change relating to foreign currency, or in general, any instru-
ment commonly known as a ‘‘security’’; or any certificate of in-
terest 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 ma-
turity at the time of issuance of not exceeding nine months, ex-
clusive of days of grace, or any renewal thereof the maturity
of which is likewise limited. The term ‘‘investment contract’’
does not include an investment contract asset (as such term is
defined under section 2(a) of the Securities Act of 1933). The
term does not include a digital commodity or permitted pay-
ment stablecoin.
(11) The term ‘‘equity security’’ means any stock or similar
security; or any security future on any such security; or any se-
curity 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 simi-
lar nature and consider necessary or appropriate, by such rules
dmwilson on DSK7X7S144PROD with REPORTS
and regulations as it may prescribe in the public interest or for
the protection of investors, to treat as an equity security.
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132
(12)(A) The term ‘‘exempted security’’ or ‘‘exempted securi-
ties’’ 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 se-
curity 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 partici-
pation in any church plan, company, or account that is ex-
cluded 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 pre-
dominantly intrastate) as the Commission may, by such
rules and regulations as it deems consistent with the pub-
lic interest and the protection of investors, either uncondi-
tionally or upon specified terms and conditions or for stat-
ed 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 se-
curities’’ 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 secu-
rities’’ 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 qualifica-
tion under section 401 of the Internal Revenue Code of 1954,
(ii) an annuity plan which meets the requirements for the de-
duction 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 bene-
ficiaries the corpus and income of the funds accumulated under
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such plan, if under such plan it is impossible, prior to the sat-
isfaction of all liabilities with respect to such employees and
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133
their beneficiaries, for any part of the corpus or income to be
used for, or diverted to, purposes other than the exclusive ben-
efit 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 Invest-
ment Company Act of 1940, other than any plan described in
clause (i), (ii), or (iii) of this subparagraph which (I) covers em-
ployees 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 con-
tract to buy, purchase, or otherwise acquire. For security fu-
tures 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 fu-
ture 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 Ex-
change 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, Philippine Islands, 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 in-
cludes intrastate use of (A) any facility of a national securities
exchange or of a telephone or other interstate means of com-
munication, 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, con-
trolled by, or under common control with such broker or dealer,
or any employee of such broker or dealer, except that any per-
son associated with a broker or dealer whose functions are
solely clerical or ministerial shall not be included in the mean-
ing of such term for purposes of section 15(b) of this title (other
than paragraph (6) thereof).
(19) The terms ‘‘investment company,’’‘‘affiliated per-
son,’’‘‘insurance company,’’‘‘separate account,’’ and ‘‘company’’
have the same meanings as in the Investment Company Act of
1940.
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(20) The terms ‘‘investment adviser’’ and ‘‘underwriter’’ have
the same meanings as in the Investment Advisers Act of 1940.
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134
(21) The term ‘‘persons associated with a member’’ or ‘‘associ-
ated person of a member’’ when used with respect to a member
of a national securities exchange or registered securities asso-
ciation 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, par-
ticipating 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) distrib-
uting or publishing (whether by means of a ticker tape, a com-
munications network, a terminal display device, or otherwise)
on a current and continuing basis, information with respect to
such transactions or quotations. The term ‘‘securities informa-
tion 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 home-
stead 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 Commu-
nications Act of 1934, subject to the jurisdiction of the Federal
Communications Commission or a State commission, as de-
fined in section 3 of that Act, unless the Commission deter-
mines that such carrier is engaged in the business of collecting,
processing, or preparing for distribution or publication, infor-
mation with respect to transactions in or quotations for any se-
curity.
(B) The term ‘‘exclusive processor’’ means any securities in-
formation processor or self-regulatory organization which, di-
rectly or indirectly, engages on an exclusive basis on behalf of
any national securities exchange or registered securities asso-
ciation, or any national securities exchange or registered secu-
rities association which engages on an exclusive basis on its
own behalf, in collecting, processing, or preparing for distribu-
tion or publication any information with respect to (i) trans-
actions or quotations on or effected or made by means of any
facility of such exchange or (ii) quotations distributed or pub-
lished 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 pro-
vides 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
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securities settlement responsibilities. Such term also means
any person, such as a securities depository, who (i) acts as a
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135
custodian of securities in connection with a system for the cen-
tral 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 settle-
ment 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 Fed-
eral Reserve bank, Federal home loan bank, or Federal land
bank; (ii) any national securities exchange or registered securi-
ties association solely by reason of its providing facilities for
comparison of data respecting the terms of settlement of secu-
rities transactions effected on such exchange or by means of
any electronic system operated or controlled by such associa-
tion; (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 activi-
ties, 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 appro-
priate to assure the prompt and accurate clearance and settle-
ment 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 poli-
cies issued by such insurance company or its separate ac-
counts; (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 de-
scribed 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 an-
other person who is a participant or (B) as a pledgee of securi-
ties.
(25) The term ‘‘transfer agent’’ means any person who en-
gages 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) reg-
istering the transfer of such securities; (D) exchanging or con-
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verting such securities; or (E) transferring record ownership of
securities by bookkeeping entry without physical issuance of
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136
securities certificates. The term ‘‘transfer agent’’ does not in-
clude any insurance company or separate account which per-
forms such functions solely with respect to variable annuity
contracts or variable life policies which it issues or any reg-
istered clearing agency which performs such functions solely
with respect to options contracts which it issues.
(26) The term ‘‘self-regulatory organization’’ means any na-
tional securities exchange, registered securities association, or
registered 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 associa-
tion’’, or ‘‘rules of a clearing agency’’ means the constitution,
articles of incorporation, bylaws, and rules, or instruments cor-
responding to the foregoing, of an exchange, association of bro-
kers and dealers, or clearing agency, respectively, and such of
the stated policies, practices, and interpretations of such ex-
change, association, or clearing agency as the Commission, by
rule, may determine to be necessary or appropriate in the pub-
lic 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 ex-
change, the rules of an association of brokers and dealers
which is a registered securities association, the rules of a clear-
ing agency which is a registered 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 prin-
cipal 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 Inter-
nal 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 per-
son (including a separately identifiable department or division
of a bank) engaged in the business of buying and selling mu-
nicipal securities for his own account, through a broker or oth-
erwise, but does not include—
(A) any person insofar as he buys or sells such securities
for his own account, either individually or in some fidu-
ciary 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 ac-
count other than in a fiduciary capacity, through a broker
or otherwise; Provided, however, That if the bank is en-
gaged in such business through a separately identifiable
dmwilson on DSK7X7S144PROD with REPORTS
department or division (as defined by the Municipal Secu-
rities Rulemaking Board in accordance with section
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137
15B(b)(2)(H) of this title), the department or division and
not the bank itself shall be deemed to be the municipal se-
curities 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, su-
pervision, 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 con-
trolled 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, con-
trolled by, or under common control with a municipal securi-
ties 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 divi-
sion of any such bank, a Federal savings association
(as defined in section 3(b)(2) of the Federal Deposit In-
surance 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 sub-
sidiary 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 hold-
ing company;
(iii) the Federal Deposit Insurance Corporation, in
the case of a bank insured by the Federal Deposit In-
surance Corporation (other than a member of the Fed-
eral 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 In-
surance 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 divi-
sion of any such State savings association; and
(iv) the Commission in the case of all other munic-
ipal securities dealers.
dmwilson on DSK7X7S144PROD with REPORTS
(B) When used with respect to a clearing agency or
transfer agent:
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138
(i) the Comptroller of the Currency, in the case of a
national bank, a subsidiary of any such bank, a Fed-
eral 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 sub-
sidiary 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 com-
pany 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 In-
surance Corporation (other than a member of the Fed-
eral 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 sub-
sidiary 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 clear-
ing agency:
(i) the Comptroller of the Currency, in the case of a
national bank or a Federal savings association (as de-
fined in section 3(b)(2) of the Federal Deposit Insur-
ance Act (12 U.S.C. 1813(b)(2))), the deposits of which
are insured by the Federal Deposit Insurance Corpora-
tion 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 Fed-
eral 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 subpara-
graph, 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 In-
surance Corporation (other than a member of the Fed-
eral Reserve System) or a State savings association (as
defined in section 3(b)(3) of the Federal Deposit Insur-
ance Act (12 U.S.C. 1813(b)(3))), the deposits of which
are insured by the Federal Deposit Insurance Corpora-
tion; and when the appropriate regulatory agency for
dmwilson on DSK7X7S144PROD with REPORTS
such clearing agency is not the Commission;
(iv) the Commission in all other cases.
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139
(D) When used with respect to an institutional invest-
ment 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 de-
fined in section 3(b)(2) of the Federal Deposit Insur-
ance Act (12 U.S.C. 1813(b)(2))), the deposits of which
are insured by the Federal Deposit Insurance Corpora-
tion;
(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 de-
posits of which are insured by the Federal Deposit In-
surance Corporation.
(E) When used with respect to a national securities ex-
change or registered securities association, member there-
of, 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 in-
vestment 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 de-
fined in section 3(b)(2) of the Federal Deposit Insur-
ance Act (12 U.S.C. 1813(b)(2))), the deposits of which
are insured by the Federal Deposit Insurance Corpora-
tion;
(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 Insur-
ance 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 in-
sured 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 associ-
ated with a government securities broker or government
securities dealer:
(i) the Comptroller of the Currency, in the case of a
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national bank, a Federal savings association (as de-
fined in section 3(b)(2) of the Federal Deposit Insur-
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140
ance 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 com-
mercial lending company owned or controlled by a for-
eign 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 In-
surance Corporation (other than a member of the Fed-
eral 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 govern-
ment 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 Insur-
ance Act; or
(iv) the Commission in the case of all other such in-
stitutions.
As used in this paragraph, the terms ‘‘bank holding company’’
and ‘‘subsidiary of a bank holding company’’ have the mean-
ings 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 au-
thorized to determine what securities or other property shall
dmwilson on DSK7X7S144PROD with REPORTS
be purchased or sold by or for the account, (B) makes decisions
as to what securities or other property shall be purchased or
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141
sold by or for the account even though some other person may
have responsibility for such investment decisions, or (C) other-
wise 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 there-
under.
(36) A class of persons or markets is subject to ‘‘equal regula-
tion’’ 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 deter-
mines is unfair and not necessary or appropriate in further-
ance of the purposes of this title.
(37) The term ‘‘records’’ means accounts, correspondence,
memorandums, tapes, discs, papers, books, and other docu-
ments or transcribed information of any type, whether ex-
pressed in ordinary or machine language.
(38) The term ‘‘market maker’’ means any specialist per-
mitted to act as a dealer, any dealer acting in the capacity of
block positioner, and any dealer who, with respect to a secu-
rity, holds himself out (by entering quotations in an inter-deal-
er communications system or otherwise) as being willing to buy
and sell such security for his own account on a regular or con-
tinuous 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 member-
ship or participation in, or barred or suspended from being
associated with a member of, any self-regulatory organiza-
tion, foreign equivalent of a self-regulatory organization,
foreign or international securities exchange, contract mar-
ket designated pursuant to section 5 of the Commodity Ex-
change Act (7 U.S.C. 7), or any substantially equivalent
foreign statute or regulation, or futures association reg-
istered 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 con-
tract market or foreign equivalent;
(B) is subject to—
(i) an order of the Commission, other appropriate regu-
latory agency, or foreign financial regulatory authority—
(I) denying, suspending for a period not exceeding 12
months, or revoking his registration as a broker, deal-
er, 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 per-
forming 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,
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municipal securities dealer, government securities
broker, government securities dealer, security-based
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142
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 Commis-
sion 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 sub-
ject to the rules of a contract market, board of trade, or
foreign equivalent thereof;
(C) by his conduct while associated with a broker, deal-
er, 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 reg-
istered 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 regu-
latory 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 asso-
ciated with an entity engaged in transactions in contracts
of sale of a commodity for future delivery or other instru-
ments traded on or subject to the rules of a contract mar-
ket, 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 relat-
ing 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
dmwilson on DSK7X7S144PROD with REPORTS
action, conduct, or practice specified in subparagraph (C)
of such paragraph (4), has willfully made or caused to be
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143
made in any application for membership or participation
in, or to become associated with a member of, a self-regu-
latory organization, report required to be filed with a self-
regulatory organization, or proceeding before a self-regu-
latory 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, re-
port, 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 fi-
nancial responsibility and related practices which are des-
ignated by the Commission, by rule or regulation, to be finan-
cial 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 pay-
able 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 cor-
poration, 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 manufac-
tured 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 associa-
tion, savings bank, commercial bank, credit union, in-
surance company, or similar institution which is su-
pervised and examined by a Federal or State author-
ity, 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 certifi-
cates of interest or participations in such notes (with or
without recourse to the issuer thereof) and, by its terms,
dmwilson on DSK7X7S144PROD with REPORTS
provides for payments of principal in relation to payments,
or reasonable projections of payments, on notes meeting
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144
the requirements of subparagraphs (A) (i) and (ii) or cer-
tificates 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 obliga-
tions 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 inter-
est or for the protection of investors;
(C) securities issued or guaranteed as to principal or in-
terest by any corporation the securities of which are des-
ignated, 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, strad-
dle, 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 reg-
istered 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 trans-
actions in government securities for the account of others, but
does not include—
(A) any corporation the securities of which are govern-
ment securities under subparagraph (B) or (C) of para-
graph (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 con-
tract market’s affiliated clearing organization, or any floor
trader on such contract market, solely because such person
effects transactions in government securities that the Com-
mission, 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 per-
son engaged in the business of buying and selling government
dmwilson on DSK7X7S144PROD with REPORTS
securities for his own account, through a broker or otherwise,
but does not include—
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145
(A) any person insofar as he buys or sells such securities
for his own account, either individually or in some fidu-
ciary capacity, but not as a part of a regular business;
(B) any corporation the securities of which are govern-
ment securities under subparagraph (B) or (C) of para-
graph (42) of this subsection;
(C) any bank, unless the bank is engaged in the business
of buying and selling government securities for its own ac-
count 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 con-
tract market’s affiliated clearing organization, or any floor
trader on such contract market, solely because such person
effects transactions in government securities that the Com-
mission, 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 securi-
ties broker or government securities dealer’’ means any part-
ner, officer, director, or branch manager of such government
securities broker or government securities dealer (or any per-
son 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 manage-
ment, 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 securi-
ties dealer.
(46) The term ‘‘financial institution’’ means—
(A) a bank (as defined in paragraph (6) of this sub-
section);
(B) a foreign bank (as such term is used in the Inter-
national 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 sub-
section and sections 6 and 15A the term means such a broker
or dealer and a government securities broker or government
dmwilson on DSK7X7S144PROD with REPORTS
securities dealer registered or required to register pursuant to
section 15C(a)(1)(A) of this title.
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146
(49) The terms ‘‘person associated with a transfer agent’’ and
‘‘associated person of a transfer agent’’ mean any person (ex-
cept an employee whose functions are solely clerical or ministe-
rial) directly engaged in the management, direction, super-
vision, or performance of any of the transfer agent’s activities
with respect to transfer agent functions, and any person di-
rectly or indirectly controlling such activities or controlled by
the transfer agent in connection with such activities.
(50) The term ‘‘foreign securities authority’’ means any for-
eign government, or any governmental body or regulatory orga-
nization 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 Com-
mission 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 uncon-
ditionally, from the definition of such term by rule, regula-
tion, or order prescribed by the Commission.
(B) The Commission may, by rule, regulation, or order, des-
ignate any equity security or class of equity securities de-
scribed 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 ex-
change or through an automated quotation system described in
clause (ii) of subparagraph (A).
(C) In exercising its authority under this paragraph to pre-
scribe rules, regulations, and orders, the Commission shall de-
termine 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 em-
powered by a foreign government to administer or enforce its
laws relating to the regulation of fiduciaries, trusts, commer-
cial lending, insurance, trading in contracts of sale of a com-
modity for future delivery, or other instruments traded on or
dmwilson on DSK7X7S144PROD with REPORTS
subject to the rules of a contract market, board of trade, or for-
eign equivalent, or other financial activities, or (C) membership
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147
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 estab-
lished 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 de-
pository institution, insured credit union, insurance com-
pany, or similar institution which is supervised and exam-
ined 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 re-
course to the issuer or lessee) and provides for payments
of principal in relation to payments, or reasonable projec-
tions 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 per-
sonal 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 estab-
lished 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 Insur-
ance Act; and
(iv) the term ‘‘insured credit union’’ has the same mean-
ing 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 Com-
pany Act of 1940;
(ii) any issuer eligible for an exclusion from the defi-
nition 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 de-
velopment 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
dmwilson on DSK7X7S144PROD with REPORTS
under section 301 (c) or (d) of the Small Business In-
vestment Act of 1958;
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148
(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 com-
pany, or registered investment adviser;
(vi) any trust whose purchases of securities are di-
rected 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 in-
vestments;
(xiii) any government or political subdivision, agen-
cy, 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 ap-
plied 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 finan-
cial 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 se-
curity 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
dmwilson on DSK7X7S144PROD with REPORTS
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
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149
Futures Modernization Act of 2000) or title IV of the Com-
modity 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 secu-
rities 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 securi-
ties with equal weighting that could be included in the cal-
culation of the lowest weighted component securities com-
prising, 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 per-
cent of the index’s weighting; and
(III) each component security is—
(aa) registered pursuant to section 12 of the Securi-
ties 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 re-
spect to a contract of sale for future delivery on the index,
before the date of the enactment of the Commodity Fu-
tures Modernization Act of 2000;
(iii)(I) a contract of sale for future delivery on the index
traded on a designated contract market or registered de-
rivatives 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
dmwilson on DSK7X7S144PROD with REPORTS
rule or regulation by the Commission and the Commodity
Futures Trading Commission;
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150
(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 con-
tract of sale for future delivery on the index was au-
thorized before the date of the enactment of the Com-
modity 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 Com-
modity Futures Trading Commission.
(D) Within 1 year after the enactment of the Commodity Fu-
tures 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 be-
cause 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 se-
curity index for the 3 following calendar months.
(F) For purposes of subparagraphs (B) and (C) of this para-
graph—
(i) the dollar value of average daily trading volume and
the market capitalization shall be calculated as of the pre-
ceding 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 fu-
ture or any put, call, straddle, option, or privilege on any secu-
rity future.
(57)(A) The term ‘‘margin’’, when used with respect to a secu-
rity futures product, means the amount, type, and form of col-
lateral 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 mainte-
nance of credit, or the amount of margin required as a per-
formance 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,
dmwilson on DSK7X7S144PROD with REPORTS
mean a margin level established by a national securities ex-
change registered pursuant to section 6(g) that is higher than
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151
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 proc-
esses 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 ‘‘reg-
istered 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 as-
sessment of the creditworthiness of an obligor as an entity or
with respect to specific securities or money market instru-
ments.
(61) CREDIT RATING AGENCY.—The term ‘‘credit rating agen-
cy’’ 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 com-
mercial 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 ORGANIZA-
TION.—The term ‘‘nationally recognized statistical rating orga-
nization’’ means a credit rating agency that—
(A) issues credit ratings certified by qualified institu-
tional 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 secu-
rities, or securities issued by a foreign government; or
(vi) a combination of one or more categories of obli-
gors 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 associ-
ated with’’ a nationally recognized statistical rating organiza-
tion 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 func-
dmwilson on DSK7X7S144PROD with REPORTS
tions), any person directly or indirectly controlling, controlled
by, or under common control with a nationally recognized sta-
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152
tistical 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 sec-
tion 230.144A(a) of title 17, Code of Federal Regulations, or
any successor thereto.
(79) ASSET-BACKED SECURITY.—The term ‘‘asset-backed secu-
rity’’—
(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 receiv-
able) that allows the holder of the security to receive pay-
ments 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, deter-
mines to be an asset-backed security for purposes of
this section; and
(B) does not include a security issued by a finance sub-
sidiary held by the parent company or a company con-
trolled 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 par-
ticipant’’ has the same meaning as in section 1a of the Com-
modity 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 secu-
rity-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 con-
tract held by such a plan) as defined in paragraphs (3)
and (32) of section 3 of the Employee Retirement In-
come Security Act of 1974 (29 U.S.C. 1002) for the pri-
mary purpose of hedging or mitigating any risk di-
rectly associated with the operation of the plan;
(II) whose outstanding security-based swaps create
substantial counterparty exposure that could have se-
rious adverse effects on the financial stability of the
dmwilson on DSK7X7S144PROD with REPORTS
United States banking system or financial markets; or
(III) that is a financial entity that—
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153
(aa) is highly leveraged relative to the amount
of capital such entity holds and that is not subject
to capital requirements established by an appro-
priate Federal banking agency; and
(bb) maintains a substantial position in out-
standing security-based swaps in any major secu-
rity-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 signifi-
cantly impact the financial system of the United States. In
setting the definition under this subparagraph, the Com-
mission 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 collat-
eral held against counterparty exposures.
(C) SCOPE OF DESIGNATION.—For purposes of subpara-
graph (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 in-
terest 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, fi-
nancial condition, or financial obligations of the
issuer.
(B) RULE OF CONSTRUCTION REGARDING MASTER AGREE-
MENTS.—The term ‘‘security-based swap’’ shall be con-
strued 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 sup-
plements to any such master agreement, without regard to
whether the master agreement contains an agreement,
dmwilson on DSK7X7S144PROD with REPORTS
contract, or transaction that is not a security-based swap
pursuant to subparagraph (A), except that the master
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154
agreement shall be considered to be a security-based swap
only with respect to each agreement, contract, or trans-
action 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 re-
ceipt 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, con-
tract, 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’’ in-
cludes 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, com-
modities, instruments of indebtedness, indices, quan-
titative measures, other financial or economic interest or
property of any kind (other than a single security or a nar-
row-based security index), or the occurrence, non-occur-
rence, or the extent of the occurrence of an event or contin-
gency 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 se-
curities, 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 DEAL-
ER OR MAJOR SECURITY-BASED SWAP PARTICIPANT.—
(A) IN GENERAL.—The term ‘‘person associated with a se-
curity-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, con-
trolled by, or under common control with such secu-
rity-based swap dealer or major security-based swap
participant; or
(iii) any employee of such security-based swap deal-
er 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 partici-
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pant’’ or ‘‘associated person of a security-based swap dealer
or major security-based swap participant’’ does not include
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155
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 com-
monly 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 busi-
ness.
(D) DE MINIMIS EXCEPTION.—The Commission shall ex-
empt 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 promul-
gate regulations to establish factors with respect to the
making of any determination to exempt.
(72) APPROPRIATE FEDERAL BANKING AGENCY.—The term ‘‘ap-
propriate 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 Gov-
ernors of the Federal Reserve System.
(74) PRUDENTIAL REGULATOR.—The term ‘‘prudential regu-
lator’’ 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 ‘‘se-
curity-based swap data repository’’ means any person that col-
lects and maintains information or records with respect to
transactions or positions in, or the terms and conditions of, se-
curity-based swaps entered into by third parties for the pur-
pose of providing a centralized recordkeeping facility for secu-
rity-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
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‘‘security-based swap execution facility’’ means a trading sys-
tem or platform in which multiple participants have the ability
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156
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 trad-
ing facility, that—
(A) facilitates the execution of security-based swaps be-
tween 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 agree-
ment’’ 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 in-
dexed for inflation every 5 years by the Commission to reflect
the change in the Consumer Price Index for All Urban Con-
sumers 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 Bu-
reau of Labor Statistics, setting the threshold to the near-
est 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 com-
mon 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 pre-
vious 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.
ø(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 oth-
ers, 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;
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(B) solicit purchases, sales, or offers to buy the securities
offered or displayed on its website or portal;
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(C) compensate employees, agents, or other persons for
such solicitation or based on the sale of securities dis-
played 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) ADDITIONAL DIGITAL COMMODITY-RELATED TERMS.—
(A) SECURITIES ACT OF 1933.—The terms ‘‘blockchain sys-
tem’’, ‘‘decentralized governance system’’, ‘‘digital asset’’,
‘‘digital commodity affiliated person’’, ‘‘digital commodity
issuer’’, ‘‘digital commodity related person’’, ‘‘end user dis-
tribution’’, ‘‘mature blockchain system’’, 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) COMMODITY EXCHANGE ACT.—The terms ‘‘digital com-
modity’’, ‘‘digital commodity broker’’, ‘‘digital commodity
dealer’’, ‘‘digital commodity exchange’’, ‘‘decentralized fi-
nance messaging system’’, and ‘‘decentralized finance trad-
ing protocol’’ have the meaning given those terms, respec-
tively, 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 in-
clude, 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 there-
of 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 chari-
table organization, as defined in section 3(c)(10)(D) of the In-
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vestment Company Act of 1940, or any trustee, director, officer,
employee, or volunteer of such a charitable organization acting
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158
within the scope of such person’s employment or duties with
such organization, shall not be deemed to be a ‘‘broker’’, ‘‘deal-
er’’, ‘‘municipal securities broker’’, ‘‘municipal securities deal-
er’’, ‘‘government securities broker’’, or ‘‘government securities
dealer’’ for purposes of this title solely because such organiza-
tion 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 in-
vestment company under section 3(c)(10)(B) of the Invest-
ment 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 or-
ganization, or any trustee, director, officer, employee, or volun-
teer of such a charitable organization, unless each person who,
on or after 90 days after the date of enactment of this sub-
section, solicits donations on behalf of such charitable organi-
zation from any donor to a fund that is excluded from the defi-
nition 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 com-
pensation based on the number or the value of donations col-
lected for the fund.
(f) CONSIDERATION OF PROMOTION OF EFFICIENCY, INNOVATION,
COMPETITION, AND CAPITAL FORMATION.—Whenever pursuant to
this title the Commission is engaged in rulemaking, or in the re-
view of a rule of a self-regulatory organization, and is required to
consider or determine whether an action is necessary or appro-
priate in the public interest, the Commission shall also consider, in
addition to the protection of investors, whether the action will pro-
mote efficiency, innovation, 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 def-
inition of an investment company under section 3(c)(14) of the In-
vestment 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 securi-
ties 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 trans-
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actions in securities for its own account in its capacity as trust-
ee or administrator of, or otherwise on behalf of, or for the ac-
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159
count of, any church plan, company, or account that is ex-
cluded 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 reg-
istered 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 deal-
er’’ 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 exam-
ine for and enforce against a registered funding portal rules of
such national securities association written specifically for reg-
istered 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 prac-
ticable. No commissioner shall engage in any other business, voca-
tion, 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 commis-
sioner shall hold office for a term of five years and until his suc-
cessor is appointed and has qualified, except that he shall not so
continue to serve beyond the expiration of the next session of Con-
gress 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 Presi-
dmwilson on DSK7X7S144PROD with REPORTS
dent 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
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160
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 AU-
THORITY.—
(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 adjust-
ing schedules of compensation and benefits for officers, attor-
neys, economists, examiners, and other employees of the Com-
mission 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 En-
forcement Act of 1989 (12 U.S.C. 1833b) and Congress of such
compensation and benefits and shall seek to maintain com-
parability with such agencies regarding compensation and ben-
efits.
(3) LEASING AUTHORITY.—Nothwithstanding any other provi-
sion 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 re-
imbursement, in cash or in kind, from non-Federal agencies, orga-
nizations, and individuals for travel, subsistence, and other nec-
essary expenses incurred by Commission members and employees
in attending meetings and conferences concerning the functions or
activities of the Commission. Any payment or reimbursement ac-
cepted shall be credited to the appropriated funds of the Commis-
sion. The amount of travel, subsistence, and other necessary ex-
penses 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 regula-
tions 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 pay-
ments.
(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 pro-
vide 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 SECU-
RITIES AUTHORITIES.—Notwithstanding any other provision of law,
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the Commission may accept payment and reimbursement, in cash
or in kind, from a foreign securities authority, or made on behalf
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161
of such authority, for necessary expenses incurred by the Commis-
sion, 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 reim-
bursement accepted shall be considered a reimbursement to the ap-
propriated 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 sub-
section referred to as the ‘‘Office’’).
(2) INVESTOR ADVOCATE.—
(A) IN GENERAL.—The head of the Office shall be the In-
vestor 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 In-
vestor Advocate shall be equal to the highest rate of an-
nual 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 ap-
pointment 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 consulta-
tion with the Chairman of the Commission, may retain or em-
ploy independent counsel, research staff, and service staff, as
the Investor Advocate deems necessary to carry out the func-
tions, powers, and duties of the Office.
(4) FUNCTIONS OF THE INVESTOR ADVOCATE.—The Investor
Advocate shall—
(A) assist retail investors in resolving significant prob-
lems 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
dmwilson on DSK7X7S144PROD with REPORTS
and to Congress any legislative, administrative, or per-
sonnel changes that may be appropriate to mitigate prob-
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162
lems 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 nec-
essary 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 Af-
fairs 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 fol-
lowing fiscal year.
(ii) CONTENTS.—Each report required under clause
(i) shall contain full and substantive analysis and ex-
planation.
(B) REPORT ON ACTIVITIES.—
(i) IN GENERAL.—Not later than December 31 of
each year after 2010, the Investor Advocate shall sub-
mit to the Committee on Banking, Housing, and
Urban Affairs of the Senate and the Committee on Fi-
nancial Services of the House of Representatives a re-
port 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 Advo-
cate has taken during the reporting period to im-
prove 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 pe-
riod;
(IV) an inventory of the items described in sub-
clause (III) that includes—
(aa) identification of any action taken by
the Commission or the self-regulatory organi-
zation 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 identi-
fication 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
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(VI) any other information, as determined ap-
propriate by the Investor Advocate.
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163
(iii) INDEPENDENCE.—Each report required under
this paragraph shall be provided directly to the Com-
mittees 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, es-
tablish procedures requiring a formal response to all rec-
ommendations submitted to the Commission by the Investor
Advocate, not later than 3 months after the date of such sub-
mission.
(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 ap-
point an Ombudsman, who shall report directly to the In-
vestor Advocate.
(B) DUTIES.—The Ombudsman appointed under sub-
paragraph (A) shall—
(i) act as a liaison between the Commission and any
retail investor in resolving problems that retail inves-
tors may have with the Commission or with self-regu-
latory 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 confiden-
tiality of communications between the persons de-
scribed in clause (ii) and the Ombudsman.
(C) LIMITATION.—In carrying out the duties of the Om-
budsman under subparagraph (B), the Ombudsman shall
utilize personnel of the Commission to the extent prac-
ticable. Nothing in this paragraph shall be construed as
replacing, altering, or diminishing the activities of any om-
budsman or similar office of any other agency.
(D) REPORT.—The Ombudsman shall submit a semi-
annual report to the Investor Advocate that describes the
activities and evaluates the effectiveness of the Ombuds-
man 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 or-
ganizational 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
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Investment Management of the Commission, or any successor
organizational unit, shall have a staff of examiners who shall—
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164
(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’’ (re-
ferred 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 Re-
serve Fund.
(B) LIMITATIONS.—For any 1 fiscal year—
(i) the amount deposited in the Fund may not ex-
ceed $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 limita-
tions described in subparagraph (B) that the Commission
collects from registration fees under section 6(b) of the Se-
curities 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 Com-
mission. Any amounts in the reserve fund shall remain avail-
able until expended. Not later than 10 days after the date on
which the Commission obligates amounts under this para-
graph, the Commission shall notify Congress of the date,
amount, and purpose of the obligation.
(4) RULE OF CONSTRUCTION.—Amounts collected and depos-
ited in the Reserve Fund shall not be construed to be Govern-
ment 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 FOR-
MATION.—
(1) OFFICE ESTABLISHED.—There is established within the
Commission the Office of the Advocate for Small Business Cap-
ital 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 Ad-
vocate for Small Business Capital Formation, who shall—
(i) report directly to the Commission; and
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(ii) be appointed by the Commission, from among in-
dividuals having experience in advocating for the in-
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165
terests of small businesses and encouraging small
business capital formation.
(B) COMPENSATION.—The annual rate of pay for the Ad-
vocate for Small Business Capital Formation shall be
equal to the highest rate of annual pay for other senior ex-
ecutives who report directly to the Commission.
(C) NO CURRENT EMPLOYEE OF THE COMMISSION.—An in-
dividual 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 Cap-
ital Formation, after consultation with the Commission, may
retain or employ independent counsel, research staff, and serv-
ice staff, as the Advocate for Small Business Capital Formation
determines to be necessary to carry out the functions of the Of-
fice.
(4) FUNCTIONS OF THE ADVOCATE FOR SMALL BUSINESS CAP-
ITAL FORMATION.—The Advocate for Small Business Capital
Formation shall—
(A) assist small businesses and small business investors
in resolving significant problems such businesses and in-
vestors may have with the Commission or with self-regu-
latory organizations;
(B) identify areas in which small businesses and small
business investors would benefit from changes in the regu-
lations of the Commission or the rules of self-regulatory or-
ganizations;
(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 signifi-
cant economic impact on small businesses and small
business capital formation of self-regulatory organiza-
tions registered under this title;
(E) conduct outreach to small businesses and small busi-
ness 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 per-
sonnel changes that may be appropriate to mitigate prob-
lems identified under this paragraph and to promote the
interests of small businesses and small business investors;
(G) consult with the Investor Advocate on proposed rec-
ommendations made under subparagraph (F); and
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(H) advise the Investor Advocate on issues related to
small businesses and small business investors.
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(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 Commis-
sion 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 Com-
mittee on Financial Services of the House of Representa-
tives a report on the activities of the Advocate for Small
Business Capital Formation during the immediately pre-
ceding fiscal year.
(B) CONTENTS.—Each report required under subpara-
graph (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 re-
porting period to improve small business services and
the responsiveness of the Commission and self-regu-
latory organizations to small business and small busi-
ness investor concerns;
(iii) a summary of the most serious issues encoun-
tered by small businesses and small business inves-
tors, including any unique issues encountered by mi-
nority-owned small businesses, women-owned small
businesses, and small businesses affected by hurri-
canes 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 ac-
tion 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 re-
mained on such inventory; and
(III) for items on which no action has been
taken, the reasons for inaction, and an identifica-
tion of any official who is responsible for such ac-
tion;
(v) recommendations for such changes to the regula-
tions, guidance and orders of the Commission and
such legislative actions as may be appropriate to re-
solve problems with the Commission and self-regu-
latory organizations encountered by small businesses
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and small business investors and to encourage small
business capital formation; and
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167
(vi) any other information, as determined appro-
priate by the Advocate for Small Business Capital For-
mation.
(C) CONFIDENTIALITY.—No report required by subpara-
graph (A) may contain confidential information.
(D) INDEPENDENCE.—Each report required under sub-
paragraph (A) shall be provided directly to the committees
of Congress listed in such subparagraph without any prior
review or comment from the Commission, any commis-
sioner, any other officer or employee of the Commission, or
the Office of Management and Budget.
(7) REGULATIONS.—The Commission shall establish proce-
dures requiring a formal response to all recommendations sub-
mitted 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 CAP-
ITAL 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 de-
fined 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.
(k) STRATEGIC HUB FOR INNOVATION AND FINANCIAL TECH-
NOLOGY.—
(1) ESTABLISHMENT.—Not later than 180 days after the date
of the enactment of this subsection, the Securities and Exchange
Commission shall establish a committee to be known as the
Strategic Hub for Innovation and Financial Technology (re-
ferred to in this subsection as the ‘‘FinHub’’) to support engage-
ment on emerging technologies in the financial sector.
(2) MEMBERS.—The composition of FinHub shall be deter-
mined by the Commission, drawing from relevant divisions as
appropriate, including the Division of Trading and Markets,
Division of Corporate Finance, and Division of Investment
Management.
(3) RESPONSIBILITIES.—FinHub shall—
(A) serve as a resource for the Commission on emerging
financial technology advancements;
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(B) engage with market participants working on emerg-
ing financial technologies; and
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(C) facilitate communication between the Commission
and businesses working in emerging financial technology
fields with information on the Commission, its rules, and
regulations.
(4) REPORT TO THE COMMISSION.—
(A) IN GENERAL.—Not later than October 31 of each year
after 2025, FinHub shall provide an annual summary of its
engagement activities to the Commission, which shall be in-
cluded in the Commission’s annual report to Congress.
(B) CONFIDENTIALITY.—Each report submitted under this
paragraph shall not contain confidential information.
* * * * * * *
TRANSACTIONS ON UNREGISTERED EXCHANGES
SEC. 5. øIt¿ (a) IN GENERAL.—It shall be unlawful for any broker,
dealer, or exchange, directly or indirectly, to make use of the mails
or any means or instrumentality of interstate commerce for the
purpose of using any facility of an exchange within or subject to
the jurisdiction of the United States to effect any transaction in a
security, or to report any such transaction, unless such exchange
(1) is registered as a national securities exchange under section 6
of this title, or (2) is exempted from such registration upon applica-
tion by the exchange because, in the opinion of the Commission, by
reason of the limited volume of transactions effected on such ex-
change, it is not practicable and not necessary or appropriate in the
public interest or for the protection of investors to require such reg-
istration.
(b) DIGITAL COMMODITY PROTECTIONS.—
(1) IN GENERAL.—The Commission may not preclude a trad-
ing platform from operating pursuant to a covered exemption on
the basis that the assets traded or to be traded on such platform
include—
(A) digital commodities or permitted payment
stablecoins; and
(B) securities.
(2) COVERED EXEMPTION.—In this subsection, the term ‘‘cov-
ered exemption’’ means an exemption—
(A) described in subsection (a)(2); or
(B) with respect to any other rule of the Commission re-
lating to the definition of ‘‘exchange’’.
NATIONAL SECURITIES EXCHANGES
SEC. 6. (a) An exchange may be registered as a national securi-
ties 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 pre-
scribe containing the rules of the exchange and such other informa-
tion and documents as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the protection
of investors.
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(b) An exchange shall not be registered as a national securities
exchange unless the Commission determines that—
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169
(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 alloca-
tion 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 fraudu-
lent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordi-
nation with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating trans-
actions 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 in-
terest; and are not designed to permit unfair discrimination be-
tween customers, issuers, brokers, or dealers, or to regulate by
virtue of any authority conferred by this title matters not re-
lated 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, limita-
tion 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 pro-
visions 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 per-
son seeking membership therein, the barring of any person
from becoming associated with a member thereof, and the pro-
hibition or limitation by the exchange of any person with re-
spect to access to services offered by the exchange or a member
thereof.
(8) The rules of the exchange do not impose any burden on
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competition not necessary or appropriate in furtherance of the
purposes of this title.
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170
(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 pro-
cedures designed to protect the rights of limited partners, in-
cluding—
(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 out-
standing 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 part-
ner 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 be-
half of the limited partners, and to make a rec-
ommendation 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 re-
duced 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 restric-
tions on the receipt of a non-contingent equity interest in
exchange for fees for services which have not yet been pro-
vided.
(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 inter-
est 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 ten-
der 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 sec-
tion 12 from granting a proxy to vote the security in connection
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with a shareholder vote described in subparagraph (B), unless
the beneficial owner of the security has instructed the member
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171
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 Commis-
sion, 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 sec-
tion 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 reg-
istered 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 mem-
bership to any registered broker or dealer or natural person associ-
ated with a registered broker or dealer, and bar from becoming as-
sociated 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 as-
sociated with a member, if the exchange knew, or in the exercise
of reasonable care should have known, that such person was sub-
ject to a statutory disqualification. The notice shall be in such form
and contain such information as the Commission, by rule, may pre-
scribe 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 re-
sponsibility 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 qualifica-
tions 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 per-
son with a member, if such natural person (i) does not meet such
standards of training, experience, and competence as are prescribed
dmwilson on DSK7X7S144PROD with REPORTS
by the rules of the exchange or (ii) has engaged and there is a rea-
sonable likelihood he may again engage in acts or practices incon-
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172
sistent with just and equitable principles of trade. A national secu-
rities exchange may examine and verify the qualifications of an ap-
plicant to become a person associated with a member in accordance
with procedures established by the rules of the exchange and re-
quire any person associated with a member, or any class of such
persons, to be registered with the exchange in accordance with pro-
cedures so established.
(C) A national securities exchange may bar any person from be-
coming 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 sup-
plied.
(4) A national securities exchange may limit (A) the number of
members of the exchange and (B) the number of members and des-
ignated 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 ex-
change shall have the authority to decrease the number of member-
ships 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 de-
crease) or to remove any limitation on the number of memberships
in such exchange or the number of members or designated rep-
resentatives 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 de-
termine 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 spe-
cific charges, notify such member or person of, and give him an op-
portunity to defend against, such charges, and keep a record. A de-
termination 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 asso-
ciated 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 deter-
mine whether a person shall be denied membership, barred from
becoming associated with a member, or prohibited or limited with
dmwilson on DSK7X7S144PROD with REPORTS
respect to access to services offered by the exchange or a member
thereof (other than a summary proceeding pursuant to paragraph
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173
(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 member-
ship, 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 state-
ment 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 ex-
change 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 ac-
cess 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 sub-
section. The Commission, by order, may stay any such summary
action on its own motion or upon application by any person ag-
grieved thereby, if the Commission determines summarily or after
notice and opportunity for hearing (which hearing may consist sole-
ly of the submission of affidavits or presentation of oral arguments)
that such stay is consistent with the public interest and the protec-
tion 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 sched-
ule of commissions, allowances, discounts, or other fees to be
charged by its members for acting as broker on the floor of the ex-
change or as odd-lot dealer: And provided further, That the Com-
mission, in accordance with the provisions of section 19(b) of this
title as modified by the provisions of paragraph (3) of this sub-
section, 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 mem-
bers for effecting transactions on such exchange prior to No-
vember 1, 1976, if the Commission finds that such schedule or
dmwilson on DSK7X7S144PROD with REPORTS
fixed rates of commissions, allowances, discounts, or other fees
are in the public interest; and
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174
(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 trans-
actions on such exchange after November 1, 1976, if the Com-
mission finds that such schedule or fixed rates of commissions,
allowances, discounts, or other fees (i) are reasonable in rela-
tion to the costs of providing the service for which such fees
are charged (and the Commission publishes the standards em-
ployed in adjudging reasonableness) and (ii) do not impose any
burden on competition not necessary or appropriate in further-
ance 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, dis-
counts, or other fees, if the Commission determines that such
schedule or fixed rates are no longer reasonable, in the public in-
terest, 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 op-
portunity 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 submis-
sions and to conduct (or have conducted under subparagraph (B) of
this paragraph) such cross-examination as the Commission deter-
mines 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 con-
cerning 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 appro-
priate and required for full disclosure and proper resolution of dis-
puted 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 subpara-
graphs (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 pur-
poses of cross-examination, the Commission may make rules and
rulings specifying the manner in which such interests shall be rep-
resented 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
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be represented pursuant to clause (i) of this subparagraph shall be
denied, pursuant to such clause (i), the opportunity to conduct (or
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have conducted) cross-examination as to issues affecting his par-
ticular 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 re-
viewing Court may set aside an order of the Commission under sec-
tion 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 con-
duct 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 nec-
essary 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 inves-
tors, to maintain fair and orderly markets, or to assure equal regu-
lation, may require—
(1) any person not a member or a designated representative
of a member of a national securities exchange effecting trans-
actions on such exchange without the services of another per-
son acting as a broker, or
(2) any broker or dealer not a member of a national securi-
ties exchange effecting transactions on such exchange on a reg-
ular basis,
to comply with such rules of such exchange as the Commission may
specify.
(g) NOTICE REGISTRATION OF SECURITY FUTURES PRODUCT EX-
CHANGES.—
(1) REGISTRATION REQUIRED.—An exchange that lists or
trades security futures products may register as a national se-
curities exchange solely for the purposes of trading security fu-
tures products if—
(A) the exchange is a board of trade, as that term is de-
fined by the Commodity Exchange Act (7 U.S.C. 1a(2)),
that has been designated a contract market by the Com-
modity Futures Trading Commission and such designation
is not suspended by order of the Commodity Futures Trad-
ing 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 in-
dexes of securities or options thereon that have been
authorized under section 2(a)(1)(C) of the Commodity
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Exchange Act.
(2) REGISTRATION BY NOTICE FILING.—
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(A) FORM AND CONTENT.—An exchange required to reg-
ister 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 in-
terest 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 in-
formation satisfying the Commission’s informational re-
quirements, 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 no-
tice, in written or electronic form, to the Commission, ex-
cept that such registration shall not be effective if such
registration would be subject to suspension or revocation.
(C) TERMINATION.—Such registration shall be termi-
nated 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 reg-
istered under paragraph (1) of this subsection shall be ex-
empt 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 ex-
change 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 reg-
istered 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 re-
lated 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 ef-
dmwilson on DSK7X7S144PROD with REPORTS
fectuating such exchange’s obligation to enforce the se-
curities laws pursuant to section 19(b)(7);
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177
(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 abro-
gated 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.—Notwith-
standing 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 par-
ties trading for their own accounts or as described
in section ø1a(18)¿ 1a(19)(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 ø1a(18)¿ 1a(19)) at the time at
which the persons enter into the agreement, con-
tract, 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 reg-
istered under section 17 of the Commodity Ex-
change 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 secu-
rity futures products that are not listed on a national securities
exchange or a national securities association registered pursu-
ant to section 15A(a).
(2) LISTING STANDARDS REQUIRED.—Except as otherwise pro-
vided in paragraph (7), a national securities exchange or a na-
tional securities association registered pursuant to section
15A(a) may trade only security futures products that (A) con-
form with listing standards that such exchange or association
files with the Commission under section 19(b) and (B) meet the
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criteria specified in section 2(a)(1)(D)(i) of the Commodity Ex-
change Act.
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(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 reg-
istered clearing agency for the payment and delivery of the
securities underlying the security futures product;
(C) be no less restrictive than comparable listing stand-
ards 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 Com-
modity Futures Trading Commission jointly determine ap-
propriate;
(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 suit-
ability 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 secu-
rity, 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 fu-
tures 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 ap-
dmwilson on DSK7X7S144PROD with REPORTS
propriate to facilitate the coordinated surveillance required
in subparagraph (I);
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179
(K) require that the market on which the security fu-
tures product is traded has in place procedures to coordi-
nate 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 se-
curities exchange or national securities association from
requiring higher margin levels for a security futures prod-
uct when it deems such action to be necessary or appro-
priate.
(4) AUTHORITY TO MODIFY CERTAIN LISTING STANDARD RE-
QUIREMENTS.—
(A) AUTHORITY TO MODIFY.—The Commission and the
Commodity Futures Trading Commission, by rule, regula-
tion, or order, may jointly modify the listing standard re-
quirements specified in subparagraph (A) or (D) of para-
graph (3) to the extent such modification fosters the devel-
opment 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 sub-
paragraph (E) of paragraph (3) to the extent such exemp-
tion 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 as-
sociation registered pursuant to section 15A(a)) to constitute,
maintain, or provide a marketplace or facilities for bringing to-
gether 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 asso-
ciation registered pursuant to section 15A(a) or a national se-
curities exchange of which such person is a member—
(A) has in place procedures for coordinated surveillance
among such person, the market trading the securities un-
derlying the security future products, and other markets
trading related securities to detect manipulation and in-
sider trading;
(B) has rules to require audit trails necessary or appro-
priate to facilitate the coordinated surveillance required in
subparagraph (A); and
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(C) has rules to require such person to coordinate trad-
ing halts with markets trading the securities underlying
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180
the security future products and other markets trading re-
lated 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 se-
curity future, except that, after 3 years after the date of the
enactment of this subsection, the Commission and the Com-
modity Futures Trading Commission may by order jointly de-
termine 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 Trad-
ing Commission shall jointly publish in the Federal Reg-
ister 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 com-
parable share volume for all security futures products
based on single equity securities traded on all national
securities exchanges, any national securities associa-
tions registered pursuant to section 15A(a), and all
other persons equals or exceeds 10 percent of the aver-
age aggregate comparable share volume of options on
single equity securities traded on all national securi-
ties 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 ap-
plicable 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 prod-
ucts; and
(2) similar rules of national securities exchanges registered
pursuant to section 6(g) and national securities associations
dmwilson on DSK7X7S144PROD with REPORTS
registered pursuant to section 15A(k) involving security futures
products.
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181
(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 inter-
est, to promote fair competition, and consistent with the promotion
of market efficiency, innovation, and expansion of investment op-
portunities, 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).
SEC. 6A. 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 or through an al-
ternative trading system or national securities exchange.
(b) COMMISSION JURISDICTION.—The Commission shall only 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 or dealer;
(2) through a national securities exchange; or
(3) through an alternative 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 or dealer;
(2) through a national securities exchange; or
(3) through an alternative trading system.
(d) RULE OF CONSTRUCTION.—Nothing in this section may be con-
strued to prohibit permitted payment stablecoins from being
custodied by any person or entity that is not a broker, dealer, alter-
native trading system, or national securities exchange.
* * * * * * *
dmwilson on DSK7X7S144PROD with REPORTS
REGULATION OF THE USE OF MANIPULATIVE AND DECEPTIVE DEVICES
SEC. 10.
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182
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 nec-
essary or appropriate in the public interest or for the protec-
tion of investors.
(2) Paragraph (1) of this subsection shall not apply to security fu-
tures 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 Commis-
sion 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 nec-
essary or appropriate in the public interest or for the protec-
tion 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 Ad-
ministration, 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 safe-
ty 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 speci-
fying 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, manipu-
lation, or insider trading, shall apply to security-based swap agree-
ments 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 prece-
dents decided under applicable rules promulgated under such sec-
tions, 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 speci-
fying reporting or recordkeeping requirements, procedures, or stand-
ards as prophylactic measures against fraud, manipulation, or in-
sider trading), and judicial precedents decided under subsection (b)
and rules promulgated thereunder that prohibit fraud, manipula-
tion, or insider trading, shall apply with respect to permitted pay-
dmwilson on DSK7X7S144PROD with REPORTS
ment stablecoin and digital commodity transactions engaged in by
a broker or dealer or through an alternative trading system or, as
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183
applicable, a national securities exchange to the same extent as they
apply to securities transactions.
(2) Judicial precedents decided under section 17(a) of the Securi-
ties 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
and digital commodities with respect to those circumstances in
which the permitted payment stablecoins and digital commodities
are brokered, traded, or custodied by a broker or dealer or through
an alternative trading system or, as applicable, a national securities
exchange to the same extent as they apply to securities.
* * * * * * *
REGISTRATION REQUIREMENTS FOR SECURITIES
SEC. 12. (a) It shall be unlawful for any member, broker, or deal-
er to effect any transaction in any security (other than an exempt-
ed 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 there-
under. The provisions of this subsection shall not apply in respect
of a security futures product traded on a national securities ex-
change.
(b) A security may be registered on a national securities ex-
change 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 dif-
ferent 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 se-
curity 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 inter-
ests 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;
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(H) options existing or to be created in respect of their
securities;
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184
(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 ma-
terial 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 regula-
tions 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 Commis-
sion may deem necessary or appropriate for the protection
of investors.
(2) Such copies of articles of incorporation, bylaws, trust in-
dentures, or corresponding documents by whatever name
known, underwriting arrangements, and other similar docu-
ments of, and voting trust agreements with respect to, the
issuer and any person directly or indirectly controlling or con-
trolled by, or under direct or indirect common control with, the
issuer as the Commission may require as necessary or appro-
priate for the proper protection of investors and to insure fair
dealing in the security.
(3) Such copies of material contracts, referred to in para-
graph (1)(I) above, as the Commission may require as nec-
essary 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 re-
quired 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 com-
parable 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 reg-
istration, 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 secu-
rity registered with a national securities exchange may be with-
drawn 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 Commis-
sion may prescribe as necessary or appropriate in the public inter-
est or for the protection of investors.
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(e) Notwithstanding the foregoing provisions of this section, the
Commission may by such rules and regulations as it deems nec-
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185
essary 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 be-
comes 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 sec-
tion, any national securities exchange, in accordance with the re-
quirements of this subsection and the rules hereunder, may extend
unlisted trading privileges to—
(i) any security that is listed and registered on a national se-
curities 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 trad-
ing 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 sub-
paragraph (C).
(C) Not later than 180 days after the date of enactment of the
Unlisted Trading Privileges Act of 1994, the Commission shall pre-
scribe, 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 oth-
erwise 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 reg-
istered 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 trad-
ing 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 fur-
therance of the purposes of this title.
(E) No extension of unlisted trading privileges to securities de-
scribed in subparagraph (A)(ii) may occur except pursuant to a
rule, regulation, or order of the Commission approving such exten-
sion 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 ex-
tension on the existing markets for such securities, and the de-
sirability of removing impediments to and the progress that
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has been made toward the development of a national market
system; and
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186
(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 secu-
rities for its own account, or would unreasonably restrict com-
petition among dealers in such securities or between such deal-
ers 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 privi-
leges in accordance with this paragraph only if the exchange and
the subject security continue to satisfy the requirements for eligi-
bility 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 un-
listed trading privileges in a security are discontinued pursuant to
this subparagraph, the exchange shall cease trading in that secu-
rity, 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 com-
mences 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 privi-
leges, the Commission may summarily suspend such unlisted trad-
ing privileges on the exchange. Such suspension shall not be re-
viewable 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 in-
vestors and the public interest, or otherwise in furtherance of
the purposes of this title; and
(ii) if the exchange seeks to extend unlisted trading privi-
leges 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 pro-
tection of investors and the public interest, or otherwise in fur-
therance of the purposes of this title.
(B) A suspension under subparagraph (A) shall remain in effect
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until the Commission, by order, grants approval of an application
to reinstate, as described in subparagraph (A)(ii).
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187
(C) A suspension under subparagraph (A) shall not affect the va-
lidity 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 na-
tional 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 in-
vestors and the public interest, and otherwise in furtherance of the
purposes of this title. If the application is made to reinstate un-
listed 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 ex-
tension on the existing markets for such a security, and the de-
sirability 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 na-
tional securities exchange making application under this sub-
section would unreasonably impair the ability of a dealer to so-
licit 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 exceed-
ing twelve months, if it deems such suspension necessary or appro-
priate 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 un-
listed 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 mo-
tion, the Commission shall by order terminate, or suspend for a pe-
riod 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 protec-
tion 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 secu-
rity is listed and registered, shall be deemed adequate notice, and
any broker or dealer who makes or creates a market for such secu-
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rity, and any other person having a bona fide interest in such pro-
ceeding, shall upon application be entitled to be heard.
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(6) Any security for which unlisted trading privileges are contin-
ued 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 ex-
empted 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 ex-
empted 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 docu-
ments as the Commission may specify comparable to that which is
required in an application to register a security pursuant to sub-
section (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 reg-
istered 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
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stock, permanent reserve stock, or any similar certificate evi-
dencing nonwithdrawable capital, issued by a savings and loan
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189
association, building and loan association, cooperative bank,
homestead association, or similar institution, which is super-
vised and examined by State or Federal authority having su-
pervision over any such institution.
(D) any security of an issuer organized and operated exclu-
sively for religious, educational, benevolent, fraternal, chari-
table, 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 com-
pany under section 3(c)(10)(B) of the Investment Company Act
of 1940.
(E) any security of an issuer which is a ‘‘cooperative associa-
tion’’ 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 organiza-
tion 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 per-
sons who purchase commodities or services from the issuer, the
security is transferable only to a successor in interest or occu-
pancy 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 con-
forms to that prescribed by the National Association of In-
surance Commissioners or in the determination of such
State commissioner, officer or agency substantially con-
forms 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 As-
sociation of Insurance Commissioners.
(iii) After July 1, 1966, the purchase and sales of securi-
ties issued by such insurance company by beneficial own-
ers, 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 sec-
tion 401 of the Internal Revenue Code of 1954, (ii) an annuity
plan which meets the requirements for deduction of the em-
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ployer’s contribution under section 404(a)(2) of such Code, or
(iii) a church plan, company, or account that is excluded from
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190
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 sub-
section 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 sec-
tion 10 of the Home Owners’ Loan Act), or a bank holding com-
pany, 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 ter-
mination of registration if it finds that the certification is untrue.
Termination of registration shall be deferred pending final deter-
mination on the question of denial.
(5) For the purposes of this subsection the term ‘‘class’’ shall in-
clude 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 ex-
empted from the registration requirements of section 5 of the Secu-
rities Act of 1933.
(6) EXCLUSION FOR PERSONS HOLDING CERTAIN SECURITIES.—
The Commission shall, by rule, exempt, conditionally or uncon-
ditionally, securities acquired pursuant to an offering made
øunder section 4(6)¿ under section 4(a)(6) or 4(a)(8) of the Se-
curities Act of 1933 from the provisions of this subsection.
(h) The Commission may by rules and regulations, or upon appli-
cation of an interested person, by order, after notice and oppor-
tunity 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 sub-
section (g) hereof, upon such terms and conditions and for such pe-
riod as it deems necessary or appropriate, if the Commission finds,
by reason of the number of public investors, amount of trading in-
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terest in the securities, the nature and extent of the activities of
the issuer, income or assets of the issuer, or otherwise, that such
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191
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 asso-
ciations 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 sec-
tions 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 Fed-
eral 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 in-
sured 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 Comp-
troller of the Currency, the Board of Governors of the Federal Re-
serve System, and the Federal Deposit Insurance Corporation shall
have the power to make such rules and regulations as may be nec-
essary 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 sub-
section 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 protec-
tion of investors, and publish such findings, and the detailed rea-
sons 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 Commis-
sion finds, on the record after notice and opportunity for hearing,
that the issuer of such security has failed to comply with any provi-
sion of this title or the rules and regulations thereunder. No mem-
ber of a national securities exchange, broker, or dealer shall make
use of the mails or any means or instrumentality of interstate com-
merce to effect any transaction in, or to induce the purchase or sale
of, any security the registration of which has been and is sus-
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pended or revoked pursuant to the preceding sentence.
(k) TRADING SUSPENSIONS; EMERGENCY AUTHORITY.—
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(1) TRADING SUSPENSIONS.—If in its opinion the public inter-
est 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 se-
curities exchange or otherwise, in securities other than ex-
empted 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, supple-
ment, 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 se-
curities 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 ex-
empted securities), investment companies, or any
other significant portion or segment of such mar-
kets; 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 Commis-
sion 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 de-
termines 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
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shall an order of the Commission under this paragraph
continue in effect for more than 30 calendar days.
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193
(D) SECURITY FUTURES.—If the actions described in sub-
paragraph (A) involve a security futures product, the Com-
mission 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 com-
ply 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 se-
curities exchange, broker, or dealer shall make use of the mails
or any means or instrumentality of interstate commerce to ef-
fect 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, modi-
fied, or set aside as provided in paragraph (5) of this sub-
section or has ceased to be effective upon direction of the Presi-
dent as provided in paragraph (3).
(5) LIMITATIONS ON REVIEW OF ORDERS.—An order of the
Commission pursuant to this subsection shall be subject to re-
view 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 re-
lief 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 accord-
ance with law.
(6) CONSULTATION.—Prior to taking any action described in
paragraph (1)(B), the Commission shall consult with and con-
sider 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 im-
practicable in light of the emergency.
(7) DEFINITION.—For purposes of this subsection, the term
‘‘emergency’’ means—
(A) a major market disturbance characterized by or con-
stituting—
(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 set-
tlement 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
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companies, or any other significant portion or segment
of the securities markets; or
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194
(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 regu-
lations as the Commission may prescribe as necessary or appro-
priate 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.
* * * * * * *
REGISTRATION AND REGULATION OF BROKERS AND DEALERS
SEC. 15. (a)(1) It shall be unlawful for any broker or dealer which
is either a person other than a natural person or a natural person
not associated with a broker or dealer which is a person other than
a natural person (other than such a broker or dealer whose busi-
ness is exclusively intrastate and who does not make use of any fa-
cility of a national securities exchange) 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 security (other than an exempted security or com-
mercial paper, bankers’ acceptances, or commercial bills) unless
such broker or dealer is registered in accordance with subsection
(b) of this section.
(2) The Commission, by rule or order, as it deems consistent with
the public interest and the protection of investors, may condi-
tionally or unconditionally exempt from paragraph (1) of this sub-
section any broker or dealer or class of brokers or dealers specified
in such rule or order.
(b)(1) A broker or dealer may be registered by filing with the
Commission an application for registration in such form and con-
taining such information and documents concerning such broker or
dealer and any persons associated with such broker or dealer as
the Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors. Within
forty-five days of the date of the filing of such application (or with-
in such longer period as to which the applicant consents), the Com-
mission shall—
(A) by order grant registration, or
(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the
grounds for denial under consideration and opportunity for
hearing and shall be concluded within one hundred twenty
days of the date of the filing of the application for registration.
At the conclusion of such proceedings, the Commission, by
order, shall grant or deny such registration. The Commission
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may extend the time for conclusion of such proceedings for up
to ninety days if it finds good cause for such extension and
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publishes its reasons for so finding or for such longer period as
to which the applicant consents.
The Commission shall grant such registration if the Commission
finds that the requirements of this section are satisfied. The order
granting registration shall not be effective until such broker or
dealer has become a member of a registered securities association,
or until such broker or dealer has become a member of a national
securities exchange, if such broker or dealer effects transactions
solely on that exchange, unless the Commission has exempted such
broker or dealer, by rule or order, from such membership. The
Commission shall deny such registration if it does not make such
a finding or if it finds that if the applicant were so registered, its
registration would be subject to suspension or revocation under
paragraph (4) of this subsection.
(2)(A) An application for registration of a broker or dealer to be
formed or organized may be made by a broker or dealer to which
the broker or dealer to be formed or organized is to be the suc-
cessor. Such application, in such form as the Commission, by rule,
may prescribe, shall contain such information and documents con-
cerning the applicant, the successor, and any persons associated
with the applicant or the successor, as the Commission, by rule,
may prescribe as necessary or appropriate in the public interest or
for the protection of investors. The grant or denial of registration
to such an applicant shall be in accordance with the procedures set
forth in paragraph (1) of this subsection. If the Commission grants
such registration, the registration shall terminate on the forty-fifth
day after the effective date thereof, unless prior thereto the suc-
cessor shall, in accordance with such rules and regulations as the
Commission may prescribe, adopt the application for registration
as its own.
(B) Any person who is a broker or dealer solely by reason of act-
ing as a municipal securities dealer or municipal securities broker,
who so acts through a separately identifiable department or divi-
sion, and who so acted in such a manner on the date of enactment
of the Securities Acts Amendments of 1975, may, in accordance
with such terms and conditions as the Commission, by rule, pre-
scribes as necessary and appropriate in the public interest and for
the protection of investors, register such separately identifiable de-
partment or division in accordance with this subsection. If any such
department or division is so registered, the department or division
and not such person himself shall be the broker or dealer for pur-
poses of this title.
(C) Within six months of the date of the granting of registration
to a broker or dealer, the Commission, or upon the authorization
and direction of the Commission, a registered securities association
or national securities exchange of which such broker or dealer is
a member, shall conduct an inspection of the broker or dealer to
determine whether it is operating in conformity with the provisions
of this title and the rules and regulations thereunder: Provided,
however, That the Commission may delay such inspection of any
class of brokers or dealers for a period not to exceed six months.
(3) Any provision of this title (other than section 5 and sub-
section (a) of this section) which prohibits any act, practice, or
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course of business if the mails or any means or instrumentality of
interstate commerce is used in connection therewith shall also pro-
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196
hibit any such act, practice, or course of business by any registered
broker or dealer or any person acting on behalf of such a broker
or dealer, irrespective of any use of the mails or any means or in-
strumentality of interstate commerce in connection therewith.
(4) The Commission, by order, shall censure, place limitations on
the activities, functions, or operations of, suspend for a period not
exceeding twelve months, or revoke the registration of any broker
or dealer if it finds, on the record after notice and opportunity for
hearing, that such censure, placing of limitations, suspension, or
revocation is in the public interest and that such broker or dealer,
whether prior or subsequent to becoming such, or any person asso-
ciated with such broker or dealer, whether prior or subsequent to
becoming so associated—
(A) has willfully made or caused to be made in any applica-
tion for registration or report required to be filed with the
Commission or with any other appropriate regulatory agency
under this title, or in any proceeding before the Commission
with respect to registration, 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 or report any ma-
terial fact which is required to be stated therein.
(B) has been convicted within ten years preceding the filing
of any application for registration or at any time thereafter of
any felony or misdemeanor or of a substantially equivalent
crime by a foreign court of competent jurisdiction which the
Commission finds—
(i) involves the purchase or sale of any security, the tak-
ing of a false oath, the making of a false report, bribery,
perjury, burglary, any substantially equivalent activity
however denominated by the laws of the relevant foreign
government, or conspiracy to commit any such offense;
(ii) arises out of the conduct of the business of a broker,
dealer, municipal securities dealer municipal advisor, gov-
ernment securities broker, government securities dealer,
investment adviser, bank, insurance company, fiduciary,
transfer agent, nationally recognized statistical rating or-
ganization, foreign person performing a function substan-
tially equivalent to any of the above, or entity or person
required to be registered under the Commodity Exchange
Act (7 U.S.C. 1 et seq.) or any substantially equivalent for-
eign statute or regulation;
(iii) involves the larceny, theft, robbery, extortion, for-
gery, counterfeiting, fraudulent concealment, embezzle-
ment, fraudulent conversion, or misappropriation of funds,
or securities, or substantially equivalent activity however
denominated by the laws of the relevant foreign govern-
ment; or
(iv) involves the violation of section 152, 1341, 1342, or
1343 or chapter 25 or 47 of title 18, United States Code,
or a violation of a substantially equivalent foreign statute.
(C) is permanently or temporarily enjoined by order, judg-
ment, or decree of any court of competent jurisdiction from act-
dmwilson on DSK7X7S144PROD with REPORTS
ing as an investment adviser, underwriter, broker, dealer, mu-
nicipal securities dealer municipal advisor, government securi-
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197
ties broker, government securities dealer, security-based swap
dealer, major security-based swap participant, transfer agent,
nationally recognized statistical rating organization, foreign
person performing a function substantially equivalent to any of
the above, or entity or person required to be registered under
the Commodity Exchange Act or any substantially equivalent
foreign statute or regulation, or as an affiliated person or em-
ployee of any investment company, bank, insurance company,
foreign entity substantially equivalent to any of the above, or
entity or person required to be registered under the Com-
modity Exchange Act or any substantially equivalent foreign
statute or regulation, or from engaging in or continuing any
conduct or practice in connection with any such activity, or in
connection with the purchase or sale of any security.
(D) has willfully violated any provision of the Securities Act
of 1933, the Investment Advisers Act of 1940, the Investment
Company Act of 1940, the Commodity Exchange Act, this title,
the rules or regulations under any of such statutes, or the
rules of the Municipal Securities Rulemaking Board, or is un-
able to comply with any such provision.
(E) has willfully aided, abetted, counseled, commanded, in-
duced, or procured the violation by any other person of any
provision of the Securities Act of 1933, the Investment Advis-
ers Act of 1940, the Investment Company Act of 1940, the
Commodity Exchange Act, this title, the rules or regulations
under any of such statutes, or the rules of the Municipal Secu-
rities Rulemaking Board, or has failed reasonably to supervise,
with a view to preventing violations of the provisions of such
statutes, rules, and regulations, another person who commits
such a violation, if such other person is subject to his super-
vision. For the purposes of this subparagraph (E) no person
shall be deemed to have failed reasonably to supervise any
other person, if—
(i) there have been established procedures, and a system
for applying such procedures, which would reasonably be
expected to prevent and detect, insofar as practicable, any
such violation by such other person, and
(ii) such person has reasonably discharged the duties
and obligations incumbent upon him by reason of such pro-
cedures and system without reasonable cause to believe
that such procedures and system were not being complied
with.
(F) is subject to any order of the Commission barring or sus-
pending the right of the person to be associated with a broker,
dealer, security-based swap dealer, or a major security-based
swap participant;
(G) has been found by a foreign financial regulatory author-
ity to have—
(i) made or caused to be made in any application for reg-
istration or report required to be filed with a foreign finan-
cial regulatory authority, or in any proceeding before a for-
eign financial regulatory authority with respect to registra-
tion, any statement that was at the time and in the light
dmwilson on DSK7X7S144PROD with REPORTS
of the circumstances under which it was made false or
misleading with respect to any material fact, or has omit-
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198
ted to state in any application or report to the foreign fi-
nancial regulatory authority any material fact that is re-
quired to be stated therein;
(ii) violated any foreign statute or regulation regarding
transactions in securities, or contracts of sale of a com-
modity for future delivery, traded on or subject to the rules
of a contract market or any board of trade;
(iii) aided, abetted, counseled, commanded, induced, or
procured the violation by any person of any provision of
any statutory provisions enacted by a foreign government,
or rules or regulations thereunder, empowering a foreign
financial regulatory authority regarding transactions in se-
curities, or contracts of sale of a commodity for future de-
livery, traded on or subject to the rules of a contract mar-
ket or any board of trade, or has been found, by a foreign
financial regulatory authority, to have failed reasonably to
supervise, with a view to preventing violations of such
statutory provisions, rules, and regulations, another per-
son who commits such a violation, if such other person is
subject to his supervision; or
(H) is subject to any final order of a State securities commis-
sion (or any agency or officer performing like functions), State
authority that supervises or examines banks, savings associa-
tions, or credit unions, State insurance commission (or any
agency or office performing like functions), an appropriate Fed-
eral banking agency (as defined in section 3 of the Federal De-
posit Insurance Act (12 U.S.C. 1813(q))), or the National Credit
Union Administration, that—
(i) bars such person from association with an entity reg-
ulated by such commission, authority, agency, or officer, or
from engaging in the business of securities, insurance,
banking, savings association activities, or credit union ac-
tivities; or
(ii) constitutes a final order based on violations of any
laws or regulations that prohibit fraudulent, manipulative,
or deceptive conduct.
(5) Pending final determination whether any registration under
this subsection shall be revoked, the Commission, by order, may
suspend such registration, if such suspension appears to the Com-
mission, after notice and opportunity for hearing, to be necessary
or appropriate in the public interest or for the protection of inves-
tors. Any registered broker or dealer may, upon such terms and
conditions as the Commission deems necessary or appropriate in
the public interest or for the protection of investors, withdraw from
registration by filing a written notice of withdrawal with the Com-
mission. If the Commission finds that any registered broker or
dealer is no longer in existence or has ceased to do business as a
broker or dealer, the Commission, by order, shall cancel the reg-
istration of such broker or dealer.
(6)(A) With respect to any person who is associated, who is seek-
ing to become associated, or, at the time of the alleged misconduct,
who was associated or was seeking to become associated with a
broker or dealer, or any person participating, or, at the time of the
dmwilson on DSK7X7S144PROD with REPORTS
alleged misconduct, who was participating, in an offering of any
penny stock, the Commission, by order, shall censure, place limita-
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199
tions on the activities or functions of such person, or suspend for
a period not exceeding 12 months, or bar any such person from
being associated with a broker, dealer, investment adviser, munic-
ipal securities dealer, municipal advisor, transfer agent, or nation-
ally recognized statistical rating organization, or from participating
in an offering of penny stock, if the Commission finds, on the
record after notice and opportunity for a hearing, that such cen-
sure, placing of limitations, suspension, or bar is in the public in-
terest and that such person—
(i) 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 this subsection;
(ii) has been convicted of any offense specified in subpara-
graph (B) of such paragraph (4) within 10 years of the com-
mencement of the proceedings under this paragraph; or
(iii) is enjoined from any action, conduct, or practice specified
in subparagraph (C) of such paragraph (4).
(B) It shall be unlawful—
(i) for any person as to whom an order under subparagraph
(A) is in effect, without the consent of the Commission, will-
fully to become, or to be, associated with a broker or dealer in
contravention of such order, or to participate in an offering of
penny stock in contravention of such order;
(ii) for any broker or dealer to permit such a person, without
the consent of the Commission, to become or remain, a person
associated with the broker or dealer in contravention of such
order, if such broker or dealer knew, or in the exercise of rea-
sonable care should have known, of such order; or
(iii) for any broker or dealer to permit such a person, without
the consent of the Commission, to participate in an offering of
penny stock in contravention of such order, if such broker or
dealer knew, or in the exercise of reasonable care should have
known, of such order and of such participation.
(C) For purposes of this paragraph, the term ‘‘person partici-
pating in an offering of penny stock’’ includes any person acting as
any promoter, finder, consultant, agent, or other person who en-
gages in activities with a broker, dealer, or issuer for purposes of
the issuance or trading in any penny stock, or inducing or attempt-
ing to induce the purchase or sale of any penny stock. The Commis-
sion may, by rule or regulation, define such term to include other
activities, and may, by rule, regulation, or order, exempt any per-
son or class of persons, in whole or in part, conditionally or uncon-
ditionally, from such term.
(7) No registered broker or dealer or government securities
broker or government securities dealer registered (or required to
register) under section 15C(a)(1)(A) shall effect any transaction in,
or induce the purchase or sale of, any security unless such broker
or dealer meets such standards of operational capability and such
broker or dealer and all natural persons associated with such
broker or dealer meet such standards of training, experience, com-
petence, and such other qualifications as the Commission finds nec-
essary or appropriate in the public interest or for the protection of
dmwilson on DSK7X7S144PROD with REPORTS
investors. The Commission shall establish such standards by rules
and regulations, which may—
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200
(A) specify that all or any portion of such standards shall be
applicable to any class of brokers and dealers and persons as-
sociated with brokers and dealers;
(B) require persons in any such class to pass tests prescribed
in accordance with such rules and regulations, which tests
shall, with respect to any class of partners, officers, or super-
visory employees (which latter term may be defined by the
Commission’s rules and regulations and as so defined shall in-
clude branch managers of brokers or dealers) engaged in the
management of the broker or dealer, include questions relating
to bookkeeping, accounting, internal control over cash and se-
curities, supervision of employees, maintenance of records, and
other appropriate matters; and
(C) provide that persons in any such class other than brokers
and dealers and partners, officers, and supervisory employees
of brokers or dealers, may be qualified solely on the basis of
compliance with such standards of training and such other
qualifications as the Commission finds appropriate.
The Commission, by rule, may prescribe reasonable fees and
charges to defray its costs in carrying out this paragraph, includ-
ing, but not limited to, fees for any test administered by it or under
its direction. The Commission may cooperate with registered secu-
rities associations and national securities exchanges in devising
and administering tests and may require registered brokers and
dealers and persons associated with such brokers and dealers to
pass tests administered by or on behalf of any such association or
exchange and to pay such association or exchange reasonable fees
or charges to defray the costs incurred by such association or ex-
change in administering such tests.
(8) It shall be unlawful for any registered broker or dealer to ef-
fect any transaction in, or induce or attempt to induce the purchase
or sale of, any security (other than or commercial paper, bankers’
acceptances, or commercial bills), unless such broker or dealer is a
member of a securities association registered pursuant to section
15A of this title or effects transactions in securities solely on a na-
tional securities exchange of which it is a member.
(9) The Commission by rule or order, as it deems consistent with
the public interest and the protection of investors, may condi-
tionally or unconditionally exempt from paragraph (8) of this sub-
section any broker or dealer or class of brokers or dealers specified
in such rule or order.
(10) For the purposes of determining whether a person is subject
to a statutory disqualification under section 6(c)(2), 15A(g)(2), or
17A(b)(4)(A) of this title, the term ‘‘Commission’’ in paragraph
(4)(B) of this subsection shall mean ‘‘exchange’’, ‘‘association’’, or
‘‘clearing agency’’, respectively.
(11) BROKER/DEALER REGISTRATION WITH RESPECT TO TRANS-
ACTIONS IN SECURITY FUTURES PRODUCTS.—
(A) NOTICE REGISTRATION.—
(i) CONTENTS OF NOTICE.—Notwithstanding para-
graphs (1) and (2), a broker or dealer required to reg-
ister only because it effects transactions in security fu-
tures products on an exchange registered pursuant to
dmwilson on DSK7X7S144PROD with REPORTS
section 6(g) may register for purposes of this section
by filing with the Commission a written notice in such
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201
form and containing such information concerning such
broker or dealer and any persons associated with such
broker or dealer as the Commission, by rule, may pre-
scribe as necessary or appropriate in the public inter-
est or for the protection of investors. A broker or deal-
er may not register under this paragraph unless that
broker or dealer is a member of a national securities
association registered under section 15A(k).
(ii) IMMEDIATE EFFECTIVENESS.—Such registration
shall be effective contemporaneously with the submis-
sion of notice, in written or electronic form, to the
Commission, except that such registration shall not be
effective if the registration would be subject to suspen-
sion or revocation under paragraph (4).
(iii) SUSPENSION.—Such registration shall be sus-
pended immediately if a national securities association
registered pursuant to section 15A(k) of this title sus-
pends the membership of that broker or dealer.
(iv) TERMINATION.—Such registration shall be termi-
nated immediately if any of the above stated condi-
tions for registration set forth in this paragraph are no
longer satisfied.
(B) EXEMPTIONS FOR REGISTERED BROKERS AND DEAL-
ERS.—A broker or dealer registered pursuant to the re-
quirements of subparagraph (A) shall be exempt from the
following provisions of this title and the rules thereunder
with respect to transactions in security futures products:
(i) Section 8.
(ii) Section 11.
(iii) Subsections (c)(3) and (c)(5) of this section.
(iv) Section 15B.
(v) Section 15C.
(vi) Subsections (d), (e), (f), (g), (h), and (i) of section
17.
(12) EXEMPTION FOR SECURITY FUTURES PRODUCT EXCHANGE
MEMBERS.—
(A) REGISTRATION EXEMPTION.—A natural person shall
be exempt from the registration requirements of this sec-
tion if such person—
(i) is a member of a designated contract market reg-
istered with the Commission as an exchange pursuant
to section 6(g);
(ii) effects transactions only in securities on the ex-
change of which such person is a member; and
(iii) does not directly accept or solicit orders from
public customers or provide advice to public customers
in connection with the trading of security futures
products.
(B) OTHER EXEMPTIONS.—A natural person exempt from
registration pursuant to subparagraph (A) shall also be ex-
empt from the following provisions of this title and the
rules thereunder:
(i) Section 8.
dmwilson on DSK7X7S144PROD with REPORTS
(ii) Section 11.
(iii) Subsections (c)(3), (c)(5), and (e) of this section.
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202
(iv) Section 15B.
(v) Section 15C.
(vi) Subsections (d), (e), (f), (g), (h), and (i) of section
17.
(13) REGISTRATION EXEMPTION FOR MERGER AND ACQUISITION
BROKERS.—
(A) IN GENERAL.—Except as provided in subparagraph
(B), an M&A broker shall be exempt from registration
under this section.
(B) EXCLUDED ACTIVITIES.—An M&A broker is not ex-
empt from registration under this paragraph if such
broker does any of the following:
(i) Directly or indirectly, in connection with the
transfer of ownership of an eligible privately held com-
pany, receives, holds, transmits, or has custody of the
funds or securities to be exchanged by the parties to
the transaction.
(ii) Engages on behalf of an issuer in a public offer-
ing of any class of securities that is registered, or is
required to be registered, with the Commission under
section 12 or with respect to which the issuer files, or
is required to file, periodic information, documents,
and reports under subsection (d).
(iii) Engages on behalf of any party in a transaction
involving a shell company, other than a business com-
bination related shell company.
(iv) Directly, or indirectly through any of its affili-
ates, provides financing related to the transfer of own-
ership of an eligible privately held company.
(v) Assists any party to obtain financing from an un-
affiliated third party without—
(I) complying with all other applicable laws in
connection with such assistance, including, if ap-
plicable, Regulation T (12 C.F.R. 220 et seq.); and
(II) disclosing any compensation in writing to
the party.
(vi) Represents both the buyer and the seller in the
same transaction without providing clear written dis-
closure as to the parties the broker represents and ob-
taining written consent from both parties to the joint
representation.
(vii) Facilitates a transaction with a group of buyers
formed with the assistance of the M&A broker to ac-
quire the eligible privately held company.
(viii) Engages in a transaction involving the transfer
of ownership of an eligible privately held company to
a passive buyer or group of passive buyers.
(ix) Binds a party to a transfer of ownership of an
eligible privately held company.
(C) DISQUALIFICATION.—An M&A broker is not exempt
from registration under this paragraph if such broker (and
dmwilson on DSK7X7S144PROD with REPORTS
if and as applicable, including any officer, director, mem-
ber, manager, partner, or employee of such broker)—
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203
(i) has been barred from association with a broker or
dealer by the Commission, any State, or any self-regu-
latory organization; or
(ii) is suspended from association with a broker or
dealer.
(D) RULE OF CONSTRUCTION.—Nothing in this paragraph
shall be construed to limit any other authority of the Com-
mission to exempt any person, or any class of persons,
from any provision of this title, or from any provision of
any rule or regulation thereunder.
(E) DEFINITIONS.—In this paragraph:
(i) BUSINESS COMBINATION RELATED SHELL COM-
PANY.—The term ‘‘business combination related shell
company’’ means a shell company that is formed by an
entity that is not a shell company—
(I) solely for the purpose of changing the cor-
porate domicile of that entity solely within the
United States; or
(II) solely for the purpose of completing a busi-
ness combination transaction (as defined under
section 230.165(f) of title 17, Code of Federal Reg-
ulations) among one or more entities other than
the company itself, none of which is a shell com-
pany.
(ii) CONTROL.—The term ‘‘control’’ means the power,
directly or indirectly, to direct the management or
policies of a company, whether through ownership of
securities, by contract, or otherwise. There is a pre-
sumption of control if, upon completion of a trans-
action, the buyer or group of buyers—
(I) has the right to vote 25 percent or more of
a class of voting securities or the power to sell or
direct the sale of 25 percent or more of a class of
voting securities; or
(II) in the case of a partnership or limited liabil-
ity company, has the right to receive upon dissolu-
tion, or has contributed, 25 percent or more of the
capital.
(iii) ELIGIBLE PRIVATELY HELD COMPANY.—The term
‘‘eligible privately held company’’ means a privately
held company that meets both of the following condi-
tions:
(I) The company does not have any class of secu-
rities registered, or required to be registered, with
the Commission under section 12 or with respect
to which the company files, or is required to file,
periodic information, documents, and reports
under subsection (d).
(II) In the fiscal year ending immediately before
the fiscal year in which the services of the M&A
broker are initially engaged with respect to the se-
curities transaction, the company meets either or
both of the following conditions (determined in ac-
dmwilson on DSK7X7S144PROD with REPORTS
cordance with the historical financial accounting
records of the company):
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204
(aa) The earnings of the company before in-
terest, taxes, depreciation, and amortization
are less than $25,000,000.
(bb) The gross revenues of the company are
less than $250,000,000.
For purposes of this subclause, the Commission
may by rule modify the dollar figures if the Com-
mission determines that such a modification is
necessary or appropriate in the public interest or
for the protection of investors.
(iv) M&A BROKER.—The term ‘‘M&A broker’’ means
a broker, and any person associated with a broker, en-
gaged in the business of effecting securities trans-
actions solely in connection with the transfer of owner-
ship of an eligible privately held company, regardless
of whether the broker acts on behalf of a seller or
buyer, through the purchase, sale, exchange, issuance,
repurchase, or redemption of, or a business combina-
tion involving, securities or assets of the eligible pri-
vately held company, if the broker reasonably believes
that—
(I) upon consummation of the transaction, any
person acquiring securities or assets of the eligible
privately held company, acting alone or in con-
cert—
(aa) will control the eligible privately held
company or the business conducted with the
assets of the eligible privately held company;
and
(bb) directly or indirectly, will be active in
the management of the eligible privately held
company or the business conducted with the
assets of the eligible privately held company,
including without limitation, for example,
by—
(AA) electing executive officers;
(BB) approving the annual budget;
(CC) serving as an executive or other
executive manager; or
(DD) carrying out such other activities
as the Commission may, by rule, deter-
mine to be in the public interest; and
(II) if any person is offered securities in ex-
change for securities or assets of the eligible pri-
vately held company, such person will, prior to be-
coming legally bound to consummate the trans-
action, receive or have reasonable access to the
most recent fiscal year-end financial statements of
the issuer of the securities as customarily pre-
pared by the management of the issuer in the nor-
mal course of operations and, if the financial
statements of the issuer are audited, reviewed, or
compiled, any related statement by the inde-
dmwilson on DSK7X7S144PROD with REPORTS
pendent accountant, a balance sheet dated not
more than 120 days before the date of the offer,
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205
and information pertaining to the management,
business, results of operations for the period cov-
ered by the foregoing financial statements, and
material loss contingencies of the issuer.
(v) SHELL COMPANY.—The term ‘‘shell company’’
means a company that at the time of a transaction
with an eligible privately held company—
(I) has no or nominal operations; and
(II) has—
(aa) no or nominal assets;
(bb) assets consisting solely of cash and
cash equivalents; or
(cc) assets consisting of any amount of cash
and cash equivalents and nominal other as-
sets.
(F) INFLATION ADJUSTMENT.—
(i) IN GENERAL.—On the date that is 5 years after
the date of the enactment of this paragraph, and every
5 years thereafter, each dollar amount in subpara-
graph (E)(iii)(II) shall be adjusted by—
(I) dividing the annual value of the Employment
Cost Index For Wages and Salaries, Private In-
dustry Workers (or any successor index), as pub-
lished by the Bureau of Labor Statistics, for the
calendar year preceding the calendar year in
which the adjustment is being made by the an-
nual value of such index (or successor) for the cal-
endar year ending December 31, 2020; and
(II) multiplying such dollar amount by the
quotient obtained under subclause (I).
(ii) ROUNDING.—Each dollar amount determined
under clause (i) shall be rounded to the nearest mul-
tiple of $100,000.
(c)(1)(A) No 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 or attempt to induce the purchase or
sale of, any security (other than commercial paper, bankers’ accept-
ances, or commercial bills), or any security-based swap agreement
by means of any manipulative, deceptive, or other fraudulent de-
vice or contrivance.
(B) No broker, dealer, or municipal securities dealer shall make
use of the mails or any means or instrumentality of interstate com-
merce to effect any transaction in, or to induce or attempt to induce
the purchase or sale of, any municipal security or any security-
based swap agreement involving a municipal security by means of
any manipulative, deceptive, or other fraudulent device or contriv-
ance.
(C) No government securities broker or government securities
dealer shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or to induce or
to attempt to induce the purchase or sale of, any government secu-
rity or any security-based swap agreement involving a government
dmwilson on DSK7X7S144PROD with REPORTS
security by means of any manipulative, deceptive, or other fraudu-
lent device or contrivance.
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(2)(A) No 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 or attempt to induce the purchase or
sale of, any security (other than an exempted security or commer-
cial paper, bankers’ acceptances, or commercial bills) otherwise
than on a national securities exchange of which it is a member, in
connection with which such broker or dealer engages in any fraud-
ulent, deceptive, or manipulative act or practice, or makes any ficti-
tious quotation.
(B) No broker, dealer, or municipal securities dealer shall make
use of the mails or any means or instrumentality of interstate com-
merce to effect any transaction in, or to induce or attempt to induce
the purchase or sale of, any municipal security in connection with
which such broker, dealer, or municipal securities dealer engages
in any fraudulent, deceptive, or manipulative act or practice, or
makes any fictitious quotation.
(C) No government securities broker or government securities
dealer shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or induce or at-
tempt to induce the purchase or sale of, any government security
in connection with which such government securities broker or gov-
ernment securities dealer engages in any fraudulent, deceptive, or
manipulative act or practice, or makes any fictitious quotation.
(D) The Commission shall, for the purposes of this paragraph, by
rules and regulations define, and prescribe means reasonably de-
signed to prevent, such acts and practices as are fraudulent, decep-
tive, or manipulative and such quotations as are fictitious.
(E) The Commission shall, prior to adopting any rule or regula-
tion under subparagraph (C), consult with and consider the views
of the Secretary of the Treasury and each appropriate regulatory
agency. If the Secretary of the Treasury or any appropriate regu-
latory agency comments in writing on a proposed rule or regulation
of the Commission under such subparagraph (C) that has been
published for comment, the Commission shall respond in writing to
such written comment before adopting the proposed rule. If the
Secretary of the Treasury determines, and notifies the Commission,
that such rule or regulation, if implemented, would, or as applied
does (i) adversely affect the liquidity or efficiency of the market for
government securities; or (ii) impose any burden on competition not
necessary or appropriate in furtherance of the purposes of this sec-
tion, the Commission shall, prior to adopting the proposed rule or
regulation, find that such rule or regulation is necessary and ap-
propriate in furtherance of the purposes of this section notwith-
standing the Secretary’s determination.
(3)(A) No broker or dealer (other than a government securities
broker or government securities dealer, except a registered broker
or dealer) shall make use of the mails or any means or instrumen-
tality of interstate commerce to effect any transaction in, or to in-
duce or attempt to induce the purchase or sale of, any security
(other than an exempted security (except a government security) or
commercial paper, bankers’ acceptances, or commercial bills) in
contravention of such rules and regulations as the Commission
shall prescribe as necessary or appropriate in the public interest or
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for the protection of investors to provide safeguards with respect to
the financial responsibility and related practices of brokers and
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dealers including, but not limited to, the acceptance of custody and
use of customers’ securities and the carrying and use of customers’
deposits or credit balances. Such rules and regulations shall (A) re-
quire the maintenance of reserves with respect to customers’ depos-
its or credit balances, and (B) no later than September 1, 1975, es-
tablish minimum financial responsibility requirements for all bro-
kers and dealers.
(B) Consistent with this title, the Commission, in consultation
with the Commodity Futures Trading Commission, shall issue such
rules, regulations, or orders as are necessary to avoid duplicative
or conflicting regulations applicable to any broker or dealer reg-
istered 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 Com-
modity Exchange Act (except paragraph (2) thereof), with respect
to the application of: (i) the provisions of section 8, section 15(c)(3),
and section 17 of this title and the rules and regulations there-
under related to the treatment of customer funds, securities, or
property, maintenance of books and records, financial reporting, or
other financial responsibility rules, involving security futures prod-
ucts; and (ii) similar provisions of the Commodity Exchange Act
and rules and regulations thereunder involving security futures
products.
(C) Notwithstanding any provision of sections 2(a)(1)(C)(i) or
4d(a)(2) of the Commodity Exchange Act and the rules and reg-
ulations thereunder, and pursuant to an exemption granted by
the Commission under section 36 of this title or pursuant to a
rule or regulation, cash and securities may be held by a broker
or dealer registered pursuant to subsection (b)(1) and also reg-
istered as a futures commission merchant pursuant to section
4f(a)(1) of the Commodity Exchange Act, in a portfolio mar-
gining account carried as a futures account subject to section
4d of the Commodity Exchange Act and the rules and regula-
tions thereunder, pursuant to a portfolio margining program
approved by the Commodity Futures Trading Commission, and
subject to subchapter IV of chapter 7 of title 11 of the United
States Code and the rules and regulations thereunder. The
Commission shall consult with the Commodity Futures Trad-
ing Commission to adopt rules to ensure that such transactions
and accounts are subject to comparable requirements to the ex-
tent practicable for similar products.
(4) If the Commission finds, after notice and opportunity for a
hearing, that any person subject to the provisions of section 12, 13,
14, or subsection (d) of section 15 of this title or any rule or regula-
tion thereunder has failed to comply with any such provision, rule,
or regulation in any material respect, the Commission may publish
its findings and issue an order requiring such person, and any per-
son who was a cause of the failure to comply due to an act or omis-
sion the person knew or should have known would contribute to
the failure to comply, to comply, or to take steps to effect compli-
ance, with such provision or such rule or regulation thereunder
upon such terms and conditions and within such time as the Com-
mission may specify in such order.
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(5) No dealer (other than a specialist registered on a national se-
curities exchange) acting in the capacity of market maker or other-
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208
wise 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 security (other than
an exempted security or a municipal security) in contravention of
such specified and appropriate standards with respect to dealing as
the Commission, by rule, shall prescribe as necessary or appro-
priate in the public interest and for the protection of investors, to
maintain fair and orderly markets, or to remove impediments to
and perfect the mechanism of a national market system. Under the
rules of the Commission a dealer in a security may be prohibited
from acting as broker in that security.
(6) No 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 or attempt to induce the purchase or sale of, any
security (other than an exempted security, municipal security, com-
mercial paper, bankers’ acceptances, or commercial bills) in con-
travention of such rules and regulations as the Commission shall
prescribe as necessary or appropriate in the public interest and for
the protection of investors or to perfect or remove impediments to
a national system for the prompt and accurate clearance and settle-
ment of securities transactions, with respect to the time and meth-
od of, and the form and format of documents used in connection
with, making settlements of and payments for transactions in secu-
rities, making transfers and deliveries of securities, and closing ac-
counts. Nothing in this paragraph shall be construed (A) to affect
the authority of the Board of Governors of the Federal Reserve Sys-
tem, pursuant to section 7 of this title, to prescribe rules and regu-
lations for the purpose of preventing the excessive use of credit for
the purchase or carrying of securities, or (B) to authorize the Com-
mission to prescribe rules or regulations for such purpose.
(7) In connection with any bid for or purchase of a government
security related to an offering of government securities by or on be-
half of an issuer, no government securities broker, government se-
curities dealer, or bidder for or purchaser of securities in such of-
fering shall knowingly or willfully make any false or misleading
written statement or omit any fact necessary to make any written
statement made not misleading.
(8) PROHIBITION OF REFERRAL FEES.—No broker or dealer, or per-
son associated with a broker or dealer, may solicit or accept, di-
rectly or indirectly, remuneration for assisting an attorney in ob-
taining the representation of any person in any private action aris-
ing under this title or under the Securities Act of 1933.
(d) SUPPLEMENTARY AND PERIODIC INFORMATION.—
(1) IN GENERAL.—Each issuer which has filed a registration
statement containing an undertaking which is or becomes op-
erative under this subsection as in effect prior to the date of
enactment of the Securities Acts Amendments of 1964, and
each issuer which shall after such date file a registration state-
ment which has become effective pursuant to the Securities Act
of 1933, as amended, shall file with the Commission, in accord-
ance with such rules and regulations as the Commission may
prescribe as necessary or appropriate in the public interest or
for the protection of investors, such supplementary and peri-
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odic information, documents, and reports as may be required
pursuant to section 13 of this title in respect of a security reg-
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209
istered pursuant to section 12 of this title. The duty to file
under this subsection shall be automatically suspended if and
so long as any issue of securities of such issuer is registered
pursuant to section 12 of this title. The duty to file under this
subsection shall also be automatically suspended as to any fis-
cal year, other than the fiscal year within which such registra-
tion statement became effective, if, at the beginning of such fis-
cal year, the securities of each class, other than any class of
asset-backed securities, to which the registration statement re-
lates are held of record by 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 hold-
ing 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. For the purposes of this subsection, the term ‘‘class’’
shall be construed to include all securities of an issuer which
are of substantially similar character and the holders of which
enjoy substantially similar rights and privileges. The Commis-
sion may, for the purpose of this subsection, define by rules
and regulations the term ‘‘held of record’’ as it deems necessary
or appropriate in the public interest or for the protection of in-
vestors in order to prevent circumvention of the provisions of
this subsection. Nothing in this subsection shall apply to secu-
rities issued by a foreign government or political subdivision
thereof.
(2) ASSET-BACKED SECURITIES.—
(A) SUSPENSION OF DUTY TO FILE.—The Commission
may, by rule or regulation, provide for the suspension or
termination of the duty to file under this subsection for
any class of asset-backed security, on such terms and con-
ditions and for such period or periods as the Commission
deems necessary or appropriate in the public interest or
for the protection of investors.
(B) CLASSIFICATION OF ISSUERS.—The Commission may,
for purposes of this subsection, classify issuers and pre-
scribe requirements appropriate for each class of issuers of
asset-backed securities.
(e) NOTICES TO CUSTOMERS REGARDING SECURITIES LENDING.—
Every registered broker or dealer shall provide notice to its cus-
tomers that they may elect not to allow their fully paid securities
to be used in connection with short sales. If a broker or dealer uses
a customer’s securities in connection with short sales, the broker
or dealer shall provide notice to its customer that the broker or
dealer may receive compensation in connection with lending the
customer’s securities. The Commission, by rule, as it deems nec-
essary or appropriate in the public interest and for the protection
of investors, may prescribe the form, content, time, and manner of
delivery of any notice required under this paragraph.
(f) The Commission, by rule, as it deems necessary or appropriate
in the public interest and for the protection of investors or to as-
sure equal regulation, may require any member of a national secu-
rities exchange not required to register under section 15 of this
title and any person associated with any such member to comply
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with any provision of this title (other than section 15(a)) or the
rules or regulations thereunder which by its terms regulates or
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210
prohibits any act, practice, or course of business by a ‘‘broker or
dealer’’ or ‘‘registered broker or dealer’’ or a ‘‘person associated with
a broker or dealer,’’ respectively.
(g) Every registered broker or dealer shall establish, maintain,
and enforce written policies and procedures reasonably designed,
taking into consideration the nature of such broker’s or dealer’s
business, to prevent the misuse in violation of this title, or the
rules or regulations thereunder, of material, nonpublic information
by such broker or dealer or any person associated with such broker
or dealer. The Commission, as it deems necessary or appropriate
in the public interest or for the protection of investors, shall adopt
rules or regulations to require specific policies or procedures rea-
sonably designed to prevent misuse in violation of this title (or the
rules or regulations thereunder) of material, nonpublic information.
(h) REQUIREMENTS FOR TRANSACTIONS IN PENNY STOCKS.—
(1) IN GENERAL.—No 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 or attempt to induce
the purchase or sale of, any penny stock by any customer ex-
cept in accordance with the requirements of this subsection
and the rules and regulations prescribed under this subsection.
(2) RISK DISCLOSURE WITH RESPECT TO PENNY STOCKS.—Prior
to effecting any transaction in any penny stock, a broker or
dealer shall give the customer a risk disclosure document
that—
(A) contains a description of the nature and level of risk
in the market for penny stocks in both public offerings and
secondary trading;
(B) contains a description of the broker’s or dealer’s du-
ties to the customer and of the rights and remedies avail-
able to the customer with respect to violations of such du-
ties or other requirements of Federal securities laws;
(C) contains a brief, clear, narrative description of a
dealer market, including ‘‘bid’’ and ‘‘ask’’ prices for penny
stocks and the significance of the spread between the bid
and ask prices;
(D) contains the toll free telephone number for inquiries
on disciplinary actions established pursuant to section
15A(i) of this title;
(E) defines significant terms used in the disclosure docu-
ment or in the conduct of trading in penny stocks; and
(F) contains such other information, and is in such form
(including language, type size, and format), as the Com-
mission shall require by rule or regulation.
(3) COMMISSION RULES RELATING TO DISCLOSURE.—The Com-
mission shall adopt rules setting forth additional standards for
the disclosure by brokers and dealers to customers of informa-
tion concerning transactions in penny stocks. Such rules—
(A) shall require brokers and dealers to disclose to each
customer, prior to effecting any transaction in, and at the
time of confirming any transaction with respect to any
penny stock, in accordance with such procedures and
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methods as the Commission may require consistent with
the public interest and the protection of investors—
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211
(i) the bid and ask prices for penny stock, or such
other information as the Commission may, by rule, re-
quire to provide customers with more useful and reli-
able information relating to the price of such stock;
(ii) the number of shares to which such bid and ask
prices apply, or other comparable information relating
to the depth and liquidity of the market for such stock;
and
(iii) the amount and a description of any compensa-
tion that the broker or dealer and the associated per-
son thereof will receive or has received in connection
with such transaction;
(B) shall require brokers and dealers to provide, to each
customer whose account with the broker or dealer contains
penny stocks, a monthly statement indicating the market
value of the penny stocks in that account or indicating
that the market value of such stock cannot be determined
because of the unavailability of firm quotes; and
(C) may, as the Commission finds necessary or appro-
priate in the public interest or for the protection of inves-
tors, require brokers and dealers to disclose to customers
additional information concerning transactions in penny
stocks.
(4) EXEMPTIONS.—The Commission, as it determines con-
sistent with the public interest and the protection of investors,
may by rule, regulation, or order exempt in whole or in part,
conditionally or unconditionally, any person or class of persons,
or any transaction or class of transactions, from the require-
ments of this subsection. Such exemptions shall include an ex-
emption for brokers and dealers based on the minimal percent-
age of the broker’s or dealer’s commissions, commission-equiva-
lents, and markups received from transactions in penny stocks.
(5) REGULATIONS.—It shall be unlawful for any person to vio-
late such rules and regulations as the Commission shall pre-
scribe in the public interest or for the protection of investors
or to maintain fair and orderly markets—
(A) as necessary or appropriate to carry out this sub-
section; or
(B) as reasonably designed to prevent fraudulent, decep-
tive, or manipulative acts and practices with respect to
penny stocks.
(i) LIMITATIONS ON STATE LAW.—
(1) CAPITAL, MARGIN, BOOKS AND RECORDS, BONDING, AND RE-
PORTS.—No law, rule, regulation, or order, or other administra-
tive action of any State or political subdivision thereof shall es-
tablish capital, custody, margin, financial responsibility, mak-
ing and keeping records, bonding, or financial or operational
reporting requirements for brokers, dealers, municipal securi-
ties dealers, government securities brokers, or government se-
curities dealers that differ from, or are in addition to, the re-
quirements in those areas established under this title. The
Commission shall consult periodically the securities commis-
sions (or any agency or office performing like functions) of the
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States concerning the adequacy of such requirements as estab-
lished under this title.
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(2) FUNDING PORTALS.—
(A) LIMITATION ON STATE LAWS.—Except as provided in
subparagraph (B), no State or political subdivision thereof
may enforce any law, rule, regulation, or other administra-
tive action against a registered funding portal with respect
to its business as such.
(B) EXAMINATION AND ENFORCEMENT AUTHORITY.—Sub-
paragraph (A) does not apply with respect to the examina-
tion and enforcement of any law, rule, regulation, or ad-
ministrative action of a State or political subdivision there-
of in which the principal place of business of a registered
funding portal is located, provided that such law, rule, reg-
ulation, or administrative action is not in addition to or
different from the requirements for registered funding por-
tals established by the Commission.
(C) DEFINITION.—For purposes of this paragraph, the
term ‘‘State’’ includes the District of Columbia and the ter-
ritories of the United States.
(3) DE MINIMIS TRANSACTIONS BY ASSOCIATED PERSONS.—No
law, rule, regulation, or order, or other administrative action
of any State or political subdivision thereof may prohibit an as-
sociated person of a broker or dealer from effecting a trans-
action described in paragraph (3) for a customer in such State
if—
(A) such associated person is not ineligible to register
with such State for any reason other than such a trans-
action;
(B) such associated person is registered with a registered
securities association and at least one State; and
(C) the broker or dealer with which such person is asso-
ciated is registered with such State.
(4) DESCRIBED TRANSACTIONS.—
(A) IN GENERAL.—A transaction is described in this para-
graph if—
(i) such transaction is effected—
(I) on behalf of a customer that, for 30 days
prior to the day of the transaction, maintained an
account with the broker or dealer; and
(II) by an associated person of the broker or
dealer—
(aa) to which the customer was assigned for
14 days prior to the day of the transaction;
and
(bb) who is registered with a State in which
the customer was a resident or was present
for at least 30 consecutive days during the 1-
year period prior to the day of the transaction;
or
(ii) the transaction is effected—
(I) on behalf of a customer that, for 30 days
prior to the day of the transaction, maintained an
account with the broker or dealer; and
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(II) during the period beginning on the date on
which such associated person files an application
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213
for registration with the State in which the trans-
action is effected and ending on the earlier of—
(aa) 60 days after the date on which the ap-
plication is filed; or
(bb) the date on which such State notifies
the associated person that it has denied the
application for registration or has stayed the
pendency of the application for cause.
(B) RULES OF CONSTRUCTION.—For purposes of subpara-
graph (A)(i)(II)—
(i) each of up to 3 associated persons of a broker or
dealer who are designated to effect transactions dur-
ing the absence or unavailability of the principal asso-
ciated person for a customer may be treated as an as-
sociated person to which such customer is assigned;
and
(ii) if the customer is present in another State for 30
or more consecutive days or has permanently changed
his or her residence to another State, a transaction is
not described in this paragraph, unless the associated
person of the broker or dealer files an application for
registration with such State not later than 10 business
days after the later of the date of the transaction, or
the date of the discovery of the presence of the cus-
tomer in the other State for 30 or more consecutive
days or the change in the customer’s residence.
(j) RULEMAKING TO EXTEND REQUIREMENTS TO NEW HYBRID
PRODUCTS.—
(1) CONSULTATION.—Prior to commencing a rulemaking
under this subsection, the Commission shall consult with and
seek the concurrence of the Board concerning the imposition of
broker or dealer registration requirements with respect to any
new hybrid product. In developing and promulgating rules
under this subsection, the Commission shall consider the views
of the Board, including views with respect to the nature of the
new hybrid product; the history, purpose, extent, and appro-
priateness of the regulation of the new product under the Fed-
eral banking laws; and the impact of the proposed rule on the
banking industry.
(2) LIMITATION.—The Commission shall not—
(A) require a bank to register as a broker or dealer
under this section because the bank engages in any trans-
action in, or buys or sells, a new hybrid product; or
(B) bring an action against a bank for a failure to com-
ply with a requirement described in subparagraph (A),
unless the Commission has imposed such requirement by rule
or regulation issued in accordance with this section.
(3) CRITERIA FOR RULEMAKING.—The Commission shall not
impose a requirement under paragraph (2) of this subsection
with respect to any new hybrid product unless the Commission
determines that—
(A) the new hybrid product is a security; and
(B) imposing such requirement is necessary and appro-
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priate in the public interest and for the protection of inves-
tors.
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214
(4) CONSIDERATIONS.—In making a determination under
paragraph (3), the Commission shall consider—
(A) the nature of the new hybrid product; and
(B) the history, purpose, extent, and appropriateness of
the regulation of the new hybrid product under the Fed-
eral securities laws and under the Federal banking laws.
(5) OBJECTION TO COMMISSION REGULATION.—
(A) FILING OF PETITION FOR REVIEW.—The Board may ob-
tain review of any final regulation described in paragraph
(2) in the United States Court of Appeals for the District
of Columbia Circuit by filing in such court, not later than
60 days after the date of publication of the final regula-
tion, a written petition requesting that the regulation be
set aside. Any proceeding to challenge any such rule shall
be expedited by the Court of Appeals.
(B) TRANSMITTAL OF PETITION AND RECORD.—A copy of a
petition described in subparagraph (A) shall be trans-
mitted as soon as possible by the Clerk of the Court to an
officer or employee of the Commission designated for that
purpose. Upon receipt of the petition, the Commission
shall file with the court the regulation under review and
any documents referred to therein, and any other relevant
materials prescribed by the court.
(C) EXCLUSIVE JURISDICTION.—On the date of the filing
of the petition under subparagraph (A), the court has juris-
diction, which becomes exclusive on the filing of the mate-
rials set forth in subparagraph (B), to affirm and enforce
or to set aside the regulation at issue.
(D) STANDARD OF REVIEW.—The court shall determine to
affirm and enforce or set aside a regulation of the Commis-
sion under this subsection, based on the determination of
the court as to whether—
(i) the subject product is a new hybrid product, as
defined in this subsection;
(ii) the subject product is a security; and
(iii) imposing a requirement to register as a broker
or dealer for banks engaging in transactions in such
product is appropriate in light of the history, purpose,
and extent of regulation under the Federal securities
laws and under the Federal banking laws, giving def-
erence neither to the views of the Commission nor the
Board.
(E) JUDICIAL STAY.—The filing of a petition by the Board
pursuant to subparagraph (A) shall operate as a judicial
stay, until the date on which the determination of the
court is final (including any appeal of such determination).
(F) OTHER AUTHORITY TO CHALLENGE.—Any aggrieved
party may seek judicial review of the Commission’s rule-
making under this subsection pursuant to section 25 of
this title.
(6) DEFINITIONS.—For purposes of this subsection:
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(A) NEW HYBRID PRODUCT.—The term ‘‘new hybrid prod-
uct’’ means a product that—
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215
(i) was not subjected to regulation by the Commis-
sion as a security prior to the date of the enactment
of the Gramm-Leach-Bliley Act;
(ii) is not an identified banking product as such
term is defined in section 206 of such Act; and
(iii) is not an equity swap within the meaning of sec-
tion 206(a)(6) of such Act.
(B) BOARD.—The term ‘‘Board’’ means the Board of Gov-
ernors of the Federal Reserve System.
(j) The authority of the Commission under this section with re-
spect to security-based swap agreements shall be subject to the re-
strictions and limitations of section 3A(b) of this title.
(k) REGISTRATION OR SUCCESSION TO A UNITED STATES BROKER
OR DEALER.—In determining whether to permit a foreign person or
an affiliate of a foreign person to register as a United States broker
or dealer, or succeed to the registration of a United States broker
or dealer, the Commission may consider whether, for a foreign per-
son, or an affiliate of a foreign person that presents a risk to the
stability of the United States financial system, the home country
of the foreign person has adopted, or made demonstrable progress
toward adopting, an appropriate system of financial regulation to
mitigate such risk.
(l) TERMINATION OF A UNITED STATES BROKER OR DEALER.—For
a foreign person or an affiliate of a foreign person that presents
such a risk to the stability of the United States financial system,
the Commission may determine to terminate the registration of
such foreign person or an affiliate of such foreign person as a
broker or dealer in the United States, if the Commission deter-
mines that the home country of the foreign person has not adopted,
or made demonstrable progress toward adopting, an appropriate
system of financial regulation to mitigate such risk.
(k) STANDARD OF CONDUCT.—
(1) IN GENERAL.—Notwithstanding any other provision of
this Act or the Investment Advisers Act of 1940, the Commis-
sion may promulgate rules to provide that, with respect to a
broker or dealer, when providing personalized investment ad-
vice about securities to a retail customer (and such other cus-
tomers as the Commission may by rule provide), the standard
of conduct for such broker or dealer with respect to such cus-
tomer shall be the same as the standard of conduct applicable
to an investment adviser under section 211 of the Investment
Advisers Act of 1940. The receipt of compensation based on
commission or other standard compensation for the sale of se-
curities shall not, in and of itself, be considered a violation of
such standard applied to a broker or dealer. Nothing in this
section shall require a broker or dealer or registered represent-
ative to have a continuing duty of care or loyalty to the cus-
tomer after providing personalized investment advice about se-
curities.
(2) DISCLOSURE OF RANGE OF PRODUCTS OFFERED.—Where a
broker or dealer sells only proprietary or other limited range
of products, as determined by the Commission, the Commission
may by rule require that such broker or dealer provide notice
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to each retail customer and obtain the consent or acknowledg-
ment of the customer. The sale of only proprietary or other lim-
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216
ited range of products by a broker or dealer shall not, in and
of itself, be considered a violation of the standard set forth in
paragraph (1).
(l) OTHER MATTERS.—The Commission shall—
(1) facilitate the provision of simple and clear disclosures to
investors regarding the terms of their relationships with bro-
kers, dealers, and investment advisers, including any material
conflicts of interest; and
(2) examine and, where appropriate, promulgate rules pro-
hibiting or restricting certain sales practices, conflicts of inter-
est, and compensation schemes for brokers, dealers, and in-
vestment advisers that the Commission deems contrary to the
public interest and the protection of investors.
(m) HARMONIZATION OF ENFORCEMENT.—The enforcement au-
thority of the Commission with respect to violations of the standard
of conduct applicable to a broker or dealer providing personalized
investment advice about securities to a retail customer shall in-
clude—
(1) the enforcement authority of the Commission with re-
spect to such violations provided under this Act; and
(2) the enforcement authority of the Commission with re-
spect to violations of the standard of conduct applicable to an
investment adviser under the Investment Advisers Act of 1940,
including the authority to impose sanctions for such violations,
and
the Commission shall seek to prosecute and sanction violators of
the standard of conduct applicable to a broker or dealer providing
personalized investment advice about securities to a retail cus-
tomer under this Act to same extent as the Commission prosecutes
and sanctions violators of the standard of conduct applicable to an
investment advisor under the Investment Advisers Act of 1940.
(n) DISCLOSURES TO RETAIL INVESTORS.—
(1) IN GENERAL.—Notwithstanding any other provision of the
securities laws, the Commission may issue rules designating
documents or information that shall be provided by a broker or
dealer to a retail investor before the purchase of an investment
product or service by the retail investor.
(2) CONSIDERATIONS.—In developing any rules under para-
graph (1), the Commission shall consider whether the rules
will promote investor protection, efficiency, competition, and
capital formation.
(3) FORM AND CONTENTS OF DOCUMENTS AND INFORMATION.—
Any documents or information designated under a rule promul-
gated under paragraph (1) shall—
(A) be in a summary format; and
(B) contain clear and concise information about—
(i) investment objectives, strategies, costs, and risks;
and
(ii) any compensation or other financial incentive re-
ceived by a broker, dealer, or other intermediary in
connection with the purchase of retail investment
products.
(o) AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRA-
dmwilson on DSK7X7S144PROD with REPORTS
TION.—The Commission, by rule, may prohibit, or impose condi-
tions or limitations on the use of, agreements that require cus-
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217
tomers or clients of any broker, dealer, or municipal securities deal-
er to arbitrate any future dispute between them arising under the
Federal securities laws, the rules and regulations thereunder, or
the rules of a self-regulatory organization if it finds that such pro-
hibition, imposition of conditions, or limitations are in the public
interest and for the protection of investors.
(p) ADDITIONAL REGISTRATIONS WITH THE COMMODITY FUTURES
TRADING COMMISSION.—A registered broker or registered dealer
shall be permitted to maintain a registration with the Commodity
Futures Trading Commission as a digital commodity broker or dig-
ital commodity dealer, to list or trade contracts of sale for digital
commodities.
* * * * * * *
SEC. 15F. REGISTRATION AND REGULATION OF SECURITY-BASED
SWAP DEALERS AND MAJOR SECURITY-BASED SWAP PAR-
TICIPANTS.
(a) REGISTRATION.—
(1) SECURITY-BASED SWAP DEALERS.—It shall be unlawful for
any person to act as a security-based swap dealer unless the
person is registered as a security-based swap dealer with the
Commission.
(2) MAJOR SECURITY-BASED SWAP PARTICIPANTS.—It shall be
unlawful for any person to act as a major security-based swap
participant unless the person is registered as a major security-
based swap participant with the Commission.
(b) REQUIREMENTS.—
(1) IN GENERAL.—A person shall register as a security-based
swap dealer or major security-based swap participant by filing
a registration application with the Commission.
(2) CONTENTS.—
(A) IN GENERAL.—The application shall be made in such
form and manner as prescribed by the Commission, and
shall contain such information, as the Commission con-
siders necessary concerning the business in which the ap-
plicant is or will be engaged.
(B) CONTINUAL REPORTING.—A person that is registered
as a security-based swap dealer or major security-based
swap participant shall continue to submit to the Commis-
sion reports that contain such information pertaining to
the business of the person as the Commission may require.
(3) EXPIRATION.—Each registration under this section shall
expire at such time as the Commission may prescribe by rule
or regulation.
(4) RULES.—Except as provided in subsections (d) and (e),
the Commission may prescribe rules applicable to security-
based swap dealers and major security-based swap partici-
pants, including rules that limit the activities of non-bank se-
curity-based swap dealers and major security-based swap par-
ticipants.
(5) TRANSITION.—Not later than 1 year after the date of en-
actment of the Wall Street Transparency and Accountability
Act of 2010, the Commission shall issue rules under this sec-
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tion to provide for the registration of security-based swap deal-
ers and major security-based swap participants.
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218
(6) STATUTORY DISQUALIFICATION.—Except to the extent oth-
erwise specifically provided by rule, regulation, or order of the
Commission, it shall be unlawful for a security-based swap
dealer or a major security-based swap participant to permit
any person associated with a security-based swap dealer or a
major security-based swap participant who is subject to a stat-
utory disqualification to effect or be involved in effecting secu-
rity-based swaps on behalf of the security-based swap dealer or
major security-based swap participant, if the security-based
swap dealer or major security-based swap participant knew, or
in the exercise of reasonable care should have known, of the
statutory disqualification.
(c) DUAL REGISTRATION.—
(1) SECURITY-BASED SWAP DEALER.—Any person that is re-
quired to be registered as a security-based swap dealer under
this section shall register with the Commission, regardless of
whether the person also is registered with the Commodity Fu-
tures Trading Commission as a swap dealer.
(2) MAJOR SECURITY-BASED SWAP PARTICIPANT.—Any person
that is required to be registered as a major security-based
swap participant under this section shall register with the
Commission, regardless of whether the person also is reg-
istered with the Commodity Futures Trading Commission as a
major swap participant.
(d) RULEMAKING.—
(1) IN GENERAL.—The Commission shall adopt rules for per-
sons that are registered as security-based swap dealers or
major security-based swap participants under this section.
(2) EXCEPTION FOR PRUDENTIAL REQUIREMENTS.—
(A) IN GENERAL.—The Commission may not prescribe
rules imposing prudential requirements on security-based
swap dealers or major security-based swap participants for
which there is a prudential regulator.
(B) APPLICABILITY.—Subparagraph (A) does not limit the
authority of the Commission to prescribe rules as directed
under this section.
(e) CAPITAL AND MARGIN REQUIREMENTS.—
(1) IN GENERAL.—
(A) SECURITY-BASED SWAP DEALERS AND MAJOR SECU-
RITY-BASED SWAP PARTICIPANTS THAT ARE BANKS.—Each
registered security-based swap dealer and major security-
based swap participant for which there is not a prudential
regulator shall meet such minimum capital requirements
and minimum initial and variation margin requirements
as the prudential regulator shall by rule or regulation pre-
scribe under paragraph (2)(A).
(B) SECURITY-BASED SWAP DEALERS AND MAJOR SECU-
RITY-BASED SWAP PARTICIPANTS THAT ARE NOT BANKS.—
Each registered security-based swap dealer and major se-
curity-based swap participant for which there is not a pru-
dential regulator shall meet such minimum capital re-
quirements and minimum initial and variation margin re-
quirements as the Commission shall by rule or regulation
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prescribe under paragraph (2)(B).
(2) RULES.—
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219
(A) SECURITY-BASED SWAP DEALERS AND MAJOR SECU-
RITY-BASED SWAP PARTICIPANTS THAT ARE BANKS.—The
prudential regulators, in consultation with the Commission
and the Commodity Futures Trading Commission, shall
adopt rules for security-based swap dealers and major se-
curity-based swap participants, with respect to their activi-
ties as a swap dealer or major swap participant, for which
there is a prudential regulator imposing—
(i) capital requirements; and
(ii) both initial and variation margin requirements
on all security-based swaps that are not cleared by a
registered clearing agency.
(B) SECURITY-BASED SWAP DEALERS AND MAJOR SECU-
RITY-BASED SWAP PARTICIPANTS THAT ARE NOT BANKS.—The
Commission shall adopt rules for security-based swap deal-
ers and major security-based swap participants, with re-
spect to their activities as a swap dealer or major swap
participant, for which there is not a prudential regulator
imposing—
(i) capital requirements; and
(ii) both initial and variation margin requirements
on all swaps that are not cleared by a registered clear-
ing agency.
(C) CAPITAL.—In setting capital requirements for a per-
son that is designated as a security-based swap dealer or
a major security-based swap participant for a single type
or single class or category of security-based swap or activi-
ties, the prudential regulator and the Commission shall
take into account the risks associated with other types of
security-based swaps or classes of security-based swaps or
categories of security-based swaps engaged in and the
other activities conducted by that person that are not oth-
erwise subject to regulation applicable to that person by
virtue of the status of the person.
(3) STANDARDS FOR CAPITAL AND MARGIN.—
(A) IN GENERAL.—To offset the greater risk to the secu-
rity-based swap dealer or major security-based swap par-
ticipant and the financial system arising from the use of
security-based swaps that are not cleared, the require-
ments imposed under paragraph (2) shall —
(i) help ensure the safety and soundness of the secu-
rity-based swap dealer or major security-based swap
participant; and
(ii) be appropriate for the risk associated with the
non-cleared security-based swaps held as a security-
based swap dealer or major security-based swap par-
ticipant.
(B) RULE OF CONSTRUCTION.—
(i) IN GENERAL.—Nothing in this section shall limit,
or be construed to limit, the authority—
(I) of the Commission to set financial responsi-
bility rules for a broker or dealer registered pursu-
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ant to section 15(b) (except for section 15(b)(11)
thereof) in accordance with section 15(c)(3); or
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220
(II) of the Commodity Futures Trading Commis-
sion to set financial responsibility rules for a fu-
tures commission merchant or introducing broker
registered pursuant to section 4f(a) of the Com-
modity Exchange Act (except for section 4f(a)(3)
thereof) in accordance with section 4f(b) of the
Commodity Exchange Act.
(ii) FUTURES COMMISSION MERCHANTS AND OTHER
DEALERS.—A futures commission merchant, intro-
ducing broker, broker, or dealer shall maintain suffi-
cient capital to comply with the stricter of any applica-
ble capital requirements to which such futures com-
mission merchant, introducing broker, broker, or deal-
er is subject to under this title or the Commodity Ex-
change Act.
(C) MARGIN REQUIREMENTS.—In prescribing margin re-
quirements under this subsection, the prudential regulator
with respect to security-based swap dealers and major se-
curity-based swap participants that are depository institu-
tions, and the Commission with respect to security-based
swap dealers and major security-based swap participants
that are not depository institutions shall permit the use of
noncash collateral, as the regulator or the Commission de-
termines to be consistent with—
(i) preserving the financial integrity of markets trad-
ing security-based swaps; and
(ii) preserving the stability of the United States fi-
nancial system.
(D) COMPARABILITY OF CAPITAL AND MARGIN REQUIRE-
MENTS.—
(i) IN GENERAL.—The prudential regulators, the
Commission, and the Securities and Exchange Com-
mission shall periodically (but not less frequently than
annually) consult on minimum capital requirements
and minimum initial and variation margin require-
ments.
(ii) COMPARABILITY.—The entities described in
clause (i) shall, to the maximum extent practicable, es-
tablish and maintain comparable minimum capital re-
quirements and minimum initial and variation margin
requirements, including the use of noncash collateral,
for—
(I) security-based swap dealers; and
(II) major security-based swap participants.
(4) APPLICABILITY WITH RESPECT TO COUNTERPARTIES.—The
requirements of paragraphs (2)(A)(ii) and (2)(B)(ii) shall not
apply to a security-based swap in which a counterparty quali-
fies for an exception under section 3C(g)(1) or satisfies the cri-
teria in section 3C(g)(4).
(f) REPORTING AND RECORDKEEPING.—
(1) IN GENERAL.—Each registered security-based swap dealer
and major security-based swap participant—
(A) shall make such reports as are required by the Com-
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mission, by rule or regulation, regarding the transactions
and positions and financial condition of the registered se-
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221
curity-based swap dealer or major security-based swap
participant;
(B)(i) for which there is a prudential regulator, shall
keep books and records of all activities related to the busi-
ness as a security-based swap dealer or major security-
based swap participant in such form and manner and for
such period as may be prescribed by the Commission by
rule or regulation; and
(ii) for which there is no prudential regulator, 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
(C) shall keep books and records described in subpara-
graph (B) open to inspection and examination by any rep-
resentative of the Commission.
(2) RULES.—The Commission shall adopt rules governing re-
porting and recordkeeping for security-based swap dealers and
major security-based swap participants.
(g) DAILY TRADING RECORDS.—
(1) IN GENERAL.—Each registered security-based swap dealer
and major security-based swap participant shall maintain daily
trading records of the security-based swaps of the registered
security-based swap dealer and major security-based swap par-
ticipant and all related records (including related cash or for-
ward transactions) and recorded communications, including
electronic mail, instant messages, and recordings of telephone
calls, for such period as may be required by the Commission
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 security-based
swap dealer and major security-based swap participant shall
maintain daily trading records for each counterparty in a man-
ner and form that is identifiable with each security-based swap
transaction.
(4) AUDIT TRAIL.—Each registered security-based swap deal-
er and major security-based swap participant shall maintain a
complete audit trail for conducting comprehensive and accurate
trade reconstructions.
(5) RULES.—The Commission shall adopt rules governing
daily trading records for security-based swap dealers and
major security-based swap participants.
(h) BUSINESS CONDUCT STANDARDS.—
(1) IN GENERAL.—Each registered security-based swap dealer
and major security-based swap participant shall conform with
such business conduct standards as prescribed in paragraph (3)
and as may be prescribed by the Commission by rule or regula-
tion that relate to—
(A) fraud, manipulation, and other abusive practices in-
volving security-based swaps (including security-based
swaps that are offered but not entered into);
(B) diligent supervision of the business of the registered
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security-based swap dealer and major security-based swap
participant;
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(C) adherence to all applicable position limits; and
(D) such other matters as the Commission determines to
be appropriate.
(2) RESPONSIBILITIES WITH RESPECT TO SPECIAL ENTITIES.—
(A) ADVISING SPECIAL ENTITIES.—A security-based swap
dealer or major security-based swap participant that acts
as an advisor to special entity regarding a security-based
swap shall comply with the requirements of paragraph (4)
with respect to such special entity.
(B) ENTERING OF SECURITY-BASED SWAPS WITH RESPECT
TO SPECIAL ENTITIES.—A security-based swap dealer that
enters into or offers to enter into security-based swap with
a special entity shall comply with the requirements of
paragraph (5) with respect to such special entity.
(C) SPECIAL ENTITY DEFINED.—For purposes of this sub-
section, the term ‘‘special entity’’ means—
(i) a Federal agency;
(ii) a State, State agency, city, county, municipality,
or other political subdivision of a State or;
(iii) any employee benefit plan, as defined in section
3 of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002);
(iv) any governmental plan, as defined in section 3
of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002); or
(v) any endowment, including an endowment that is
an organization described in section 501(c)(3) of the
Internal Revenue Code of 1986.
(3) BUSINESS CONDUCT REQUIREMENTS.—Business conduct re-
quirements adopted by the Commission shall—
(A) establish a duty for a security-based swap dealer or
major security-based swap participant to verify that any
counterparty meets the eligibility standards for an eligible
contract participant;
(B) require disclosure by the security-based swap dealer
or major security-based swap participant to any
counterparty to the transaction (other than a security-
based swap dealer, major security-based swap participant,
security-based swap dealer, or major security-based swap
participant) of—
(i) information about the material risks and charac-
teristics of the security-based swap;
(ii) any material incentives or conflicts of interest
that the security-based swap dealer or major security-
based swap participant may have in connection with
the security-based swap; and
(iii)(I) for cleared security-based swaps, upon the re-
quest of the counterparty, receipt of the daily mark of
the transaction from the appropriate derivatives clear-
ing organization; and
(II) for uncleared security-based swaps, receipt of
the daily mark of the transaction from the security-
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based swap dealer or the major security-based swap
participant;
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(C) establish a duty for a security-based swap dealer or
major security-based swap participant to communicate in
a fair and balanced manner based on principles of fair
dealing and good faith; and
(D) establish such other standards and requirements as
the Commission may determine are appropriate in the
public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this Act.
(4) SPECIAL REQUIREMENTS FOR SECURITY-BASED SWAP DEAL-
ERS ACTING AS ADVISORS.—
(A) IN GENERAL.—It shall be unlawful for a security-
based swap dealer or major security-based swap partici-
pant—
(i) to employ any device, scheme, or artifice to de-
fraud any special entity or prospective customer who
is a special entity;
(ii) to engage in any transaction, practice, or course
of business that operates as a fraud or deceit on any
special entity or prospective customer who is a special
entity; or
(iii) to engage in any act, practice, or course of busi-
ness that is fraudulent, deceptive, or manipulative.
(B) DUTY.—Any security-based swap dealer that acts as
an advisor to a special entity shall have a duty to act in
the best interests of the special entity.
(C) REASONABLE EFFORTS.—Any security-based swap
dealer that acts as an advisor to a special entity shall
make reasonable efforts to obtain such information as is
necessary to make a reasonable determination that any se-
curity-based swap recommended by the security-based
swap dealer is in the best interests of the special entity,
including information relating to—
(i) the financial status of the special entity;
(ii) the tax status of the special entity;
(iii) the investment or financing objectives of the
special entity; and
(iv) any other information that the Commission may
prescribe by rule or regulation.
(5) SPECIAL REQUIREMENTS FOR SECURITY-BASED SWAP DEAL-
ERS AS COUNTERPARTIES TO SPECIAL ENTITIES.—
(A) IN GENERAL.—Any security-based swap dealer or
major security-based swap participant that offers to or en-
ters into a security-based swap with a special entity
shall—
(i) comply with any duty established by the Commis-
sion for a security-based swap dealer or major secu-
rity-based swap participant, with respect to a
counterparty that is an eligible contract participant
within the meaning of subclause (I) or (II) of clause
(vii) of section ø1a(18)¿ 1a(19) of the Commodity Ex-
change Act, that requires the security-based swap
dealer or major security-based swap participant to
have a reasonable basis to believe that the
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counterparty that is a special entity has an inde-
pendent representative that—
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224
(I) has sufficient knowledge to evaluate the
transaction and risks;
(II) is not subject to a statutory disqualification;
(III) is independent of the security-based swap
dealer or major security-based swap participant;
(IV) undertakes a duty to act in the best inter-
ests of the counterparty it represents;
(V) makes appropriate disclosures;
(VI) will provide written representations to the
special entity regarding fair pricing and the ap-
propriateness of the transaction; and
(VII) in the case of employee benefit plans sub-
ject to the Employee Retirement Income Security
act of 1974, is a fiduciary as defined in section 3
of that Act (29 U.S.C. 1002); and
(ii) before the initiation of the transaction, disclose
to the special entity in writing the capacity in which
the security-based swap dealer is acting.
(B) COMMISSION AUTHORITY.—The Commission may es-
tablish such other standards and requirements under this
paragraph as the Commission may determine are appro-
priate in the public interest, for the protection of investors,
or otherwise in furtherance of the purposes of this Act.
(6) RULES.—The Commission shall prescribe rules under this
subsection governing business conduct standards for security-
based swap dealers and major security-based swap partici-
pants.
(7) APPLICABILITY.—This subsection shall not apply with re-
spect to a transaction that is—
(A) initiated by a special entity on an exchange or secu-
rity-based swaps execution facility; and
(B) the security-based swap dealer or major security-
based swap participant does not know the identity of the
counterparty to the transaction.’’
(i) DOCUMENTATION STANDARDS.—
(1) IN GENERAL.—Each registered security-based swap dealer
and major security-based swap participant shall conform with
such standards as may be prescribed by the Commission, by
rule or regulation, that relate to timely and accurate confirma-
tion, processing, netting, documentation, and valuation of all
security-based swaps.
(2) RULES.—The Commission shall adopt rules governing
documentation standards for security-based swap dealers and
major security-based swap participants.
(j) DUTIES.—Each registered security-based swap dealer and
major security-based swap participant shall, at all times, comply
with the following requirements:
(1) MONITORING OF TRADING.—The security-based swap deal-
er or major security-based swap participant shall monitor its
trading in security-based swaps to prevent violations of appli-
cable position limits.
(2) RISK MANAGEMENT PROCEDURES.—The security-based
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swap dealer or major security-based swap participant shall es-
tablish robust and professional risk management systems ade-
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225
quate for managing the day-to-day business of the security-
based swap dealer or major security-based swap participant.
(3) DISCLOSURE OF GENERAL INFORMATION.—The security-
based swap dealer or major security-based swap participant
shall disclose to the Commission and to the prudential regu-
lator for the security-based swap dealer or major security-
based swap participant, as applicable, information con-
cerning—
(A) terms and conditions of its security-based swaps;
(B) security-based swap trading operations, mechanisms,
and practices;
(C) financial integrity protections relating to security-
based swaps; and
(D) other information relevant to its trading in security-
based swaps.
(4) ABILITY TO OBTAIN INFORMATION.—The security-based
swap dealer or major security-based swap participant shall—
(A) establish and enforce internal systems and proce-
dures to obtain any necessary information to perform any
of the functions described in this section; and
(B) provide the information to the Commission and to
the prudential regulator for the security-based swap dealer
or major security-based swap participant, as applicable, on
request.
(5) CONFLICTS OF INTEREST.—The security-based swap dealer
and major security-based swap participant shall implement
conflict-of-interest systems and procedures that—
(A) establish structural and institutional safeguards to
ensure that the activities of any person within the firm re-
lating to research or analysis of the price or market for
any security-based swap or acting in a role of providing
clearing activities or making determinations as to accept-
ing clearing customers are separated by appropriate infor-
mational partitions within the firm from the review, pres-
sure, or oversight of persons whose involvement in pricing,
trading, or clearing activities might potentially bias their
judgment or supervision and contravene the core principles
of open access and the business conduct standards de-
scribed in this title; and
(B) address such other issues as the Commission deter-
mines to be appropriate.
(6) ANTITRUST CONSIDERATIONS.—Unless necessary or appro-
priate to achieve the purposes of this title, the security-based
swap dealer or major security-based swap participant 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 trad-
ing or clearing.
(7) RULES.—The Commission shall prescribe rules under this
subsection governing duties of security-based swap dealers and
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major security-based swap participants.
(k) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
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(1) IN GENERAL.—Each security-based swap dealer and major
security-based swap participant 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 security-based swap dealer or major security-based
swap participant;
(B) review the compliance of the security-based swap
dealer or major security-based swap participant with re-
spect to the security-based swap dealer and major security-
based swap participant requirements described in this sec-
tion;
(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 pro-
cedure that is required to be established pursuant to this
section;
(E) ensure compliance with this title (including regula-
tions) relating to security-based swaps, including each rule
prescribed by the Commission under this section;
(F) establish procedures for the remediation of non-
compliance 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 annu-
ally prepare and sign a report that contains a description
of—
(i) the compliance of the security-based swap dealer
or major swap participant with respect to this title (in-
cluding regulations); and
(ii) each policy and procedure of the security-based
swap dealer or major security-based swap participant
of the chief compliance officer (including the code of
ethics and conflict of interest policies).
(B) REQUIREMENTS.—A compliance report under sub-
paragraph (A) shall—
(i) accompany each appropriate financial report of
the security-based swap dealer or major security-based
swap participant that is required to be furnished to
the Commission pursuant to this section; and
(ii) include a certification that, under penalty of law,
the compliance report is accurate and complete.
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(l) ENFORCEMENT AND ADMINISTRATIVE PROCEEDING AUTHOR-
ITY.—
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(1) PRIMARY ENFORCEMENT AUTHORITY.—
(A) SECURITIES AND EXCHANGE COMMISSION.—Except as
provided in subparagraph (B), (C), or (D), the Commission
shall have primary authority to enforce subtitle B, and the
amendments made by subtitle B of the Wall Street Trans-
parency and Accountability Act of 2010, with respect to
any person.
(B) PRUDENTIAL REGULATORS.—The prudential regu-
lators shall have exclusive authority to enforce the provi-
sions of subsection (e) and other prudential requirements
of this title (including risk management standards), with
respect to security-based swap dealers or major security-
based swap participants for which they are the prudential
regulator.
(C) REFERRAL.—
(i) VIOLATIONS OF NONPRUDENTIAL REQUIREMENTS.—
If the appropriate Federal banking agency for secu-
rity-based swap dealers or major security-based swap
participants that are depository institutions has cause
to believe that such security-based swap dealer or
major security-based swap participant may have en-
gaged in conduct that constitutes a violation of the
nonprudential requirements of this section or rules
adopted by the Commission thereunder, the agency
may recommend in writing to the Commission that the
Commission initiate an enforcement proceeding as au-
thorized under this title. The recommendation shall be
accompanied by a written explanation of the concerns
giving rise to the recommendation.
(ii) VIOLATIONS OF PRUDENTIAL REQUIREMENTS.—If
the Commission has cause to believe that a securities-
based swap dealer or major securities-based swap par-
ticipant that has a prudential regulator may have en-
gaged in conduct that constitute a violation of the pru-
dential requirements of subsection (e) or rules adopted
thereunder, the Commission may recommend in writ-
ing to the prudential regulator that the prudential
regulator initiate an enforcement proceeding as au-
thorized under this title. The recommendation shall be
accompanied by a written explanation of the concerns
giving rise to the recommendation.
(D) BACKSTOP ENFORCEMENT AUTHORITY.—
(i) INITIATION OF ENFORCEMENT PROCEEDING BY PRU-
DENTIAL REGULATOR.—If the Commission does not ini-
tiate an enforcement proceeding before the end of the
90-day period beginning on the date on which the
Commission receives a written report under subsection
(C)(i), the prudential regulator may initiate an en-
forcement proceeding.
(ii) INITIATION OF ENFORCEMENT PROCEEDING BY
COMMISSION.—If the prudential regulator does not ini-
tiate an enforcement proceeding before the end of the
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90-day period beginning on the date on which the pru-
dential regulator receives a written report under sub-
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section (C)(ii), the Commission may initiate an en-
forcement proceeding.
(2) CENSURE, DENIAL, SUSPENSION; NOTICE AND HEARING.—
The Commission, by order, shall censure, place limitations on
the activities, functions, or operations of, or revoke the reg-
istration of any security-based swap dealer or major security-
based swap participant that has registered with the Commis-
sion pursuant to subsection (b) if the Commission finds, on the
record after notice and opportunity for hearing, that such cen-
sure, placing of limitations, or revocation is in the public inter-
est and that such security-based swap dealer or major security-
based swap participant, or any person associated with such se-
curity-based swap dealer or major security-based swap partici-
pant effecting or involved in effecting transactions in security-
based swaps on behalf of such security-based swap dealer or
major security-based swap participant, whether prior or subse-
quent to becoming so associated—
(A) has committed or omitted any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), or
(E) of paragraph (4) of section 15(b);
(B) has been convicted of any offense specified in sub-
paragraph (B) of such paragraph (4) within 10 years of the
commencement of the proceedings under this subsection;
(C) is enjoined from any action, conduct, or practice spec-
ified in subparagraph (C) of such paragraph (4);
(D) is subject to an order or a final order specified in
subparagraph (F) or (H), respectively, of such paragraph
(4); or
(E) has been found by a foreign financial regulatory au-
thority to have committed or omitted any act, or violated
any foreign statute or regulation, enumerated in subpara-
graph (G) of such paragraph (4).
(3) ASSOCIATED PERSONS.—With respect to any person who is
associated, who is seeking to become associated, or, at the time
of the alleged misconduct, who was associated or was seeking
to become associated with a security-based swap dealer or
major security-based swap participant for the purpose of effect-
ing or being involved in effecting security-based swaps on be-
half of such security-based swap dealer or major security-based
swap participant, the Commission, by order, shall censure,
place limitations on the activities or functions of such person,
or suspend for a period not exceeding 12 months, or bar such
person from being associated with a security-based swap dealer
or major security-based swap participant, if the Commission
finds, on the record after notice and opportunity for a hearing,
that such censure, placing of limitations, suspension, or bar is
in the public interest and that such person—
(A) has committed or omitted any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), or
(E) of paragraph (4) of section 15(b);
(B) has been convicted of any offense specified in sub-
paragraph (B) of such paragraph (4) within 10 years of the
commencement of the proceedings under this subsection;
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(C) is enjoined from any action, conduct, or practice spec-
ified in subparagraph (C) of such paragraph (4);
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(D) is subject to an order or a final order specified in
subparagraph (F) or (H), respectively, of such paragraph
(4); or
(E) has been found by a foreign financial regulatory au-
thority to have committed or omitted any act, or violated
any foreign statute or regulation, enumerated in subpara-
graph (G) of such paragraph (4).
(4) UNLAWFUL CONDUCT.—It shall be unlawful—
(A) for any person as to whom an order under paragraph
(3) is in effect, without the consent of the Commission,
willfully to become, or to be, associated with a security-
based swap dealer or major security-based swap partici-
pant in contravention of such order; or
(B) for any security-based swap dealer or major security-
based swap participant to permit such a person, without
the consent of the Commission, to become or remain a per-
son associated with the security-based swap dealer or
major security-based swap participant in contravention of
such order, if such security-based swap dealer or major se-
curity-based swap participant knew, or in the exercise of
reasonable care should have known, of such order.
* * * * * * *
SEC. 15H. DECENTRALIZED FINANCE ACTIVITIES NOT SUBJECT TO
THIS ACT.
(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 based on the person directly or indi-
rectly engaging in any of the following activities, whether singly or
in combination, in relation to the operation of a blockchain system
or in relation to a decentralized finance trading protocol:
(1) Compiling network transactions or relaying, searching, se-
quencing, validating, or acting in a similar capacity.
(2) Providing computational work, operating a node or oracle
service, or procuring, offering, or utilizing network bandwidth,
or providing other similar incidental services.
(3) Providing a user-interface that enables a user to read and
access data about a blockchain system.
(4) Developing, publishing, constituting, administering, main-
taining, or otherwise distributing a blockchain system or a de-
centralized finance trading protocol.
(5) Developing, publishing, constituting, administering, main-
taining, or otherwise distributing a decentralized finance mes-
saging system, or operating or participating in a liquidity pool,
for the purpose of executing a contract of sale of a digital com-
modity.
(6) Developing, publishing, constituting, administering, main-
taining, or otherwise distributing software or systems that cre-
ate or deploy hardware or software, including wallets or other
systems, facilitating an individual user’s own personal ability
to keep, safeguard, or custody the user’s digital assets or related
private keys.
(b) EXCEPTIONS.—Subsection (a) shall not apply to the anti-fraud
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and anti-manipulation authorities of the Commission.
* * * * * * *
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SEC. 42. MATURE BLOCKCHAIN SYSTEMS.
(a) CERTIFICATION OF BLOCKCHAIN SYSTEMS.—
(1) CERTIFICATION.—For purposes of sections 4(a)(8), 4B, and
4C of the Securities Act of 1933 any digital commodity issuer,
digital commodity related person, digital commodity affiliated
person, or decentralized governance system of the blockchain
system may certify to the Securities and Exchange Commission
that the blockchain system to which a digital commodity relates
is a mature blockchain system.
(2) FILING REQUIREMENTS.—A certification described under
paragraph (1) shall be filed with the Commission, and include
such information that is reasonably necessary to establish that
the blockchain system is not controlled by any person or group
of persons under common control, which may include informa-
tion regarding—
(A) the operation of the blockchain system;
(B) the functionality of the related digital commodity;
(C) how the market value of the digital commodity is sub-
stantially derived from the programmatic functioning of
such blockchain system;
(D) any decentralized governance system which relates to
the blockchain system; and
(E) the current roles, if any, of the digital commodity
issuer, digital commodity affiliated persons, and digital
commodity related persons where such roles are material to
the development or operation of such blockchain system or
the decentralized governance system of such blockchain sys-
tem.
(3) REBUTTABLE PRESUMPTION.—The Commission may rebut
a certification described under paragraph (1) with respect to a
blockchain system if the Commission, within 60 days of receiv-
ing such certification, determines that the blockchain system is
not a mature blockchain system.
(4) CERTIFICATION REVIEW.—
(A) IN GENERAL.—Any blockchain system that relates to
a digital commodity for which a certification has been
made under paragraph (1) shall be considered a mature
blockchain system 60 days after the date on which the
Commission receives a certification under paragraph (1),
unless the Commission notifies the person who made the
certification within such time that the Commission is stay-
ing the certification due to—
(i) an inadequate explanation by the person making
the certification; or
(ii) any novel or complex issues which require addi-
tional time to consider.
(B) PUBLIC NOTICE.—The Commission shall make the fol-
lowing available to the public and provide a copy to the
Commodity Futures Trading Commission:
(i) Each certification received under paragraph (1).
(ii) Each stay of the Commission under this sub-
section, and the reasons therefor.
(iii) Any response from a person making a certifi-
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cation under paragraph (1) to a stay of the certification
by the Commission.
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(C) CONSOLIDATION.—The Commission may consolidate
and treat as one submission multiple certifications made
under paragraph (1) for the same blockchain system which
relates to a digital commodity which are received during
the review period provided under this paragraph.
(5) STAY OF CERTIFICATION.—
(A) IN GENERAL.—A notification by the Commission pur-
suant to paragraph (4)(A) shall stay the certification once
for up to an additional 120 days from the date of the notifi-
cation.
(B) PUBLIC COMMENT PERIOD.—Before the end of the 60-
day period described under paragraph (4)(A), the Commis-
sion may begin a public comment period of at least 30 days
in conjunction with a stay under this subsection.
(6) DISPOSITION OF CERTIFICATION.—A certification made
under paragraph (1) 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 pe-
riod; and
(B) not become effective upon the publication of a notifi-
cation from the Commission to the person who made the
certification that the Commission has rebutted the certifi-
cation.
(7) RECERTIFICATION.—With respect to a blockchain system
for which a certification has been rebutted under this sub-
section, no person may make a certification under paragraph
(1) with respect to such blockchain system during the 90-day pe-
riod beginning on the date of such rebuttal.
(8) APPEAL OF REBUTTAL.—
(A) 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.
(B) REVIEW.—In an appeal under subparagraph (A), the
court shall have de novo review of the determination to
rebut the certification.
(b) MATURITY CRITERIA.—
(1) SENSE OF CONGRESS.—It is the sense of the Congress that
protecting investors, maintaining fair, orderly, and efficient
markets, and facilitating capital formation necessitates estab-
lishing clear criteria for blockchain systems to be deemed ma-
ture, as well as enabling the Commission to develop, without
prejudice to any such criteria codified in statute, alternative cri-
teria by which blockchain systems may be considered not to be
controlled by any person or group of persons under common
control in order to accommodate changes in markets and tech-
nology.
(2) IN GENERAL.—The Commission may issue rules identi-
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fying conditions by which a blockchain system, together with its
related digital commodity, shall be considered a mature
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232
blockchain system, consistent with the protection of investors,
maintenance of fair, orderly, and efficient markets, and the fa-
cilitation of capital formation.
(3) RULES OF CONSTRUCTION.—
(A) Nothing in this subsection may be construed to per-
mit the Commission to impose additional criteria to the cri-
teria in subsection (c) for certifying that a blockchain sys-
tem is a mature blockchain system pursuant to subsection
(c).
(B) Nothing in this subsection or subsection (c) may be
construed to limit the Commission’s ability to identify alter-
native conditions and criteria by which a blockchain sys-
tem may be considered a mature blockchain system.
(c) DEEMED MATURE.—
(1) IN GENERAL.—Notwithstanding subsection (b), for the pur-
poses of subsection (a), a digital commodity issuer, digital com-
modity related person, digital commodity affiliated person, or
decentralized governance system of the blockchain system may
establish that a blockchain system, together with its related dig-
ital commodity, is not controlled by any person or group of per-
sons under common control, if the blockchain system, together
with its related digital asset, meets the requirements described
in paragraph (2) or (3).
(2) CRITERIA FOR ANY BLOCKCHAIN SYSTEM.—The require-
ments described in this paragraph are the following:
(A) SYSTEM VALUE.—
(i) MARKET VALUE.—The digital commodity has a
value that is substantially derived from the adoption,
use, and functioning of the blockchain system.
(ii) DEVELOPMENT OF VALUE MECHANISM SUBSTAN-
TIALLY COMPLETED.—Where the digital commodity
issuer has made public a development plan describing
how the digital commodity’s value is reasonably ex-
pected to be derived from the programmatic func-
tioning of the blockchain system, the development of
such mechanisms has been substantially completed.
(B) FUNCTIONAL SYSTEM.—The blockchain system allows
network participants to engage in the activities the
blockchain system is intended to provide, including—
(i) using, transmitting, or storing value, or otherwise
executing transactions, on the blockchain system;
(ii) deploying, executing, or accessing software or
services, or otherwise offering or participating in serv-
ices, deployed on or integrated with the blockchain sys-
tem;
(iii) participating in the consensus mechanism,
transaction validation process, or decentralized govern-
ance system of the blockchain system; or
(iv) operating any client, node, validator, sequencer,
or other form of computational infrastructure with re-
spect to the blockchain system.
(C) OPEN AND INTEROPERABLE SYSTEM.—The blockchain
system—
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(i) is composed of source code that is open source;
and
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(ii) does not restrict or prohibit based on the exercise
of unilateral authority any person, other than a digital
commodity issuer, digital commodity related person, or
a digital commodity affiliated person from engaging in
the activities the blockchain system is intended to pro-
vide, including the activities described in subpara-
graph (B).
(D) PROGRAMMATIC SYSTEM.—The blockchain system op-
erates, executes, and enforces its operations and trans-
actions based solely on pre-established, transparent rules
encoded directly within the source code of the blockchain
system.
(E) SYSTEM GOVERNANCE.—No person or group of per-
sons under common control—
(i) has the unilateral authority, directly or indirectly,
through any contract, arrangement, understanding, re-
lationship, or otherwise, to control or materially alter
the functionality, operation, or rules of consensus or
agreement of the blockchain system or its related dig-
ital commodity; or
(ii) has the unilateral authority to direct the voting,
in the aggregate, of 20 percent or more of the out-
standing voting power of such blockchain system by
means of a related digital commodity, nodes or
validators, a decentralized governance system, or other-
wise, in a blockchain system which can be altered by
a voting system.
(F) IMPARTIAL SYSTEM.—No person or group of persons
under common control possesses a unique permission or
privilege to alter the functionality, operation, or rules of
consensus or agreement of the blockchain system or its re-
lated digital commodity, unless such alteration—
(i) addresses errors, regular maintenance, or cyberse-
curity risks of the blockchain system that affect the pro-
grammatic functioning of the blockchain system; and
(ii) is adopted through the consensus or agreement of
a decentralized governance system.
(G) DISTRIBUTED OWNERSHIP.—No digital commodity
issuer, digital commodity related person, or digital com-
modity affiliated person beneficially owns, in the aggregate,
20 percent or more of the total amount of units of the dig-
ital commodity.
(3) OPTIONAL CRITERIA FOR PREEXISTING BLOCKCHAIN SYS-
TEMS.—The requirements described in this paragraph are that
the blockchain system—
(A) was created prior to the date of enactment of this sec-
tion;
(B) met the requirements of subparagraphs (A) through
(F) of paragraph (2) prior to January 1, 2020; and
(C) at least 50 percent of the units of the digital com-
modity related to the blockchain system are held by persons
other than the digital commodity issuer, a digital com-
modity related person, or a digital commodity affiliated
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person.
(d) DECENTRALIZED GOVERNANCE SYSTEM.—
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234
(1) For the purposes of this section, a decentralized govern-
ance system is not a ‘‘person’’ or a ‘‘group of persons under com-
mon control’’.
(2) A blockchain system, together with its digital commodity,
shall not be precluded from being considered a mature
blockchain system solely based on a functional, administrative,
clerical, or ministerial action of a decentralized governance sys-
tem, including any such action taken by a person acting on be-
half of and at the direction of the decentralized governance sys-
tem, as determined by the Commission and consistent with the
protection of investors, maintenance of fair, orderly, and effi-
cient markets, and the facilitation of capital formation.
(e) RULEMAKING.—Not more than 270 days after the date of enact-
ment of this section, the Commission shall issue rules to carry out
this section.
* * * * * * *
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 sec-
tion 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 Ex-
change 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 Se-
curities and Exchange Commission on terms that require
compliance with regulations of its trading functions.
(2) APPROPRIATE FEDERAL BANKING AGENCY.—The term ‘‘ap-
propriate 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
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(C) is the Farm Credit Administration for farm credit
system institutions.
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(3) ASSOCIATED PERSON OF A SECURITY-BASED SWAP DEALER
OR MAJOR SECURITY-BASED SWAP PARTICIPANT.—The term ‘‘as-
sociated person of a security-based swap dealer or major secu-
rity-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 oc-
cupying 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 en-
gaged.
(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 asso-
ciated 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 Com-
mission.
(8) COMMISSION.—The term ‘‘Commission’’ means the Com-
modity Futures Trading Commission established under section
2(a)(2).
(9) COMMODITY.—The term ‘‘commodity’’ means wheat, cot-
ton, 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 in-
terests (except motion picture box office receipts, or any index,
measure, value or data related to such receipts) in which con-
tracts 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—
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(i) commodity for future delivery, security futures
product, or swap;
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(ii) agreement, contract, or transaction described in
section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i);
(iii) digital commodity;
ø(iii)¿ (iv) commodity option authorized under sec-
tion 4c; or
ø(iv)¿ (v) leverage transaction authorized under sec-
tion 19.
(B) EXCLUSION.—For purposes of this paragraph, the
term ‘‘trading in commodity interests’’ shall not include
transacting in digital commodities for the purpose of—
(i) acting as a digital commodity custodian;
(ii) establishing, maintaining, or managing inventory
or payment instruments for commercial purposes; or
(iii) maintaining or supporting the operation of, or
validating transactions on, a blockchain system.
ø(B)¿ (C) FURTHER DEFINITION.—The Commission, by
rule or regulation, may include within, or exclude from,
the term ‘‘commodity pool’’ any investment trust, syn-
dicate, or similar form of enterprise if the Commission de-
termines 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 simi-
lar form of enterprise, and who, in connection there-
with, solicits, accepts, or receives from others, funds,
securities, or property, either directly or through cap-
ital 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 fu-
tures product, or swap;
(II) agreement, contract, or transaction de-
scribed in section 2(c)(2)(C)(i) or section
2(c)(2)(D)(i);
(III) digital commodity;
ø(III)¿ (IV) commodity option authorized under
section 4c; or
ø(IV)¿ (V) leverage transaction authorized
under section 19; or
(ii) who is registered with the Commission as a com-
modity pool operator.
(B) EXCLUSION.—For purposes of this paragraph, the
term ‘‘trading in commodity interests’’ shall not include
transacting in digital commodities for the purpose of—
(i) acting as a digital commodity custodian;
(ii) establishing, maintaining, or managing inventory
or payment instruments for commercial purposes; or
(iii) maintaining or supporting the operation of, or
validating transactions on, a blockchain system.
ø(B)¿ (C) FURTHER DEFINITION.—The Commission, by
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rule or regulation, may include within, or exclude from,
the term ‘‘commodity pool operator’’ any person engaged in
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237
a business that is of the nature of a commodity pool, in-
vestment 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 busi-
ness of advising others, either directly or through pub-
lications, 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 de-
scribed in section 2(c)(2)(C)(i) or section
2(c)(2)(D)(i);
(III) a digital commodity;
ø(III)¿ (IV) any commodity option authorized
under section 4c; or
ø(IV)¿ (V) any leverage transaction authorized
under section 19;
(ii) for compensation or profit, and as part of a reg-
ular business, issues or promulgates analyses or re-
ports concerning any of the activities referred to in
clause (i);
(iii) is registered with the Commission as a com-
modity trading advisor; or
(iv) the Commission, by rule or regulation, may in-
clude 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 edi-
tor of the print or electronic media, or any lawyer, ac-
countant, or teacher;
(iii) any floor broker or futures commission mer-
chant;
(iv) the publisher or producer of any print or elec-
tronic data of general and regular dissemination, in-
cluding 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 re-
dmwilson on DSK7X7S144PROD with REPORTS
ferred to in subparagraph (B) is solely incidental to the
conduct of their business or profession.
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238
(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 ef-
fectuate the purposes of this paragraph.
(13) CONTRACT OF SALE.—The term ‘‘contract of sale’’ in-
cludes 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 pro-
ducers 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 as-
sociations, 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 organi-
zation’’ means a clearinghouse, clearing association, clear-
ing corporation, or similar entity, facility, system, or orga-
nization that, with respect to an agreement, contract, or
transaction—
(i) enables each party to the agreement, contract, or
transaction to substitute, through novation or other-
wise, the credit of the derivatives clearing organiza-
tion 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 organiza-
tion; or
(iii) otherwise provides clearing services or arrange-
ments that mutualize or transfer among participants
in the derivatives clearing organization the credit risk
arising from such agreements, contracts, or trans-
actions executed by the participants.
(B) EXCLUSIONS.—The term ‘‘derivatives clearing organi-
zation’’ does not include an entity, facility, system, or orga-
nization solely because it arranges or provides for—
(i) settlement, netting, or novation of obligations re-
sulting 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) TERMS RELATED TO DIGITAL COMMODITIES.—
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(A) ASSOCIATED PERSON OF A DIGITAL COMMODITY
BROKER.—
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239
(i) IN GENERAL.—Except as provided in clause (ii),
the term ‘‘associated person of a digital commodity
broker’’ means a person who is associated with a dig-
ital commodity broker as a partner, officer, employee,
or agent (or any person occupying a similar status or
performing similar functions) in any capacity that in-
volves—
(I) the solicitation or acceptance of an order for
the purchase or sale of a digital commodity; or
(II) the supervision of any person engaged in the
solicitation or acceptance of an order for the pur-
chase or sale of a digital commodity.
(ii) EXCLUSION.—The term ‘‘associated person of a
digital commodity broker’’ does not include any person
associated with a digital commodity broker the func-
tions of which are solely clerical or ministerial.
(B) ASSOCIATED PERSON OF A DIGITAL COMMODITY DEAL-
ER.—
(i) IN GENERAL.—Except as provided in clause (ii),
the term ‘‘associated person of a digital commodity
dealer’’ means a person who is associated with a dig-
ital commodity dealer as a partner, officer, employee,
or agent (or any person occupying a similar status or
performing similar functions) in any capacity that in-
volves—
(I) the solicitation or acceptance of a contract for
the purchase or sale of a digital commodity; or
(II) the supervision of any person engaged in the
solicitation or acceptance of a contract for the pur-
chase or sale of a digital commodity.
(ii) EXCLUSION.—The term ‘‘associated person of a
digital commodity dealer’’ does not include any person
associated with a digital commodity dealer the func-
tions of which are solely clerical or ministerial.
(C) BANK SECRECY ACT.—The term ‘‘Bank Secrecy Act’’
means—
(i) section 21 of the Federal Deposit Insurance Act
(12 U.S.C. 1829b);
(ii) chapter 2 of title I of Public Law 91–508 (12
U.S.C. 1951 et seq.); and
(iii) subchapter II of chapter 53 of title 31, United
States Code.
(D) DECENTRALIZED FINANCE MESSAGING SYSTEM.—
(i) IN GENERAL.—The term ‘‘decentralized finance
messaging system’’ means a software application that
provides a user with the ability to create or submit an
instruction, communication, or message to a decentral-
ized finance trading protocol for the purpose of exe-
cuting a transaction by the user.
(ii) ADDITIONAL REQUIREMENTS.—The term ‘‘decen-
tralized finance messaging system’’ does not include
any system that provides any person other than the
user with control over—
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(I) the funds of the user; or
(II) the execution of the transaction of the user.
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240
(E) DECENTRALIZED FINANCE TRADING PROTOCOL.—
(i) IN GENERAL.—The term ‘‘decentralized finance
trading protocol’’ means a blockchain system through
which multiple participants can execute a financial
transaction—
(I) in accordance with an automated rule or al-
gorithm that is predetermined and non-discre-
tionary; and
(II) without reliance on any other person to
maintain control of the digital assets of the user
during any part of the financial transaction.
(ii) EXCLUSIONS.—
(I) IN GENERAL.—The term ‘‘decentralized fi-
nance trading protocol’’ does not include a
blockchain system if—
(aa) a person or group of persons under
common control or acting pursuant to an
agreement to act in concert has the authority,
directly or indirectly, through any contract, ar-
rangement, understanding, relationship, or
otherwise, to control or materially alter the
functionality, operation, or rules of consensus
or agreement of the blockchain system; or
(bb) the blockchain system does not operate,
execute, and enforce its operations and trans-
actions based solely on pre-established, trans-
parent rules encoded directly within the source
code of the blockchain system.
(II) SPECIAL RULE.—For purposes of subclause
(I), a 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 to act in concert.
(F) DIGITAL COMMODITY.—
(i) IN GENERAL.—The term ‘‘digital commodity’’
means a digital asset that is intrinsically linked to a
blockchain system, and the value of which is derived
from or is reasonably expected to be derived from the
use of the blockchain system.
(ii) RELATIONSHIP TO A BLOCKCHAIN SYSTEM.—For
purposes of this subparagraph, a digital asset is intrin-
sically linked to a blockchain system if the digital asset
is directly related to the functionality or operation of
the blockchain system or to the activities or services for
which the blockchain system is created or utilized, in-
cluding where the digital asset is—
(I) issued or generated by the programmatic
functioning of the blockchain system;
(II) used to transfer value between participants
in the blockchain system;
(III) used to access the activities or services of
the blockchain system;
dmwilson on DSK7X7S144PROD with REPORTS
(IV) used to participate in the decentralized gov-
ernance system of the blockchain system;
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241
(V) used or removed from circulation in whole or
in part to pay fees or otherwise verify or validate
transactions on the blockchain system;
(VI) used as payment or incentive to participants
in the blockchain system to engage in the activities
of the blockchain system, provide services to other
participants in the blockchain system, or otherwise
participate in the functionality of the blockchain
system; or
(VII) used as payment or incentive to partici-
pants in the blockchain system to validate trans-
actions, secure the blockchain system, provide com-
putational services, maintain or distribute infor-
mation, or otherwise participate in the operations
of the blockchain system.
(iii) EXCLUSION.—The term ‘‘digital commodity’’ does
not include any of the following:
(I) SECURITY.—
(aa) Any security, other than a note, an in-
vestment contract, or a certificate of interest or
participation in any profit-sharing agreement.
(bb) A note, an investment contract, or a cer-
tificate of interest or participation in any prof-
it-sharing agreement that—
(AA) represents or gives the holder an
ownership interest or other interest in the
revenues, profits, obligations, debts, as-
sets, or assets or debts to be acquired of
the issuer of the digital asset or another
person (other than a decentralized govern-
ance system);
(BB) makes the holder a creditor of the
issuer of the digital asset or another per-
son; or
(CC) represents or gives the holder the
right to receive interest or the return of
principal from the issuer of the digital
asset or another person.
(II) SECURITY DERIVATIVE.—A digital asset that,
based on its terms and other characteristics, is,
represents, or is functionally equivalent to an
agreement, contract, or transaction that is—
(aa) a security future, as defined in section
2a of the Securities Act of 1933;
(bb) a security-based swap, as defined in
section 2a of the Securities Act of 1933;
(cc) a 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), as de-
fined in section 2a of the Securities Act of
1933; or
(dd) a put, call, straddle, option, or privilege
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on any security, as defined in section 2a of the
Securities Act of 1933.
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(III) PERMITTED PAYMENT STABLECOIN.—A dig-
ital asset that is a permitted payment stablecoin.
(IV) BANKING DEPOSIT.—
(aa) A deposit (as defined under section 3 of
the Federal Deposit Insurance Act (12 U.S.C.
1813)), regardless of the technology used to
record the deposit.
(bb) An account (as defined in section 101 of
the Federal Credit Union Act (12 U.S.C.
1752)), regardless of the technology used to
record the account.
(V) COMMODITY.—A digital asset that references,
represents an interest in, or is functionally equiva-
lent to—
(aa) an agricultural commodity;
(bb) an excluded commodity, other than a
security; or
(cc) an exempt commodity, other than the
digital commodity itself, as shall be further
defined by the Commission.
(VI) COMMODITY DERIVATIVE.—A digital asset
that, based on its terms and other characteristics,
is, represents, or is functionally equivalent to an
agreement, contract, or transaction that is—
(aa) a contract of sale of a commodity for fu-
ture delivery or an option thereon;
(bb) a security futures product;
(cc) a swap;
(dd) an agreement, contract, or transaction
described in section 2(c)(2)(C)(i) or
2(c)(2)(D)(i);
(ee) a commodity option authorized under
section 4c; or
(ff) a leverage transaction authorized under
section 19.
(VII) POOLED INVESTMENT VEHICLE.—
(aa) IN GENERAL.—A digital asset that,
based on its terms and other characteristics,
is, represents, or is functionally equivalent
to—
(AA) a commodity pool, as defined in
this Act; or
(BB) a pooled investment vehicle.
(bb) POOLED INVESTMENT VEHICLE DE-
FINED.—In this subclause, the term ‘‘pooled in-
vestment vehicle’’ means—
(AA) any investment company as de-
fined in section 3(a) of the Investment
Company Act of 1940 (15 U.S.C. 80a–
3(a));
(BB) any company that would be an in-
vestment company under section 3(a) of
dmwilson on DSK7X7S144PROD with REPORTS
such Act but for the exclusion provided
from that definition by paragraph (1), (7),
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or (9) of section 3(c) of such Act (15 U.S.C.
80a–3(c)(1), (7), or (9)); or
(CC) any entity or person that is not an
investment company but holds or will
hold assets other than securities.
(VIII) GOOD, COLLECTIBLE, AND OTHER NON-
COMMODITY ASSET.—A digital asset that has value,
utility, or significance beyond its mere existence as
a digital asset, including the digital equivalent of
a tangible or intangible good, such as—
(aa) a work of art, a musical composition, a
literary work, or other intellectual property;
(bb) collectibles, merchandise, virtual land,
and video game assets;
(cc) affinity, rewards, or loyalty points, in-
cluding airline miles or credit card points,
that are not primarily speculative in nature;
or
(dd) rights, licenses, and tickets.
(iv) RULE OF CONSTRUCTION.—No presumption shall
exist that a digital asset is a security, nor shall a dig-
ital asset be excluded from being a digital commodity
pursuant to clause (iii)(I), solely due to—
(I) the digital asset providing voting or economic
rights with respect to the blockchain system to
which the digital asset relates or the decentralized
governance system of the blockchain system to
which the digital asset relates;
(II) the value of the digital asset having the po-
tential to appreciate or depreciate in response to
the efforts, operations, or financial performance of
the blockchain system to which the digital asset re-
lates or the decentralized governance system of the
blockchain system to which the digital asset re-
lates; or
(III) the value of the digital asset appreciating or
depreciating due to the use of the blockchain sys-
tem to which the digital asset relates or the decen-
tralized governance system of the blockchain sys-
tem to which the digital asset relates.
(G) DIGITAL COMMODITY BROKER.—
(i) IN GENERAL.—The term ‘‘digital commodity
broker’’ means any person who, as a regular business—
(I) is engaged in—
(aa) soliciting or accepting an order from a
customer for—
(AA) the purchase or sale of a digital
commodity; or
(BB) an agreement, contract, or trans-
action described in section 2(c)(2)(D)(iv);
and
(bb) in conjunction with the activities in
dmwilson on DSK7X7S144PROD with REPORTS
item (aa), accepts or maintains control over—
(AA) the funds of any customer; or
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(BB) the execution of any transaction of
a customer;
(II) is engaged in soliciting or accepting orders
from a customer for the purchase or sale of a unit
of a digital commodity on or subject to the rules of
a registered entity; or
(III) is registered with the Commission as a dig-
ital commodity broker.
(ii) EXCEPTIONS.—The term ‘‘digital commodity
broker’’ does not include a person solely because the
person—
(I) solicits or accepts an order described in
clause (i)(I)(aa)(AA) from a customer who is an eli-
gible contract participant;
(II) enters into 1 or more digital commodity
transactions that are attributable or solely inci-
dental to making, sending, receiving, or facili-
tating payments, whether involving a payment
service provider or on a peer-to-peer basis; or
(III) is a bank (as defined under section 3(a) of
the Securities Exchange Act of 1934) engaging in
certain banking activities with respect to a digital
commodity in the same or a similar manner as a
bank is excluded from the definition of a broker
under such section, as determined by the Commis-
sion.
(iii) FURTHER DEFINITION.—The Commission, by rule
or regulation, may exclude from the term ‘‘digital com-
modity broker’’ any person or class of persons if the
Commission determines that the rule or regulation will
effectuate the purposes of this Act.
(H) DIGITAL COMMODITY DEALER.—
(i) IN GENERAL.—The term ‘‘digital commodity deal-
er’’ means any person who, as a regular business—
(I) is, or offers to be a counterparty to a person
for the purchase or sale of a digital commodity as
a regular business, and in conjunction with the ac-
tivities, accepts or maintains control over the funds
of any counterparty; or
(II) is registered with the Commission as a dig-
ital commodity dealer.
(ii) EXCEPTION.—The term ‘‘digital commodity deal-
er’’ does not include a person solely because the per-
son—
(I) is or offers to be a counterparty to a person
who is an eligible contract participant;
(II) enters into a digital commodity transaction
with an eligible contract participant;
(III) enters into a digital commodity transaction
on or through a registered digital commodity ex-
change, with a registered digital commodity
broker, or through a decentralized finance trading
protocol;
dmwilson on DSK7X7S144PROD with REPORTS
(IV) enters into a digital commodity transaction
for the person’s own account, either individually or
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245
in a fiduciary capacity, but not as a part of a reg-
ular business;
(V) enters into 1 or more digital commodity
transactions that are attributable or solely inci-
dental to making, sending, receiving, or facili-
tating payments, whether involving a payment
service provider or on a peer-to-peer basis; or
(VI) is a bank (as defined under section 3(a) of
the Securities Exchange Act of 1934) engaging in
certain banking activities with respect to a digital
commodity in the same or a similar manner as a
bank is excluded from the definition of a dealer
under section 3(a)(5) of such Act, as determined by
the Commission.
(iii) FURTHER DEFINITION.—The Commission, by rule
or regulation, may exclude from the term ‘‘digital com-
modity dealer’’ any person or class of persons if the
Commission determines that the rule or regulation will
effectuate the purposes of this Act.
(I) 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.
(J) MIXED DIGITAL ASSET TRANSACTION.—The term
‘‘mixed digital asset transaction’’ means a transaction in
which a digital commodity is traded for a security.
(K) TERMS DEFINED UNDER THE SECURITIES ACT OF
1933.—The terms ‘‘blockchain system’’, ‘‘decentralized gov-
ernance system’’, ‘‘digital asset’’, ‘‘digital commodity issuer’’,
‘‘digital commodity affiliated person’’, ‘‘digital commodity
related person’’, ‘‘end user distribution’’, ‘‘mature blockchain
system’’, 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)).
ø(16)¿ (17) ELECTRONIC TRADING FACILITY.—The term ‘‘elec-
tronic trading facility’’ means a trading facility that—
(A) operates by means of an electronic or telecommuni-
cations network; and
(B) maintains an automated audit trail of bids, offers,
and the matching of orders or the execution of transactions
on the facility.
ø(17)¿ (18) ELIGIBLE COMMERCIAL ENTITY.—The term ‘‘eligi-
ble 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 manage-
dmwilson on DSK7X7S144PROD with REPORTS
ment or hedging services to, or engages in market-
making activities with, the foregoing entities involving
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246
transactions to purchase or sell the commodity or de-
rivative 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, con-
tracts, 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 Reg-
ulation 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 sec-
tion 2(a)(51)(A) of the Investment Company
Act of 1940;
in each case as in effect on the date of the enact-
ment 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 deter-
mine appropriate and shall designate by rule, regulation,
or order.
ø(18)¿ (19) ELIGIBLE CONTRACT PARTICIPANT.—The term ‘‘eli-
gible 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.
80a–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 con-
tract participant);
(iv) a commodity pool that—
(I) has total assets exceeding $5,000,000; and
(II) is formed and operated by a person subject
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to regulation under this Act or a foreign person
performing a similar role or function subject as
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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;
(v) a corporation, partnership, proprietorship, orga-
nization, trust, or other entity—
(I) that has total assets exceeding $10,000,000;
(II) the obligations of which under an agree-
ment, contract, or transaction are guaranteed or
otherwise supported by a letter of credit or
keepwell, support, or other agreement by an enti-
ty 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 as-
sociated with an asset or liability owned or in-
curred or reasonably likely to be owned or in-
curred by the entity in the conduct of the enti-
ty’s business;
(vi) an employee benefit plan subject to the Em-
ployee 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 reg-
ulation;
(cc) a financial institution; or
(dd) an insurance company described in
clause (ii), or a regulated subsidiary or affil-
iate of such an insurance company;
(vii)(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 en-
tity; or
(III) an instrumentality, agency, or department of
an entity described in subclause (I) or (II);
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except that such term does not include an entity, in-
strumentality, agency, or department referred to in
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subclause (I) or (III) of this clause unless (aa) the enti-
ty, 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, con-
tract, 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);
(viii)(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 de-
fined in section 17(i) of the Securities Exchange Act of
1934 (15 U.S.C. 78q(i));
(ix) a futures commission merchant subject to regu-
lation under this Act or a foreign person performing a
similar role or function subject as such to foreign regu-
lation, 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 par-
ticipant unless the futures commission merchant or
foreign person also meets the requirements of clause
(v) or (xi);
(x) 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
(xi) 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 agree-
ment, contract, or transaction in order to manage
the risk associated with an asset owned or liabil-
ity incurred, or reasonably likely to be owned or
incurred, by the individual;
dmwilson on DSK7X7S144PROD with REPORTS
(B)(i) a person described in clause (i), (ii), (iv), (v), (viii),
(ix), or (x) of subparagraph (A) or in subparagraph (C), act-
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249
ing 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 per-
son 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 sub-
paragraph (C), in any such case acting as investment man-
ager 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 au-
thorized 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.
ø(19)¿ (20) EXCLUDED COMMODITY.—The term ‘‘excluded com-
modity’’ means—
(i) an interest rate, exchange rate, currency, secu-
rity, security index, credit risk or measure, debt or eq-
uity 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, agree-
ment, or transaction; or
(iv) an occurrence, extent of an occurrence, or con-
tingency (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 rel-
evant contract, agreement, or transaction; and
(II) associated with a financial, commercial, or
economic consequence.
ø(20)¿ (21) EXEMPT COMMODITY.—The term ‘‘exempt com-
modity’’ means a commodity that is not an excluded commodity
or an agricultural commodity.
ø(21)¿ (22) FINANCIAL INSTITUTION.—The term ‘‘financial in-
stitution’’ means—
(A) a corporation operating under the fifth undesignated
paragraph of section 25 of the Federal Reserve Act (12
dmwilson on DSK7X7S144PROD with REPORTS
U.S.C. 603), commonly known as ‘‘an agreement corpora-
tion’’;
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250
(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 de-
fined 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 enti-
ty described in any of subparagraphs (A) through (H).
ø(22)¿ (23) 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 sec-
tion 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.
ø(23)¿ (24) 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 sec-
tion 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
dmwilson on DSK7X7S144PROD with REPORTS
‘‘floor trader’’ any person in or surrounding any pit, ring,
post, or other place provided by a contract market for the
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251
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.
ø(24)¿ (25) 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 cov-
ering the exchange.
ø(25)¿ (26) FOREIGN EXCHANGE SWAP.—The term ‘‘foreign ex-
change 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.
ø(26)¿ (27) FOREIGN FUTURES AUTHORITY.—The term ‘‘foreign
futures authority’’ means any foreign government, or any de-
partment, agency, governmental body, or regulatory organiza-
tion empowered by a foreign government to administer or en-
force a law, rule, or regulation as it relates to a futures or op-
tions matter, or any department or agency of a political sub-
division of a foreign government empowered to administer or
enforce a law, rule, or regulation as it relates to a futures or
options matter.
ø(27)¿ (28) FUTURE DELIVERY.—The term ‘‘future delivery’’
does not include any sale of any cash commodity for deferred
shipment or delivery.
ø(28)¿ (29) FUTURES COMMISSION MERCHANT.—
(A) IN GENERAL.—The term ‘‘futures commission mer-
chant’’ means an individual, association, partnership, cor-
poration, or trust—
(i) that—
(I) is—
(aa) engaged in soliciting or in accepting or-
ders for—
(AA) the purchase or sale of a com-
modity for future delivery;
(BB) a security futures product;
(CC) a swap;
(DD) any agreement, contract, or trans-
action 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 author-
ized under section 19; or
(bb) acting as a counterparty in any agree-
ment, 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 de-
dmwilson on DSK7X7S144PROD with REPORTS
scribed in items (aa) or (bb) of subclause (I), ac-
cepts any money, securities, or property (or ex-
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252
tends 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 fu-
tures 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.
ø(29)¿ (30) HYBRID INSTRUMENT.—The term ‘‘hybrid instru-
ment’’ 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.
ø(30)¿ (31) 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.
ø(31)¿ (32) 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 mar-
gin, guarantee, or secure any trades or contracts
that result or may result therefrom; or
(ii) who is registered with the Commission as an in-
troducing broker.
(B) FURTHER DEFINITION.—The Commission, by rule or
dmwilson on DSK7X7S144PROD with REPORTS
regulation, may include within, or exclude from, the term
‘‘introducing broker’’ any person who engages in soliciting
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253
or accepting orders for any agreement, contract, or trans-
action 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 con-
tracts that result or may result therefrom, if the Commis-
sion determines that the rule or regulation will effectuate
the purposes of this Act.
ø(32)¿ (33) 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)).
ø(33)¿ (34) 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 com-
mercial risk; and
(II) positions maintained by any employee ben-
efit 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 thresh-
old that the Commission determines to be prudent for the
effective monitoring, management, and oversight of enti-
ties that are systemically important or can significantly
impact the financial system of the United States. In set-
ting the definition under this subparagraph, the Commis-
sion 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 subpara-
graph (A), a person may be designated as a major swap
participant for 1 or more categories of swaps without being
dmwilson on DSK7X7S144PROD with REPORTS
classified as a major swap participant for all classes of
swaps.
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254
(D) EXCLUSIONS.—The definition under this paragraph
shall not include an entity whose primary business is pro-
viding 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 manu-
factured by the parent company or another subsidiary of
the parent company.
ø(34)¿ (35) MEMBER OF A REGISTERED ENTITY; MEMBER OF A
DERIVATIVES TRANSACTION EXECUTION FACILITY.—The term
‘‘member’’ means, with respect to a registered entity or deriva-
tives 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 de-
rivatives 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 des-
ignated 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.
ø(35)¿ (36) 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 per-
cent of the index’s weighting; or
(iv) in which the lowest weighted component securi-
ties 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 in-
cluded in the calculation of the lowest weighted com-
ponent securities comprising, in the aggregate, 25 per-
cent 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 cal-
culation based on their ranking starting with the low-
est 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—
dmwilson on DSK7X7S144PROD with REPORTS
(aa) registered pursuant to section 12 of the Se-
curities Exchange Act of 1934;
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(bb) one of 750 securities with the largest mar-
ket 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 Commis-
sion with respect to a contract of sale for future deliv-
ery 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 reg-
istered 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 cal-
endar 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 Com-
mission and the Securities and Exchange Commission;
(v) no more than 18 months have passed since the
date of the enactment of the Commodity Futures Mod-
ernization Act of 2000 and—
(I) it is traded on or subject to the rules of a for-
eign 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 con-
tinue 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 Com-
mission 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 Com-
mission 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
dmwilson on DSK7X7S144PROD with REPORTS
and the market capitalization shall be calculated as of
the preceding 6 full calendar months; and
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256
(ii) the Commission and the Securities and Ex-
change 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.
ø(36)¿ (37) OPTION.—The term ‘‘option’’ means an agreement,
contract, or transaction that is of the character of, or is com-
monly known to the trade as, an ‘‘option’’, ‘‘privilege’’, ‘‘indem-
nity’’, ‘‘bid’’, ‘‘offer’’, ‘‘put’’, ‘‘call’’, ‘‘advance guaranty’’, or ‘‘de-
cline guaranty’’.
ø(37)¿ (38) ORGANIZED EXCHANGE.—The term ‘‘organized ex-
change’’ 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 nongovern-
mental entity) rules that—
(i) govern the conduct of participants, other than
rules that govern the submission of orders or execu-
tion of transactions on the trading facility; and
(ii) include disciplinary sanctions other than the ex-
clusion of participants from trading.
ø(38)¿ (39) PERSON.—The term ‘‘person’’ imports the plural
or singular, and includes individuals, associations, partner-
ships, corporations, and trusts.
ø(39)¿ (40) 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 in-
sured 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
dmwilson on DSK7X7S144PROD with REPORTS
swap dealer or major swap participant under this Act
or with the Securities and Exchange Commission as a
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257
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 reg-
istered as a swap dealer or major swap participant
with the Commission under this Act or with the Secu-
rities 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 hav-
ing 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 partici-
pant that is—
(i) a national bank;
(ii) a federally chartered branch or agency of a for-
eign 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 partici-
pant 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).
ø(40)¿ (41) REGISTERED ENTITY.—The term ‘‘registered enti-
ty’’ 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;
dmwilson on DSK7X7S144PROD with REPORTS
(E) a swap data repository registered under section 21;
øand¿
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258
(F) with respect to a contract that the Commission deter-
mines is a significant price discovery contract, any elec-
tronic trading facility on which the contract is executed or
tradedø.¿; and
(G) a digital commodity exchange registered under sec-
tion 5i.
ø(41)¿ (42) 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)).
ø(42)¿ (43) 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)).
ø(43)¿ (44) SECURITY-BASED SWAP DEALER.—The term ‘‘secu-
rity-based swap dealer’’ has the meaning given the term in sec-
tion 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)).
ø(44)¿ (45) 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 se-
curity 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 de-
fined in section 3(a)(29) of the Securities Exchange Act of 1934
as in effect on the date of the enactment of the Futures Trad-
ing 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 Mod-
ernization Act of 2000) or title IV of the Commodity Futures
Modernization Act of 2000.
ø(45)¿ (46) SECURITY FUTURES PRODUCT.—The term ‘‘security
futures product’’ means a security future or any put, call,
straddle, option, or privilege on any security future.
ø(46)¿ (47) SIGNIFICANT PRICE DISCOVERY CONTRACT.—The
term ‘‘significant price discovery contract’’ means an agree-
ment, contract, or transaction subject to section 2(h)(5).
ø(47)¿ (48) 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 op-
tion 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
dmwilson on DSK7X7S144PROD with REPORTS
associated with a potential financial, economic, or com-
mercial consequence;
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(iii) that provides on an executory basis for the ex-
change, on a fixed or contingent basis, of 1 or more
payments based on the value or level of 1 or more in-
terest or other rates, currencies, commodities, securi-
ties, 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 liabil-
ity that incorporates the financial risk so transferred,
including any agreement, contract, or transaction com-
monly 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 de-
fined 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 op-
tion on, any agreement, contract, or transaction de-
scribed 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 de-
dmwilson on DSK7X7S144PROD with REPORTS
livery (or option on such a contract), leverage contract
authorized under section 19, security futures product,
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or agreement, contract, or transaction described in sec-
tion 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 trans-
action 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 relat-
ing to a foreign currency entered into on a national se-
curities 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 pro-
viding 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 con-
tingency 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 trans-
action;
(vii) any note, bond, or evidence of indebtedness that
is a security, as defined in section 2(a)(1) of the Securi-
ties 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 under-
writer (as defined in section 2(a)(11) of the Securi-
ties 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 trans-
action 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 ex-
pressly backed by the full faith and credit of the
United States; and
dmwilson on DSK7X7S144PROD with REPORTS
(x) any security-based swap, other than a security-
based swap as described in subparagraph (D).
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(C) RULE OF CONSTRUCTION REGARDING MASTER AGREE-
MENTS.—
(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 re-
gard 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 mas-
ter agreement shall be considered to be a swap only
with respect to each agreement, contract, or trans-
action covered by the master agreement that is a swap
pursuant to subparagraph (A).
(D) MIXED SWAP.—The term ‘‘security-based swap’’ in-
cludes 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, quan-
titative measures, other financial or economic interest or
property of any kind (other than a single security or a nar-
row-based security index), or the occurrence, non-occur-
rence, or the extent of the occurrence of an event or contin-
gency 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 FOR-
WARDS.—
(i) IN GENERAL.—Foreign exchange swaps and for-
eign exchange forwards shall be considered swaps
under this paragraph unless the Secretary makes a
written determination under section 1b that either for-
eign 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 Com-
mission 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 Con-
gress, including the Committee on Agriculture, Nutri-
tion, 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 ef-
fective until it is submitted to the appropriate commit-
tees of Congress.
(iii) REPORTING.—Notwithstanding a written deter-
mination by the Secretary under clause (i), all foreign
dmwilson on DSK7X7S144PROD with REPORTS
exchange swaps and foreign exchange forwards shall
be reported to either a swap data repository, or, if
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262
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 Commis-
sion may by rule or regulation prescribe.
(iv) BUSINESS STANDARDS.—Notwithstanding a writ-
ten 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 subpara-
graph (E) shall affect, or be construed to affect, the ap-
plicability of this Act or the jurisdiction of the Com-
mission with respect to agreements, contracts, or
transactions in foreign currency pursuant to section
2(c)(2).
ø(48)¿ (49) SWAP DATA REPOSITORY.—The term ‘‘swap data
repository’’ means any person that collects and maintains in-
formation 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.
ø(49)¿ (50) 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
dmwilson on DSK7X7S144PROD with REPORTS
or activities and considered not to be a swap dealer for
other types, classes, or categories of swaps or activities.
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(C) EXCEPTION.—The term ‘‘swap dealer’’ does not in-
clude 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 ex-
empt from designation as a swap dealer an entity that en-
gages in a de minimis quantity of swap dealing in connec-
tion 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.
ø(50)¿ (51) SWAP EXECUTION FACILITY.—The term ‘‘swap exe-
cution 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 partici-
pants 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.
ø(51)¿ (52) 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 partici-
pants that are open to multiple participants in the fa-
cility or system; or
(ii) through the interaction of multiple bids or mul-
tiple offers within a system with a pre-determined
non-discretionary automated trade matching and exe-
cution 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 predeter-
mined, nondiscretionary automated trade matching
and execution algorithm;
(ii) a government securities dealer or government se-
curities broker, to the extent that the dealer or broker
executes or trades agreements, contracts, or trans-
actions in government securities, or assists persons in
communicating about, negotiating, entering into, exe-
cuting, or trading an agreement, contract, or trans-
action in government securities (as the terms ‘‘govern-
ment securities dealer’’, ‘‘government securities
broker’’, and ‘‘government securities’’ are defined in
dmwilson on DSK7X7S144PROD with REPORTS
section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a))); or
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(iii) facilities on which bids and offers, and accept-
ances of bids and offers effected on the facility, are not
binding.
Any person, group of persons, dealer, broker, or facility de-
scribed 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.
* * * * * * *
SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR
ACT OF AGENT; COMMODITY FUTURES TRADING COMMIS-
SION; 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 subpara-
graphs (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 com-
monly known to the trade as, an ‘‘option’’, ‘‘privilege’’, ‘‘in-
demnity’’, ‘‘bid’’, ‘‘offer’’, ‘‘put’’, ‘‘call’’, ‘‘advance guaranty’’,
or ‘‘decline guaranty’’), and transactions involving swaps or
contracts of sale of a commodity for future delivery (includ-
ing significant price discovery contracts), traded or exe-
cuted 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 trans-
actions subject to regulation by the Commission pursuant
to subparagraphs (F) and (G) of subsection (c)(2) of this
section or section 19 of this Act. Except as hereinabove
provided, nothing contained in this section shall (I) super-
sede 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 Commis-
sion and such other authorities from carrying out their du-
ties and responsibilities in accordance with such laws.
Nothing in this section shall supersede or limit the juris-
diction 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, corpora-
dmwilson on DSK7X7S144PROD with REPORTS
tion, or trust within the scope of his employment or office
shall be deemed the act, omission, or failure of such indi-
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265
vidual, 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 des-
ignate a board of trade as a contract market for any trans-
action 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 trad-
ing 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 Fu-
tures 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 Ex-
change Commission pursuant to section 36(a)(1) of the Se-
curities 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 (in-
cluding any transaction which is of the character of, or is com-
monly known to the trade as, an ‘‘option’’, ‘‘privilege’’, ‘‘indem-
nity’’, ‘‘bid’’, ‘‘offer’’, ‘‘put’’, ‘‘call’’, ‘‘advance guaranty’’, or ‘‘de-
cline guaranty’’) and transactions involving, and may designate
a board of trade as a contract market in, or register a deriva-
tives transaction execution facility that trades or executes, con-
tracts 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 con-
tracts) for future delivery, and no derivatives transaction exe-
cution 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 require-
ments:
(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
dmwilson on DSK7X7S144PROD with REPORTS
of 1933 or section 3(a)(12) of the Securities Exchange Act
of 1934 as in effect on the date of enactment of the Fu-
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tures Trading Act of 1982 (other than any municipal secu-
rity, as defined in section 3(a)(29) of the Securities Ex-
change Act of 1934 on the date of enactment of the Fu-
tures 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 con-
stitute 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 (in-
cluding 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 fu-
tures products under this Act and the securities laws as de-
fined 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 con-
tract) 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 there-
in 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 deriva-
tives 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 pre-
vent systemic risk. If the contract market or derivatives trans-
action execution facility fails to do so within the time specified
dmwilson on DSK7X7S144PROD with REPORTS
by the Board in its request, the Board may direct the contract
market or derivatives transaction execution facility to alter or
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267
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 mer-
chant to, directly or indirectly, extend or maintain credit to or
for, or collect margin from any customer on any security fu-
tures product unless such activities comply with the regula-
tions 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 au-
thority 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 sup-
plement 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 re-
view shall be based on the examination of all information be-
fore the Board or the Commission, as the case may be, at the
time the determination was made. The court reviewing the ac-
tion of the Board or the Commission shall not enter a stay or
order of mandamus unless the court has determined, after no-
tice and a hearing before a panel of the court, that the agency
action complained of was arbitrary, capricious, an abuse of dis-
cretion, or otherwise not in accordance with law.
(D)(i) Notwithstanding any other provision of this Act, the Secu-
rities and Exchange Commission shall have jurisdiction and au-
thority over security futures as defined in section 3(a)(55) of the Se-
curities 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, op-
tions on security futures, and persons effecting transactions in se-
curity 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’’, ‘‘in-
demnity’’, ‘‘bid’’, ‘‘offer’’, ‘‘put’’, ‘‘call’’, ‘‘advance guaranty’’, or ‘‘de-
cline 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: Pro-
vided, however, That, except as provided in clause (vi) of this sub-
paragraph, no board of trade shall be designated as a contract mar-
dmwilson on DSK7X7S144PROD with REPORTS
ket with respect to, or registered as a derivatives transaction exe-
cution facility for, any such contracts of sale for future delivery un-
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less the board of trade and the applicable contract meet the fol-
lowing 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 compo-
nent 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 eq-
uity securities as the Commission and the Securities and Ex-
change 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 pur-
chased on a designated contract market, registered derivatives
transaction execution facility, national securities exchange reg-
istered 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 off-
set on another designated contract market, registered deriva-
tives transaction execution facility, national securities ex-
change registered under section 6(a) of the Securities Exchange
Act of 1934, or national securities association registered pursu-
ant 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 asso-
ciated persons subject to suitability rules comparable to those
of a national securities association registered pursuant to sec-
tion 15A(a) of the Securities Exchange Act of 1934 solicit, ac-
cept 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 fu-
tures 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 prod-
uct is traded has procedures in place for coordinated surveil-
dmwilson on DSK7X7S144PROD with REPORTS
lance among such board of trade, any market on which any se-
curity underlying the security futures product is traded, and
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269
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 as-
sociation registered pursuant to section 15A(a) of the Securities
Exchange Act of 1934 or national securities exchange reg-
istered 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 trad-
ing system, a national securities association registered pursu-
ant 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 alter-
native 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 secu-
rity 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 na-
tional securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 or national secu-
rities exchange registered pursuant to section 6(a) of the Secu-
rities Exchange Act of 1934 of which such alternative trading
system is a member has rules to require such coordinated trad-
ing 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 fu-
tures product when it deems such action to be necessary or ap-
propriate.
(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 posses-
sions, 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 con-
tract market in such security futures product; or
(bb) is a registered derivatives transaction execution fa-
cility 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
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with a member of the contract market or registered derivatives
transaction execution facility; and
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270
(III) the security futures product is evidenced by a record in
writing which shows the date, the parties to such security fu-
tures product and their addresses, the property covered, and
its price, and each contract market member or registered de-
rivatives 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 fu-
ture.
(II) After 3 years after the date of the enactment of the Com-
modity Futures Modernization Act of 2000, the Commission and
the Securities and Exchange Commission may by order jointly de-
termine to permit trading of options on any security future author-
ized 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
øsection 4k(6)¿ section 4k(7), or board of trade designated as a con-
tract 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 Ex-
change Commission concerning the feasibility and desirability of co-
ordinating the examination with examinations conducted by the
Securities and Exchange Commission in order to avoid unnecessary
regulatory duplication or undue regulatory burdens for the reg-
istrant or board of trade.
(II) The Commission shall notify the Securities and Exchange
Commission of any examination conducted of any futures commis-
sion merchant or introducing broker registered pursuant to section
4f(a)(2), floor broker or floor trader exempt from registration pursu-
ant to section 4f(a)(3), associated person exempt from registration
pursuant to øsection 4k(6)¿ section 4k(7), or board of trade des-
ignated as a contract market in a security futures product pursu-
ant 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 examina-
tion.
(III) Before conducting an examination under subclause (I), the
Commission shall use the reports of examinations, unless the infor-
mation sought is unavailable in the reports, of any futures commis-
sion merchant or introducing broker registered pursuant to section
4f(a)(2), floor broker or floor trader exempt from registration pursu-
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ant to section 4f(a)(3), associated person exempt from registration
pursuant to øsection 4k(6)¿ section 4k(7), or board of trade des-
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271
ignated as a contract market in a security futures product pursu-
ant to section 5f that is made by the Securities and Exchange Com-
mission, 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 registra-
tion pursuant to section 4f(a)(3), associated person exempt from
registration pursuant to øsection 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 secu-
rity futures products.
(v)(I) The Commission and the Securities and Exchange Commis-
sion, 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 appro-
priate in the public interest, and is consistent with the protection
of investors.
(II) The Commission and the Securities and Exchange Commis-
sion, by order, may jointly exempt any person from compliance
with the criterion specified in clause (i)(IV) to the extent such ex-
emption fosters the development of fair and orderly markets in se-
curity 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 Commis-
sion 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 vol-
ume for all security futures products based on single equity se-
curities traded on all designated contract markets and reg-
istered derivatives transaction execution facilities equals or ex-
ceeds 10 percent of the average aggregate comparable share
volume of options on single equity securities traded on all na-
tional securities exchanges registered pursuant to section 6(a)
of the Securities Exchange Act of 1934 and any national securi-
ties 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
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the Commission with a certification that the specific security fu-
tures product and the board of trade, as applicable, meet the cri-
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272
teria 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 inter-
est, to promote fair competition, and consistent with promotion of
market efficiency, innovation, and expansion of investment oppor-
tunities, the protection of investors, and the maintenance of fair
and orderly markets, the Commission and the Securities and Ex-
change 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 com-
mission 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 con-
tract 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 prod-
ucts is traded principally on, by, or through any exchange or mar-
ket located outside the United States.
(G)(i) Nothing in this paragraph shall limit the jurisdic-
tion 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 de-
fined pursuant to section 3(a)(78) of the Securities Ex-
change Act of 1934, and security-based swaps.
(ii) In addition to the authority of the Securities and Ex-
change 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 secu-
rity-based swap.
(I)(i) Nothing in this Act shall limit or affect any statu-
tory authority of the Federal Energy Regulatory Commis-
sion or a State regulatory authority (as defined in section
3(21) of the Federal Power Act (16 U.S.C. 796(21)) with re-
spect to an agreement, contract, or transaction that is en-
tered into pursuant to a tariff or rate schedule approved
dmwilson on DSK7X7S144PROD with REPORTS
by the Federal Energy Regulatory Commission or a State
regulatory authority and is—
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(I) not executed, traded, or cleared on a registered
entity or trading facility; or
(II) executed, traded, or cleared on a registered enti-
ty or trading facility owned or operated by a regional
transmission organization or independent system oper-
ator.
(ii) In addition to the authority of the Federal Energy
Regulatory Commission or a State regulatory authority de-
scribed 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 de-
scribed in clause (i); or
(II) the jurisdiction of the Commission under sub-
paragraph (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 CLARITY Act of 2025 shall affect or apply to, or be in-
terpreted to affect or apply to—
(i) any agreement, contract, or transaction that is
subject to 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 de-
scribed in subparagraph (C)(i) or (D)(i) of sub-
section (c)(2) of this section; or
(VI) a leverage transaction authorized under sec-
tion 19; 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 Trad-
ing 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 pro-
duction, 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
dmwilson on DSK7X7S144PROD with REPORTS
be members of the same political party. Each Commissioner
shall hold office for a term of five years and until his successor
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274
is appointed and has qualified, except that he shall not so con-
tinue to serve beyond the expiration of the next session of Con-
gress subsequent to the expiration of said fixed term of office,
and except (i) any Commissioner appointed to fill a vacancy oc-
curring prior to the expiration of the term for which his prede-
cessor 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 nomina-
tion, 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 Chair-
man, who shall serve as Chairman at the pleasure of the Presi-
dent. 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 Com-
mission and shall preside at hearings before the Commission.
At any time, the President may appoint, by and with the ad-
vice 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 Commis-
sion shall appoint such other attorneys as may be necessary,
in the opinion of the Commission, to assist the General Coun-
sel, 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 han-
dling litigation concerning the Commission in courts of law,
and perform such other legal duties and functions as the Com-
mission may direct.
(5) The Commission shall have an Executive Director, who
shall be appointed by the Commission and serve at the pleas-
ure of the Commission. The Executive Director shall report di-
rectly to the Commission and perform such functions and du-
ties as the Commission may prescribe.
(6)(A) Except as otherwise provided in this øparagraph 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 em-
ployed 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 estab-
dmwilson on DSK7X7S144PROD with REPORTS
lished and approved by the Commission, shall be exercised
solely by the Chairman.
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(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 Com-
mission and by such regulatory decisions, findings, and deter-
minations 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 imme-
diate 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 func-
tions with respect to revising budget estimates and with re-
spect to determining the distribution of appropriated funds ac-
cording to major programs and purposes.
(F) The Chairman may from time to time make such provi-
sions as he shall deem appropriate authorizing the perform-
ance by any officer, employee, or administrative unit under his
jurisdiction of any functions of the Chairman under this para-
graph.
(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 Com-
mission 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 addi-
tional compensation and benefits to employees of the
Commission if the same type of compensation or bene-
fits 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 employ-
ees, 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, ex-
change, or clearinghouse subject to regulation by the Commis-
sion under this Act during his term of office, nor shall he par-
ticipate, directly or indirectly, in any registered entity oper-
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ations or transactions of a character subject to regulation by
the Commission.
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276
(9)(A) The Commission shall, in cooperation with the Sec-
retary of Agriculture, maintain a liaison between the Commis-
sion 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 delibera-
tions 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 in-
formed of Commission activities that relate to the responsibil-
ities of those agencies, for the purpose of seeking the views of
those agencies on such activities, and for considering the rela-
tionships 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 jurisdic-
tion of such agencies.
(ii) When a board of trade applies for designation or registra-
tion as a contract market or derivatives transaction execution
facility involving transactions for future delivery of any secu-
rity 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 Com-
mission 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 re-
ceived 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, sus-
pending, or revoking the designation or registration of, a board
of trade as a contract market or derivatives transaction execu-
tion 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 Commis-
sion 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
dmwilson on DSK7X7S144PROD with REPORTS
United States Government and the continued efficiency and in-
tegrity of the underlying market for government securities.
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277
(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 esti-
mate or request to the President or the Office of Management
and Budget, it shall concurrently transmit copies of that esti-
mate or request to the House and Senate Appropriations Com-
mittees and the House Committee on Agriculture and the Sen-
ate Committee on Agriculture, Nutrition, and Forestry.
(B) Whenever the Commission transmits any legislative rec-
ommendations, 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, Nu-
trition, 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 ap-
proval, 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 ac-
tions in its legislative recommendations, testimony, or com-
ments on legislation which it transmits to the Congress.
(C) Whenever the Commission issues for official publication
any opinion, release, rule, order, interpretation, or other deter-
mination on a matter, the Commission shall provide that any
dissenting, concurring, or separate opinion by any Commis-
sioner on the matter be published in full along with the Com-
mission opinion, release, rule, order, interpretation, or deter-
mination.
(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 proce-
dures 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, in-
cluding price and volume, as soon as technologically prac-
ticable 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
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the mandatory clearing requirement described in sub-
section (h)(1) (including those swaps that are excepted
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278
from the requirement pursuant to subsection (h)(7)),
the Commission shall require real-time public report-
ing 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 de-
rivatives clearing organization, the Commission shall
require real-time public reporting for such trans-
actions.
(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 Commis-
sion under subsection (h)(6), the Commission shall re-
quire real-time public reporting for such transactions,
in a manner that does not disclose the business trans-
actions 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 dis-
seminate 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 Commis-
sion shall contain provisions—
(i) to ensure such information does not identify the
participants;
(ii) to specify the criteria for determining what con-
stitutes a large notional swap transaction (block trade)
for particular markets and contracts;
(iii) to specify the appropriate time delay for report-
ing large notional swap transactions (block trades) to
the public; and
(iv) that take into account whether the public disclo-
sure will materially reduce market liquidity.
(F) TIMELINESS OF REPORTING.—Parties to a swap (in-
cluding agents of the parties to a swap) shall be respon-
sible for reporting swap transaction information to the ap-
propriate registered entity in a timely manner as may be
prescribed by the Commission.
(G) REPORTING OF SWAPS TO REGISTERED SWAP DATA RE-
POSITORIES.—Each swap (whether cleared or uncleared)
shall be reported to a registered swap data repository.
(14) SEMIANNUAL AND ANNUAL PUBLIC REPORTING OF AGGRE-
GATE SWAP DATA.—
(A) IN GENERAL.—In accordance with subparagraph (B),
the Commission shall issue a written report on a semi-
annual and annual basis to make available to the public
information relating to—
dmwilson on DSK7X7S144PROD with REPORTS
(i) the trading and clearing in the major swap cat-
egories; and
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279
(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 re-
porting responsibilities of the Commission under this para-
graph in accordance with such terms and conditions as the
Commission determines to be appropriate and in the pub-
lic interest.
(15) ENERGY AND ENVIRONMENTAL MARKETS ADVISORY COM-
MITTEE.—
(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 discus-
sion and communication on matters of concern to
exchanges, firms, end users, and regulators re-
garding 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 fre-
quently 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 mem-
bers with a wide diversity of opinion and who represent a
broad spectrum of interests, including hedgers and con-
sumers.
(D) REIMBURSEMENT.—Members shall be entitled to per
diem and travel expense reimbursement by the Commis-
sion.
(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
dmwilson on DSK7X7S144PROD with REPORTS
to any article shall be considered to be in interstate commerce if
such article is part of that current of commerce usual in the com-
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280
modity 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, includ-
ing, 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 out-
side the State of the products resulting from such manufacture. Ar-
ticles normally in such current of commerce shall not be considered
out of such commerce through resort being had to any means or de-
vice 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 COM-
MODITIES.—
(1) IN GENERAL.—Except as provided in paragraph (2), noth-
ing 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;
øor¿
(G) mortgages or mortgage purchase commitmentsø.¿; or
(H) permitted payment stablecoins.
(2) COMMISSION JURISDICTION.—
(A) AGREEMENTS, CONTRACTS, AND TRANSACTIONS TRAD-
ED ON AN ORGANIZED EXCHANGE.—This Act applies to, and
the Commission shall have jurisdiction over, an agree-
ment, contract, or transaction described in paragraph (1)
that is—
(i) a contract of sale of a commodity for future deliv-
ery (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 securi-
ties exchange registered pursuant to section 6(a) of the
Securities Exchange Act of 1934.
(B) AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN RE-
TAIL 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 op-
tion (other than an option executed or traded on
a national securities exchange registered pursuant
dmwilson on DSK7X7S144PROD with REPORTS
to section 6(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78f(a))); and
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281
(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 Securi-
ties 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 sub-
clause, and maintains adjusted net capital
equal to or in excess of the dollar amount that
applies for purposes of clause (ii) of this sub-
paragraph; or
(BB) an affiliated person of a futures com-
mission merchant that is primarily or sub-
stantially engaged in the business activities
described in section 1a of this Act, is reg-
istered under this Act, and is not a person de-
scribed in item (bb) of this subclause, if the
affiliated person maintains adjusted net cap-
ital 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 sec-
tion 4f(c)(2)(B) of this Act concerning the fu-
tures and other financial activities of the af-
filiated 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 condi-
tions as the Commission shall prescribe, and
dmwilson on DSK7X7S144PROD with REPORTS
is a member of a futures association reg-
istered under section 17.
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282
(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 subpara-
graph, and accounts or pooled investment vehicles de-
scribed 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 per-
son that is registered as a futures commission mer-
chant 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 de-
termine and a member of a futures association reg-
istered under section 17, shall not—
(aa) solicit or accept orders from any person
that is not an eligible contract participant in con-
nection with agreements, contracts, or trans-
actions described in clause (i) entered into with or
to be entered into with a person who is not de-
scribed in item (aa), (bb), (ee), or (ff) of clause
(i)(II);
(bb) exercise discretionary trading authority or
obtain written authorization to exercise discre-
tionary trading authority over any account for or
on behalf of any person that is not an eligible con-
tract participant in connection with agreements,
contracts, or transactions described in clause (i)
entered into with or to be entered into with a per-
son who is not described in item (aa), (bb), (ee), or
(ff) of clause (i)(II); or
(cc) operate or solicit funds, securities, or prop-
erty 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),
dmwilson on DSK7X7S144PROD with REPORTS
(bb), (ee), or (ff) of clause (i)(II).
(II) Subclause (I) of this clause shall not apply to—
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283
(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 reg-
istration if engaging in the same activities in con-
nection 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 en-
force such rules and regulations as, in the judgment of
the Commission, are reasonably necessary to effec-
tuate any of the provisions of, or to accomplish any of
the purposes of, this Act in connection with the activi-
ties 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 reg-
istration if engaging in the same activities in con-
nection 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 en-
force such rules and regulations as, in the judgment of
the Commission, are reasonably necessary to effec-
tuate any of the provisions of, or to accomplish any of
the purposes of, this Act in connection with agree-
ments, contracts, or transactions described in clause
(i) which are offered, or entered into, by a person de-
scribed 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 invest-
ment 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 agree-
ment, 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
dmwilson on DSK7X7S144PROD with REPORTS
the offeror or counterparty on a similar basis.
(II) Subclause (I) of this clause shall not apply to—
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284
(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 con-
nection with their line of business.
(ii)(I) Agreements, contracts, or transactions described in
clause (i) of this subparagraph, and accounts or pooled in-
vestment 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 deliv-
ery 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 en-
force 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 ob-
tain written authorization to exercise written trading
authority over any account for or on behalf of any per-
son that is not an eligible contract participant in con-
nection with agreements, contracts, or transactions de-
scribed in clause (i) of this subparagraph entered into
with or to be entered into with a person who is not de-
scribed 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 eligi-
ble contract participant in connection with agree-
dmwilson on DSK7X7S144PROD with REPORTS
ments, contracts, or transactions described in clause
(i) of this subparagraph entered into with or to be en-
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285
tered 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 registra-
tion 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 exe-
cution facility.
(III) The Commission may make, promulgate, and en-
force 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 registra-
tion 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 exe-
cution facility.
(iv) Sections 4(b) and 4b shall apply to any agreement,
contract, or transaction described in clause (i) of this sub-
paragraph 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 com-
modity 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 fu-
tures products.
(vii) This Act applies to, and the Commission shall
have jurisdiction over, an account or pooled invest-
ment 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, con-
tract, 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
dmwilson on DSK7X7S144PROD with REPORTS
contract participant or eligible commercial entity;
and
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286
(II) entered into, or offered (even if not entered
into), on a leveraged or margined basis, or fi-
nanced by the offeror, the counterparty, or a per-
son 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 de-
scribed in paragraph (1) (other than an agreement,
contract, or transaction in a permitted payment
stablecoin) or subparagraphs (A), (B), or (C), in-
cluding any agreement, contract, or transaction
specifically excluded from subparagraph (A), (B),
or (C);
(II) any security;
(III) a contract of sale that—
(aa) results in actual delivery within 28
days or such other longer period as the Com-
mission may determine by rule or regulation
based upon the typical commercial practice in
cash or spot markets for the commodity in-
volved; or
(bb) creates an enforceable obligation to de-
liver between a seller and a buyer that have
the ability to deliver and accept delivery, re-
spectively, in connection with the line of busi-
ness of the seller and buyer; or
(IV) an agreement, contract, or transaction that
is listed on a national securities exchange reg-
istered under section 6(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78f(a)); or
(V) 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 de-
scribed in clause (i), as if the agreement, contract, or
transaction was a contract of sale of a commodity for
future delivery.
(iv) AGREEMENTS FOR MARGIN FINANCING.—Notwith-
standing clause (iii), a digital commodity broker may,
subject to the requirements of section 4u(c)(2), offer to
or enter into an agreement for margin financing with
a customer for the purchase or sale of a digital com-
modity, provided any purchase or sale made pursuant
to the agreement shall result in the delivery of the dig-
ital commodity into or from an account carried for the
customer, as determined by the Commission by rule or
regulation, based on commercial spot market practices.
ø(iv)¿ (v) ELIGIBLE COMMERCIAL ENTITY.—For pur-
poses of this subparagraph, an agricultural producer,
packer, or handler shall be considered to be an eligible
dmwilson on DSK7X7S144PROD with REPORTS
commercial entity for any agreement, contract, or
transaction for a commodity in connection with the
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287
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 sub-
clause (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 per-
son that is not an eligible contract participant,
any agreement, contract, or transaction in foreign
currency described in subparagraph (B)(i)(I) ex-
cept pursuant to a rule or regulation of a Federal
regulatory agency allowing the agreement, con-
tract, or transaction under such terms and condi-
tions as the Federal regulatory agency shall pre-
scribe.
(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 trans-
actions in foreign currency described in subpara-
graph (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 de-
scribed 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 deter-
mine to be necessary.
(II) TREATMENT.—The rules or regulations de-
scribed in clause (ii) shall treat all agreements,
contracts, and transactions in foreign currency de-
scribed in subparagraph (B)(i)(I), and all agree-
ments, contracts, and transactions in foreign cur-
rency that are functionally or economically similar
to agreements, contracts, or transactions described
in subparagraph (B)(i)(I), similarly.
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(F) COMMISSION JURISDICTION WITH RESPECT TO DIGITAL
COMMODITY TRANSACTIONS.—
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(i) IN GENERAL.—Subject to sections 6d and 12(e), the
Commission shall have exclusive jurisdiction with re-
spect to any account, agreement, contract, or trans-
action involving a contract of sale of a digital com-
modity in interstate commerce, including in a digital
commodity cash or spot market, that is offered, solic-
ited, 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 re-
spect to—
(I) custodial or depository activities for a digital
commodity of an entity regulated by an appro-
priate Federal banking agency or a State bank su-
pervisor (within the meaning of section 3 of the
Federal Deposit Insurance Act); or
(II) an offer or sale of an investment contract in-
volving a digital commodity or of a securities offer
or sale involving a digital commodity.
(iii) MIXED DIGITAL ASSET TRANSACTIONS.—
(I) IN GENERAL.—Clause (i) shall not apply to a
mixed digital asset transaction.
(II) REPORTS ON MIXED DIGITAL ASSET TRANS-
ACTIONS.—A digital commodity issuer, digital com-
modity related person, digital commodity affiliated
person, or other person registered with the Securi-
ties and Exchange Commission that engages in a
mixed digital asset transaction, shall, on request of
the Commission, open to inspection and examina-
tion by the Commission all books and records re-
lating to the mixed digital asset transaction, sub-
ject to the confidentiality and disclosure require-
ments of section 8.
(G) AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN
STABLECOINS.—
(i) TREATMENT OF PERMITTED PAYMENT STABLECOINS
ON COMMISSION-REGISTERED ENTITIES.—Subject to
clauses (ii) and (iii), the Commission shall have juris-
diction over a cash or spot agreement, contract, or
transaction in a permitted payment stablecoin that is
offered, offered to enter into, entered into, executed, con-
firmed the execution of, solicited, or accepted—
(I) on or subject to the rules of a registered enti-
ty; or
(II) by any other entity registered with the Com-
mission.
(ii) PERMITTED PAYMENT STABLECOIN TRANSACTION
RULES.—This Act shall apply to a transaction de-
scribed in clause (i) only for the purpose of regulating
dmwilson on DSK7X7S144PROD with REPORTS
the offer, execution, solicitation, or acceptance of a cash
or spot permitted payment stablecoin transaction on a
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registered entity or by any other entity registered with
the Commission, as if the permitted payment stablecoin
were a digital commodity.
(iii) NO AUTHORITY OVER PERMITTED PAYMENT
STABLECOINS.—Notwithstanding clauses (i) and (ii),
the Commission shall not make a rule or regulation,
impose a requirement or obligation on a registered enti-
ty or other entity registered with the Commission, or
impose a requirement or obligation on a permitted pay-
ment stablecoin issuer, regarding the operation of a
permitted payment stablecoin issuer or a permitted
payment 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 consid-
ered 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, sub-
stantially 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 addi-
tion to the purchase price paid under subparagraph (A),
whether as margin, settlement payment, or otherwise, dur-
ing 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 re-
quirements do not include the obligation of an issuer of a se-
cured 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
dmwilson on DSK7X7S144PROD with REPORTS
under the secured debt instrument.
(g) APPLICATION OF COMMODITY FUTURES LAWS.—
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290
(1) No provision of this Act shall be construed as implying
or creating any presumption that—
(A) any agreement, contract, or transaction that is ex-
cluded 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 Mod-
ernization Act of 2000, or exempted under section 2(h) or
4(c) of this Act; or
(B) any agreement, contract, or transaction, not other-
wise subject to this Act, that is not so excluded or exempt-
ed,
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 con-
ferring 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 organiza-
tion that is registered under this Act or a derivatives clear-
ing 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 or-
ganization 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 organi-
zation with the same terms and conditions are eco-
nomically 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 bilat-
erally or on or through the rules of an unaffiliated des-
ignated 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 clear-
ing, and provide notice to its members (in a manner
dmwilson on DSK7X7S144PROD with REPORTS
to be determined by the Commission) of the submis-
sion.
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291
(ii) Any swap or group, category, type, or class of
swaps listed for clearing by a derivative clearing orga-
nization 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 re-
ceived 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 deter-
mination under subparagraph (B)(iii) not later than 90
days after receiving a submission made under subpara-
graphs (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 subpara-
graph (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 no-
tional 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 con-
tract.
(IV) The effect on competition, including appro-
priate fees and charges applied to clearing.
(V) The existence of reasonable legal certainty
in the event of the insolvency of the relevant de-
rivatives 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
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(A) or (B)(iii) that the clearing requirement shall
apply, the Commission may require such terms and
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292
conditions to the requirement as the Commission de-
termines 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 ac-
cept for clearing. Nothing in this subparagraph limits the
Commission from making a determination under subpara-
graph (B)(iii) for swaps described in subparagraph (B)(ii).
(3) STAY OF CLEARING REQUIREMENT.—
(A) IN GENERAL.—After making a determination pursu-
ant 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 Com-
mission completes a review of the terms of the swap (or
the group, category, type, or class of swaps) and the clear-
ing 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, cat-
egory, type, or class of swaps agrees to an extension of the
time limitation established under this subparagraph.
(C) DETERMINATION.—Upon completion of the review un-
dertaken 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 con-
sistent with paragraph (2)(D); or
(ii) determine that the clearing requirement of para-
graph (1) shall not apply to the swap, or group, cat-
egory, type, or class of swaps.
(D) RULES.—Not later than 1 year after the date of the
enactment of the Wall Street Transparency and Account-
ability Act of 2010, the Commission shall adopt rules for
reviewing, pursuant to this paragraph, a derivatives clear-
ing 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 CER-
TAIN 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,
dmwilson on DSK7X7S144PROD with REPORTS
group, category, type, or class of swaps for clearing, the
Commission shall—
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293
(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 requir-
ing a derivatives clearing organization to list for clear-
ing 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 en-
force 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 enact-
ment shall be reported to a registered swap data reposi-
tory 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 require-
ments 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 finan-
cial obligations associated with entering into non-
cleared swaps.
dmwilson on DSK7X7S144PROD with REPORTS
(B) OPTION TO CLEAR.—The application of the clearing
exception in subparagraph (A) is solely at the discretion of
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294
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 Em-
ployee Retirement Income Security Act of 1974 (29
U.S.C. 1002);
(VIII) a person predominantly engaged in activi-
ties that are in the business of banking, or in ac-
tivities 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, in-
cluding—
(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 financ-
ing, 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 pur-
chase 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 quali-
fies for an exception under subparagraph (A) (includ-
ing affiliate entities predominantly engaged in pro-
viding 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;
dmwilson on DSK7X7S144PROD with REPORTS
(II) is directly and wholly-owned by another af-
filiate qualified for the exception under this sub-
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295
paragraph or an entity that is not a financial enti-
ty;
(III) is not indirectly majority-owned by a finan-
cial entity;
(IV) is not ultimately owned by a parent com-
pany that is a financial entity; and
(V) does not provide any services, financial or
otherwise, to any affiliate that is a nonbank finan-
cial company supervised by the Board of Gov-
ernors (as defined under section 102 of the Finan-
cial Stability Act of 2010).
(ii) LIMITATION ON QUALIFYING AFFILIATES.—The ex-
ception 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 sec-
tion 3 of the Employee Retirement Income Secu-
rity 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 sec-
tion 102 of the Financial Stability Act of 2010); or
(XIII) an entity engaged in the business of in-
surance and subject to capital requirements estab-
lished by an insurance governmental authority of
a State, a territory of the United States, the Dis-
trict 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 su-
pervision of insurance companies under insurance
law.
(iii) LIMITATION ON AFFILIATES’ AFFILIATES.—Unless
the Commission determines, by order, rule, or regula-
tion, 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
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an affiliate that qualifies for the exception in clause
(i)—
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296
(I) the affiliate may not enter into any swap
other than for the purpose of hedging or miti-
gating commercial risk; and
(II) neither the affiliate nor any person affili-
ated with the affiliate that is not a financial entity
may enter into a swap with or on behalf of any af-
filiate that is a financial entity or otherwise as-
sume, 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 financ-
ing activities for not less than a 2-year period begin-
ning on the date of enactment of this clause.
(vi) RISK MANAGEMENT PROGRAM.—Any swap en-
tered into by an affiliate that qualifies for the excep-
tion in clause (i) shall be subject to a centralized risk
management program of the affiliate, which is reason-
ably 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 secu-
rity-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 re-
spect to any swap that is not subject to the mandatory
clearing requirement under this subsection and en-
tered into by a swap dealer or a major swap partici-
pant 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 deriva-
tives clearing organization at which the swap will
be cleared.
(F) ABUSE OF EXCEPTION.—The Commission may pre-
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scribe such rules or issue interpretations of the rules as
the Commission determines to be necessary to prevent
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297
abuse of the exceptions described in this paragraph. The
Commission may also request information from those per-
sons claiming the clearing exception as necessary to pre-
vent 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 des-
ignated as a contract market under section 5; or
(ii) execute the transaction on a swap execution fa-
cility 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 Account-
ability Act of 2010 (including any rule prescribed or regulation pro-
mulgated 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 en-
acted by the Wall Street Transparency and Accountability Act
of 2010.
(j) COMMITTEE APPROVAL BY BOARD.—Exemptions from the re-
quirements 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 se-
curities that are registered under section 12 of the Securities Ex-
change 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. 4c. PROHIBITED TRANSACTIONS.
(a) IN GENERAL.—
(1) PROHIBITION.—It shall be unlawful for any person to offer
to enter into, enter into, or confirm the execution of a trans-
action described in paragraph (2) involving the purchase or
sale of any commodity for future delivery (or any option on
such a transaction or option on a commodity) or swap if the
transaction is used or may be used to—
(A) hedge any transaction in interstate commerce in the
commodity or the product or byproduct of the commodity;
dmwilson on DSK7X7S144PROD with REPORTS
(B) determine the price basis of any such transaction in
interstate commerce in the commodity; or
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(C) deliver any such commodity sold, shipped, or re-
ceived in interstate commerce for the execution of the
transaction.
(2) TRANSACTION.—A transaction referred to in paragraph (1)
is a transaction that—
(A)(i) is, of the character of, or is commonly known to the
trade as, a ‘‘wash sale’’ or ‘‘accommodation trade’’; or
(ii) is a fictitious sale; or
(B) is used to cause any price to be reported, registered,
or recorded that is not a true and bona fide price.
(3) CONTRACT OF SALE.—It shall be unlawful for any em-
ployee or agent of any department or agency of the Federal
Government or any Member of Congress or employee of Con-
gress (as such terms are defined under section 2 of the STOCK
Act) or any judicial officer or judicial employee (as such terms
are defined, respectively, under section 2 of the STOCK Act)
who, by virtue of the employment or position of the Member,
officer, employee or agent, acquires information that may affect
or tend to affect the price of any commodity in interstate com-
merce, or for future delivery, or any swap, and which informa-
tion has not been disseminated by the department or agency
of the Federal Government holding or creating the information
or by Congress or by the judiciary in a manner which makes
it generally available to the trading public, or disclosed in a
criminal, civil, or administrative hearing, or in a congressional,
administrative, or Government Accountability Office report,
hearing, audit, or investigation, to use the information in his
personal capacity and for personal gain to enter into, or offer
to enter into—
(A) a contract of sale of a commodity for future delivery
(or option on such a contract);
(B) 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)); øor¿
(C) a swapø.¿; or
(D) a contract of sale of a digital commodity.
(4) NONPUBLIC INFORMATION.—
(A) IMPARTING OF NONPUBLIC INFORMATION.—It shall be
unlawful for any employee or agent of any department or
agency of the Federal Government or any Member of Con-
gress or employee of Congress or any judicial officer or ju-
dicial employee who, by virtue of the employment or posi-
tion of the Member, officer, employee or agent, acquires in-
formation that may affect or tend to affect the price of any
commodity in interstate commerce, or for future delivery,
or any swap, and which information has not been dissemi-
nated by the department or agency of the Federal Govern-
ment holding or creating the information or by Congress or
by the judiciary in a manner which makes it generally
available to the trading public, or disclosed in a criminal,
civil, or administrative hearing, or in a congressional, ad-
ministrative, or Government Accountability Office report,
dmwilson on DSK7X7S144PROD with REPORTS
hearing, audit, or investigation, to impart the information
in his personal capacity and for personal gain with intent
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299
to assist another person, directly or indirectly, to use the
information to enter into, or offer to enter into—
(i) a contract of sale of a commodity for future deliv-
ery (or option on such a contract);
(ii) an option (other than an option executed or trad-
ed on a national securities exchange registered pursu-
ant to section 6(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78f(a)); øor¿
(iii) a swapø.¿; or
(iv) a contract of sale of a digital commodity.
(B) KNOWING USE.—It shall be unlawful for any person
who receives information imparted by any employee or
agent of any department or agency of the Federal Govern-
ment or any Member of Congress or employee of Congress
or any judicial officer or judicial employee as described in
subparagraph (A) to knowingly use such information to
enter into, or offer to enter into—
(i) a contract of sale of a commodity for future deliv-
ery (or option on such a contract);
(ii) an option (other than an option executed or trad-
ed on a national securities exchange registered pursu-
ant to section 6(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78f(a)); øor¿
(iii) a swapø.¿; or
(iv) a contract of sale of a digital commodity.
(C) THEFT OF NONPUBLIC INFORMATION.—It shall be un-
lawful for any person to steal, convert, or misappropriate,
by any means whatsoever, information held or created by
any department or agency of the Federal Government or
by Congress or by the judiciary that may affect or tend to
affect the price of any commodity in interstate commerce,
or for future delivery, or any swap, where such person
knows, or acts in reckless disregard of the fact, that such
information has not been disseminated by the department
or agency of the Federal Government holding or creating
the information or by Congress or by the judiciary in a
manner which makes it generally available to the trading
public, or disclosed in a criminal, civil, or administrative
hearing, or in a congressional, administrative, or Govern-
ment Accountability Office report, hearing, audit, or inves-
tigation, and to use such information, or to impart such in-
formation with the intent to assist another person, directly
or indirectly, to use such information to enter into, or offer
to enter into—
(i) a contract of sale of a commodity for future deliv-
ery (or option on such a contract);
(ii) an option (other than an option executed or trad-
ed on a national securities exchange registered pursu-
ant to section 6(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78f(a)); øor¿
(iii) øa swap, provided, however,¿ a swap; or
(iv)a contract of sale of a digital commodity, that
nothing in this subparagraph shall preclude a person
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that has provided information concerning, or gen-
erated by, the person, its operations or activities, to
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300
any employee or agent of any department or agency of
the Federal Government, to Congress, any Member of
Congress, any employee of Congress, any judicial offi-
cer, or any judicial employee, voluntarily or as re-
quired by law, from using such information to enter
into, or offer to enter into, a contract of sale, option,
or swap described in øclauses (i), (ii), or (iii)¿ any of
clauses (i) through (iv).
(5) DISRUPTIVE PRACTICES.—It shall be unlawful for any per-
son to engage in any trading, practice, or conduct on or subject
to the rules of a registered entity that—
(A) violates bids or offers;
(B) demonstrates intentional or reckless disregard for
the orderly execution of transactions during the closing pe-
riod; or
(C) is, is of the character of, or is commonly known to
the trade as, ‘‘spoofing’’ (bidding or offering with the intent
to cancel the bid or offer before execution).
(6) RULEMAKING AUTHORITY.—The Commission may make
and promulgate such rules and regulations as, in the judgment
of the Commission, are reasonably necessary to prohibit the
trading practices described in paragraph (5) and any other
trading practice that is disruptive of fair and equitable trading.
(7) USE OF SWAPS TO DEFRAUD.—It shall be unlawful for any
person to enter into a swap knowing, or acting in reckless dis-
regard of the fact, that its counterparty will use the swap as
part of a device, scheme, or artifice to defraud any third party.
(b) No person shall offer to enter into, enter into or confirm the
execution of, any transaction involving any commodity regulated
under this Act 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’’, contrary to
any rule, regulation, or order of the Commission prohibiting any
such transaction or allowing any such transaction under such
terms and conditions as the Commission shall prescribe. Any such
order, rule, or regulation may be made only after notice and oppor-
tunity for hearing, and the Commission may set different terms
and conditions for different markets.
(c) Not later than 90 days after the date of the enactment of the
Futures Trading Act of 1986, the Commission shall issue regula-
tions—
(1) to eliminate the pilot status of its program for commodity
option transactions involving the trading of options on contract
markets, including any numerical restrictions on the number of
commodities or option contracts for which a contract market
may be designated; and
(2) otherwise to continue to permit the trading of such com-
modity options under such terms and conditions that the Com-
mission from time to time may prescribe.
(d) Notwithstanding the provisions of subsection (c) of this sec-
tion—
(1) any person domiciled in the United States who on May
1, 1978, was in the business of granting an option on a phys-
dmwilson on DSK7X7S144PROD with REPORTS
ical commodity, other than a commodity specifically set forth
in section 2(a) of this Act prior to enactment of the Commodity
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301
Futures Trading Commission Act of 1974, and was in the busi-
ness of buying, selling, producing, or otherwise using that com-
modity, may continue to grant or issue options on that com-
modity in accordance with Commission regulations in effect on
August 17, 1978, until thirty days after the effective date of
regulations issued by the Commission under clause (2) of this
subsection: Provided, That if such person files an application
for registration under the regulations issued under clause (2)
of this subsection within thirty days after the effective date of
such regulations, that person may continue to grant or issue
options pending a final determination by the Commission on
the application; and
(2) the Commission shall issue regulations that permit
grantors and futures commission merchants to offer to enter
into, enter into, or confirm the execution of, any commodity op-
tion transaction on a physical commodity subject to the provi-
sions of subsection (b) of this section, other than a commodity
specifically set forth in section 2(a) of this Act prior to enact-
ment of the Commodity Futures Trading Commission Act of
1974, if—
(A) the grantor is a person domiciled in the United
States who—
(i) is in the business of buying, selling, producing, or
otherwise using the underlying commodity;
(ii) at all times has a net worth of at least
$5,000,000 certified annually by an independent public
accountant using generally accepted accounting prin-
ciples;
(iii) notifies the Commission and every futures com-
mission merchant offering the grantor’s option if the
grantor knows or has reason to believe that the
grantor’s net worth has fallen below $5,000,000;
(iv) segregates daily, exclusively for the benefit of
purchasers, money, exempted securities (within the
meaning of section 3(a)(12) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(12)), commercial paper,
bankers’ acceptances, commercial bills, or
unencumbered warehouse receipts, equal to an
amount by which the value of each transaction ex-
ceeds the amount received or to be received by the
grantor for such transaction;
(v) provides an identification number for each trans-
action; and
(vi) provides confirmation of all orders for such
transactions executed, including the execution price
and a transaction identification number;
(B) the futures commission merchant is a person who—
(i) has evidence that the grantor meets the require-
ments specified in subclause (A) of this clause;
(ii) treats and deals with all money, securities, or
property received from its customers as payment of
the purchase price in connection with such trans-
actions, as belonging to such customers until the expi-
dmwilson on DSK7X7S144PROD with REPORTS
ration of the term of the option, or, if the customer ex-
ercises the option, until all rights of the customer
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302
under the commodity option transaction have been ful-
filled;
(iii) records each transaction in its customer’s name
by the transaction identification number provided by
the grantor;
(iv) provides a disclosure statement to its customers,
under regulations of the Commission, that discloses,
among other things, all costs, including any markups
or commissions involved in such transaction; and
(C) the grantor and futures commission merchant com-
ply with any additional uniform and reasonable terms and
conditions the Commission may prescribe, including reg-
istration with the Commission.
The Commission may permit persons not domiciled in the United
States to grant options under this subsection, other than options on
a commodity specifically set forth in section 2(a) of this Act prior
to enactment of the Commodity Futures Trading Commission Act
of 1974, under such additional rules, regulations, and orders as the
Commission may adopt to provide protection to purchasers that are
substantially the equivalent of those applicable to grantors domi-
ciled in the United States. The Commission may terminate the
right of any person to grant, offer, or sell options under this sub-
section only after a hearing, including a finding that the continu-
ation of such right is contrary to the public interest: Provided, That
pending the completion of such termination proceedings, the Com-
mission may suspend the right to grant, offer, or sell options of any
person whose activities in the Commission’s judgment present a
substantial risk to the public interest.
(e) The Commission may adopt rules and regulations, after public
notice and opportunity for a hearing on the record, prohibiting the
granting, issuance, or sale of options permitted under subsection
(d) of this section if the Commission determines that such options
are contrary to the public interest.
(f) Nothing in this Act shall be deemed to govern or in any way
be applicable to any transaction in an option on foreign currency
traded on a national securities exchange.
(g) The Commission shall adopt rules requiring that a contem-
poraneous written record be made, as practicable, of all orders for
execution on the floor or subject to the rules of each contract mar-
ket or derivatives transaction execution facility placed by a mem-
ber of the contract market or derivatives transaction execution fa-
cility who is present on the floor at the time such order is placed.
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
dmwilson on DSK7X7S144PROD with REPORTS
customer as the result of such trades or contracts, as belonging
to such customer. Such money, securities, and property shall
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303
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, secu-
rities, and property of the customers of such futures commis-
sion merchant may, for convenience, be commingled and depos-
ited in the same account or accounts with øany bank or trust
company¿ any bank, trust company, or qualified digital asset
custodian, as applicable, or with the clearing house organiza-
tion of such contract market or derivatives transaction execu-
tion facility, and that such share thereof as in the normal
course of business shall be necessary to margin, guarantee, se-
cure, 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 con-
tract market or derivatives transaction execution facility, may
be withdrawn and applied to such purposes, including the pay-
ment of commissions, brokerage, interest, taxes, storage, and
other charges, lawfully accruing in connection with such con-
tracts 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 belong-
ing to the customers of such futures commission merchant:
Provided further, That such money may be invested in obliga-
tions 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 Commis-
sion may prescribe: Provided further, That any such property
that is a digital asset shall be held in a qualified digital asset
custodian.
(b) It shall be unlawful for any person, including but not limited
to any clearing agency of a contract market or derivatives trans-
action 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 depos-
iting 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 en-
sure that the activities of any person within the firm relating
to research or analysis of the price or market for any com-
dmwilson on DSK7X7S144PROD with REPORTS
modity are separated by appropriate informational partitions
within the firm from the review, pressure, or oversight of per-
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304
sons 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 responsibil-
ities as shall be set forth in regulations to be adopted by the Com-
mission 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 Se-
curities 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 there-
under 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 se-
curity futures products; and
(2) similar provisions of this Act and the rules and regula-
tions 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, guar-
antee, 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 Com-
mission as a futures commission merchant, and the registra-
tion shall not have expired nor been suspended nor revoked.
(2) CLEARED SWAPS.—
(A) SEGREGATION REQUIRED.—A futures commission mer-
chant shall treat and deal with all money, securities, and
property of any swaps customer received to margin, guar-
antee, or secure a swap cleared by or though a derivatives
clearing organization (including money, securities, or prop-
erty 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 com-
mingled with the funds of the futures commission mer-
chant or be used to margin, secure, or guarantee any
dmwilson on DSK7X7S144PROD with REPORTS
trades or contracts of any swaps customer or person other
than the person for whom the same are held.
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305
(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 para-
graph (2) may, for convenience, be commingled and de-
posited in the same account or accounts with øany
bank or trust company¿ any bank, trust company, or
qualified digital asset custodian or with a derivatives
clearing organization.
(ii) WITHDRAWAL.—Notwithstanding paragraph (2),
such share of the money, securities, and property de-
scribed in clause (i) as in the normal course of busi-
ness shall be necessary to margin, guarantee, secure,
transfer, adjust, or settle a cleared swap with a de-
rivatives clearing organization, or with any member of
the derivatives clearing organization, may be with-
drawn and applied to such purposes, including the
payment of commissions, brokerage, interest, taxes,
storage, and other charges, lawfully accruing in con-
nection 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 gen-
eral 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, securi-
ties, 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, secu-
rities, or property accruing to the customer as the result of the
swap).
(6) PROHIBITION.—It shall be unlawful for any person, in-
cluding any derivatives clearing organization and any deposi-
tory institution, that has received any money, securities, or
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property for deposit in a separate account or accounts as pro-
vided in paragraph (2) to hold, dispose of, or use any such
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306
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 registra-
tion shall not have expired nor been suspended nor revoked.
(h) Notwithstanding subsection (a)(2) or the rules and regula-
tions 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 pur-
suant 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 ap-
proved by the Securities and Exchange Commission pursuant to
section 19(b) of the Securities Exchange Act of 1934, hold in a port-
folio 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 con-
tract, and any money, securities or other property received from a
customer to margin, guarantee or secure such a contract, or accru-
ing 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 sub-
ject 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 em-
ployee, or to be associated with an introducing broker as a partner,
officer, employee, or agent (or any person occupying a similar sta-
tus 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 per-
son 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 reg-
istration had expired, been suspended (and the period of suspen-
sion has not expired), or been revoked. Any individual who is reg-
istered as a floor broker, futures commission merchant, or intro-
ducing 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,
dmwilson on DSK7X7S144PROD with REPORTS
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
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307
pool or (ii) the supervision of any person or persons so engaged, un-
less 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 unlaw-
ful for a commodity pool operator to permit such a person to be-
come 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 reg-
istration had expired, been suspended (and the period of suspen-
sion has not expired), or been revoked. Any individual who is reg-
istered as a floor broker, futures commission merchant, introducing
broker, commodity pool operator, or as an associated person of an-
other category of registrant under this section (and such registra-
tion 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, regu-
lation, or order.
(3) It shall be unlawful for any person to be associated with a
commodity trading advisor as a partner, officer, employee, consult-
ant, or agent (or any person occupying a similar status or per-
forming 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 unlaw-
ful for a commodity trading advisor to permit such a person to be-
come 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 suspen-
sion has not expired), or been revoked. Any individual who is reg-
istered 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 reg-
istration 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 per-
son of a digital commodity broker or an associated person of a dig-
ital commodity dealer unless the person is registered with the Com-
mission 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 com-
modity dealer if the digital commodity broker or digital commodity
dealer knew or should have known that the person was not so reg-
istered or that the registration had expired, been suspended (and the
period of suspension has not expired), or been revoked.
dmwilson on DSK7X7S144PROD with REPORTS
ø(4)¿ (5) Any person desiring to be registered as an associated
person of a futures commission merchant, of an introducing broker,
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308
of a commodity pool operator, øor 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 Com-
mission 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.
ø(5)¿ (6) Any associated person of a broker or dealer that is reg-
istered 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 con-
tracts 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.
ø(6)¿ (7) It shall be unlawful for any registrant to permit a per-
son 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 disqualifica-
tions 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 advi-
sor or commodity pool operator, unless registered under this Act,
to make use of the mails or any means or instrumentality of inter-
state 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 per-
sons 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 com-
modity 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 pur-
dmwilson on DSK7X7S144PROD with REPORTS
chase 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
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309
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 secu-
rities 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 øany com-
modity trading advisor¿ a commodity pool operator or com-
modity trading advisor that is registered with the Securities
and Exchange Commission as an investment adviser whose
business does not consist primarily of øacting as a commodity
trading advisor¿ acting as a commodity pool operator or com-
modity 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 con-
sidered 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 com-
modity for future delivery, options on such contracts, security
futures, swaps, leverage contracts, foreign exchange, spot and
forward contracts on physical commodities, digital commod-
ities, and any monies held in an account used for trading com-
modity interests.
(4) EXEMPTIVE AUTHORITY.—The Commission shall promulgate
rules to provide appropriate exemptions for commodity pool opera-
tors and commodity trading advisors, to provide relief from duplica-
tive, conflicting, or unduly burdensome requirements or to promote
responsible innovation, to the extent the exemptions foster the devel-
opment of fair and orderly cash or spot digital commodity markets,
are necessary or appropriate in the public interest, and are con-
sistent with the protection of customers.
* * * * * * *
SEC. 4s. REGISTRATION AND REGULATION OF SWAP DEALERS AND
MAJOR SWAP PARTICIPANTS.
(a) REGISTRATION.—
(1) SWAP DEALERS.—It shall be unlawful for any person to
act as a swap dealer unless the person is registered as a swap
dealer with the Commission.
(2) MAJOR SWAP PARTICIPANTS.—It shall be unlawful for any
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person to act as a major swap participant unless the person is
registered as a major swap participant with the Commission.
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310
(b) REQUIREMENTS.—
(1) IN GENERAL.—A person shall register as a swap dealer or
major swap participant by filing a registration application with
the Commission.
(2) CONTENTS.—
(A) IN GENERAL.—The application shall be made in such
form and manner as prescribed by the Commission, and
shall contain such information, as the Commission con-
siders necessary concerning the business in which the ap-
plicant is or will be engaged.
(B) CONTINUAL REPORTING.—A person that is registered
as a swap dealer or major swap participant shall continue
to submit to the Commission reports that contain such in-
formation pertaining to the business of the person as the
Commission may require.
(3) EXPIRATION.—Each registration under this section shall
expire at such time as the Commission may prescribe by rule
or regulation.
(4) RULES.—Except as provided in subsections (d) and (e),
the Commission may prescribe rules applicable to swap dealers
and major swap participants, including rules that limit the ac-
tivities of swap dealers and major swap participants.
(5) TRANSITION.—Rules under this section shall provide for
the registration of swap dealers and major swap participants
not later than 1 year after the date of enactment of the Wall
Street Transparency and Accountability Act of 2010.
(6) STATUTORY DISQUALIFICATION.—Except to the extent oth-
erwise specifically provided by rule, regulation, or order, it
shall be unlawful for a swap dealer or a major swap partici-
pant to permit any person associated with a swap dealer or a
major swap participant who is subject to a statutory disquali-
fication to effect or be involved in effecting swaps on behalf of
the swap dealer or major swap participant, if the swap dealer
or major swap participant knew, or in the exercise of reason-
able care should have known, of the statutory disqualification.
(c) DUAL REGISTRATION.—
(1) SWAP DEALER.—Any person that is required to be reg-
istered as a swap dealer under this section shall register with
the Commission regardless of whether the person also is a de-
pository institution or is registered with the Securities and Ex-
change Commission as a security-based swap dealer.
(2) MAJOR SWAP PARTICIPANT.—Any person that is required
to be registered as a major swap participant under this section
shall register with the Commission regardless of whether the
person also is a depository institution or is registered with the
Securities and Exchange Commission as a major security-based
swap participant.
(d) RULEMAKINGS.—
(1) IN GENERAL.—The Commission shall adopt rules for per-
sons that are registered as swap dealers or major swap partici-
pants under this section.
(2) EXCEPTION FOR PRUDENTIAL REQUIREMENTS.—
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(A) IN GENERAL.—The Commission may not prescribe
rules imposing prudential requirements on swap dealers or
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major swap participants for which there is a prudential
regulator.
(B) APPLICABILITY.—Subparagraph (A) does not limit the
authority of the Commission to prescribe rules as directed
under this section.
(e) CAPITAL AND MARGIN REQUIREMENTS.—
(1) IN GENERAL.—
(A) SWAP DEALERS AND MAJOR SWAP PARTICIPANTS THAT
ARE BANKS.—Each registered swap dealer and major swap
participant for which there is a prudential regulator shall
meet such minimum capital requirements and minimum
initial and variation margin requirements as the pruden-
tial regulator shall by rule or regulation prescribe under
paragraph (2)(A).
(B) SWAP DEALERS AND MAJOR SWAP PARTICIPANTS THAT
ARE NOT BANKS.—Each registered swap dealer and major
swap participant for which there is not a prudential regu-
lator shall meet such minimum capital requirements and
minimum initial and variation margin requirements as the
Commission shall by rule or regulation prescribe under
paragraph (2)(B).
(2) RULES.—
(A) SWAP DEALERS AND MAJOR SWAP PARTICIPANTS THAT
ARE BANKS.—The prudential regulators, in consultation
with the Commission and the Securities and Exchange
Commission, shall jointly adopt rules for swap dealers and
major swap participants, with respect to their activities as
a swap dealer or major swap participant, for which there
is a prudential regulator imposing—
(i) capital requirements; and
(ii) both initial and variation margin requirements
on all swaps that are not cleared by a registered de-
rivatives clearing organization.
(B) SWAP DEALERS AND MAJOR SWAP PARTICIPANTS THAT
ARE NOT BANKS.—The Commission shall adopt rules for
swap dealers and major swap participants, with respect to
their activities as a swap dealer or major swap participant,
for which there is not a prudential regulator imposing—
(i) capital requirements; and
(ii) both initial and variation margin requirements
on all swaps that are not cleared by a registered de-
rivatives clearing organization.
(C) CAPITAL.—In setting capital requirements for a per-
son that is designated as a swap dealer or a major swap
participant for a single type or single class or category of
swap or activities, the prudential regulator and the Com-
mission shall take into account the risks associated with
other types of swaps or classes of swaps or categories of
swaps engaged in and the other activities conducted by
that person that are not otherwise subject to regulation
applicable to that person by virtue of the status of the per-
son as a swap dealer or a major swap participant.
(3) STANDARDS FOR CAPITAL AND MARGIN.—
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(A) IN GENERAL.—To offset the greater risk to the swap
dealer or major swap participant and the financial system
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arising from the use of swaps that are not cleared, the re-
quirements imposed under paragraph (2) shall—
(i) help ensure the safety and soundness of the swap
dealer or major swap participant; and
(ii) be appropriate for the risk associated with the
non-cleared swaps held as a swap dealer or major
swap participant.
(B) RULE OF CONSTRUCTION.—
(i) IN GENERAL.—Nothing in this section shall limit,
or be construed to limit, the authority—
(I) of the Commission to set financial responsi-
bility rules for a futures commission merchant or
introducing broker registered pursuant to section
4f(a) (except for section 4f(a)(3)) in accordance
with section 4f(b); or
(II) 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 that Act (15 U.S.C.
78o(b)(11)) in accordance with section 15(c)(3) of
the Securities Exchange Act of 1934 (15 U.S.C.
78o(c)(3)).
(ii) FUTURES COMMISSION MERCHANTS AND OTHER
DEALERS.—A futures commission merchant, intro-
ducing broker, broker, or dealer shall maintain suffi-
cient capital to comply with the stricter of any applica-
ble capital requirements to which such futures com-
mission merchant, introducing broker, broker, or deal-
er is subject to under this Act or the Securities Ex-
change Act of 1934 (15 U.S.C. 78a et seq.).
(C) MARGIN REQUIREMENTS.—In prescribing margin re-
quirements under this subsection, the prudential regulator
with respect to swap dealers and major swap participants
for which it is the prudential regulator and the Commis-
sion with respect to swap dealers and major swap partici-
pants for which there is no prudential regulator shall per-
mit the use of noncash collateral, as the regulator or the
Commission determines to be consistent with—
(i) preserving the financial integrity of markets trad-
ing swaps; and
(ii) preserving the stability of the United States fi-
nancial system.
(D) COMPARABILITY OF CAPITAL AND MARGIN REQUIRE-
MENTS.—
(i) IN GENERAL.—The prudential regulators, the
Commission, and the Securities and Exchange Com-
mission shall periodically (but not less frequently than
annually) consult on minimum capital requirements
and minimum initial and variation margin require-
ments.
(ii) COMPARABILITY.—The entities described in
clause (i) shall, to the maximum extent practicable, es-
dmwilson on DSK7X7S144PROD with REPORTS
tablish and maintain comparable minimum capital re-
quirements and minimum initial and variation margin
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313
requirements, including the use of non cash collateral,
for—
(I) swap dealers; and
(II) major swap participants.
(4) APPLICABILITY WITH RESPECT TO COUNTERPARTIES.—The
requirements of paragraphs (2)(A)(ii) and (2)(B)(ii), including
the initial and variation margin requirements imposed by rules
adopted pursuant to paragraphs (2)(A)(ii) and (2)(B)(ii), shall
not apply to a swap in which a counterparty qualifies for an
exception under section 2(h)(7)(A), or an exemption issued
under section 4(c)(1) from the requirements of section
2(h)(1)(A) for cooperative entities as defined in such exemption,
or satisfies the criteria in section 2(h)(7)(D).
(f) REPORTING AND RECORDKEEPING.—
(1) IN GENERAL.—Each registered swap dealer and major
swap participant—
(A) shall make such reports as are required by the Com-
mission by rule or regulation regarding the transactions
and positions and financial condition of the registered
swap dealer or major swap participant;
(B)(i) for which there is a prudential regulator, shall
keep books and records of all activities related to the busi-
ness as a swap dealer or major swap participant in such
form and manner and for such period as may be prescribed
by the Commission by rule or regulation; and
(ii) for which there is no prudential regulator, 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;
(C) shall keep books and records described in subpara-
graph (B) open to inspection and examination by any rep-
resentative of the Commission; and
(D) shall keep any such books and records relating to
swaps defined in section ø1a(47)(A)¿ 1a(48)(A)(v) open to
inspection and examination by the Securities and Ex-
change Commission.
(2) RULES.—The Commission shall adopt rules governing re-
porting and recordkeeping for swap dealers and major swap
participants.
(g) DAILY TRADING RECORDS.—
(1) IN GENERAL.—Each registered swap dealer and major
swap participant shall maintain daily trading records of the
swaps of the registered swap dealer and major swap partici-
pant and all related records (including related cash or forward
transactions) and recorded communications, including elec-
tronic mail, instant messages, and recordings of telephone
calls, for such period as may be required by the Commission
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 swap dealer
and major swap participant shall maintain daily trading
dmwilson on DSK7X7S144PROD with REPORTS
records for each counterparty in a manner and form that is
identifiable with each swap transaction.
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(4) AUDIT TRAIL.—Each registered swap dealer and major
swap participant shall maintain a complete audit trail for con-
ducting comprehensive and accurate trade reconstructions.
(5) RULES.—The Commission shall adopt rules governing
daily trading records for swap dealers and major swap partici-
pants.
(h) BUSINESS CONDUCT STANDARDS.—
(1) IN GENERAL.—Each registered swap dealer and major
swap participant shall conform with such business conduct
standards as prescribed in paragraph (3) and as may be pre-
scribed by the Commission by rule or regulation that relate
to—
(A) fraud, manipulation, and other abusive practices in-
volving swaps (including swaps that are offered but not en-
tered into);
(B) diligent supervision of the business of the registered
swap dealer and major swap participant;
(C) adherence to all applicable position limits; and
(D) such other matters as the Commission determines to
be appropriate.
(2) RESPONSIBILITIES WITH RESPECT TO SPECIAL ENTITIES.—
(A) ADVISING SPECIAL ENTITIES.—A swap dealer or major
swap participant that acts as an advisor to a special entity
regarding a swap shall comply with the requirements of
subparagraph (4) with respect to such Special Entity.
(B) ENTERING OF SWAPS WITH RESPECT TO SPECIAL ENTI-
TIES.—A swap dealer that enters into or offers to enter
into swap with a Special Entity shall comply with the re-
quirements of subparagraph (5) with respect to such Spe-
cial Entity.
(C) SPECIAL ENTITY DEFINED.—For purposes of this sub-
section, the term ‘‘special entity’’ means—
(i) a Federal agency;
(ii) a State, State agency, city, county, municipality,
or other political subdivision of a State;
(iii) any employee benefit plan, as defined in section
3 of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002);
(iv) any governmental plan, as defined in section 3
of the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1002); or
(v) any endowment, including an endowment that is
an organization described in section 501(c)(3) of the
Internal Revenue Code of 1986.
(3) BUSINESS CONDUCT REQUIREMENTS.—Business conduct re-
quirements adopted by the Commission shall—
(A) establish a duty for a swap dealer or major swap
participant to verify that any counterparty meets the eligi-
bility standards for an eligible contract participant;
(B) require disclosure by the swap dealer or major swap
participant to any counterparty to the transaction (other
than a swap dealer, major swap participant, security-based
dmwilson on DSK7X7S144PROD with REPORTS
swap dealer, or major security-based swap participant)
of—
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315
(i) information about the material risks and charac-
teristics of the swap;
(ii) any material incentives or conflicts of interest
that the swap dealer or major swap participant may
have in connection with the swap; and
(iii)(I) for cleared swaps, upon the request of the
counterparty, receipt of the daily mark of the trans-
action from the appropriate derivatives clearing orga-
nization; and
(II) for uncleared swaps, receipt of the daily mark of
the transaction from the swap dealer or the major
swap participant;
(C) establish a duty for a swap dealer or major swap
participant to communicate in a fair and balanced manner
based on principles of fair dealing and good faith; and
(D) establish such other standards and requirements as
the Commission may determine are appropriate in the
public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this Act.
(4) SPECIAL REQUIREMENTS FOR SWAP DEALERS ACTING AS AD-
VISORS.—
(A) IN GENERAL.—It shall be unlawful for a swap dealer
or major swap participant—
(i) to employ any device, scheme, or artifice to de-
fraud any Special Entity or prospective customer who
is a Special Entity;
(ii) to engage in any transaction, practice, or course
of business that operates as a fraud or deceit on any
Special Entity or prospective customer who is a Spe-
cial Entity; or
(iii) to engage in any act, practice, or course of busi-
ness that is fraudulent, deceptive or manipulative.
(B) DUTY.—Any swap dealer that acts as an advisor to
a Special Entity shall have a duty to act in the best inter-
ests of the Special Entity.
(C) REASONABLE EFFORTS.—Any swap dealer that acts as
an advisor to a Special Entity shall make reasonable ef-
forts to obtain such information as is necessary to make a
reasonable determination that any swap recommended by
the swap dealer is in the best interests of the Special Enti-
ty, including information relating to—
(i) the financial status of the Special Entity;
(ii) the tax status of the Special Entity;
(iii) the investment or financing objectives of the
Special Entity; and
(iv) any other information that the Commission may
prescribe by rule or regulation.
(5) SPECIAL REQUIREMENTS FOR SWAP DEALERS AS COUNTER-
PARTIES TO SPECIAL ENTITIES.—
(A) Any swap dealer or major swap participant that of-
fers to enter or enters into a swap with a Special Entity
shall—
(i) comply with any duty established by the Commis-
dmwilson on DSK7X7S144PROD with REPORTS
sion for a swap dealer or major swap participant, with
respect to a counterparty that is an eligible contract
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participant within the meaning of subclause (I) or (II)
of clause (vii) of section ø1a(18)¿ 1a(19) of this Act,
that requires the swap dealer or major swap partici-
pant to have a reasonable basis to believe that the
counterparty that is a Special Entity has an inde-
pendent representative that—
(I) has sufficient knowledge to evaluate the
transaction and risks;
(II) is not subject to a statutory disqualification;
(III) is independent of the swap dealer or major
swap participant;
(IV) undertakes a duty to act in the best inter-
ests of the counterparty it represents;
(V) makes appropriate disclosures;
(VI) will provide written representations to the
Special Entity regarding fair pricing and the ap-
propriateness of the transaction; and
(VII) in the case of employee benefit plans sub-
ject to the Employee Retirement Income Security
act of 1974, is a fiduciary as defined in section 3
of that Act (29 U.S.C. 1002); and
(ii) before the initiation of the transaction, disclose
to the Special Entity in writing the capacity in which
the swap dealer is acting; and
(B) the Commission may establish such other standards
and requirements as the Commission may determine are
appropriate in the public interest, for the protection of in-
vestors, or otherwise in furtherance of the purposes of this
Act.
(6) RULES.—The Commission shall prescribe rules under this
subsection governing business conduct standards for swap
dealers and major swap participants.
(7) APPLICABILITY.—This section shall not apply with respect
to a transaction that is—
(A) initiated by a Special Entity on an exchange or swap
execution facility; and
(B) one in which the swap dealer or major swap partici-
pant does not know the identity of the counterparty to the
transaction.
(i) DOCUMENTATION STANDARDS.—
(1) IN GENERAL.—Each registered swap dealer and major
swap participant shall conform with such standards as may be
prescribed by the Commission by rule or regulation that relate
to timely and accurate confirmation, processing, netting, docu-
mentation, and valuation of all swaps.
(2) RULES.—The Commission shall adopt rules governing
documentation standards for swap dealers and major swap
participants.
(j) DUTIES.—Each registered swap dealer and major swap partici-
pant at all times shall comply with the following requirements:
(1) MONITORING OF TRADING.—The swap dealer or major
swap participant shall monitor its trading in swaps to prevent
violations of applicable position limits.
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(2) RISK MANAGEMENT PROCEDURES.—The swap dealer or
major swap participant shall establish robust and professional
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risk management systems adequate for managing the day-to-
day business of the swap dealer or major swap participant.
(3) DISCLOSURE OF GENERAL INFORMATION.—The swap dealer
or major swap participant shall disclose to the Commission and
to the prudential regulator for the swap dealer or major swap
participant, as applicable, information concerning—
(A) terms and conditions of its swaps;
(B) swap trading operations, mechanisms, and practices;
(C) financial integrity protections relating to swaps; and
(D) other information relevant to its trading in swaps.
(4) ABILITY TO OBTAIN INFORMATION.—The swap dealer or
major swap participant shall—
(A) establish and enforce internal systems and proce-
dures to obtain any necessary information to perform any
of the functions described in this section; and
(B) provide the information to the Commission and to
the prudential regulator for the swap dealer or major swap
participant, as applicable, on request.
(5) CONFLICTS OF INTEREST.—The swap dealer and major
swap participant shall implement conflict-of-interest systems
and procedures that—
(A) establish structural and institutional safeguards to
ensure that the activities of any person within the firm re-
lating to research or analysis of the price or market for
any commodity or swap or acting in a role of providing
clearing activities or making determinations as to accept-
ing clearing customers are separated by appropriate infor-
mational partitions within the firm from the review, pres-
sure, or oversight of persons whose involvement in pricing,
trading, or clearing activities might potentially bias their
judgment or supervision and contravene the core principles
of open access and the business conduct standards de-
scribed in this Act; and
(B) address such other issues as the Commission deter-
mines to be appropriate.
(6) ANTITRUST CONSIDERATIONS.—Unless necessary or appro-
priate to achieve the purposes of this Act, a swap dealer or
major swap participant 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 trad-
ing or clearing.
(7) RULES.—The Commission shall prescribe rules under this
subsection governing duties of swap dealers and major swap
participants.
(k) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
(1) IN GENERAL.—Each swap dealer and major swap partici-
pant shall designate an individual to serve as a chief compli-
ance officer.
(2) DUTIES.—The chief compliance officer shall—
(A) report directly to the board or to the senior officer of
the swap dealer or major swap participant;
dmwilson on DSK7X7S144PROD with REPORTS
(B) review the compliance of the swap dealer or major
swap participant with respect to the swap dealer and
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318
major swap participant requirements described in this sec-
tion;
(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 pro-
cedure that is required to be established pursuant to this
section;
(E) ensure compliance with this Act (including regula-
tions) relating to swaps, including each rule prescribed by
the Commission under this section;
(F) establish procedures for the remediation of non-
compliance 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 annu-
ally prepare and sign a report that contains a description
of—
(i) the compliance of the swap dealer or major swap
participant with respect to this Act (including regula-
tions); and
(ii) each policy and procedure of the swap dealer or
major swap participant of the chief compliance officer
(including the code of ethics and conflict of interest
policies).
(B) REQUIREMENTS.—A compliance report under sub-
paragraph (A) shall—
(i) accompany each appropriate financial report of
the swap dealer or major swap participant that is re-
quired to be furnished to the Commission pursuant to
this section; and
(ii) include a certification that, under penalty of law,
the compliance report is accurate and complete.
(l) SEGREGATION REQUIREMENTS.—
(1) SEGREGATION OF ASSETS HELD AS COLLATERAL IN
UNCLEARED SWAP TRANSACTIONS.—
(A) NOTIFICATION.—A swap dealer or major swap partici-
pant shall be required to notify the counterparty of the
swap dealer or major swap participant at the beginning of
a swap transaction that the counterparty has the right to
require segregation of the funds or other property supplied
to margin, guarantee, or secure the obligations of the
counterparty.
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(B) SEGREGATION AND MAINTENANCE OF FUNDS.—At the
request of a counterparty to a swap that provides funds or
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other property to a swap dealer or major swap participant
to margin, guarantee, or secure the obligations of the
counterparty, the swap dealer or major swap participant
shall—
(i) segregate the funds or other property for the ben-
efit of the counterparty; and
(ii) in accordance with such rules and regulations as
the Commission may promulgate, maintain the funds
or other property in a segregated account separate
from the assets and other interests of the swap dealer
or major swap participant.
(2) APPLICABILITY.—The requirements described in para-
graph (1) shall—
(A) apply only to a swap between a counterparty and a
swap dealer or major swap participant that is not sub-
mitted for clearing to a derivatives clearing organization;
and
(B)(i) not apply to variation margin payments; or
(ii) not preclude any commercial arrangement regard-
ing—
(I) the investment of segregated funds or other prop-
erty that may only be invested in such investments as
the Commission may permit by rule or regulation; and
(II) the related allocation of gains and losses result-
ing from any investment of the segregated funds or
other property.
(3) USE OF INDEPENDENT THIRD-PARTY CUSTODIANS.—The
segregated account described in paragraph (1) shall be—
(A) carried by an independent third-party custodian; and
(B) designated as a segregated account for and on behalf
of the counterparty.
(4) REPORTING REQUIREMENT.—If the counterparty does not
choose to require segregation of the funds or other property
supplied to margin, guarantee, or secure the obligations of the
counterparty, the swap dealer or major swap participant shall
report to the counterparty of the swap dealer or major swap
participant on a quarterly basis that the back office procedures
of the swap dealer or major swap participant relating to mar-
gin and collateral requirements are in compliance with the
agreement of the counterparties.
SEC. 4t. LARGE SWAP TRADER REPORTING.
(a) PROHIBITION.—
(1) IN GENERAL.—Except as provided in paragraph (2), it
shall be unlawful for any person to enter into any swap that
the Commission determines to perform a significant price dis-
covery function with respect to registered entities if—
(A) the person directly or indirectly enters into the swap
during any 1 day in an amount equal to or in excess of
such amount as shall be established periodically by the
Commission; and
(B) the person directly or indirectly has or obtains a po-
sition in the swap equal to or in excess of such amount as
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shall be established periodically by the Commission.
(2) EXCEPTION.—Paragraph (1) shall not apply if—
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(A) the person files or causes to be filed with the prop-
erly designated officer of the Commission such reports re-
garding any transactions or positions described in subpara-
graphs (A) and (B) of paragraph (1) as the Commission
may require by rule or regulation; and
(B) in accordance with the rules and regulations of the
Commission, the person keeps books and records of all
such swaps and any transactions and positions in any re-
lated commodity traded on or subject to the rules of any
designated contract market or swap execution facility, and
of cash or spot transactions in, inventories of, and pur-
chase and sale commitments of, such a commodity.
(b) REQUIREMENTS.—
(1) IN GENERAL.—Books and records described in subsection
(a)(2)(B) shall—
(A) show such complete details concerning all trans-
actions and positions as the Commission may prescribe by
rule or regulation;
(B) be open at all times to inspection and examination
by any representative of the Commission; and
(C) be open at all times to inspection and examination
by the Securities and Exchange Commission, to the extent
such books and records relate to transactions in swaps (as
that term is defined in section ø1a(47)(A)(v)¿ 1a(48)(A)(v)),
and consistent with the confidentiality and disclosure re-
quirements of section 8.
(2) JURISDICTION.—Nothing in paragraph (1) shall affect the
exclusive jurisdiction of the Commission to prescribe record-
keeping and reporting requirements for large swap traders
under this section.
(c) APPLICABILITY.—For purposes of this section, the swaps, fu-
tures, and cash or spot transactions and positions of any person
shall include the swaps, futures, and cash or spot transactions and
positions of any persons directly or indirectly controlled by the per-
son.
(d) SIGNIFICANT PRICE DISCOVERY FUNCTION.—In making a de-
termination as to whether a swap performs or affects a significant
price discovery function with respect to registered entities, the
Commission shall consider the factors described in section 4a(a)(3).
SEC. 4u. REGISTRATION AND REGULATION OF DIGITAL COMMODITY
BROKERS AND DEALERS.
(a) REGISTRATION.—
(1) REQUIREMENT.—It shall be unlawful for any person to act
as a digital commodity broker or digital commodity dealer un-
less the person is registered as such with the Commission.
(2) ADDITIONAL REGISTRATION.—
(A) RULES.—In order to foster the development of fair
and orderly markets, protect customers, and promote re-
sponsible 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 burden-
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some provisions of this Act and the rules under this
Act;
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(ii) shall prescribe rules to address conflicts of inter-
ests and the activities of the entity; and
(iii) may after an analysis of the risks and benefits,
prescribe rules to provide for portfolio margining.
(B) WITH MEMBERSHIP IN A REGISTERED FUTURES ASSO-
CIATION.—Any person required to be registered as a digital
commodity broker or digital commodity dealer under this
section shall become and remain a member of a registered
futures association.
(b) REQUIREMENTS.—
(1) IN GENERAL.—A person shall register as a digital com-
modity broker or digital commodity dealer by filing a registra-
tion 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 con-
siders necessary concerning the business in which the ap-
plicant 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) STATUTORY DISQUALIFICATION.—Except to the extent other-
wise specifically provided by rule, regulation, or order, it shall
be unlawful for a digital commodity broker or digital com-
modity 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 in-
volved in effecting a contract of 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 rea-
sonable care should have known, of the statutory disqualifica-
tion.
(c) RULEMAKING.—
(1) IN GENERAL.—The Commission shall prescribe such rules
applicable to registered digital commodity brokers and reg-
istered 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 com-
modity dealers.
(2) FINANCING AGREEMENTS.—
(A) IN GENERAL.—The Commission shall prescribe rules
and regulations applicable to digital commodity brokers or
digital commodity dealers which shall set forth minimum
requirements related to disclosure, recordkeeping, margin
financing arrangements, rehypothecation, capital, report-
ing, business conduct, documentation, and supervision of
employees and agents, in connection with—
(i) an agreement described in section 2(c)(2)(D)(iv); or
(ii) any other margined, leveraged, or financing ar-
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rangement for the purchase or sale of a digital com-
modity with an eligible contract participant.
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(B) SPECIFIC AUTHORITY.—Except as prohibited in section
2(c)(2)(G)(iii), the Commission may also 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 pur-
poses of, this Act in connection with an agreement referred
to in subparagraph (A) of this paragraph.
(d) CAPITAL REQUIREMENTS.—
(1) IN GENERAL.—Each digital commodity broker and digital
commodity dealer shall meet such minimum capital require-
ments as the Commission may prescribe to address the risks as-
sociated with digital commodity trading and to ensure that the
digital commodity broker or digital commodity dealer, respec-
tively, is able, at all times, to—
(A) meet, and continue to meet the obligations of such a
registrant; and
(B) fulfill obligations to customers or counterparties for
any margined, leveraged, or financed transactions.
(2) FUTURES COMMISSION MERCHANTS AND OTHER DEALERS.—
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 com-
mission 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.).
(e) REPORTING AND RECORDKEEPING.—Each digital commodity
broker and digital commodity dealer—
(1) shall make such reports as are required by the Commis-
sion by rule or regulation regarding the transactions, positions,
and financial condition of the digital commodity broker or dig-
ital 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.
(f) DAILY TRADING RECORDS.—
(1) IN GENERAL.—Each digital commodity broker and digital
commodity dealer shall maintain daily trading records of the
transactions of the digital commodity broker or digital com-
modity dealer, respectively, and all related records (including
related forward or derivatives transactions) and recorded com-
munications, 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 digital commodity
broker and digital commodity dealer shall maintain daily trad-
ing records for each customer or counterparty in a manner and
dmwilson on DSK7X7S144PROD with REPORTS
form that is identifiable with each digital commodity trans-
action.
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(4) AUDIT TRAIL.—Each digital commodity broker and digital
commodity dealer shall maintain a complete audit trail for con-
ducting comprehensive and accurate trade reconstructions.
(g) BUSINESS CONDUCT STANDARDS.—
(1) IN GENERAL.—Each digital commodity broker and 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 in-
volving spot or margined, leveraged, or financed digital
commodity transactions (including transactions that are of-
fered but not entered into);
(B) diligent supervision of the business of the registered
digital commodity broker or digital commodity dealer, re-
spectively; and
(C) such other matters as the Commission deems appro-
priate.
(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 con-
tract participant) of—
(i) information about the material risks and charac-
teristics of the digital commodity; and
(ii) information about the material risks and charac-
teristics 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 deal-
ing and good faith;
(C) establish standards governing digital commodity
broker and digital commodity dealer marketing and adver-
tising, including testimonials and endorsements; and
(D) establish such other standards and requirements as
the Commission may determine are appropriate for the pro-
tection of customers.
(3) PROHIBITION ON FRAUDULENT PRACTICES.—It shall be un-
lawful for a digital commodity broker or 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 busi-
ness 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.
(h) DUTIES.—
(1) RISK MANAGEMENT PROCEDURES.—Each digital com-
modity broker and digital commodity dealer shall establish ro-
bust and professional risk management systems adequate for
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managing the day-to-day business of the digital commodity
broker or digital commodity dealer, respectively.
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(2) DISCLOSURE OF GENERAL INFORMATION.—Each digital
commodity broker and 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, re-
spectively;
(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 deal-
er, respectively; and
(D) other information relevant to trading in digital com-
modities by the digital commodity broker or digital com-
modity dealer, respectively.
(3) ABILITY TO OBTAIN INFORMATION.—Each digital com-
modity broker and 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 re-
quest.
(4) CONFLICTS OF INTEREST.—Each digital commodity broker
and digital commodity dealer shall establish, maintain, and en-
force written policies and procedures reasonably designed, tak-
ing into consideration the nature of the business of the person,
to mitigate any conflicts of interest in transactions or arrange-
ments with affiliates.
(5) ANTITRUST CONSIDERATIONS.—Unless necessary or appro-
priate 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 trad-
ing or clearing.
(i) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
(1) IN GENERAL.—Each digital commodity broker and 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 com-
modity broker or registered digital commodity dealer with
respect to the registered digital commodity broker and reg-
istered 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 of-
ficer of the organization, resolve any conflicts of interest
that may arise;
(D) be responsible for administering each policy and pro-
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cedure that is required to be established pursuant to this
section;
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(E) ensure compliance with this Act (including regula-
tions), including each rule prescribed by the Commission
under this section;
(F) establish procedures for the remediation of non-
compliance 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 this
Act (including regulations); and
(ii) each policy and procedure of the registered dig-
ital commodity broker or registered digital commodity
dealer followed by the chief compliance officer (includ-
ing 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 fur-
nished to the Commission pursuant to this section; and
(ii) includes a certification that, under penalty of
law, the compliance report is accurate and complete.
(j) SEGREGATION OF DIGITAL COMMODITIES.—
(1) HOLDING OF CUSTOMER ASSETS.—
(A) IN GENERAL.—Each digital commodity broker and
digital commodity dealer shall hold customer money, as-
sets, 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 ASSET CUSTODIAN.—Each digital
commodity broker and digital commodity dealer shall hold
in a qualified digital asset custodian each unit of a digital
asset that is—
(i) the property of a customer or counterparty of the
digital commodity broker or digital commodity dealer,
respectively;
(ii) required to be held by the digital commodity
broker or digital commodity dealer under subsection
(e); or
(iii) otherwise so required by the Commission to rea-
sonably protect customers or promote the public inter-
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est.
(2) SEGREGATION OF FUNDS.—
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(A) IN GENERAL.—Each digital commodity broker and
digital commodity dealer shall treat and deal with all
money, assets, and property that is received by the digital
commodity broker or digital commodity dealer, or accrues
to a customer as the result of trading in digital commod-
ities, as belonging to the customer.
(B) COMMINGLING PROHIBITED.—
(i) IN GENERAL.—Except as provided in clause (ii),
each digital commodity broker and 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 dig-
ital commodity dealer, respectively, or use any such
money, assets, or property to margin, secure, or guar-
antee 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 digital commodity
broker or 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 asset 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 nec-
essary 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, in-
cluding the payment of commissions, broker-
age, interest, taxes, storage, and other charges,
lawfully accruing in connection with the con-
tract.
(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 digital
commodity broker or 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 com-
modity dealer, respectively, and required by the
Commission to be separately accounted for and
treated and dealt with as belonging to the cus-
tomer of the digital commodity broker or digital
commodity dealer, respectively.
(3) PERMITTED INVESTMENTS.—Money described in para-
graph (2) may be invested in obligations of the United States,
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in general obligations of any State or of any political subdivi-
sion of a State, in obligations fully guaranteed as to principal
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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
broker or 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 ‘‘com-
modity contract’’ in section 761 of title 11, United States
Code.
(C) BROKERS AND DEALERS.—A digital commodity broker
and a digital commodity dealer shall be considered a fu-
tures commission merchant for purposes of section 761 of
title 11, United States Code.
(D) ASSETS REMOVED FROM SEGREGATION.—Assets re-
moved 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 broker or digital com-
modity 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 dig-
ital commodity broker or digital commodity dealer, re-
spectively, or any person other than a customer of 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 com-
modity 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 be-
longing 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 (6) or a decentralized governance system as-
sociated with the digital commodity or the blockchain sys-
tem 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
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waive the restrictions in paragraph (2) for any unit of a
digital commodity to be used under subparagraph (B) of
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this paragraph, 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 re-
moved 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 sub-
paragraph (A) relates.
(C) LIMITATIONS.—
(i) IN GENERAL.—The Commission shall, by rule, es-
tablish notice and disclosure requirements, and may,
by rule, establish any other limitations and rules re-
lated to the waiving of any restrictions under this
paragraph that are reasonably necessary to protect cus-
tomers, including eligible contract participants, non-el-
igible contract participants, or any other class of cus-
tomers.
(ii) CUSTOMER CHOICE.—A digital commodity broker
or digital commodity dealer may not require a waiver
from a customer described in subparagraph (A) as a
condition of doing business with the broker or dealer.
(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
required for the ongoing operation of a blockchain system.
(k) 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 with respect to activities subject to this Act.
(l) EXEMPTIONS.—In order to promote responsible 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, uncondition-
ally or on stated terms or conditions, or for stated periods, and
retroactively or prospectively, or both, a registered digital com-
modity broker or registered digital commodity dealer from the re-
quirements of this section, if the Commission determines that—
(1)(A) the exemption would be consistent with the public in-
terest and the purposes of this Act; and
(B) the exemption will not have a material adverse effect on
the ability of the Commission to discharge regulatory duties
under this Act; or
(2) the registered digital commodity broker or registered dig-
ital commodity dealer is subject to comparable, comprehensive
supervision and regulation by the appropriate government au-
thorities in the home country of the registered digital com-
modity broker or registered digital commodity dealer, respec-
tively.
SEC. 4v. DECENTRALIZED FINANCE ACTIVITIES NOT SUBJECT TO THIS
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ACT.
(a) IN GENERAL.—Notwithstanding any other provision of this
Act, a person shall not be subject to this Act and the regulations
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329
promulgated under this Act based on the person directly or indi-
rectly engaging in any of the following activities, whether singly or
in combination, in relation to the operation of a blockchain system
or in relation to decentralized finance trading protocol:
(1) Compiling network transactions or relaying, searching, se-
quencing, validating, or acting in a similar capacity.
(2) Providing computational work, operating a node or oracle
service, or procuring, offering, or utilizing network bandwidth,
or other similar incidental services.
(3) Providing a user-interface that enables a user to read, and
access data about a blockchain system.
(4) Developing, publishing, constituting, administering, main-
taining, or otherwise distributing a blockchain system other
than a decentralized finance trading protocol.
(5) Developing, publishing, constituting, administering, main-
taining, or otherwise distributing a decentralized finance mes-
saging system or decentralized finance trading protocol, or oper-
ating or participating in a liquidity pool with respect thereto,
for the purpose of executing a spot contract for the purchase or
sale of a digital commodity.
(6) Developing, publishing, constituting, administering, main-
taining, or otherwise distributing software or systems that cre-
ate or deploy hardware or software, including wallets or other
systems, facilitating an individual user’s own personal ability
to keep, safeguard, or custody the user’s digital assets or related
private keys.
(b) EXCEPTIONS.—Subsection (a) shall not be interpreted to apply
to the anti-fraud, anti-manipulation, or false reporting enforcement
authorities of the Commission.
SEC. 4w. LIMITATION ON TRANSACTIONS BY BLOCKCHAIN CONTROL
PERSONS.
(a) LIMITATION.—It shall be unlawful for a blockchain control
person with respect to a blockchain system certified as a mature
blockchain system in accordance with section 42 of the Securities
Exchange Act of 1934 to sell a unit of a digital commodity related
to the blockchain system unless the person files notice with the Com-
mission, in a form and manner determined by the Commission, that
the person has or intends to obtain an authority described in sub-
section (b)(1) with respect to the blockchain system, and complies
with rules adopted by the Commission that require—
(1) disclosure of information to the Commission and the pub-
lic about the material activities, as determined by the Commis-
sion, of the blockchain control person; and
(2)(A) the use of a digital commodity broker to effect the sale;
or
(B) such other sales restrictions applicable to the blockchain
control person, or any affiliated blockchain control person, to
prevent manipulation and distortion of the value of the digital
commodity and promote further maturity of the blockchain sys-
tem to which the digital commodity relates.
(b) DEFINITIONS.—In this section:
(1) BLOCKCHAIN CONTROL PERSON.—The term ‘‘blockchain
control person’’ means, with respect to a blockchain system, any
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person or group of persons under common control, other than
a decentralized governance system, who—
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(A) has the unilateral authority, directly or indirectly,
through any contract, arrangement, understanding, rela-
tionship, or otherwise, to control or materially alter the
functionality, operation, or rules of consensus or agreement
of the blockchain system or its related digital commodity;
or
(B) has the unilateral authority to direct the voting, in
the aggregate, of 20 percent or more of the outstanding vot-
ing power of the blockchain system by means of a related
digital commodity, nodes or validators, a decentralized gov-
ernance system, or otherwise, in a blockchain system which
can be altered by a voting system.
(2) AFFILIATED BLOCKCHAIN CONTROL PERSON.—The term ‘‘af-
filiated blockchain control person’’ means any person directly or
indirectly controlling, controlled by, or under common control
with a blockchain control person, as the Commission by rule or
regulation, may determine will effectuate the purposes of this
section.
SEC. 4x. TRADING REQUIREMENTS FOR OTHER TRADABLE ASSETS.
(a) LIMITATION.—A tradable asset shall not be offered, solicited,
traded, facilitated, executed, cleared, reported, or otherwise dealt in,
on or subject to the rules of a registered entity, or by any other entity
registered with the Commission, except in accordance with sub-
section (b).
(b) REQUIREMENTS.—
(1) TREATMENT OF TRADABLE ASSETS.—A tradable asset that
is offered, solicited, traded, facilitated, executed, cleared, re-
ported, or otherwise dealt in on or subject to the rules of a reg-
istered entity, or by any other entity registered with the Com-
mission, shall be treated as a digital commodity for purposes of
this Act.
(2) ADDITIONAL RULEMAKING AUTHORITY.—In addition to the
other requirements of this Act, the Commission may, by rule or
regulation, impose additional obligations on any person reg-
istered under this Act offering, soliciting, trading, facilitating,
executing, clearing, reporting, or otherwise dealing in a
tradable asset, or class thereof, pursuant to paragraph (1) as
are necessary for the protection of customers, the promotion of
innovation, and the maintenance of fair, orderly, and efficient
markets, including additional obligations related to—
(A) disclosure;
(B) recordkeeping;
(C) capital;
(D) reporting;
(E) business conduct;
(F) documentation;
(G) supervision of employees; and
(H) segregation.
(3) PROHIBITION ON TRADING.—A tradable asset, the primary
purpose of which is to be used to commit fraud or market ma-
nipulation, or engage in any other conduct that would result in
abusive practices or be disruptive to market integrity, shall not
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be offered, solicited, traded, facilitated, executed, cleared, re-
ported, or otherwise dealt in on or subject to the rules of a reg-
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istered entity, or by any other entity registered with the Com-
mission.
(c) TRADABLE ASSET DEFINED.—In this section, the term ‘‘tradable
asset’’ means a digital asset other than—
(1) a digital commodity that is treated as such other than by
reason of subsection (b)(1) of this section; or
(2) a digital asset excluded from the definition of digital com-
modity pursuant to subclause (I) through (VII) of section
1a(16)(F)(iii).
(d) GUIDANCE ON FRAUDULENT, MANIPULATIVE, OR DISRUPTIVE
TRADABLE ASSETS.—The Commission may, after public notice and
comment, issue guidance establishing criteria for determining if the
primary purpose of a tradable asset is to be used to commit fraud
or market manipulation, or engage in any other conduct that would
result in abusive practices or be disruptive to market integrity.
SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
(a) APPLICATIONS.—A board of trade applying to the Commission
for designation as a contract market shall submit an application to
the Commission that includes any relevant materials and records
the Commission may require consistent with this Act.
(c) EXISTING CONTRACT MARKETS.—A board of trade that is des-
ignated as a contract market on the date of the enactment of the
Commodity Futures Modernization Act of 2000 shall be considered
to be a designated contract market under this section.
(d) CORE PRINCIPLES FOR CONTRACT MARKETS.—
(1) DESIGNATION AS CONTRACT MARKET.—
(A) IN GENERAL.—To be designated, and maintain a des-
ignation, as a contract market, a board of trade shall com-
ply with—
(i) any core principle described in this subsection;
and
(ii) any requirement that the Commission may im-
pose by rule or regulation pursuant to section 8a(5).
(B) REASONABLE DISCRETION OF CONTRACT MARKET.—Un-
less otherwise determined by the Commission by rule or
regulation, a board of trade described in subparagraph (A)
shall have reasonable discretion in establishing the man-
ner in which the board of trade complies with the core
principles described in this subsection.
(2) COMPLIANCE WITH RULES.—
(A) IN GENERAL.—The board of trade shall establish,
monitor, and enforce compliance with the rules of the con-
tract market, including—
(i) access requirements;
(ii) the terms and conditions of any contracts to be
traded on the contract market; and
(iii) rules prohibiting abusive trade practices on the
contract market.
(B) CAPACITY OF CONTRACT MARKET.—The board of trade
shall have the capacity to detect, investigate, and apply
appropriate sanctions to any person that violates any rule
of the contract market.
(C) REQUIREMENT OF RULES.—The rules of the contract
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market shall provide the board of trade with the ability
and authority to obtain any necessary information to per-
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form any function described in this subsection, including
the capacity to carry out such international information-
sharing agreements as the Commission may require.
(3) CONTRACTS NOT READILY SUBJECT TO MANIPULATION.—
The board of trade shall list on the contract market only con-
tracts that are not readily susceptible to manipulation.
(4) PREVENTION OF MARKET DISRUPTION.—The board of trade
shall have the capacity and responsibility to prevent manipula-
tion, price distortion, and disruptions of the delivery or cash-
settlement process through market surveillance, compliance,
and enforcement practices and procedures, including—
(A) methods for conducting real-time monitoring of trad-
ing; and
(B) comprehensive and accurate trade reconstructions.
(5) POSITION LIMITATIONS OR ACCOUNTABILITY.—
(A) IN GENERAL.—To reduce the potential threat of mar-
ket manipulation or congestion (especially during trading
in the delivery month), the board of trade shall adopt for
each contract of the board of trade, as is necessary and ap-
propriate, position limitations or position accountability for
speculators.
(B) MAXIMUM ALLOWABLE POSITION LIMITATION.—For
any contract that is subject to a position limitation estab-
lished by the Commission pursuant to section 4a(a), the
board of trade shall set the position limitation of the board
of trade at a level not higher than the position limitation
established by the Commission.
(6) EMERGENCY AUTHORITY.—The board of trade, in consulta-
tion or cooperation with the Commission, shall adopt rules to
provide for the exercise of emergency authority, as is necessary
and appropriate, including the authority—
(A) to liquidate or transfer open positions in any con-
tract;
(B) to suspend or curtail trading in any contract; and
(C) to require market participants in any contract to
meet special margin requirements.
(7) AVAILABILITY OF GENERAL INFORMATION.—The board of
trade shall make available to market authorities, market par-
ticipants, and the public accurate information concerning—
(A) the terms and conditions of the contracts of the con-
tract market; and
(B)(i) the rules, regulations, and mechanisms for exe-
cuting transactions on or through the facilities of the con-
tract market; and
(ii) the rules and specifications describing the operation
of the contract market’s—
(I) electronic matching platform; or
(II) trade execution facility.
(8) DAILY PUBLICATION OF TRADING INFORMATION.—The
board of trade shall make public daily information on settle-
ment prices, volume, open interest, and opening and closing
ranges for actively traded contracts on the contract market.
(9) EXECUTION OF TRANSACTIONS.—
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(A) IN GENERAL.—The board of trade shall provide a
competitive, open, and efficient market and mechanism for
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executing transactions that protects the price discovery
process of trading in the centralized market of the board
of trade.
(B) RULES.—The rules of the board of trade may author-
ize, for bona fide business purposes—
(i) transfer trades or office trades;
(ii) an exchange of—
(I) futures in connection with a cash commodity
transaction;
(II) futures for cash commodities; or
(III) futures for swaps; or
(iii) a futures commission merchant, acting as prin-
cipal or agent, to enter into or confirm the execution
of a contract for the purchase or sale of a commodity
for future delivery if the contract is reported, recorded,
or cleared in accordance with the rules of the contract
market or a derivatives clearing organization.
(10) TRADE INFORMATION.—The board of trade shall maintain
rules and procedures to provide for the recording and safe stor-
age of all identifying trade information in a manner that en-
ables the contract market to use the information—
(A) to assist in the prevention of customer and market
abuses; and
(B) to provide evidence of any violations of the rules of
the contract market.
(11) FINANCIAL INTEGRITY OF TRANSACTIONS.—The board of
trade shall establish and enforce—
(A) rules and procedures for ensuring the financial integ-
rity of transactions entered into on or through the facilities
of the contract market (including the clearance and settle-
ment of the transactions with a derivatives clearing orga-
nization); and
(B) rules to ensure—
(i) the financial integrity of any—
(I) futures commission merchant; and
(II) introducing broker; and
(ii) the protection of customer funds.
(12) PROTECTION OF MARKETS AND MARKET PARTICIPANTS.—
The board of trade shall establish and enforce rules—
(A) to protect markets and market participants from
abusive practices committed by any party, including abu-
sive practices committed by a party acting as an agent for
a participant; and
(B) to promote fair and equitable trading on the contract
market.
(13) DISCIPLINARY PROCEDURES.—The board of trade shall es-
tablish and enforce disciplinary procedures that authorize the
board of trade to discipline, suspend, or expel members or mar-
ket participants that violate the rules of the board of trade, or
similar methods for performing the same functions, including
delegation of the functions to third parties.
(14) DISPUTE RESOLUTION.—The board of trade shall estab-
lish and enforce rules regarding, and provide facilities for al-
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ternative dispute resolution as appropriate for, market partici-
pants and any market intermediaries.
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(15) GOVERNANCE FITNESS STANDARDS.—The board of trade
shall establish and enforce appropriate fitness standards for di-
rectors, members of any disciplinary committee, members of
the contract market, and any other person with direct access
to the facility (including any party affiliated with any person
described in this paragraph).
(16) CONFLICTS OF INTEREST.—The board of trade shall es-
tablish and enforce rules—
(A) to minimize conflicts of interest in the decision-mak-
ing process of the contract market; and
(B) to establish a process for resolving conflicts of inter-
est described in subparagraph (A).
(17) COMPOSITION OF GOVERNING BOARDS OF CONTRACT MAR-
KETS.—The governance arrangements of the board of trade
shall be designed to permit consideration of the views of mar-
ket participants.
(18) RECORDKEEPING.—The board of trade shall maintain
records of all activities relating to the business of the contract
market—
(A) in a form and manner that is acceptable to the Com-
mission; and
(B) for a period of at least 5 years.
(19) ANTITRUST CONSIDERATIONS.—Unless necessary or ap-
propriate to achieve the purposes of this Act, the board of trade
shall not—
(A) adopt any rule or taking any action that results in
any unreasonable restraint of trade; or
(B) impose any material anticompetitive burden on trad-
ing on the contract market.
(20) SYSTEM SAFEGUARDS.—The board of trade shall—
(A) establish and maintain a program of risk analysis
and oversight to identify and minimize sources of oper-
ational risk, through the development of appropriate con-
trols and procedures, and the development of automated
systems, that are reliable, secure, and have adequate scal-
able capacity;
(B) establish and maintain emergency procedures,
backup facilities, and a plan for disaster recovery that
allow for the timely recovery and resumption of operations
and the fulfillment of the responsibilities and obligations
of the board of trade; and
(C) periodically conduct tests to verify that backup re-
sources are sufficient to ensure continued order processing
and trade matching, price reporting, market surveillance,
and maintenance of a comprehensive and accurate audit
trail.
(21) FINANCIAL RESOURCES.—
(A) IN GENERAL.—The board of trade shall have ade-
quate financial, operational, and managerial resources to
discharge each responsibility of the board of trade.
(B) DETERMINATION OF ADEQUACY.—The financial re-
sources of the board of trade shall be considered to be ade-
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quate if the value of the financial resources exceeds the
total amount that would enable the contract market to
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cover the operating costs of the contract market for a 1-
year period, as calculated on a rolling basis.
(22) DIVERSITY OF BOARD OF DIRECTORS.—The board of trade,
if a publicly traded company, shall endeavor to recruit individ-
uals to serve on the board of directors and the other decision-
making bodies (as determined by the Commission) of the board
of trade from among, and to have the composition of the bodies
reflect, a broad and culturally diverse pool of qualified can-
didates.
(23) SECURITIES AND EXCHANGE COMMISSION.—The board of
trade shall keep any such records relating to swaps defined in
section ø1a(47)(A)(v)¿ 1a(48)(A)(v) open to inspection and ex-
amination by the Securities and Exchange Commission.
(e) CURRENT AGRICULTURAL COMMODITIES.—
(1) Subject to paragraph (2) of this subsection, a contract for
purchase or sale for future delivery of an agricultural com-
modity enumerated in section 1a(9) that is available for trade
on a contract market, as of the date of the enactment of this
subsection, may be traded only on a contract market des-
ignated under this section.
(2) In order to promote responsible economic or financial in-
novation and fair competition, the Commission, on application
by any person, after notice and public comment and oppor-
tunity for hearing, may prescribe rules and regulations to pro-
vide for the offer and sale of contracts for future delivery or op-
tions on such contracts to be conducted on a derivatives trans-
action execution facility.
SEC. 5b. DERIVATIVES CLEARING ORGANIZATIONS.
(a) REGISTRATION REQUIREMENT.—
(1) IN GENERAL.—Except as provided in paragraph (2), it
shall be unlawful for a derivatives clearing organization, di-
rectly or indirectly, to make use of the mails or any means or
instrumentality of interstate commerce to perform the func-
tions of a derivatives clearing organization with respect to—
(A) a contract of sale of a commodity for future delivery
(or an option on the contract of sale) or option on a com-
modity, in each case, unless the contract or option is—
(i) excluded from this Act by subsection (a)(1)(C)(i),
(c), or (f) of section 2; or
(ii) a security futures product cleared by a clearing
agency registered with the Securities and Exchange
Commission under the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.); or
(B) a swap.
(2) EXCEPTION.—Paragraph (1) shall not apply to a deriva-
tives clearing organization that is registered with the Commis-
sion.
(b) VOLUNTARY REGISTRATION.—A person that clears 1 or more
agreements, contracts, or transactions that are not required to be
cleared under this Act may register with the Commission as a de-
rivatives clearing organization.
(c) REGISTRATION OF DERIVATIVES CLEARING ORGANIZATIONS.—
(1) APPLICATION.—A person desiring to register as a deriva-
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tives clearing organization shall submit to the Commission an
application in such form and containing such information as
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the Commission may require for the purpose of making the de-
terminations required for approval under paragraph (2).
(2) CORE PRINCIPLES FOR DERIVATIVES CLEARING ORGANIZA-
TIONS.—
(A) COMPLIANCE.—
(i) IN GENERAL.—To be registered and to maintain
registration as a derivatives clearing organization, a
derivatives clearing organization shall comply with
each core principle described in this paragraph and
any requirement that the Commission may impose by
rule or regulation pursuant to section 8a(5).
(ii) DISCRETION OF DERIVATIVES CLEARING ORGANIZA-
TION.—Subject to any rule or regulation prescribed by
the Commission, a derivatives clearing organization
shall have reasonable discretion in establishing the
manner by which the derivatives clearing organization
complies with each core principle described in this
paragraph.
(B) FINANCIAL RESOURCES.—
(i) IN GENERAL.—Each derivatives clearing organiza-
tion shall have adequate financial, operational, and
managerial resources, as determined by the Commis-
sion, to discharge each responsibility of the derivatives
clearing organization.
(ii) MINIMUM AMOUNT OF FINANCIAL RESOURCES.—
Each derivatives clearing organization shall possess fi-
nancial resources that, at a minimum, exceed the total
amount that would—
(I) enable the organization to meet its financial
obligations to its members and participants not-
withstanding a default by the member or partici-
pant creating the largest financial exposure for
that organization in extreme but plausible market
conditions; and
(II) enable the derivatives clearing organization
to cover the operating costs of the derivatives
clearing organization for a period of 1 year (as cal-
culated on a rolling basis).
(C) PARTICIPANT AND PRODUCT ELIGIBILITY.—
(i) IN GENERAL.—Each derivatives clearing organiza-
tion shall establish—
(I) appropriate admission and continuing eligi-
bility standards (including sufficient financial re-
sources and operational capacity to meet obliga-
tions arising from participation in the derivatives
clearing organization) for members of, and partici-
pants in, the derivatives clearing organization;
and
(II) appropriate standards for determining the
eligibility of agreements, contracts, or transactions
submitted to the derivatives clearing organization
for clearing.
(ii) REQUIRED PROCEDURES.—Each derivatives clear-
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ing organization shall establish and implement proce-
dures to verify, on an ongoing basis, the compliance of
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each participation and membership requirement of the
derivatives clearing organization.
(iii) REQUIREMENTS.—The participation and mem-
bership requirements of each derivatives clearing or-
ganization shall—
(I) be objective;
(II) be publicly disclosed; and
(III) permit fair and open access.
(D) RISK MANAGEMENT.—
(i) IN GENERAL.—Each derivatives clearing organiza-
tion shall ensure that the derivatives clearing organi-
zation possesses the ability to manage the risks associ-
ated with discharging the responsibilities of the de-
rivatives clearing organization through the use of ap-
propriate tools and procedures.
(ii) MEASUREMENT OF CREDIT EXPOSURE.—Each de-
rivatives clearing organization shall—
(I) not less than once during each business day
of the derivatives clearing organization, measure
the credit exposures of the derivatives clearing or-
ganization to each member and participant of the
derivatives clearing organization; and
(II) monitor each exposure described in sub-
clause (I) periodically during the business day of
the derivatives clearing organization.
(iii) LIMITATION OF EXPOSURE TO POTENTIAL LOSSES
FROM DEFAULTS.—Each derivatives clearing organiza-
tion, through margin requirements and other risk con-
trol mechanisms, shall limit the exposure of the de-
rivatives clearing organization to potential losses from
defaults by members and participants of the deriva-
tives clearing organization to ensure that—
(I) the operations of the derivatives clearing or-
ganization would not be disrupted; and
(II) nondefaulting members or participants
would not be exposed to losses that nondefaulting
members or participants cannot anticipate or con-
trol.
(iv) MARGIN REQUIREMENTS.—The margin required
from each member and participant of a derivatives
clearing organization shall be sufficient to cover poten-
tial exposures in normal market conditions.
(v) REQUIREMENTS REGARDING MODELS AND PARAM-
ETERS.—Each model and parameter used in setting
margin requirements under clause (iv) shall be—
(I) risk-based; and
(II) reviewed on a regular basis.
(E) SETTLEMENT PROCEDURES.—Each derivatives clear-
ing organization shall—
(i) complete money settlements on a timely basis
(but not less frequently than once each business day);
(ii) employ money settlement arrangements to elimi-
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nate or strictly limit the exposure of the derivatives
clearing organization to settlement bank risks (includ-
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ing credit and liquidity risks from the use of banks to
effect money settlements);
(iii) ensure that money settlements are final when
effected;
(iv) maintain an accurate record of the flow of funds
associated with each money settlement;
(v) possess the ability to comply with each term and
condition of any permitted netting or offset arrange-
ment with any other clearing organization;
(vi) regarding physical settlements, establish rules
that clearly state each obligation of the derivatives
clearing organization with respect to physical deliv-
eries; and
(vii) ensure that each risk arising from an obligation
described in clause (vi) is identified and managed.
(F) TREATMENT OF FUNDS.—
(i) REQUIRED STANDARDS AND PROCEDURES.—Each
derivatives clearing organization shall establish stand-
ards and procedures that are designed to protect and
ensure the safety of member and participant funds
and assets.
(ii) HOLDING OF FUNDS AND ASSETS.—Each deriva-
tives clearing organization shall hold member and par-
ticipant funds and assets in a manner by which to
minimize the risk of loss or of delay in the access by
the derivatives clearing organization to the assets and
funds.
(iii) PERMISSIBLE INVESTMENTS.—Funds and assets
invested by a derivatives clearing organization shall
be held in instruments with minimal credit, market,
and liquidity risks.
(G) DEFAULT RULES AND PROCEDURES.—
(i) IN GENERAL.—Each derivatives clearing organiza-
tion shall have rules and procedures designed to allow
for the efficient, fair, and safe management of events
during which members or participants—
(I) become insolvent; or
(II) otherwise default on the obligations of the
members or participants to the derivatives clear-
ing organization.
(ii) DEFAULT PROCEDURES.—Each derivatives clear-
ing organization shall—
(I) clearly state the default procedures of the de-
rivatives clearing organization;
(II) make publicly available the default rules of
the derivatives clearing organization; and
(III) ensure that the derivatives clearing organi-
zation may take timely action—
(aa) to contain losses and liquidity pres-
sures; and
(bb) to continue meeting each obligation of
the derivatives clearing organization.
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(H) RULE ENFORCEMENT.—Each derivatives clearing or-
ganization shall—
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339
(i) maintain adequate arrangements and resources
for—
(I) the effective monitoring and enforcement of
compliance with the rules of the derivatives clear-
ing organization; and
(II) the resolution of disputes;
(ii) have the authority and ability to discipline,
limit, suspend, or terminate the activities of a member
or participant due to a violation by the member or par-
ticipant of any rule of the derivatives clearing organi-
zation; and
(iii) report to the Commission regarding rule en-
forcement activities and sanctions imposed against
members and participants as provided in clause (ii).
(I) SYSTEM SAFEGUARDS.—Each derivatives clearing or-
ganization shall—
(i) establish and maintain a program of risk analysis
and oversight to identify and minimize sources of oper-
ational risk through the development of appropriate
controls and procedures, and automated systems, that
are reliable, secure, and have adequate scalable capac-
ity;
(ii) establish and maintain emergency procedures,
backup facilities, and a plan for disaster recovery that
allows for—
(I) the timely recovery and resumption of oper-
ations of the derivatives clearing organization;
and
(II) the fulfillment of each obligation and re-
sponsibility of the derivatives clearing organiza-
tion; and
(iii) periodically conduct tests to verify that the
backup resources of the derivatives clearing organiza-
tion are sufficient to ensure daily processing, clearing,
and settlement.
(J) REPORTING.—Each derivatives clearing organization
shall provide to the Commission all information that the
Commission determines to be necessary to conduct over-
sight of the derivatives clearing organization.
(K) RECORDKEEPING.—Each derivatives clearing organi-
zation shall maintain records of all activities related to the
business of the derivatives clearing organization as a de-
rivatives clearing organization—
(i) in a form and manner that is acceptable to the
Commission; and
(ii) for a period of not less than 5 years.
(L) PUBLIC INFORMATION.—
(i) IN GENERAL.—Each derivatives clearing organiza-
tion shall provide to market participants sufficient in-
formation to enable the market participants to identify
and evaluate accurately the risks and costs associated
with using the services of the derivatives clearing or-
ganization.
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(ii) AVAILABILITY OF INFORMATION.—Each deriva-
tives clearing organization shall make information
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340
concerning the rules and operating and default proce-
dures governing the clearing and settlement systems
of the derivatives clearing organization available to
market participants.
(iii) PUBLIC DISCLOSURE.—Each derivatives clearing
organization shall disclose publicly and to the Com-
mission information concerning—
(I) the terms and conditions of each contract,
agreement, and transaction cleared and settled by
the derivatives clearing organization;
(II) each clearing and other fee that the deriva-
tives clearing organization charges the members
and participants of the derivatives clearing orga-
nization;
(III) the margin-setting methodology, and the
size and composition, of the financial resource
package of the derivatives clearing organization;
(IV) daily settlement prices, volume, and open
interest for each contract settled or cleared by the
derivatives clearing organization; and
(V) any other matter relevant to participation in
the settlement and clearing activities of the de-
rivatives clearing organization.
(M) INFORMATION-SHARING.—Each derivatives clearing
organization shall—
(i) enter into, and abide by the terms of, each appro-
priate and applicable domestic and international infor-
mation-sharing agreement; and
(ii) use relevant information obtained from each
agreement described in clause (i) in carrying out the
risk management program of the derivatives clearing
organization.
(N) ANTITRUST CONSIDERATIONS.—Unless necessary or
appropriate to achieve the purposes of this Act, a deriva-
tives clearing organization shall not—
(i) adopt any rule or take any action that results in
any unreasonable restraint of trade; or
(ii) impose any material anticompetitive burden.
(O) GOVERNANCE FITNESS STANDARDS.—
(i) GOVERNANCE ARRANGEMENTS.—Each derivatives
clearing organization shall establish governance ar-
rangements that are transparent—
(I) to fulfill public interest requirements; and
(II) to permit the consideration of the views of
owners and participants.
(ii) FITNESS STANDARDS.—Each derivatives clearing
organization shall establish and enforce appropriate
fitness standards for—
(I) directors;
(II) members of any disciplinary committee;
(III) members of the derivatives clearing organi-
zation;
(IV) any other individual or entity with direct
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access to the settlement or clearing activities of
the derivatives clearing organization; and
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341
(V) any party affiliated with any individual or
entity described in this clause.
(P) CONFLICTS OF INTEREST.—Each derivatives clearing
organization shall—
(i) establish and enforce rules to minimize conflicts
of interest in the decision-making process of the de-
rivatives clearing organization; and
(ii) establish a process for resolving conflicts of inter-
est described in clause (i).
(Q) COMPOSITION OF GOVERNING BOARDS.—Each deriva-
tives clearing organization shall ensure that the composi-
tion of the governing board or committee of the derivatives
clearing organization includes market participants.
(R) LEGAL RISK.—Each derivatives clearing organization
shall have a well-founded, transparent, and enforceable
legal framework for each aspect of the activities of the de-
rivatives clearing organization.
(3) ORDERS CONCERNING COMPETITION.—A derivatives clear-
ing organization may request the Commission to issue an order
concerning whether a rule or practice of the applicant is the
least anticompetitive means of achieving the objectives, pur-
poses, and policies of this Act.
(d) EXISTING DERIVATIVES CLEARING ORGANIZATIONS.—A deriva-
tives clearing organization shall be deemed to be registered under
this section to the extent that the derivatives clearing organization
clears agreements, contracts, or transactions for a board of trade
that has been designated by the Commission as a contract market
for such agreements, contracts, or transactions before the date of
the enactment of this section.
(e) APPOINTMENT OF TRUSTEE.—
(1) IN GENERAL.—If a proceeding under section 5e results in
the suspension or revocation of the registration of a derivatives
clearing organization, or if a derivatives clearing organization
withdraws from registration, the Commission, on notice to the
derivatives clearing organization, may apply to the appropriate
United States district court where the derivatives clearing or-
ganization is located for the appointment of a trustee.
(2) ASSUMPTION OF JURISDICTION.—If the Commission ap-
plies for appointment of a trustee under paragraph (1)—
(A) the court may take exclusive jurisdiction over the de-
rivatives clearing organization and the records and assets
of the derivatives clearing organization, 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 derivatives clearing organization in an
orderly manner for the protection of participants, subject
to such terms and conditions as the court may prescribe.
(f) LINKING OF REGULATED CLEARING FACILITIES.—
(1) IN GENERAL.—The Commission shall facilitate the linking
or coordination of derivatives clearing organizations registered
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under this Act with other regulated clearance facilities for the
coordinated settlement of cleared transactions. In order to min-
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342
imize systemic risk, under no circumstances shall a derivatives
clearing organization be compelled to accept the counterparty
credit risk of another clearing organization.
(2) COORDINATION.—In carrying out paragraph (1), the Com-
mission shall coordinate with the Federal banking agencies
and the Securities and Exchange Commission.
(g) EXISTING DEPOSITORY INSTITUTIONS AND CLEARING AGEN-
CIES.—
(1) IN GENERAL.—A depository institution or clearing agency
registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.) that is required to be registered as a derivatives clearing
organization under this section is deemed to be registered
under this section to the extent that, before the date of enact-
ment of this subsection—
(A) the depository institution cleared swaps as a multi-
lateral clearing organization; or
(B) the clearing agency cleared swaps.
(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 Securities and Exchange
Commission shall make available to the Commission, upon re-
quest, all information determined to be relevant by the Securi-
ties and Exchange Commission regarding a clearing agency
deemed to be registered with the Commission under paragraph
(1).
(h) EXEMPTIONS.—The Commission may exempt, conditionally or
unconditionally, a derivatives clearing organization from registra-
tion under this section for the clearing of swaps if the Commission
determines that the derivatives clearing organization is subject to
comparable, comprehensive supervision and regulation by the Secu-
rities and Exchange Commission or the appropriate government
authorities in the home country of the organization. Such condi-
tions may include, but are not limited to, requiring that the deriva-
tives clearing organization be available for inspection by the Com-
mission and make available all information requested by the Com-
mission.
(i) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
(1) IN GENERAL.—Each derivatives clearing organization
shall designate an individual to serve as a chief compliance of-
ficer.
(2) DUTIES.—The chief compliance officer shall—
(A) report directly to the board or to the senior officer of
the derivatives clearing organization;
(B) review the compliance of the derivatives clearing or-
ganization with respect to the core principles described in
subsection (c)(2);
(C) in consultation with the board of the derivatives
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clearing organization, a body performing a function similar
to the board of the derivatives clearing organization, or the
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senior officer of the derivatives clearing organization, re-
solve any conflicts of interest that may arise;
(D) be responsible for administering each policy and pro-
cedure that is required to be established pursuant to this
section;
(E) ensure compliance with this Act (including regula-
tions) relating to agreements, contracts, or transactions,
including each rule prescribed by the Commission under
this section;
(F) establish procedures for the remediation of non-
compliance issues identified by the 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 annu-
ally prepare and sign a report that contains a description
of—
(i) the compliance of the derivatives clearing organi-
zation of the compliance officer with respect to this Act
(including regulations); and
(ii) each policy and procedure of the derivatives
clearing organization of the compliance officer (includ-
ing the code of ethics and conflict of interest policies
of the derivatives clearing organization).
(B) REQUIREMENTS.—A compliance report under sub-
paragraph (A) shall—
(i) accompany each appropriate financial report of
the derivatives clearing organization that is required
to be furnished to the Commission pursuant to this
section; and
(ii) include a certification that, under penalty of law,
the compliance report is accurate and complete.
(k) REPORTING REQUIREMENTS.—
(1) DUTY OF DERIVATIVES CLEARING ORGANIZATIONS.—Each
derivatives clearing organization that clears swaps shall pro-
vide to the Commission all information that is determined by
the Commission to be necessary to perform each responsibility
of the Commission under this Act.
(2) DATA COLLECTION AND MAINTENANCE REQUIREMENTS.—
The Commission shall adopt data collection and maintenance
requirements for swaps cleared by derivatives clearing organi-
zations that are comparable to the corresponding requirements
for—
(A) swaps data reported to swap data repositories; and
(B) swaps traded on swap execution facilities.
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(3) REPORTS ON SECURITY-BASED SWAP AGREEMENTS TO BE
SHARED WITH THE SECURITIES AND EXCHANGE COMMISSION.—
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344
(A) IN GENERAL.—A derivatives clearing organization
that clears security-based swap agreements (as defined in
section ø1a(47)(A)(v)¿ 1a(48)(A)(v)) shall, upon request,
open to inspection and examination to the Securities and
Exchange Commission all books and records relating to
such security-based swap agreements, consistent with the
confidentiality and disclosure requirements of section 8.
(B) JURISDICTION.—Nothing in this paragraph shall af-
fect the exclusive jurisdiction of the Commission to pre-
scribe recordkeeping and reporting requirements for a de-
rivatives clearing organization that is registered with the
Commission.
(4) INFORMATION SHARING.—Subject to section 8, and upon
request, the Commission shall share information collected
under paragraph (2) with—
(A) the Board;
(B) the Securities and Exchange Commission;
(C) each appropriate prudential regulator;
(D) the Financial Stability Oversight Council;
(E) the Department of Justice; and
(F) any other person that the Commission determines to
be appropriate, including—
(i) foreign financial supervisors (including foreign fu-
tures authorities);
(ii) foreign central banks; and
(iii) foreign ministries.
(5) CONFIDENTIALITY AGREEMENT.—Before the Commission
may share information with any entity described in paragraph
(4), the Commission shall receive a written agreement from
each entity stating that the entity shall abide by the confiden-
tiality requirements described in section 8 relating to the infor-
mation on swap transactions that is provided.
(6) PUBLIC INFORMATION.—Each derivatives clearing organi-
zation that clears swaps shall provide to the Commission (in-
cluding any designee of the Commission) information under
paragraph (2) in such form and at such frequency as is re-
quired by the Commission to comply with the public reporting
requirements contained in section 2(a)(13).
SEC. 5c. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTI-
TIES.
(a) ACCEPTABLE BUSINESS PRACTICES UNDER CORE PRINCIPLES.—
(1) IN GENERAL.—Consistent with the purposes of this Act,
the Commission may issue interpretations, or approve inter-
pretations submitted to the Commission, of sections ø5(d) and
5b(c)(2)¿ 5(d), 5b(c)(2), and 5i(c), to describe what would con-
stitute an acceptable business practice under such sections.
(2) EFFECT OF INTERPRETATION.—An interpretation issued
under paragraph (1) may provide the exclusive means for com-
plying with each section described in paragraph (1).
(b) DELEGATION OF FUNCTIONS UNDER CORE PRINCIPLES.—
(1) IN GENERAL.—A contract market, digital commodity ex-
change, derivatives transaction execution facility, or electronic
trading facility with respect to a significant price discovery
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contract may comply with any applicable core principle
through delegation of any relevant function to a registered fu-
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345
tures 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 elec-
tronic trading facility that delegates a function under para-
graph (1) shall remain responsible for carrying out the func-
tion.
(3) NONCOMPLIANCE.—If a contract market, digital com-
modity exchange, derivatives transaction execution facility, or
electronic trading facility that delegates a function under para-
graph (1) becomes aware that a delegated function is not being
performed as required under this Act, the contract market, dig-
ital commodity exchange, derivatives transaction execution fa-
cility, 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 instru-
ment, or may elect to approve and implement any new rule or
rule amendment, by providing to the Commission (and the Sec-
retary 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 de-
scribed in paragraph (1) shall become effective, pursuant to the
certification of the registered entity and notice of such certifi-
cation to its members or participants (in a manner to be deter-
mined by the Commission), on the date that is 10 business
days after the date on which the Commission receives the cer-
tification (or such shorter period as determined by the Com-
mission 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 inconsist-
ency with this Act (including regulations under this Act).
(3) STAY OF CERTIFICATION FOR RULES.—
(A) A notification by the Commission pursuant to para-
graph (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
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grounds that it is inconsistent with this Act (including
regulations under this Act).
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(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 amend-
ment 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 mar-
ket 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 con-
tract of sale for future delivery of a commodity specifically
enumerated in section ø1a(10)¿ 1a(9) (or any option there-
on) traded through its facilities if the rule amendment ap-
plies to contracts and delivery months which have already
been listed for trading and have open interest.
(C) DEADLINE.—If prior approval is requested under sub-
paragraph (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 Com-
mission finds that the new rule, or rule amendment, is in-
consistent 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 in-
strument 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 list-
ing of agreements, contracts, transactions, or swaps in
excluded commodities that are based upon the occur-
rence, 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 des-
ignated contract market or swap execution facility, the
Commission may determine that such agreements,
contracts, or transactions are contrary to the public in-
terest if the agreements, contracts, or transactions in-
volve—
(I) activity that is unlawful under any Federal
or State law;
(II) terrorism;
(III) assassination;
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(IV) war;
(V) gaming; or
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347
(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 trans-
action 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 or-
ganization, 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 Com-
mission, in its discretion, determines.
(II) REQUIREMENTS.—Any such criteria, condi-
tions, or rules shall consider—
(aa) the financial integrity of the deriva-
tives clearing organization; and
(bb) any other factors which the Commis-
sion determines may be appropriate.
(iv) DEADLINE.—The Commission shall take final ac-
tion 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 ex-
tension of this time limitation.
(D) SPECIAL RULES FOR DIGITAL COMMODITY CON-
TRACTS.—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 en-
tity 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 pur-
poses of listing or offering a digital commodity for trading in
a digital commodity cash or spot market, an eligible entity shall
submit a written certification to the Commission that the dig-
ital commodity meets the requirements of this Act (including
the regulations prescribed under this Act).
(2) CONTENTS OF THE CERTIFICATION.—
(A) IN GENERAL.—In making a written certification under
this paragraph, the eligible entity shall furnish to the Com-
mission an analysis of how the digital commodity meets the
requirements of section 5i(c)(3).
(B) RELIANCE ON PRIOR DISCLOSURES.—In making a cer-
tification under this subsection, an eligible entity may rely
on the records and disclosures of any relevant person reg-
istered with the Securities and Exchange Commission or
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other State or Federal agency.
(3) MODIFICATIONS.—
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348
(A) IN GENERAL.—An eligible entity shall modify a certifi-
cation 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 held by a digital commodity related person
or a digital commodity affiliated person.
(B) RECERTIFICATION.—Modifications required by this
subsection shall be subject to the same disapproval and re-
view 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 listing of the digital commodity is incon-
sistent with the requirements of this Act or the rules and
regulations prescribed under this Act.
(B) ANALYSIS REQUIRED.—The Commission shall include,
with any findings referred to in subparagraph (A), a de-
tailed analysis of the factors on which the decision was
based.
(C) PUBLIC FINDINGS.—The Commission shall make pub-
lic any disapproval decision, and any related findings and
analysis, made under this paragraph.
(5) REVIEW.—
(A) IN GENERAL.—Unless the Commission makes a dis-
approval decision under paragraph (4), the written certifi-
cation 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 de-
termined by the Commission by rule or regulation), in
the case of a digital commodity that has not been cer-
tified under this section or for which a certification is
being modified under paragraph (3); or
(ii) 1 business day after the date the Commission re-
ceives the certification (or such shorter period as deter-
mined 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 sub-
paragraph (A) may be extended through notice to the eligi-
ble entity that there are novel or complex issues that require
additional time to analyze, that the explanation by the sub-
mitting eligible entity is inadequate, or of a potential incon-
sistency with this Act—
(i) once, for 30 business days, through written notice
to the eligible entity by the Commission; and
(ii) once, for an additional 30 business days, through
written notice to the eligible entity from the Commis-
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sion that includes a description of any deficiencies with
the certification, including any—
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349
(I) novel or complex issues which require addi-
tional time to analyze;
(II) missing information or inadequate expla-
nations; or
(III) potential inconsistencies with this Act.
(6) PRIOR APPROVAL BEFORE REGISTRATION.—
(A) IN GENERAL.—A person applying for registration with
the Commission for the purposes of listing or offering a dig-
ital commodity for trading in a digital commodity cash or
spot market may request that the Commission grant prior
approval for the person to list or offer the digital com-
modity on being registered with the Commission.
(B) REQUEST FOR PRIOR APPROVAL.—A person seeking
prior approval under subparagraph (A) shall furnish the
Commission with a written certification that the digital
commodity meets the requirements of this Act (including
the regulations prescribed under this Act) and the informa-
tion described in paragraph (2).
(C) DEADLINE.—The Commission shall take final action
on a request for prior approval not later than 90 business
days after submission of the request, unless the person sub-
mitting the request agrees to an extension of the time limi-
tation established under this subparagraph.
(D) DISAPPROVAL.—
(i) IN GENERAL.—The Commission shall approve the
listing of the digital commodity unless the Commission
finds that the listing is inconsistent with this Act (in-
cluding any regulation prescribed under this Act).
(ii) ANALYSIS REQUIRED.—The Commission shall in-
clude, with any findings made under clause (i), a de-
tailed analysis of the factors on which the decision is
based.
(iii) PUBLIC FINDINGS.—The Commission shall make
public any disapproval decision, and any related find-
ings and analysis, made under this paragraph.
(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 ap-
plicable 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 Ex-
change Commission pursuant to section 15(b) of the Securities Ex-
change Act of 1934 (except paragraph (11) thereof) with respect to
the application of—
(1) rules of such designated contract market or registered de-
rivatives transaction execution facility of the type specified in
section 4d(e) involving security futures products; and
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(2) similar rules of national securities associations registered
pursuant to section 15A(a) of the Securities Exchange Act of
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350
1934 and national securities exchanges registered pursuant to
section 6(g) of such Act involving security futures products.
* * * * * * *
SEC. 5h. SWAP EXECUTION FACILITIES.
(a) REGISTRATION.—
(1) IN GENERAL.—No person may operate a facility for the
trading or processing of swaps unless the facility is registered
as a swap execution facility or as a designated contract market
under this section.
(2) DUAL REGISTRATION.—Any person that is registered as a
swap execution facility under this section shall register with
the Commission regardless of whether the person also is reg-
istered with the Securities and Exchange Commission as a
swap execution facility.
(b) TRADING AND TRADE PROCESSING.—
(1) IN GENERAL.—Except as specified in paragraph (2), a
swap execution facility that is registered under subsection (a)
may—
(A) make available for trading any swap; and
(B) facilitate trade processing of any swap.
(2) AGRICULTURAL SWAPS.—A swap execution facility may not
list for trading or confirm the execution of any swap in an agri-
cultural commodity (as defined by the Commission) except pur-
suant to a rule or regulation of the Commission allowing the
swap under such terms and conditions as the Commission shall
prescribe.
(c) IDENTIFICATION OF FACILITY USED TO TRADE SWAPS BY CON-
TRACT MARKETS.—A board of trade that operates a contract market
shall, to the extent that the board of trade also operates a swap
execution facility and uses the same electronic trade execution sys-
tem for listing and executing trades of swaps on or through the
contract market and the swap execution facility, identify whether
the electronic trading of such swaps is taking place on or through
the contract market or the swap execution facility.
(d) RULE-WRITING.—
(1) The Securities and Exchange Commission and Com-
modity Futures Trading Commission may promulgate rules de-
fining the universe of swaps that can be executed on a swap
execution facility. These rules shall take into account the price
and nonprice requirements of the counterparties to a swap and
the goal of this section as set forth in subsection (e).
(2) For all swaps that are not required to be executed
through a swap execution facility as defined in paragraph (1),
such trades may be executed through any other available
means of interstate commerce.
(3) The Securities and Exchange Commission and Com-
modity Futures Trading Commission shall update these rules
as necessary to account for technological and other innovation.
(e) RULE OF CONSTRUCTION.—The goal of this section is to pro-
mote the trading of swaps on swap execution facilities and to pro-
mote pre-trade price transparency in the swaps market.
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(f) CORE PRINCIPLES FOR SWAP EXECUTION FACILITIES.—
(1) COMPLIANCE WITH CORE PRINCIPLES.—
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(A) IN GENERAL.—To be registered, and maintain reg-
istration, as a swap execution facility, the swap execution
facility shall comply with—
(i) the core principles described in this subsection;
and
(ii) any requirement that the Commission may im-
pose by rule or regulation pursuant to section 8a(5).
(B) REASONABLE DISCRETION OF SWAP EXECUTION FACIL-
ITY.—Unless otherwise determined by the Commission by
rule or regulation, a swap execution facility described in
subparagraph (A) shall have reasonable discretion in es-
tablishing the manner in which the swap execution facility
complies with the core principles described in this sub-
section.
(2) COMPLIANCE WITH RULES.—A swap execution facility
shall—
(A) establish and enforce compliance with any rule of the
swap execution facility, including—
(i) the terms and conditions of the swaps traded or
processed on or through the swap execution facility;
and
(ii) any limitation on access to the swap execution
facility;
(B) establish and enforce trading, trade processing, and
participation rules that will deter abuses and have the ca-
pacity to detect, investigate, and enforce those rules, in-
cluding means—
(i) to provide market participants with impartial ac-
cess to the market; and
(ii) to capture information that may be used in es-
tablishing whether rule violations have occurred;
(C) establish rules governing the operation of the facil-
ity, including rules specifying trading procedures to be
used in entering and executing orders traded or posted on
the facility, including block trades; and
(D) provide by its rules that when a swap dealer or
major swap participant enters into or facilitates a swap
that is subject to the mandatory clearing requirement of
section 2(h), the swap dealer or major swap participant
shall be responsible for compliance with the mandatory
trading requirement under section 2(h)(8).
(3) SWAPS NOT READILY SUSCEPTIBLE TO MANIPULATION.—The
swap execution facility shall permit trading only in swaps that
are not readily susceptible to manipulation.
(4) MONITORING OF TRADING AND TRADE PROCESSING.—The
swap execution facility shall—
(A) 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 swap execution facility; and
(ii) procedures for trade processing of swaps on or
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through the facilities of the swap execution facility;
and
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(B) monitor trading in swaps to prevent manipulation,
price distortion, and disruptions of the delivery or cash set-
tlement process through surveillance, compliance, and dis-
ciplinary practices and procedures, including methods for
conducting real-time monitoring of trading and comprehen-
sive and accurate trade reconstructions.
(5) ABILITY TO OBTAIN INFORMATION.—The swap execution fa-
cility 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 re-
quest; and
(C) have the capacity to carry out such international in-
formation-sharing agreements as the Commission may re-
quire.
(6) POSITION LIMITS OR ACCOUNTABILITY.—
(A) IN GENERAL.—To reduce the potential threat of mar-
ket manipulation or congestion, especially during trading
in the delivery month, a swap execution facility that is a
trading facility shall adopt for each of the contracts of the
facility, as is necessary and appropriate, position limita-
tions or position accountability for speculators.
(B) POSITION LIMITS.—For any contract that is subject to
a position limitation established by the Commission pursu-
ant to section 4a(a), the swap execution facility shall—
(i) set its position limitation at a level no higher
than the Commission limitation; and
(ii) monitor positions established on or through the
swap execution facility for compliance with the limit
set by the Commission and the limit, if any, set by the
swap execution facility.
(7) FINANCIAL INTEGRITY OF TRANSACTIONS.—The swap exe-
cution facility shall establish and enforce rules and procedures
for ensuring the financial integrity of swaps entered on or
through the facilities of the swap execution facility, including
the clearance and settlement of the swaps pursuant to section
2(h)(1).
(8) EMERGENCY AUTHORITY.—The swap execution facility
shall adopt rules to provide for the exercise of emergency au-
thority, in consultation or cooperation with the Commission, as
is necessary and appropriate, including the authority to liq-
uidate or transfer open positions in any swap or to suspend or
curtail trading in a swap.
(9) TIMELY PUBLICATION OF TRADING INFORMATION.—
(A) IN GENERAL.—The swap execution facility shall make
public timely information on price, trading volume, and
other trading data on swaps to the extent prescribed by
the Commission.
(B) CAPACITY OF SWAP EXECUTION FACILITY.—The swap
execution facility shall be required to have the capacity to
electronically capture and transmit trade information with
respect to transactions executed on the facility.
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(10) RECORDKEEPING AND REPORTING.—
(A) IN GENERAL.—A swap execution facility shall—
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(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 Commis-
sion 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 Com-
mission under this Act; and
(iii) shall keep any such records relating to swaps
defined in section ø1a(47)(A)(v)¿ 1a(48)(A)(v) open to
inspection and examination by the Securities and Ex-
change Commission.’’
(B) REQUIREMENTS.—The Commission shall adopt data
collection and reporting requirements for swap execution
facilities that are comparable to corresponding require-
ments for derivatives clearing organizations and swap data
repositories.
(11) ANTITRUST CONSIDERATIONS.—Unless necessary or ap-
propriate to achieve the purposes of this Act, the swap execu-
tion facility shall not—
(A) adopt any rules or taking any actions that result in
any unreasonable restraint of trade; or
(B) impose any material anticompetitive burden on trad-
ing or clearing.
(12) CONFLICTS OF INTEREST.—The swap execution facility
shall—
(A) establish and enforce rules to minimize conflicts of
interest in its decision-making process; and
(B) establish a process for resolving the conflicts of inter-
est.
(13) FINANCIAL RESOURCES.—
(A) IN GENERAL.—The swap execution facility shall have
adequate financial, operational, and managerial resources
to discharge each responsibility of the swap execution facil-
ity.
(B) DETERMINATION OF RESOURCE ADEQUACY.—The fi-
nancial resources of a swap execution facility shall be con-
sidered to be adequate if the value of the financial re-
sources exceeds the total amount that would enable the
swap execution facility to cover the operating costs of the
swap execution facility for a 1-year period, as calculated on
a rolling basis.
(14) SYSTEM SAFEGUARDS.—The swap execution facility
shall—
(A) establish and maintain a program of risk analysis
and oversight to identify and minimize sources of oper-
ational risk, through the development of appropriate con-
trols and procedures, and automated systems, that—
(i) are reliable and secure; and
(ii) have adequate scalable capacity;
(B) establish and maintain emergency procedures,
dmwilson on DSK7X7S144PROD with REPORTS
backup facilities, and a plan for disaster recovery that
allow for—
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354
(i) the timely recovery and resumption of operations;
and
(ii) the fulfillment of the responsibilities and obliga-
tions of the swap execution facility; and
(C) periodically conduct tests to verify that the backup
resources of the swap execution facility are sufficient to en-
sure continued—
(i) order processing and trade matching;
(ii) price reporting;
(iii) market surveillance and
(iv) maintenance of a comprehensive and accurate
audit trail.
(15) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
(A) IN GENERAL.—Each swap execution facility shall des-
ignate an individual to serve as a chief compliance officer.
(B) DUTIES.—The chief compliance officer shall—
(i) report directly to the board or to the senior officer
of the facility;
(ii) review compliance with the core principles in
this subsection;
(iii) in consultation with the board of the facility, a
body performing a function similar to that of a board,
or the senior officer of the facility, resolve any conflicts
of interest that may arise;
(iv) be responsible for establishing and admin-
istering the policies and procedures required to be es-
tablished pursuant to this section;
(v) ensure compliance with this Act and the rules
and regulations issued under this Act, including rules
prescribed by the Commission pursuant to this sec-
tion; and
(vi) establish procedures for the remediation of non-
compliance issues found during compliance office re-
views, look backs, internal or external audit findings,
self-reported errors, or through validated complaints.
(C) REQUIREMENTS FOR PROCEDURES.—In establishing
procedures under subparagraph (B)(vi), the chief compli-
ance officer shall design the procedures to establish the
handling, management response, remediation, retesting,
and closing of noncompliance issues.
(D) ANNUAL REPORTS.—
(i) IN GENERAL.—In accordance with rules prescribed
by the Commission, the chief compliance officer shall
annually prepare and sign a report that contains a de-
scription of—
(I) the compliance of the swap execution facility
with this Act; and
(II) the policies and procedures, including the
code of ethics and conflict of interest policies, of
the swap execution facility.
(ii) REQUIREMENTS.—The chief compliance officer
shall—
dmwilson on DSK7X7S144PROD with REPORTS
(I) submit each report described in clause (i)
with the appropriate financial report of the swap
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execution facility 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) EXEMPTIONS.—The Commission may exempt, conditionally or
unconditionally, a swap execution facility from registration under
this section if the Commission finds that the facility is subject to
comparable, comprehensive supervision and regulation on a con-
solidated basis by the Securities and Exchange Commission, a pru-
dential regulator, or the appropriate governmental authorities in
the home country of the facility.
(h) RULES.—The Commission shall prescribe rules governing the
regulation of alternative swap execution facilities under this sec-
tion.
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 com-
modity shall register with the Commission as a digital
commodity exchange.
(B) APPLICATION.—A person desiring to register as a dig-
ital commodity exchange shall submit to the Commission
an application in such form and containing such informa-
tion 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 com-
modity 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 devel-
opment 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 burden-
some provisions of this Act and the rules under this
Act;
(ii) shall prescribe rules to address conflicts of inter-
ests 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 ex-
change shall become and remain a member of a reg-
dmwilson on DSK7X7S144PROD with REPORTS
istered futures association and comply with rules re-
lated to such activity, if the registered digital com-
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modity exchange accepts customer funds required to be
segregated under subsection (d).
(ii) RULEMAKING REQUIRED.—The Commission shall
require any registered futures association with a dig-
ital commodity exchange as a member to provide such
rules as may be necessary to further compliance with
subsection (d), protect customers, and promote the pub-
lic interest.
(C) REGISTRATION REQUIRED.—A person required to be
registered as a digital commodity exchange under this sec-
tion 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 com-
modity 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 com-
modity 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, require-
ments, 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 en-
tered 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 com-
modity 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, estab-
lish conditions, requirements, or other limitations on the
activities of a digital commodity exchange and its affiliate
permitted pursuant to subparagraph (B) that are necessary
dmwilson on DSK7X7S144PROD with REPORTS
for the protection of customers, the promotion of innovation,
or the maintenance of fair, orderly, and efficient markets.
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(D) NOTICE REQUIREMENT.—In order for a digital com-
modity exchange or any affiliate of a digital commodity ex-
change to engage in trading on the affiliated exchange pur-
suant to subsection (B), notice must be given to the Com-
mission 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 reg-
istration, as a digital commodity exchange, a digital com-
modity exchange shall comply with—
(i) the core principles described in this subsection;
and
(ii) any requirement that the Commission may im-
pose by rule or regulation pursuant to section 8a(5).
(B) REASONABLE DISCRETION OF A DIGITAL COMMODITY
EXCHANGE.—Unless otherwise determined by the Commis-
sion by rule or regulation, a digital commodity exchange
described in subparagraph (A) shall have reasonable dis-
cretion in establishing the manner in which the digital
commodity exchange complies with the core principles de-
scribed 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 ex-
change; 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 ca-
pacity to detect, investigate, and enforce those rules, includ-
ing means—
(i) to provide market participants with impartial ac-
cess to the market; and
(ii) to capture information that may be used in estab-
lishing whether rule violations have occurred; and
(C) establish rules governing the operation of the ex-
change, 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 es-
tablish policies and procedures to permit trading in a dig-
ital commodity only if—
(i) reports with respect to the digital commodity re-
quired under, as applicable, section 4B(b)(3) or
4B(b)(5)(C) of the Securities Act of 1933 (or, with re-
spect to a digital commodity not issued in reliance on
dmwilson on DSK7X7S144PROD with REPORTS
section 4(a)(8) of the Securities Act of 1933, a com-
parable set of reports, where required by the Securities
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and Exchange Commission) have been filed with the
Securities and Exchange Commission;
(ii) such other similar information as the Commis-
sion may, by rule or regulation require, that is related
to the ongoing development plan of the blockchain sys-
tem and is able to be publicly ascertained, has been
provided to the public; or
(iii) the blockchain system to which the digital com-
modity relates, together with the digital commodity, is
certified as a mature blockchain system under section
42 of the Securities Exchange Act of 1934.
(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 deter-
mines that the information required by clause (ii)
is correct, current, and available to the public; and
(II) establish policies and procedures to deter-
mine that the information provided pursuant to
clause (ii) is correct, current, and available to the
public.
(ii) REQUIRED INFORMATION.—With respect to a dig-
ital 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 ex-
change, 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 nar-
rative description of the purpose of any blockchain
system to which the digital commodity relates and
the operation of any such blockchain system, in-
cluding—
(aa) information explaining the launch and
supply process, including the number of dig-
ital 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
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transactions, method of generating or mining
digital commodities, and any process for burn-
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ing or destroying digital commodities on the
blockchain system;
(cc) an explanation of governance mecha-
nisms 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 com-
modity 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 pro-
vide.
(iii) FORMAT.—The Commission shall prescribe rules
and regulations for the standardization and simplifica-
tion of disclosures under clause (ii), including requir-
ing that disclosures—
(I) be conspicuous;
(II) use plain language comprehensible to cus-
tomers;
(III) are not drafted in a way that presumes the
customer already has a base knowledge, famili-
arity, or understanding of the basic terminology,
operation, and function of blockchain systems; and
(IV) succinctly explain the information that is re-
quired to be communicated to the customer.
(iv) RELIANCE ON PREVIOUS DISCLOSURES.—In com-
plying with this subparagraph, a digital commodity ex-
change may rely on and make available to the public
relevant information publicly disclosed to the Commis-
sion, 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 ex-
change shall establish policies and procedures designed to
permit the trading of a unit of a digital commodity ac-
quired from the issuer and held by a digital commodity af-
filiated person or a digital commodity related person, only
in accordance with the requirements of section 4C of the Se-
curities Act of 1933.
(4) TREATMENT OF CUSTOMER ASSETS.—A digital commodity
exchange shall establish policies and procedures that are de-
signed to protect and ensure the safety of customer money, as-
sets, 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 mech-
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anism for executing transactions that protects the price dis-
covery process of trading on the exchange.
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(B) PROTECTION OF MARKETS AND MARKET PARTICI-
PANTS.—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 ex-
change.
(C) TRADING PROCEDURES.—A digital commodity ex-
change shall—
(i) establish and enforce rules or terms and condi-
tions 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 dig-
ital 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 con-
ducting real-time monitoring of trading and com-
prehensive 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 re-
quest; and
(C) have the capacity to carry out such international in-
formation-sharing agreements as the Commission may re-
quire.
(7) EMERGENCY AUTHORITY.—A digital commodity exchange
shall adopt rules to provide for the exercise of emergency au-
thority, 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 po-
sitions in any digital commodity or to suspend or curtail trad-
ing 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 dig-
ital commodity exchange shall have the capacity to elec-
tronically capture and transmit trade information with re-
spect to transactions executed on the exchange.
(9) RECORDKEEPING AND REPORTING.—
(A) IN GENERAL.—A digital commodity exchange shall—
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(i) maintain records relating to the business of the
exchange, including a complete audit trail, in a form
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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 Com-
mission under this Act; and
(iii) keep any such records of digital commodities
which relate to a security open to inspection and exam-
ination 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 Insur-
ance Act);
(v) the Financial Stability Oversight Council;
(vi) the Department of Justice; and
(vii) any other person that the Commission deter-
mines to be appropriate, including—
(I) foreign financial supervisors (including for-
eign futures authorities);
(II) foreign central banks; and
(III) foreign ministries.
(C) CONFIDENTIALITY AGREEMENT.—Before the Commis-
sion 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 ex-
change shall provide to the Commission (including any des-
ignee 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 ap-
propriate to achieve the purposes of this Act, a digital com-
modity 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 trad-
ing.
(11) CONFLICTS OF INTEREST.—The digital commodity ex-
change shall establish and enforce rules—
(A) to minimize conflicts of interest in the decision mak-
ing processes of the contract market; and
(B) to establish a process for resolving conflicts of interest
referred to in subparagraph (A).
(12) FINANCIAL RESOURCES.—
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(A) IN GENERAL.—A digital commodity exchange shall
have adequate financial, operational, and managerial re-
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362
sources, as determined by the Commission, to discharge
each responsibility of the digital commodity exchange.
(B) MINIMUM AMOUNT OF FINANCIAL RESOURCES.—A dig-
ital 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 cal-
culated 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 ex-
change shall establish and enforce disciplinary procedures that
authorize the digital commodity exchange to discipline, sus-
pend, 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 func-
tions 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 oper-
ational and security risks, through the development of ap-
propriate 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 obliga-
tions of the digital commodity exchange; and
(C) periodically conduct tests to verify that the backup re-
sources 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
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audit trail.
(d) HOLDING OF CUSTOMER ASSETS.—
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(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 cus-
tomer 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 prop-
erty described in subparagraph (A) shall be separately ac-
counted for and shall not be commingled with the funds of
the digital commodity exchange or be used to margin, se-
cure, 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 subpara-
graph (A), money, assets, and property described
in subparagraph (A) may, for convenience, be com-
mingled and deposited in the same account or ac-
counts with any bank, trust company, derivatives
clearing organization, or qualified digital asset
custodian.
(II) WITHDRAWAL.—Notwithstanding subpara-
graph (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 set-
tle a contract of sale of a digital commodity with
a registered entity may be withdrawn and applied
to such purposes, including the payment of com-
missions, brokerage, interest, taxes, storage, and
other charges, lawfully accruing in connection with
the contract.
(ii) COMMISSION ACTION.—Notwithstanding subpara-
graph (A), in accordance with such terms and condi-
tions as the Commission may prescribe by rule, regula-
tion, or order, any money, assets, or property of the cus-
tomers of a digital commodity exchange may be com-
mingled 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 com-
modity exchange.
(3) PERMITTED INVESTMENTS.—Money described in para-
graph (2) may be invested in obligations of the United States,
in general obligations of any State or of any political subdivi-
sion of a State, and in obligations fully guaranteed as to prin-
cipal and interest by the United States, or in any other invest-
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ment that the Commission may by rule or regulation prescribe,
and such investments shall be made in accordance with such
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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 fu-
ture delivery, on or subject to the rules of, a contract mar-
ket or board of trade for purposes of the definition of ‘‘com-
modity 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 re-
moved 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 re-
ceived any customer money, assets, or property for cus-
tody to dispose of, or use any such money, assets, or
property as belonging to the digital commodity ex-
change or any person other than a customer of the dig-
ital commodity exchange; or
(ii) for any other person, including any depository,
other digital commodity exchange, or digital asset cus-
todian 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 belong-
ing to the depositing digital commodity exchange or
any person other than the customers of the digital com-
modity 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 as-
sociated with the digital commodity or the blockchain sys-
tem 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
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waive the restrictions in paragraph (2) for any unit of a
digital commodity to be used under subparagraph (B) of
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this paragraph, by affirmatively electing, in writing to the
digital commodity exchange, to waive the restrictions.
(B) USE OF FUNDS.—Customer digital commodities re-
moved 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.—
(i) IN GENERAL.—The Commission shall, by rule, es-
tablish notice and disclosure requirements, and may,
by rule, establish any other limitations and rules re-
lated to the waiving of any restrictions under this
paragraph that are reasonably necessary to protect cus-
tomers, including eligible contract participants, non-el-
igible contract participants, or any other class of cus-
tomers.
(ii) CUSTOMER CHOICE.—A digital commodity ex-
change may not require a waiver from a customer de-
scribed in subparagraph (A) as a condition of doing
business on the exchange.
(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
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 ex-
change, and promote responsible innovation.
(f) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
(1) IN GENERAL.—A digital commodity exchange shall des-
ignate 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 in-
terest 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 pre-
scribed by the Commission pursuant to this section; and
(F) establish procedures for the remediation of non-
compliance issues found during compliance office reviews,
look backs, internal or external audit findings, self-reported
errors, or through validated complaints.
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(3) REQUIREMENTS FOR PROCEDURES.—In establishing proce-
dures under paragraph (2)(F), the chief compliance officer shall
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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 com-
modity exchange, or if a digital commodity exchange withdraws
from registration, the Commission, on notice to the digital com-
modity 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 ap-
plies for appointment of a trustee under paragraph (1)—
(A) the court may take exclusive jurisdiction over the dig-
ital 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 op-
erations 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 ex-
change;
(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 registered digital
commodity exchange) exempt, either unconditionally or on stat-
dmwilson on DSK7X7S144PROD with REPORTS
ed terms or conditions or for stated periods and either retro-
actively or prospectively, or both, a registered digital commodity
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exchange from the requirements of this section, if the Commis-
sion determines that—
(A) the exemption would be consistent with the public in-
terest 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, con-
ditionally 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 dig-
ital 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 re-
spect to activities and transactions subject to this Act.
SEC. 5j. QUALIFIED DIGITAL ASSET CUSTODIANS.
(a) IN GENERAL.—A person is a qualified digital asset custodian
for purposes of this Act if the person—
(1) holds digital assets on behalf of a person registered under
this Act or a customer of a person registered under this Act; and
(2) is in compliance with subsections (b) and (c).
(b) SUPERVISION REQUIREMENT.—A person is in compliance with
this subsection if the person is subject to—
(1) supervision and examination for custody and safekeeping
of digital assets by an appropriate Federal banking agency, the
National Credit Union Administration, the Commission, or the
Securities and Exchange Commission; or
(2) adequate supervision and appropriate regulation for cus-
tody and safekeeping of digital assets by—
(A) a State bank supervisor (within the meaning of sec-
tion 3 of the Federal Deposit Insurance Act);
(B) a State credit union supervisor, as defined under sec-
tion 6003 of the Anti-Money Laundering Act of 2020; or
(C) an appropriate foreign governmental authority in the
home country of the digital commodity custodian.
(c) OTHER REQUIREMENTS.—A person shall be in compliance with
this subsection if:
(1) NOT OTHERWISE PROHIBITED.—The person has not been
prohibited by its supervisor from engaging in an activity with
respect to the custody and safekeeping of digital assets.
(2) INFORMATION SHARING.—
(A) IN GENERAL.—The person shares information with
the Commission on request and complies with such require-
dmwilson on DSK7X7S144PROD with REPORTS
ments for periodic sharing of information regarding cus-
tomer accounts that the person holds on behalf of an entity
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368
registered with the Commission as the Commission deter-
mines by rule are reasonably necessary to effectuate any of
the provisions, or to accomplish any of the purposes, of this
Act.
(B) PROVISION OF INFORMATION.—If the person is subject
to regulation and examination by an appropriate Federal
banking agency, the person may satisfy any information re-
quest described in subparagraph (A) by providing the Com-
mission with a detailed listing, in writing, of the digital as-
sets of a customer in the custody of, or use by, the person.
(C) RULEMAKING FOR CFTC ENTITIES.—
(i) IN GENERAL.—The Commission shall prescribe
rules to permit a person registered with the Commis-
sion to be a qualified digital asset custodian in compli-
ance with this section.
(ii) CONTENT.—In prescribing the rules under sub-
paragraph (A), the Commission shall require a person
registered with the Commission to—
(I) implement requirement consistent with the re-
quirements in subsection (d)(1);
(II) establish sufficient system safeguards;
(III) prevent or mitigate conflicts of interest, as
appropriate; and
(IV) establish separate governance arrangements
for the custodial function of the entity.
(d) ADEQUATE SUPERVISION AND APPROPRIATE REGULATION.—
(1) IN GENERAL.—For purposes of subsection (b), the terms
‘‘adequate supervision’’ and ‘‘appropriate regulation’’ mean such
minimum standards for supervision and regulation as are rea-
sonably necessary to protect the digital assets held by a person
registered under this Act, including standards relating to the li-
censing, examination, and supervisory processes that require
the person to, at a minimum—
(A) receive a review and evaluation of ownership, char-
acter and fitness, conflicts of interest, business model, fi-
nancial statements, funding resources, and policies and
procedures of the person;
(B) hold capital sufficient for the financial integrity of
the person;
(C) protect customer assets;
(D) establish and maintain books and records regarding
the business of the person;
(E) submit financial statements and audited financial
statements to the applicable supervisor described in sub-
section (b);
(F) provide disclosures to the applicable supervisor de-
scribed in subsection (b) regarding actions, proceedings,
and other items as determined by the supervisor;
(G) maintain and enforce policies and procedures for
compliance with applicable State and Federal laws, includ-
ing those related to anti-money laundering and cybersecu-
rity;
dmwilson on DSK7X7S144PROD with REPORTS
(H) establish a business continuity plan to ensure
functionality in cases of disruption; and
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(I) establish policies and procedures to resolve com-
plaints.
(2) RULEMAKING WITH RESPECT TO DEFINITIONS.—
(A) IN GENERAL.—For purposes of this section, the Com-
mission may, by rule, further define the terms ‘‘adequate
supervision’’ and ‘‘appropriate regulation’’ as necessary and
appropriate for the protection of customers, and consistent
with the purposes of this Act.
(B) CONDITIONAL TREATMENT OF CERTAIN CUSTODIANS
BEFORE RULEMAKING.—Before the effective date of a rule-
making under subparagraph (A), a trust company is
deemed subject to adequate supervision and appropriate
regulation if—
(i) the trust company is expressly permitted by a
State bank supervisor to engage in the custody and
safekeeping of digital assets;
(ii) the State bank supervisor has established licens-
ing, examination, and supervisory processes that re-
quire the trust company to, at a minimum, meet the
conditions described in subparagraphs (A) through (I)
of paragraph (1); and
(iii) the trust company is in good standing with its
State bank supervisor.
(C) TRANSITION PERIOD FOR CERTAIN CUSTODIANS.—In
implementing the rulemaking under subparagraph (A), the
Commission shall provide a transition period of not less
than 2 years for any trust company that is deemed subject
to adequate supervision and appropriate regulation under
subparagraph (B) on the effective date of the rulemaking.
(e) 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 re-
ferred to in, this section, or any requirement to utilize a qualified
digital asset custodian, if the Commission determines that the sus-
pension would be consistent with the public interest and the pur-
poses of this Act.
SEC. 5k. EXEMPTION FOR CERTAIN REGISTERED ENTITIES ENGAGED
IN DIGITAL COMMODITY ACTIVITIES.
(a) BY ALTERNATIVE TRADING SYSTEMS.—
(1) IN GENERAL.—On receipt by the Commission from an al-
ternative trading system of a written or electronic notice that
contains such information as the Commission, by rule, may pre-
scribe as necessary or appropriate in the public interest or for
the protection of investors, the alternative trading system shall
be exempt from registration as a digital commodity exchange
pursuant to section 5i if—
(A) the alternative trading system does not list any retail
commodity transactions pursuant to section 2(c)(2)(D);
(B) the provider, or an affiliated person of the provider,
of the alternative trading system is not otherwise registered
under this Act;
(C) the alternative trading system lists or trades no other
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contracts of sale of commodities, except for digital commod-
ities, currencies, and securities; and
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(D) the registration of the alternative trading system is
not suspended pursuant to an order by the Securities and
Exchange Commission.
(2) FURTHER REQUIREMENTS.—An alternative trading system
that provides notice to the Commission pursuant to paragraph
(1) of this subsection shall be exempt from the requirements of
section 5i to the extent that the alternative trading system—
(A) is in compliance with requirements consistent with
the requirements of section 5i and imposed on the alter-
native trading system by the Securities and Exchange Com-
mission;
(B) annually files with the Commission, in a form and
manner acceptable to the Commission, a notice that dem-
onstrates compliance with this paragraph and contains any
other information the Commission determines to be nec-
essary or appropriate to perform the duties of the Commis-
sion under this Act; and
(C) has total trading volume in digital commodities dur-
ing any calendar quarter in either of its 2 most recently
completed fiscal years that does not exceed the lesser of—
(i) 25 percent of the total trading volume for all
transactions over the same period; or
(ii) $50,000,000,000.
(3) ENFORCEMENT.—This subsection shall not be construed to
limit any jurisdiction that the Commission may otherwise have
under any other provision of this Act with respect to a contract
of sale of a digital commodity or persons effecting contracts of
sale of digital commodities.
(b) BY REGISTERED INTERMEDIARIES.—
(1) IN GENERAL.—On receipt by the Commission, from a
broker or dealer that is registered with the Securities and Ex-
change Commission, of a written or electronic notice that con-
tains such information as the Commission, by rule, may pre-
scribe as necessary or appropriate in the public interest or for
the protection of investors, the broker or dealer shall be exempt
from registration as a digital commodity broker or digital com-
modity dealer pursuant to section 4u of this Act if—
(A) the broker or dealer does not offer or engage in any
retail commodity transactions pursuant to section 2(c)(2)(D)
of this Act;
(B) the broker or dealer, or an affiliated person of the
broker or dealer, is not otherwise registered under this Act;
(C) the broker or dealer does not offer or engage in any
other contracts of sale of commodities, except for digital
commodities, currencies, and securities;
(D) the broker or dealer is not subject to a statutory dis-
qualification, as defined under section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)); and
(E) the broker or dealer is a member of a national securi-
ties association registered pursuant to section 15A of the
Securities Exchange Act of 1934.
(2) FURTHER REQUIREMENTS.—A broker or dealer that pro-
vides notice to the Commission pursuant to paragraph (1) shall
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be exempt from the requirements of section 4u to the extent that
the broker or dealer—
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(A) is in compliance with requirements consistent with
the requirements of section 4u and imposed on the broker
or dealer by the Securities and Exchange Commission;
(B) annually files with the Commission, in a form and
manner acceptable to the Commission, a notice that dem-
onstrates compliance with this subsection and contains any
other information the Commission determines to be nec-
essary or appropriate to perform the duties of the Commis-
sion under this Act; and
(C) has consolidated annual gross financial revenues in
either of its 2 most recently completed fiscal years from
sales, commissions or other activities in digital commod-
ities that do not exceed the lesser of—
(i) 10 percent of the total annual gross revenues dur-
ing the same period; or
(ii) $100,000,000.
(3) ENFORCEMENT.—This subsection shall not be construed to
limit any jurisdiction that the Commission may otherwise have
under any other provision of this Act with respect to a contract
of sale of a digital commodity and persons effecting contracts
of sale of digital commodities.
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 registra-
tion 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 des-
ignation or registration as a contract market or derivatives trans-
action execution facility within 180 days of the filing of the applica-
tion. If the Commission notifies the person that its application is
materially incomplete and specifies the deficiencies in the applica-
tion, 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 Commis-
sion denies an application, it shall specify the grounds for the de-
nial. 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 op-
portunity 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 execu-
tion facility is not enforcing or has not enforced its rules of govern-
ment, 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
dmwilson on DSK7X7S144PROD with REPORTS
trading facility, or any director, officer, agent, or employee thereof,
otherwise is violating or has violated any of the provisions of this
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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 trans-
action 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 Com-
mission and file in the court the record in such proceedings, as pro-
vided 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 af-
firm or set aside the order of the Commission or may direct it to
modify its order. No such order of the Commission shall be modi-
fied 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 hav-
ing 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 INFORMA-
TION.—
(1) PROHIBITION AGAINST MANIPULATION.—It shall be unlaw-
ful 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 en-
actment 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 mar-
ket 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 RE-
PORTING.—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 commu-
nication whatsoever, a false or misleading or inaccurate re-
port concerning crop or market information or conditions
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that affect or tend to affect the price of any commodity in
interstate commerce, knowing, or acting in reckless dis-
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373
regard 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 state-
ment of a material fact to the Commission, including in any
registration application or any report filed with the Commis-
sion under this Act, or any other information relating to a
swap, or a contract of sale of a commodity, in interstate com-
merce, 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 ma-
terial 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 enti-
ty.
(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 sub-
paragraph (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 regard-
ing 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 enti-
ty; and
(bb) to direct all registered entities to refuse
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all privileges to the person until further no-
tice of the Commission; and
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(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 re-
corded in written form and submitted to the Com-
mission.
(5) SUBPOENA.—For the purpose of securing effective enforce-
ment of the provisions of this Act, for the purpose of any inves-
tigation or proceeding under this Act, and for the purpose of
any action taken under section 12(f), any member of the Com-
mission or any Administrative Law Judge or other officer des-
ignated by the Commission (except as provided in paragraph
(7)) may administer oaths and affirmations, subpoena wit-
nesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda,
or other records that the Commission deems relevant or mate-
rial to the inquiry.
(6) WITNESSES.—The attendance of witnesses and the pro-
duction of any such records may be required from any place in
the United States, any State, or any foreign country or juris-
diction 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 terri-
torial 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 ter-
ritorial 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 ju-
risdiction in which the investigation or proceeding is con-
ducted, 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 Admin-
istrative Law Judge or other officer designated by the Commis-
sion, there to produce records, if so ordered, or to give testi-
mony 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
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from trading on, or subject to the rules of, any registered
entity and require all registered entities to refuse the per-
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son 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 manip-
ulation 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 proxi-
mately 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 eq-
uitable 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 appli-
cation 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 pe-
tition filed under subparagraph (B)(ii).
(ii) DUTY OF COMMISSION.—In accordance with sec-
tion 2112 of title 28, United States Code, the Commis-
sion shall file in the appropriate court described in
subparagraph (B)(ii) the record theretofore made.
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(iii) JURISDICTION OF APPROPRIATE COURT.—Upon
the filing of a petition under subparagraph (B)(ii), the
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appropriate court described in subparagraph (B)(ii)
may affirm, set aside, or modify the order of the Com-
mission.
(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 al-
lowed 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 in-
volves 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 appro-
priateness 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 pe-
riod and until such person shows to the satisfaction of the Commis-
sion 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 satisfac-
tion of the Commission that payment of the full amount of the pen-
alty 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.
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(4) Any designated clearing organization that knowingly or
recklessly evades or participates in or facilitates an evasion of
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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 know-
ingly 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 pro-
mulgate, rules substantially similar to such rules to prohibit decep-
tive and other abusive telemarketing acts or practices by any per-
son registered or exempt from registration under this Act in con-
nection with such person’s business as a futures commission mer-
chant, 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 per-
sons described under paragraph (1) substantially similar to
that provided by rules promulgated by the Federal Trade Com-
mission 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 nec-
essary 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 sub-
paragraph (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 commis-
sion 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 øsection 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 there-
under, or is restraining trading in any commodity for future deliv-
ery or any swap, the Commission may bring an action in the proper
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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 com-
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378
pliance 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 Commis-
sion 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, as-
sets, or other property, and other than an order appointing a tem-
porary receiver to administer such restraining order and to perform
such other duties as the court may consider appropriate) or injunc-
tion 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 afford-
ing like relief, commanding any person to comply with the provi-
sions 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 man-
damus, 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 ac-
tion 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 per-
son for each violation; or
(B) in any case of manipulation or attempted manipula-
tion in violation of section 6(c), 6(d), or 9(a)(2), a civil pen-
alty 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
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wherein the defendant is found or is an inhabitant or transacts
business or in the district where the act or practice occurred, is oc-
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379
curring, 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 in-
form the Attorney General of such suit and advise him of subse-
quent 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 fu-
tures commission merchant or introducing broker registered pursu-
ant to section 4f(a)(2), any floor broker or floor trader exempt from
registration pursuant to section 4f(a)(3), any associated person ex-
empt from registration pursuant to øsection 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 nec-
essary 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 ex-
cept as otherwise specifically authorized in this Act, the Commis-
sion may not publish data and information that would separately
disclose the business transactions or market positions of any per-
son 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 for-
eign futures authority if—
(A) the foreign futures authority has in good faith deter-
mined 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 au-
thority; 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 Com-
mission from disclosing publicly any information or data ob-
tained by the Commission from a foreign futures authority
when such disclosure is made in connection with a congres-
sional proceeding, an administrative or judicial proceeding
commenced by the United States or the Commission, in any re-
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ceivership proceeding involving a receiver appointed in a judi-
cial proceeding commenced by the United States or the Com-
mission, or in any proceeding under title 11 of the United
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380
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 con-
duct 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 Com-
mission 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 fu-
tures commission merchant or introducing broker registered pursu-
ant to section 4f(a)(2), any floor broker or floor trader exempt from
registration pursuant to section 4f(a)(3), any associated person ex-
empt from registration pursuant to øsection 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 informa-
tion 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 Com-
mission 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 en-
tity 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 re-
ferred to in subsection (b) of this section, if such facts or informa-
tion have previously been disclosed publicly in connection with a
congressional proceeding, or in an administrative or judicial pro-
ceeding brought under this Act.
(d) The Commission, upon its own initiative or in cooperation
with existing governmental agencies, shall investigate the mar-
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keting conditions of commodities and commodity products and by-
products, including supply and demand for these commodities, cost
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381
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 re-
spect to whom the Commission has information, and any other in-
formation 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 de-
partment or agency any information in the possession of the Com-
mission 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 de-
partment 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 po-
litical subdivision thereof, acting within the scope of its jurisdic-
tion, the Commission may furnish to such foreign futures author-
ity, 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 ac-
tion 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 for-
eign government or political subdivision thereof unless the Com-
mission is satisfied that the information will not be disclosed by
such foreign futures authority, department, central bank and min-
istries, 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 polit-
ical subdivision or any department or agency thereof, or foreign fu-
tures authority is a party.
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(f) The Commission shall disclose information in its possession
pursuant to a subpoena or summons only if—
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(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 con-
gressional 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 po-
litical subdivision thereof. Whenever the Commission determines
that such information may be appropriate for use by any depart-
ment or agency of a State or political subdivision thereof, the Com-
mission 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 informa-
tion, 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 Comp-
troller General shall be furnished such information regarding the
powers, duties, organizations, transactions, operations, and activi-
ties of the Commission as the Comptroller General may require
and the Comptroller General and the duly authorized representa-
tives 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 trans-
actions of any person and trade secrets or names of customers, al-
though such data shall be provided upon request by any committee
of either House of Congress acting within the scope of its jurisdic-
tion.
* * * * * * *
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 ex-
panded 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 pur-
poses of improving, strengthening, facilitating, or regulating fu-
tures trading operations; (2) assist in the development of edu-
cational and other informational materials regarding futures trad-
ing for dissemination and use among producers, market users, and
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the general public; and (3) carry out the general purposes of this
Act.
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(b) The Commission shall include in its annual reports to Con-
gress 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 Com-
mission about new financial technology innovation; and
(C) provide outreach to financial technology innovators to
discuss their innovations and the regulatory framework es-
tablished 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 func-
tions 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 Com-
mission regarding financial technology;
(C) advise the Commission regarding financial tech-
nology that would bolster the Commission’s oversight func-
tions;
(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) REPORT TO CONGRESS.—
(A) IN GENERAL.—Not later than October 31 of each year
after 2025, LabCFTC shall submit to the Committee on Ag-
riculture of the House of Representatives and the Com-
mittee 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 im-
prove Commission services, including responsiveness to
the concerns of persons;
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(iv) recommendations made to the Commission with
respect to the regulations, guidance, and orders of the
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Commission and such legislative actions as may be ap-
propriate; 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.
(6) RECORDS AND ENGAGEMENT.—The Commission shall—
(A) maintain systems of records to track engagements
with the public through LabCFTC;
(B) store communications and materials received in con-
nection with any such engagement in accordance with Com-
mission policies and procedures on data retention and con-
fidentiality; and
(C) take reasonable steps to protect any confidential or
proprietary information received through LabCFTC engage-
ment.
* * * * * * *
SEC. 21. SWAP DATA REPOSITORIES.
(a) REGISTRATION REQUIREMENT.—
(1) REQUIREMENT; AUTHORITY OF DERIVATIVES CLEARING OR-
GANIZATION.—
(A) IN GENERAL.—It shall be unlawful for any person,
unless registered with the Commission, directly or indi-
rectly to make use of the mails or any means or instru-
mentality of interstate commerce to perform the functions
of a swap data repository.
(B) REGISTRATION OF DERIVATIVES CLEARING ORGANIZA-
TIONS.—A derivatives clearing organization may register
as a swap data repository.
(2) INSPECTION AND EXAMINATION.—Each registered swap
data repository shall be subject to inspection and examination
by any representative of the Commission.
(3) COMPLIANCE WITH CORE PRINCIPLES.—
(A) IN GENERAL.—To be registered, and maintain reg-
istration, as a swap data repository, the swap data reposi-
tory shall comply with—
(i) the requirements and core principles described in
this section; and
(ii) any requirement that the Commission may im-
pose by rule or regulation pursuant to section 8a(5).
(B) REASONABLE DISCRETION OF SWAP DATA REPOSI-
TORY.—Unless otherwise determined by the Commission
by rule or regulation, a swap data repository described in
subparagraph (A) shall have reasonable discretion in es-
tablishing the manner in which the swap data repository
complies with the core principles described in this section.
(b) STANDARD SETTING.—
(1) DATA IDENTIFICATION.—
(A) IN GENERAL.—In accordance with subparagraph (B),
the Commission shall prescribe standards that specify the
data elements for each swap that shall be collected and
maintained by each registered swap data repository.
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(B) REQUIREMENT.—In carrying out subparagraph (A),
the Commission shall prescribe consistent data element
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standards applicable to registered entities and reporting
counterparties.
(2) DATA COLLECTION AND MAINTENANCE.—The Commission
shall prescribe data collection and data maintenance standards
for swap data repositories.
(3) COMPARABILITY.—The standards prescribed by the Com-
mission under this subsection shall be comparable to the data
standards imposed by the Commission on derivatives clearing
organizations in connection with their clearing of swaps.
(c) DUTIES.—A swap data repository shall—
(1) accept data prescribed by the Commission for each swap
under subsection (b);
(2) confirm with both counterparties to the swap the accu-
racy of the data that was submitted;
(3) maintain the data described in paragraph (1) in such
form, in such manner, and for such period as may be required
by the Commission;
(4)(A) provide direct electronic access to the Commission (or
any designee of the Commission, including another registered
entity); and
(B) provide the information described in paragraph (1) in
such form and at such frequency as the Commission may re-
quire to comply with the public reporting requirements con-
tained in section 2(a)(13);
(5) at the direction of the Commission, establish automated
systems for monitoring, screening, and analyzing swap data,
including compliance and frequency of end user clearing ex-
emption claims by individual and affiliated entities;
(6) maintain the privacy of any and all swap transaction in-
formation that the swap data repository receives from a swap
dealer, counterparty, or any other registered entity; and
(7) on a confidential basis pursuant to section 8, upon re-
quest, and after notifying the Commission of the request, make
available swap data obtained by the swap data repository, in-
cluding individual counterparty trade and position data, to—
(A) each appropriate prudential regulator;
(B) the Financial Stability Oversight Council;
(C) the Securities and Exchange Commission;
(D) the Department of Justice; and
(E) any other person that the Commission determines to
be appropriate, including—
(i) foreign financial supervisors (including foreign fu-
tures authorities);
(ii) foreign central banks;
(iii) foreign ministries; and
(iv) other foreign authorities; and
(8) establish and maintain emergency procedures, backup fa-
cilities, and a plan for disaster recovery that allows for the
timely recovery and resumption of operations and the fulfill-
ment of the responsibilities and obligations of the organization.
(d) CONFIDENTIALITY AGREEMENT.—Before the swap data reposi-
tory may share information with any entity described in subsection
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(c)(7), the swap data repository shall receive a written agreement
from each entity stating that the entity shall abide by the confiden-
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tiality requirements described in section 8 relating to the informa-
tion on swap transactions that is provided.
(e) DESIGNATION OF CHIEF COMPLIANCE OFFICER.—
(1) IN GENERAL.—Each swap data repository 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 swap data repository;
(B) review the compliance of the swap data repository
with respect to the requirements and core principles de-
scribed in this section;
(C) in consultation with the board of the swap data re-
pository, a body performing a function similar to the board
of the swap data repository, or the senior officer of the
swap data repository, resolve any conflicts of interest that
may arise;
(D) be responsible for administering each policy and pro-
cedure that is required to be established pursuant to this
section;
(E) ensure compliance with this Act (including regula-
tions) relating to agreements, contracts, or transactions,
including each rule prescribed by the Commission under
this section;
(F) establish procedures for the remediation of non-
compliance 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 annu-
ally prepare and sign a report that contains a description
of—
(i) the compliance of the swap data repository of the
chief compliance officer with respect to this Act (in-
cluding regulations); and
(ii) each policy and procedure of the swap data re-
pository of the chief compliance officer (including the
code of ethics and conflict of interest policies of the
swap data repository).
(B) REQUIREMENTS.—A compliance report under sub-
paragraph (A) shall—
(i) accompany each appropriate financial report of
the swap data repository that is required to be fur-
nished to the Commission pursuant to this section;
and
(ii) include a certification that, under penalty of law,
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the compliance report is accurate and complete.
(f) CORE PRINCIPLES APPLICABLE TO SWAP DATA REPOSITORIES.—
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(1) ANTITRUST CONSIDERATIONS.—Unless necessary or appro-
priate to achieve the purposes of this Act, a swap data reposi-
tory shall not—
(A) adopt any rule or take any action that results in any
unreasonable restraint of trade; or
(B) impose any material anticompetitive burden on the
trading, clearing, or reporting of transactions.
(2) GOVERNANCE ARRANGEMENTS.—Each swap data reposi-
tory shall establish governance arrangements that are trans-
parent—
(A) to fulfill public interest requirements; and
(B) to support the objectives of the Federal Government,
owners, and participants.
(3) CONFLICTS OF INTEREST.—Each swap data repository
shall—
(A) establish and enforce rules to minimize conflicts of
interest in the decision-making process of the swap data
repository; and
(B) establish a process for resolving conflicts of interest
described in subparagraph (A).
(4) ADDITIONAL DUTIES DEVELOPED BY COMMISSION.—
(A) IN GENERAL.—The Commission may develop 1 or
more additional duties applicable to swap data reposi-
tories.
(B) CONSIDERATION OF EVOLVING STANDARDS.—In devel-
oping additional duties under subparagraph (A), the Com-
mission may take into consideration any evolving standard
of the United States or the international community.
(C) ADDITIONAL DUTIES FOR COMMISSION DESIGNEES.—
The Commission shall establish additional duties for any
registrant described in section ø1a(48)¿ 1a(49) in order to
minimize conflicts of interest, protect data, ensure compli-
ance, and guarantee the safety and security of the swap
data repository.
(g) REQUIRED REGISTRATION FOR SWAP DATA REPOSITORIES.—Any
person that is required to be registered as a swap data repository
under this section shall register with the Commission regardless of
whether that person is also licensed as a bank or registered with
the Securities and Exchange Commission as a swap data reposi-
tory.
(h) RULES.—The Commission shall adopt rules governing persons
that are registered under this section.
* * * * * * *
WALL STREET TRANSPARENCY AND ACCOUNTABILITY
ACT OF 2010
* * * * * * *
TITLE VII—WALL STREET
TRANSPARENCY AND ACCOUNTABILITY
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* * * * * * *
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Subtitle A—Regulation of Over-the-
Counter Swaps Markets
PART I—REGULATORY AUTHORITY
* * * * * * *
SEC. 712. REVIEW OF REGULATORY AUTHORITY.
(a) CONSULTATION.—
(1) COMMODITY FUTURES TRADING COMMISSION.—Before com-
mencing any rulemaking or issuing an order regarding swaps,
swap dealers, major swap participants, swap data repositories,
derivative clearing organizations with regard to swaps, persons
associated with a swap dealer or major swap participant, eligi-
ble contract participants, or swap execution facilities pursuant
to this subtitle, the Commodity Futures Trading Commission
shall consult and coordinate to the extent possible with the Se-
curities and Exchange Commission and the prudential regu-
lators for the purposes of assuring regulatory consistency and
comparability, to the extent possible.
(2) SECURITIES AND EXCHANGE COMMISSION.—Before com-
mencing any rulemaking or issuing an order regarding secu-
rity-based swaps, security-based swap dealers, major security-
based swap participants, security-based swap data repositories,
clearing agencies with regard to security-based swaps, persons
associated with a security-based swap dealer or major security-
based swap participant, eligible contract participants with re-
gard to security-based swaps, or security-based swap execution
facilities pursuant to subtitle B, the Securities and Exchange
Commission shall consult and coordinate to the extent possible
with the Commodity Futures Trading Commission and the pru-
dential regulators for the purposes of assuring regulatory con-
sistency and comparability, to the extent possible.
(3) PROCEDURES AND DEADLINE.—Such regulations shall be
prescribed in accordance with applicable requirements of title
5, United States Code, and shall be issued in final form not
later than 360 days after the date of enactment of this Act.
(4) APPLICABILITY.—The requirements of paragraphs (1) and
(2) shall not apply to an order issued—
(A) in connection with or arising from a violation or po-
tential violation of any provision of the Commodity Ex-
change Act (7 U.S.C. 1 et seq.);
(B) in connection with or arising from a violation or po-
tential violation of any provision of the securities laws; or
(C) in any proceeding that is conducted on the record in
accordance with sections 556 and 557 of title 5, United
States Code.
(5) EFFECT.—Nothing in this subsection authorizes any con-
sultation or procedure for consultation that is not consistent
with the requirements of subchapter II of chapter 5, and chap-
ter 7, of title 5, United States Code (commonly known as the
‘‘Administrative Procedure Act’’).
(6) RULES; ORDERS.—In developing and promulgating rules
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or orders pursuant to this subsection, each Commission shall
consider the views of the prudential regulators.
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(7) TREATMENT OF SIMILAR PRODUCTS AND ENTITIES.—
(A) IN GENERAL.—In adopting rules and orders under
this subsection, the Commodity Futures Trading Commis-
sion and the Securities and Exchange Commission shall
treat functionally or economically similar products or enti-
ties described in paragraphs (1) and (2) in a similar man-
ner.
(B) EFFECT.—Nothing in this subtitle requires the Com-
modity Futures Trading Commission or the Securities and
Exchange Commission to adopt joint rules or orders that
treat functionally or economically similar products or enti-
ties described in paragraphs (1) and (2) in an identical
manner.
(8) MIXED SWAPS.—The Commodity Futures Trading Com-
mission and the Securities and Exchange Commission, after
consultation with the Board of Governors, shall jointly pre-
scribe such regulations regarding mixed swaps, as described in
section ø1a(47)(D)¿ 1a(48)(D) of the Commodity Exchange Act
(7 U.S.C. ø1a(47)(D)¿ 1a(48)(D)) and in section 3(a)(68)(D) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(D)),
as may be necessary to carry out the purposes of this title.
(b) LIMITATION.—
(1) COMMODITY FUTURES TRADING COMMISSION.—Nothing in
this title, unless specifically provided, confers jurisdiction on
the Commodity Futures Trading Commission to issue a rule,
regulation, or order providing for oversight or regulation of—
(A) security-based swaps; or
(B) with regard to its activities or functions concerning
security-based swaps—
(i) security-based swap dealers;
(ii) major security-based swap participants;
(iii) security-based swap data repositories;
(iv) associated persons of a security-based swap
dealer or major security-based swap participant;
(v) eligible contract participants with respect to se-
curity-based swaps; or
(vi) swap execution facilities with respect to secu-
rity-based swaps.
(2) SECURITIES AND EXCHANGE COMMISSION.—Nothing in this
title, unless specifically provided, confers jurisdiction on the
Securities and Exchange Commission or State securities regu-
lators to issue a rule, regulation, or order providing for over-
sight or regulation of—
(A) swaps; or
(B) with regard to its activities or functions concerning
swaps—
(i) swap dealers;
(ii) major swap participants;
(iii) swap data repositories;
(iv) persons associated with a swap dealer or major
swap participant;
(v) eligible contract participants with respect to
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swaps; or
(vi) swap execution facilities with respect to swaps.
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(3) PROHIBITION ON CERTAIN FUTURES ASSOCIATIONS AND NA-
TIONAL SECURITIES ASSOCIATIONS.—
(A) FUTURES ASSOCIATIONS.—Notwithstanding any other
provision of law (including regulations), unless otherwise
authorized by this title, no futures association registered
under section 17 of the Commodity Exchange Act (7 U.S.C.
21) may issue a rule, regulation, or order for the oversight
or regulation of, or otherwise assert jurisdiction over, for
any purpose, any security-based swap, except that this
subparagraph shall not limit the authority of a registered
futures association to examine for compliance with, and
enforce, its rules on capital adequacy.
(B) NATIONAL SECURITIES ASSOCIATIONS.—Notwith-
standing any other provision of law (including regulations),
unless otherwise authorized by this title, no national secu-
rities association registered under section 15A of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78o-3) may issue a
rule, regulation, or order for the oversight or regulation of,
or otherwise assert jurisdiction over, for any purpose, any
swap, except that this subparagraph shall not limit the au-
thority of a national securities association to examine for
compliance with, and enforce, its rules on capital ade-
quacy.
(c) OBJECTION TO COMMISSION REGULATION.—
(1) FILING OF PETITION FOR REVIEW.—
(A) IN GENERAL.—If either Commission referred to in
this section determines that a final rule, regulation, or
order of the other Commission conflicts with subsection
(a)(7) or (b), then the complaining Commission may obtain
review of the final rule, regulation, or order in the United
States Court of Appeals for the District of Columbia Cir-
cuit by filing in the court, not later than 60 days after the
date of publication of the final rule, regulation, or order,
a written petition requesting that the rule, regulation, or
order be set aside.
(B) EXPEDITED PROCEEDING.—A proceeding described in
subparagraph (A) shall be expedited by the United States
Court of Appeals for the District of Columbia Circuit.
(2) TRANSMITTAL OF PETITION AND RECORD.—
(A) IN GENERAL.—A copy of a petition described in para-
graph (1) shall be transmitted not later than 1 business
day after the date of filing by the complaining Commission
to the Secretary of the responding Commission.
(B) DUTY OF RESPONDING COMMISSION.—On receipt of
the copy of a petition described in paragraph (1), the re-
sponding Commission shall file with the United States
Court of Appeals for the District of Columbia Circuit—
(i) a copy of the rule, regulation, or order under re-
view (including any documents referred to therein);
and
(ii) any other materials prescribed by the United
States Court of Appeals for the District of Columbia
Circuit.
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(3) STANDARD OF REVIEW.—The United States Court of Ap-
peals for the District of Columbia Circuit shall—
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391
(A) give deference to the views of neither Commission;
and
(B) determine to affirm or set aside a rule, regulation, or
order of the responding Commission under this subsection,
based on the determination of the court as to whether the
rule, regulation, or order is in conflict with subsection
(a)(7) or (b), as applicable.
(4) JUDICIAL STAY.—The filing of a petition by the com-
plaining Commission pursuant to paragraph (1) shall operate
as a stay of the rule, regulation, or order until the date on
which the determination of the United States Court of Appeals
for the District of Columbia Circuit is final (including any ap-
peal of the determination).
(d) JOINT RULEMAKING.—
(1) IN GENERAL.—Notwithstanding any other provision of
this title and subsections (b) and (c), the Commodity Futures
Trading Commission and the Securities and Exchange Com-
mission, in consultation with the Board of Governors, shall fur-
ther define the terms ‘‘swap’’, ‘‘security-based swap’’, ‘‘swap
dealer’’, ‘‘security-based swap dealer’’, ‘‘major swap partici-
pant’’, ‘‘major security-based swap participant’’, ‘‘eligible con-
tract participant’’, and ‘‘security-based swap agreement’’ in sec-
tion ø1a(47)(A)(v)¿ 1a(48)(A)(v) of the Commodity Exchange
Act (7 U.S.C. ø1a(47)(A)(v)¿ 1a(48)(A)(v)) and section 3(a)(78)
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(78)).
(2) AUTHORITY OF THE COMMISSIONS.—
(A) IN GENERAL.—Notwithstanding any other provision
of this title, the Commodity Futures Trading Commission
and the Securities and Exchange Commission, in consulta-
tion with the Board of Governors, shall jointly adopt such
other rules regarding such definitions as the Commodity
Futures Trading Commission and the Securities and Ex-
change Commission determine are necessary and appro-
priate, in the public interest, and for the protection of in-
vestors.
(B) TRADE REPOSITORY RECORDKEEPING.—Notwith-
standing any other provision of this title, the Commodity
Futures Trading Commission and the Securities and Ex-
change Commission, in consultation with the Board of
Governors, shall engage in joint rulemaking to jointly
adopt a rule or rules governing the books and records that
are required to be kept and maintained regarding security-
based swap agreements by persons that are registered as
swap data repositories under the Commodity Exchange
Act, including uniform rules that specify the data elements
that shall be collected and maintained by each repository.
(C) BOOKS AND RECORDS.—Notwithstanding any other
provision of this title, the Commodity Futures Trading
Commission and the Securities and Exchange Commission,
in consultation with the Board of Governors, shall engage
in joint rulemaking to jointly adopt a rule or rules gov-
erning books and records regarding security-based swap
agreements, including daily trading records, for swap deal-
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ers, major swap participants, security-based swap dealers,
and security-based swap participants.
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(D) COMPARABLE RULES.—Rules and regulations pre-
scribed jointly under this title by the Commodity Futures
Trading Commission and the Securities and Exchange
Commission shall be comparable to the maximum extent
possible, taking into consideration differences in instru-
ments and in the applicable statutory requirements.
(E) TRACKING UNCLEARED TRANSACTIONS.—Any rules
prescribed under subparagraph (A) shall require the main-
tenance of records of all activities relating to security-
based swap agreement transactions defined under sub-
paragraph (A) that are not cleared.
(F) SHARING OF INFORMATION.—The Commodity Futures
Trading Commission shall make available to the Securities
and Exchange Commission information relating to secu-
rity-based swap agreement transactions defined in sub-
paragraph (A) that are not cleared.
(3) FINANCIAL STABILITY OVERSIGHT COUNCIL.—In the event
that the Commodity Futures Trading Commission and the Se-
curities and Exchange Commission fail to jointly prescribe
rules pursuant to paragraph (1) or (2) in a timely manner, at
the request of either Commission, the Financial Stability Over-
sight Council shall resolve the dispute—
(A) within a reasonable time after receiving the request;
(B) after consideration of relevant information provided
by each Commission; and
(C) by agreeing with 1 of the Commissions regarding the
entirety of the matter or by determining a compromise po-
sition.
(4) JOINT INTERPRETATION.—Any interpretation of, or guid-
ance by either Commission regarding, a provision of this title,
shall be effective only if issued jointly by the Commodity Fu-
tures Trading Commission and the Securities and Exchange
Commission, after consultation with the Board of Governors, if
this title requires the Commodity Futures Trading Commission
and the Securities and Exchange Commission to issue joint
regulations to implement the provision.
(e) GLOBAL RULEMAKING TIMEFRAME.—Unless otherwise provided
in this title, or an amendment made by this title, the Commodity
Futures Trading Commission or the Securities and Exchange Com-
mission, or both, shall individually, and not jointly, promulgate
rules and regulations required of each Commission under this title
or an amendment made by this title not later than 360 days after
the date of enactment of this Act.
(f) RULES AND REGISTRATION BEFORE FINAL EFFECTIVE DATES.—
Beginning on the date of enactment of this Act and notwith-
standing the effective date of any provision of this Act, the Com-
modity Futures Trading Commission and the Securities and Ex-
change Commission may, in order to prepare for the effective dates
of the provisions of this Act—
(1) promulgate rules, regulations, or orders permitted or re-
quired by this Act;
(2) conduct studies and prepare reports and recommenda-
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tions required by this Act;
(3) register persons under the provisions of this Act; and
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393
(4) exempt persons, agreements, contracts, or transactions
from provisions of this Act, under the terms contained in this
Act,
provided, however, that no action by the Commodity Futures Trad-
ing Commission or the Securities and Exchange Commission de-
scribed in paragraphs (1) through (4) shall become effective prior
to the effective date applicable to such action under the provisions
of this Act.
* * * * * * *
PART II—REGULATION OF SWAP MARKETS
* * * * * * *
SEC. 752. INTERNATIONAL HARMONIZATION.
(a) In order to promote effective and consistent global regulation
of swaps and security-based swaps, the Commodity Futures Trad-
ing Commission, the Securities and Exchange Commission, and the
prudential regulators (as that term is defined in section ø1a(39)¿
1a(40) of the Commodity Exchange Act), as appropriate, shall con-
sult and coordinate with foreign regulatory authorities on the es-
tablishment of consistent international standards with respect to
the regulation (including fees) of swaps, security-based swaps,
swap entities, and security-based swap entities and 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, swap counterparties, and security-based swap counter-
parties.
(b) In order to promote effective and consistent global regulation
of contracts of sale of a commodity for future delivery and options
on such contracts, the Commodity Futures Trading Commission
shall consult and coordinate with foreign regulatory authorities on
the establishment of consistent international standards with re-
spect to the regulation of contracts of sale of a commodity for fu-
ture delivery and options on such contracts, and may agree to such
information-sharing arrangements as may be deemed necessary or
appropriate in the public interest for the protection of users of con-
tracts of sale of a commodity for future delivery.
* * * * * * *
LEGAL CERTAINTY FOR BANK PRODUCTS ACT OF 2000
* * * * * * *
TITLE IV—REGULATORY
RESPONSIBILITY FOR BANK PRODUCTS
* * * * * * *
SEC. 403. EXCLUSION OF IDENTIFIED BANKING PRODUCT.
(a) EXCLUSION.—Except as provided in subsection (b) or (c)—
(1) the Commodity Exchange Act (7 U.S.C. 1 et seq.) shall
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not apply to, and the Commodity Futures Trading Commission
shall not exercise regulatory authority under the Commodity
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394
Exchange Act (7 U.S.C. 1 et seq.) with respect to, an identified
banking product; and
(2) the definitions of ‘‘security-based swap’’ in section 3(a)(68)
of the Securities Exchange Act of 1934 and ‘‘security-based
swap agreement’’ in section ø1a(47)(A)(v)¿ 1a(48)(A)(v) of the
Commodity Exchange Act and section 3(a)(78) of the Securities
Exchange Act of 1934 do not include any identified bank prod-
uct.
(b) EXCEPTION.—An appropriate Federal banking agency may ex-
cept an identified banking product of a bank under its regulatory
jurisdiction from the exclusion in subsection (a) if the agency deter-
mines, in consultation with the Commodity Futures Trading Com-
mission and the Securities and Exchange Commission, that the
product—
(1) would meet the definition of a ‘‘swap’’ under section
ø1a(47)¿ 1a(48) of the Commodity Exchange Act (7 U.S.C. 1a)
or a ‘‘security-based swap’’ under that section 3(a)(68) of the
Securities Exchange Act of 1934; and
(2) has become known to the trade as a swap or security-
based swap, or otherwise has been structured as an identified
banking product for the purpose of evading the provisions of
the Commodity Exchange Act (7 U.S.C. 1 et seq.), the Securi-
ties Act of 1933 (15 U.S.C. 77a et seq.), or the Securities Ex-
change Act of 1934 (15 U.S.C. 78a et seq.).
(c) EXCEPTION.—The exclusions in subsection (a) shall not apply
to an identified bank product that—
(1) is a product of a bank that is not under the regulatory
jurisdiction of an appropriate Federal banking agency;
(2) meets the definition of swap in section ø1a(47)¿ 1a(48) of
the Commodity Exchange Act or security-based swap in section
3(a)(68) of the Securities Exchange Act of 1934; and
(3) has become known to the trade as a swap or security-
based swap, or otherwise has been structured as an identified
banking product for the purpose of evading the provisions of
the Commodity Exchange Act (7 U.S.C. 1 et seq.), the Securi-
ties Act of 1933 (15 U.S.C. 77a et seq.), or the Securities Ex-
change Act of 1934 (15 U.S.C. 78a et seq.).
* * * * * * *
TITLE 31, UNITED STATES CODE
* * * * * * *
SUBTITLE IV—MONEY
* * * * * * *
CHAPTER 53—MONETARY TRANSACTIONS
* * * * * * *
SUBCHAPTER II—RECORDS AND REPORTS ON MONETARY
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INSTRUMENTS TRANSACTIONS
* * * * * * *
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§ 5312. Definitions and application
(a) In this subchapter—
(1) ‘‘financial agency’’ means a person acting for a person (ex-
cept for a country, a monetary or financial authority acting as
a monetary or financial authority, or an international financial
institution of which the United States Government is a mem-
ber) as a financial institution, bailee, depository trustee, or
agent, or acting in a similar way related to money, credit, secu-
rities, gold, a transaction in money, credit, securities or gold,
or a service provided with respect to money, securities, futures,
precious metals, stones and jewels, or value that substitutes
for currency.
(2) ‘‘financial institution’’ means—
(A) an insured bank (as defined in section 3(h) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(h)));
(B) a commercial bank or trust company;
(C) a private banker;
(D) an agency or branch of a foreign bank in the United
States;
(E) any credit union;
(F) a thrift institution;
(G) a broker or dealer registered with the Securities and
Exchange Commission under the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.);
(H) a broker or dealer in securities or commodities;
(I) an investment banker or investment company;
(J) a currency exchange, or a business engaged in the ex-
change of currency, funds, or value that substitutes for
currency or funds;
(K) an issuer, redeemer, or cashier of travelers’ checks,
checks, money orders, or similar instruments;
(L) an operator of a credit card system;
(M) an insurance company;
(N) a dealer in precious metals, stones, or jewels;
(O) a pawnbroker;
(P) a loan or finance company;
(Q) a travel agency;
(R) a licensed sender of money or any other person who
engages as a business in the transmission of currency,
funds, or value that substitutes for currency, including any
person who engages as a business in an informal money
transfer system or any network of people who engage as
a business in facilitating the transfer of money domesti-
cally or internationally outside of the conventional finan-
cial institutions system;
(S) a telegraph company;
(T) a business engaged in vehicle sales, including auto-
mobile, airplane, and boat sales;
(U) persons involved in real estate closings and settle-
ments;
(V) the United States Postal Service;
(W) an agency of the United States Government or of a
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State or local government carrying out a duty or power of
a business described in this paragraph;
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(X) a casino, gambling casino, or gaming establishment
with an annual gaming revenue of more than $1,000,000
which—
(i) is licensed as a casino, gambling casino, or gam-
ing establishment under the laws of any State or any
political subdivision of any State; or
(ii) is an Indian gaming operation conducted under
or pursuant to the Indian Gaming Regulatory Act
other than an operation which is limited to class I
gaming (as defined in section 4(6) of such Act);
(Y) any business or agency which engages in any activity
which the Secretary of the Treasury determines, by regula-
tion, to be an activity which is similar to, related to, or a
substitute for any activity in which any business described
in this paragraph is authorized to engage; or
(Z) any other business designated by the Secretary
whose cash transactions have a high degree of usefulness
in criminal, tax, or regulatory matters.
(3) ‘‘monetary instruments’’ means—
(A) United States coins and currency;
(B) as the Secretary may prescribe by regulation, coins
and currency of a foreign country, travelers’ checks, bearer
negotiable instruments, bearer investment securities, bear-
er securities, stock on which title is passed on delivery,
and similar material;
(C) as the Secretary of the Treasury shall provide by
regulation for purposes of sections 5316 and 5331, checks,
drafts, notes, money orders, and other similar instruments
which are drawn on or by a foreign financial institution
and are not in bearer form; and
(D) as the Secretary shall provide by regulation, value
that substitutes for any monetary instrument described in
subparagraph (A), (B), or (C).
(4) NONFINANCIAL TRADE OR BUSINESS.—The term ‘‘non-
financial trade or business’’ means any trade or business other
than a financial institution that is subject to the reporting re-
quirements of section 5313 and regulations prescribed under
such section.
(5) ‘‘person’’, in addition to its meaning under section 1 of
title 1, includes a trustee, a representative of an estate and,
when the Secretary prescribes, a governmental entity.
(6) ‘‘United States’’ means the States of the United States,
the District of Columbia, and, when the Secretary prescribes
by regulation, the Commonwealth of Puerto Rico, the Virgin Is-
lands, Guam, the Northern Mariana Islands, American Samoa,
the Trust Territory of the Pacific Islands, a territory or posses-
sion of the United States, or a military or diplomatic establish-
ment.
(b) In this subchapter—
(1) ‘‘domestic financial agency’’ and ‘‘domestic financial insti-
tution’’ apply to an action in the United States of a financial
agency or institution.
(2) ‘‘foreign financial agency’’ and ‘‘foreign financial institu-
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tion’’ apply to an action outside the United States of a financial
agency or institution.
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(c) ADDITIONAL DEFINITIONS.—For purposes of this subchapter,
the following definitions shall apply:
(1) CERTAIN INSTITUTIONS INCLUDED IN DEFINITION.—The
term ‘‘financial institution’’ (as defined in subsection (a)) in-
cludes the following:
(A) Any futures commission merchant, digital commodity
broker, digital commodity dealer, commodity trading advi-
sor, or commodity pool operator registered, or required to
register, under the Commodity Exchange Act and any dig-
ital commodity exchange registered, or required to register,
under the Commodity Exchange Act which permits direct
customer access.
* * * * * * *
INVESTMENT ADVISERS ACT OF 1940
TITLE II—INVESTMENT ADVISERS
* * * * * * *
DEFINITIONS
SEC. 202. (a) When used in this title, unless the context other-
wise requires, the following definitions shall apply:
(1) ‘‘Assignment’’ includes any direct or indirect transfer or
hypothecation of an investment advisory contract by the as-
signor 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 in-
vestment advisory contract shall be deemed to result from the
death or withdrawal of a minority of the members of the in-
vestment adviser having only a minority interest in the busi-
ness 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 su-
pervised 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.
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(3) The term ‘‘broker’’ has the same meaning as given in sec-
tion 3 of the Securities Exchange Act of 1934.
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(4) ‘‘Commission’’ means the Securities and Exchange Com-
mission.
(5) ‘‘Company’’ means a corporation, a partnership, an asso-
ciation, a joint-stock company, a trust, or any organized group
of persons, whether incorporated or not; or any receiver, trust-
ee 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 im-
posed.
(7) The term ‘‘dealer’’ has the same meaning as given in sec-
tion 3 of the Securities Exchange Act of 1934, but does not in-
clude an insurance company or investment company.
(8) ‘‘Director’’ means any director of a corporation or any per-
son performing similar functions, with respect to any organiza-
tion, whether incorporated or unincorporated.
(9) ‘‘Exchange’’ means any organization, association, or group
of persons, whether incorporated or unincorporated, which con-
stitutes, 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 gen-
erally understood, and includes the market place and the mar-
ket facilities maintained by such exchange.
(10) ‘‘Interstate commerce’’ means trade, commerce, transpor-
tation, 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 com-
pensation, engages in the business of advising others, either di-
rectly or through publications or writings, as to the value of se-
curities 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 Com-
pany 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 reg-
istered investment company, but if, in the case of a bank, such
services or actions are performed through a separately identifi-
able department or division, the department or division, and
not the bank itself, shall be deemed to be the investment ad-
viser; (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 busi-
ness as a broker or dealer and who receives no special com-
pensation therefor; (D) the publisher of any bona fide news-
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paper, news magazine or business or financial publication of
general and regular circulation; (E) any person whose advice,
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399
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 sta-
tistical rating organization, as that term is defined in section
3(a)(62) of the Securities Exchange Act of 1934, unless such or-
ganization engages in issuing recommendations as to pur-
chasing, 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 reg-
ulations or order.
(12) ‘‘Investment company’’, affiliated person, and ‘‘insurance
company’’ have the same meanings as in the Investment Com-
pany Act of 1940. ‘‘Control’’ means the power to exercise a con-
trolling influence over the management or policies of a com-
pany, unless such power is solely the result of an official posi-
tion 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’’ in-
cludes any facility of a national securities exchange.
(15) ‘‘National securities exchange’’ means an exchange reg-
istered 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 ad-
viser’’ means any partner, officer, or director of such invest-
ment 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 in-
vestment adviser, except that for the purposes of section 203
of this title (other than subsection (f) thereof), persons associ-
ated 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, in-
cluding employees controlled by an investment adviser.
(18) ‘‘Security’’ means any note, stock, treasury stock, secu-
rity future, bond, debenture, evidence of indebtedness, certifi-
cate of interest or participation in any profit-sharing agree-
ment, 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 (in-
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cluding any interest therein or based on the value thereof), or
any put, call, straddle, option, or privilege entered into on a
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400
national securities exchange relating to foreign currency, or, in
general, any interest or instrument commonly known as a ‘‘se-
curity’’, or any certificate of interest or participation in, tem-
porary or interim certificate for, receipt for, guaranty of, or
warrant or right to subscribe to or purchase any of the fore-
going. The term ‘‘investment contract’’ does not include an in-
vestment contract asset (as such term is defined under section
2(a) of the Securities Act of 1933). The term does not include
a digital commodity or permitted payment stablecoin.
(19) ‘‘State’’ means any State of the United States, the Dis-
trict 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 connec-
tion 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 con-
trolled 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, re-
spectively, 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 deter-
mining 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 state-
ments 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 govern-
ment, or any governmental body or regulatory organization
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empowered by a foreign government to administer or enforce
its laws as they relate to securities matters.
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401
(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 relat-
ing to the regulation of fiduciaries, trusts, commercial lending,
insurance, trading in contracts of sale of a commodity for fu-
ture 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 mem-
bers in activities listed above.
(25) ‘‘Supervised person’’ means any partner, officer, director
(or other person occupying a similar status or performing simi-
lar functions), or employee of an investment adviser, or other
person who provides investment advice on behalf of the invest-
ment adviser and is subject to the supervision and control of
the investment adviser.
(26) The term ‘‘separately identifiable department or divi-
sion’’ 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 invest-
ment adviser activities for one or more investment compa-
nies, including the supervision of all bank employees en-
gaged 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 extract-
able from such unit’s own facilities or the facilities of the
bank, and such records are so maintained or otherwise ac-
cessible as to permit independent examination and en-
forcement by the Commission of this Act or the Investment
Company Act of 1940 and rules and regulations promul-
gated 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 Invest-
ment 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 invest-
ment 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 invest-
ment 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
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Commission may, by rule, deem appropriate in accordance
with the purposes of this title; and
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(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 Com-
pany 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.
ø(29)¿ (31) The terms ‘‘commodity pool’’, ‘‘commodity pool op-
erator’’, ‘‘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 COMMODITY-RELATED TERMS.—The terms ‘‘dig-
ital 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 in-
clude, 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 di-
rectly or indirectly by any one or more of the foregoing, or any offi-
cer, agent, or employee of any of the foregoing acting as such in the
course of his official duty, unless such provision makes specific ref-
erence thereto.
(c) CONSIDERATION OF PROMOTION OF EFFICIENCY, INNOVATION,
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 appro-
priate in the public interest, the Commission shall also consider, in
addition to the protection of investors, whether the action will pro-
mote efficiency, innovation, 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 ap-
pointed, 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
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as to render its members ‘‘directors’’ within the definition of
that term, which board has advisory functions as to invest-
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ments 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 affili-
ated person.
(3) ‘‘Affiliated person’’ of another person means (A) any per-
son 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 control-
ling, controlled by, or under common control with, such other
person; (D) any officer, director, partner, copartner, or em-
ployee of such other person; (E) if such other person is an in-
vestment company, any investment adviser thereof or any
member of an advisory board thereof; and (F) if such other per-
son 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 se-
curities by a security holder of the assignor; but does not in-
clude an assignment of partnership interests incidental to the
death or withdrawal of a minority of the members of the part-
nership 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 in-
stitution 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 re-
ceiving deposits or exercising fiduciary powers similar to those
permitted to national banks under the authority of the Comp-
troller 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 provi-
sions of this title, and (D) a receiver, conservator, or other liq-
uidating 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 sec-
tion 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 Com-
mission.
(8) ‘‘Company’’ means a corporation, a partnership, an asso-
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ciation, a joint-stock company, a trust, a fund, or any organized
group of persons whether incorporated or not; or any receiver,
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404
trustee in a case under title 11 of the United States Code or
similar official or any liquidating agent for any of the fore-
going, in his capacity as such.
(9) ‘‘Control’’ means the power to exercise a controlling influ-
ence 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 evi-
dence, 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 inter-
ested 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 deter-
mination 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 im-
posed.
(11) The term ‘‘dealer’’ has the same meaning as given in the
Securities Exchange Act of 1934, but does not include an insur-
ance company or investment company.
(12) ‘‘Director’’ means any director of a corporation or any
person performing similar functions with respect to any organi-
zation, 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 com-
pany 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,
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which constitutes, maintains, or provides a market place or fa-
cilities for bringing together purchasers and sellers of securi-
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405
ties 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, invest-
ment 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 deter-
minable 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 in-
strumentality of the Government of the United States pursu-
ant 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 orga-
nized as an insurance company, whose primary and predomi-
nant business activity is the writing of insurance or the rein-
suring 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, transpor-
tation, 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 nat-
ural person who is an affiliated person of such com-
pany,
(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 af-
filiated person is an interested person, has executed
any portfolio transactions for, engaged in any principal
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transactions with, or distributed shares for—
(I) the investment company;
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406
(II) any other investment company having the
same investment adviser as such investment com-
pany 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 af-
filiated 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 com-
pany 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 com-
pany’s investment adviser has borrowing author-
ity, 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 begin-
ning of the last two completed fiscal years of such
company, a material business or professional relation-
ship with such company or with the principal execu-
tive officer of such company or with any other invest-
ment 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 inter-
ested person of an investment company solely by reason of
(aa) his being a member of its board of directors or advi-
sory board or an owner of its securities, or (bb) his mem-
bership 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 nat-
ural person who is an affiliated person of such invest-
ment advisor or principal underwiter,
(iii) any person who knowingly has any direct or in-
direct 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
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who at any time since the beginning of the last two
completed fiscal years of such investment company
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407
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 af-
filiated 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 in-
vestment adviser or principal underwriter serves
as such;
(II) any investment company holding itself out
to investors, for purposes of investment or inves-
tor services, as a company related to any invest-
ment company for which the investment adviser
or principal underwriter serves as such; or
(III) any account over which the investment ad-
viser 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 af-
filiated person is an interested person, has loaned
money or other property to—
(I) any investment company for which the in-
vestment adviser or principal underwriter serves
as such;
(II) any investment company holding itself out
to investors, for purposes of investment or inves-
tor services, as a company related to any invest-
ment company for which the investment adviser
or principal underwriter serves as such; or
(III) any account for which the investment ad-
viser 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 begin-
ning of the last two completed fiscal years of such in-
vestment 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 in-
cludes 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
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least sixty days after the entry thereof, and no such order
shall affect the status of any person for the purposes of
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408
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 desir-
ability 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 per-
son 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 secu-
rities, but without generally furnishing advice or making rec-
ommendations regarding the purchase or sale of securities, (iii)
a company furnishing such services at cost to one or more in-
vestment 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 in-
vestment 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 com-
pany 50 per centum or more of the outstanding voting securi-
ties 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’’ in-
cludes any facility of a national securities exchange.
(26) ‘‘National securities exchange’’ means an exchange reg-
istered under section 6 of the Securities Exchange Act of 1934.
(27) ‘‘Periodic payment plan certificate’’ means (A) any cer-
tificate, 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
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fund of securities purchased wholly or partly with the proceeds
of such payments, and (B) any security the issuer of which is
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409
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 pay-
ments for which such securities provide.
(28) ‘‘Person’’ means a natural person or a company.
(29) ‘‘Principal underwriter’’ of or for any investment com-
pany 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 con-
tract 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 af-
filiated 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 al-
lowed 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 di-
rected, the organization of such company.
(31) ‘‘Prospectus’’, as used in section 22, means a written pro-
spectus intended to meet the requirements of section 10(a) of
the Securities Act of 1933 and currently in use. As used else-
where, ‘‘prospectus’’ means a prospectus as defined in the Secu-
rities 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 dis-
solution or liquidation of a company; (F) a recapitalization or
other procedure or transaction which has for its purpose the al-
teration, modification, or elimination of any of the rights, pref-
erences, or privileges of any class of securities issued by a com-
pany, as provided in its charter or other instrument creating
or defining such rights, preferences, and privileges; (G) an ex-
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change of securities issued by a company for outstanding secu-
rities issued by another company or companies, preliminary to
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410
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 dis-
pose 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 de-
ducted 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’’ in-
cludes 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, secu-
rity future, bond, debenture, evidence of indebtedness, certifi-
cate of interest or participation in any profit-sharing agree-
ment, 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 (in-
cluding 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 ‘‘se-
curity’’, or any certificate of interest or participation in, tem-
porary or interim certificate for, receipt for, guarantee of, or
warrant or right to subscribe to or purchase, any of the fore-
going. The term ‘‘investment contract’’ does not include an in-
vestment contract asset (as such term is defined under section
2(a) of the Securities Act of 1933). 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, wheth-
er 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 ex-
change, or banker’s acceptance payable on demand or having
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a maturity at the time of issuance of not exceeding nine
months, exclusive of days of grace, or any renewal thereof pay-
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411
able 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 Dis-
trict 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 connec-
tion 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 con-
trolled 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 re-
spect 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 se-
curities 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 Com-
mission 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 deter-
mined is not in excess of the higher of market value or asset
value of such securities in the case of majority-owned subsidi-
aries, 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 di-
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versified company which are not subject to the limitations provided
for in section 5(b)(1), the Commission may, by rules and regula-
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412
tions 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 Commis-
sion 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 there-
under, or the laws or the rules and regulations issued thereunder
of any State in which the securities of such company may be quali-
fied for sale.
The foregoing definition shall not derogate from the authority of
the Commission with respect to the reports, information, and docu-
ments to be filed with the Commission by any registered company,
or with respect to the accounting policies and principles to be fol-
lowing 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 com-
pany are entitled to cast. The vote of a majority of the out-
standing 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 vot-
ing 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, with-
in 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, re-
spectively, 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, conser-
vator, 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 sec-
tion 3 (other than a small business investment company
which is licensed by the Small Business Administration to
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operate under the Small Business Investment Act of 1958
and which is a wholly-owned subsidiary of the business de-
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413
velopment company) nor a company which would be an in-
vestment company except for the exclusion from the defini-
tion of investment company in section 3(c); and
(C) satisfies one of the following:
(i) it does not have any class of securities with re-
spect to which a member of a national securities ex-
change, broker, or dealer may extend or maintain
credit to or for a customer pursuant to rules or regula-
tions adopted by the Board of Governors of the Federal
Reserve System under section 7 of the Securities Ex-
change Act of 1934;
(ii) it is controlled by a business development com-
pany, either alone or as part of a group acting to-
gether, and such business development company in
fact exercises a controlling influence over the manage-
ment 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 re-
tained 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 gen-
eral partners, offers to provide, and, if accepted, does so
provide, significant guidance and counsel concerning the
management, operations, or business objectives and poli-
cies 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 busi-
ness development company make available significant manage-
rial assistance shall be deemed to be satisfied with respect to
any particular portfolio company where the business develop-
ment company purchases securities of such portfolio company
in conjunction with one or more other persons acting together,
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and at least one of the persons in the group makes available
significant managerial assistance to such portfolio company,
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414
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 man-
ner 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 sec-
tion 55(a), and makes available significant managerial as-
sistance with respect to the issuers of such securities, pro-
vided that a business development company must make
available significant managerial assistance only with re-
spect 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, regu-
lation, or order permit, as consistent with the public inter-
est, 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 govern-
ment or any governmental body or regulatory organization em-
powered 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 relat-
ing to the regulation of fiduciaries, trusts, commercial lending,
insurance, trading in contracts of sale of a commodity for fu-
ture 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 mem-
bers 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 own-
ership 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 de-
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scendants by birth or adoption, spouses of such persons,
the estates of such persons, or foundations, charitable or-
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415
ganizations, 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 se-
curities offered, as to which the trustee or other person au-
thorized 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 ac-
counts 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 nec-
essary or appropriate in the public interest or for the protec-
tion of investors.
(C) The term ‘‘qualified purchaser’’ does not include a com-
pany that, but for the exceptions provided for in paragraph (1)
or (7) of section 3(c), would be an investment company (here-
after in this paragraph referred to as an ‘‘excepted investment
company’’), unless all beneficial owners of its outstanding secu-
rities (other than short-term paper), determined in accordance
with section 3(c)(1)(A), that acquired such securities on or be-
fore 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, di-
rectors, or general partners of a company or trust referred to
in clause (ii) or (iii) of subparagraph (A) shall constitute con-
sent 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 COMMODITY-RELATED TERMS.—The terms ‘‘dig-
ital 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 in-
clude, 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 di-
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rectly or indirectly by any one or more of the foregoing, or any offi-
cer, agent, or employee of any of the foregoing acting as such in the
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416
course of his official duty, unless such provision makes specific ref-
erence thereto.
(c) CONSIDERATION OF PROMOTION OF EFFICIENCY, INNOVATION,
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 effi-
ciency, innovation, competition, and capital formation.
* * * * * * *
SECURITIES INVESTOR PROTECTION ACT OF 1970
* * * * * * *
SEC. 16. DEFINITIONS.
For purposes of this Act, including the application of the Bank-
ruptcy Act to a liquidation proceeding:
(1) COMMISSION.—The term ‘‘Commission’’ means the Securi-
ties and Exchange Commission.
(2) CUSTOMER.—
(A) IN GENERAL.—The term ‘‘customer’’ of a debtor
means any person (including any person with whom the
debtor deals as principal or agent) who has a claim on ac-
count of securities received, acquired, or held by the debtor
in the ordinary course of its business as a broker or dealer
from or for the securities accounts of such person for safe-
keeping, with a view to sale, to cover consummated sales,
pursuant to purchases, as collateral, security, or for pur-
poses of effecting transfer.
(B) INCLUDED PERSONS.—The term ‘‘customer’’ in-
cludes—
(i) any person who has deposited cash with the debt-
or for the purpose of purchasing securities;
(ii) any person who has a claim against the debtor
for cash, securities, futures contracts, or options on fu-
tures contracts received, acquired, or held in a port-
folio margining account carried as a securities account
pursuant to a portfolio margining program approved
by the Commission; and
(iii) any person who has a claim against the debtor
arising out of sales or conversions of such securities.
(C) EXCLUDED PERSONS.—The term ‘‘customer’’ does not
include any person, to the extent that—
(i) the claim of such person arises out of trans-
actions with a foreign subsidiary of a member of SIPC;
or
(ii) such person has a claim for cash or securities
which by contract, agreement, or understanding, or by
operation of law, is part of the capital of the debtor,
or is subordinated to the claims of any or all creditors
of the debtor, notwithstanding that some ground exists
for declaring such contract, agreement, or under-
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standing void or voidable in a suit between the claim-
ant and the debtor.
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417
(3) CUSTOMER NAME SECURITIES.—The term ‘‘customer name
securities’’ means securities which were held for the account of
a customer on the filing date by or on behalf of the debtor and
which on the filing date were registered in the name of the
customer, or were in the process of being so registered pursu-
ant to instructions from the debtor, but does not include securi-
ties registered in the name of the customer which, by endorse-
ment or otherwise, were in negotiable form.
(4) CUSTOMER PROPERTY.—The term ‘‘customer property’’
means cash and securities (except customer name securities
delivered to the customer) at any time received, acquired, or
held by or for the account of a debtor from or for the securities
accounts of a customer, and the proceeds of any such property
transferred by the debtor, including property unlawfully con-
verted. The term ‘‘customer property’’ includes—
(A) securities held as property of the debtor to the extent
that the inability of the debtor to meet its obligations to
customers for their net equity claims based on securities of
the same class and series of an issuer is attributable to the
debtor’s noncompliance with the requirements of section
15(c)(3) of the 1934 Act and the rules prescribed under
such section;
(B) resources provided through the use or realization of
customers’ debit cash balances and other customer-related
debit items as defined by the Commission by rule;
(C) any cash or securities apportioned to customer prop-
erty pursuant to section 6(d);
(D) in the case of a portfolio margining account of a cus-
tomer that is carried as a securities account pursuant to
a portfolio margining program approved by the Commis-
sion, a futures contract or an option on a futures contract
received, acquired, or held by or for the account of a debtor
from or for such portfolio margining account, and the pro-
ceeds thereof; and
(E) any other property of the debtor which, upon compli-
ance with applicable laws, rules, and regulations, would
have been set aside or held for the benefit of customers,
unless the trustee determines that including such property
within the meaning of such term would not significantly
increase customer property.
(5) DEBTOR.—The term ‘‘debtor’’ means a member of SIPC
with respect to whom an application for a protective decree has
been filed under section 5(a)(3) or a direct payment procedure
has been instituted under section 10(b).
(6) EXAMINING AUTHORITY.—The term ‘‘examining authority’’
means, with respect to any member of SIPC (A) the self-regu-
latory organization which inspects or examines such member of
SIPC, or (B) the Commission if such member of SIPC is not a
member of or participant in any self-regulatory organization or
if the Commission has designated itself examining authority
for such member pursuant to section 13(c).
(7) FILING DATE.—The term ‘‘filing date’’ means the date on
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which an application for a protective decree is filed under sec-
tion 5(a)(3), except that—
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418
(A) if a petition under title 11 of the United States Code
concerning the debtor was filed before such date, the term
‘‘filing date’’ means the date on which such petition was
filed;
(B) if the debtor is the subject of a proceeding pending
in any court or before any agency of the United States or
any State in which a receiver, trustee, or liquidator for
such debtor has been appointed and such proceeding was
commenced before the date on which such application was
filed, the term ‘‘filing date’’ means the date on which such
proceeding was commenced; or
(C) if the debtor is the subject of a direct payment proce-
dure or was the subject of a direct payment procedure dis-
continued by SIPC pursuant to section 10(f), the term ‘‘fil-
ing date’’ means the date on which notice of such direct
payment procedure was published under section 10(b).
(8) FOREIGN SUBSIDIARY.—The term ‘‘foreign subsidiary’’
means any subsidiary of a member of SIPC which has its prin-
cipal place of business in a foreign country or which is orga-
nized under the laws of a foreign country.
(9) GROSS REVENUES FROM THE SECURITIES BUSINESS.—The
term ‘‘gross revenues from the securities business’’ means the
sum of (but without duplication)—
(A) commissions earned in connection with transactions
in securities effected for customers as agent (net of com-
missions paid to other brokers and dealers in connection
with such transactions) and markups with respect to pur-
chases or sales of securities as principal;
(B) charges for executing or clearing transactions in se-
curities for other brokers and dealers;
(C) the net realized gain, if any, from principal trans-
actions in securities in trading accounts;
(D) the net profit, if any, from the management of or
participation in the underwriting or distribution of securi-
ties;
(E) interest earned on customers’ securities accounts;
(F) fees for investment advisory services (except when
rendered to one or more registered investment companies
or insurance company separate accounts) or account super-
vision with respect to securities;
(G) fees for the solicitation of proxies with respect to, or
tenders or exchanges of, securities;
(H) income from service charges or other surcharges
with respect to securities;
(I) except as otherwise provided by rule of the Commis-
sion, dividends and interest received on securities in in-
vestment accounts of the broker or dealer;
(J) fees in connection with put, call, and other option
transactions in securities;
(K) commissions earned from transactions in (i) certifi-
cates of deposit, and (ii) Treasury bills, bankers accept-
ances, or commercial paper which have a maturity at the
time of issuance of not exceeding nine months, exclusive of
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days of grace, or any renewal thereof, the maturity of
which is likewise limited, except that SIPC shall by bylaw
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419
include in the aggregate of gross revenues only an appro-
priate percentage of such commissions based on SIPC’s
loss experience with respect to such instruments over at
least the preceding five years; and
(L) fees and other income from such other categories of
the securities business as SIPC shall provide by bylaw.
Such term includes revenues earned by a broker or dealer in
connection with a transaction in the portfolio margining ac-
count of a customer carried as securities accounts pursuant to
a portfolio margining program approved by the Commission.
Such term does not include revenues received by a broker or
dealer in connection with the distribution of shares of a reg-
istered open end investment company or unit investment trust
or revenues derived by a broker or dealer from the sale of vari-
able annuities or from the conduct of the business of insurance.
(10) LIQUIDATION PROCEEDING.—The term ‘‘liquidation pro-
ceeding’’ means any proceeding for the liquidation of a debtor
under this Act in which a trustee has been appointed under
section 5(b)(3).
(11) NET EQUITY.—The term ‘‘net equity’’ means the dollar
amount of the account or accounts of a customer, to be deter-
mined by—
(A) calculating the sum which would have been owed by
the debtor to such customer if the debtor had liquidated,
by sale or purchase on the filing date—
(i) all securities positions of such customer (other
than customer name securities reclaimed by such cus-
tomer); and
(ii) all positions in futures contracts and options on
futures contracts held in a portfolio margining account
carried as a securities account pursuant to a portfolio
margining program approved by the Commission, in-
cluding all property collateralizing such positions, to
the extent that such property is not otherwise in-
cluded herein; minus
(B) any indebtedness of such customer to the debtor on
the filing date; plus
(C) any payment by such customer of such indebtedness
to the debtor which is made with the approval of the trust-
ee and within such period as the trustee may determine
(but in no event more than sixty days after the publication
of notice under section 8(a)).
A claim for a commodity futures contract received, acquired, or
held in a portfolio margining account pursuant to a portfolio
margining program approved by the Commission or a claim for
a security futures contract, shall be deemed to be a claim with
respect to such contract as of the filing date, and such claim
shall be treated as a claim for cash. In determining net equity
under this paragraph, accounts held by a customer in separate
capacities shall be deemed to be accounts of separate cus-
tomers.
(12) PERSONS REGISTERED AS BROKERS OR DEALERS.—The
term ‘‘persons registered as brokers or dealers’’ includes any
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person who is a member of a national securities exchange
other than a government securities broker or government secu-
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420
rities dealer registered under section 15C(a)(1)(A) of the 1934
Act.
(13) PROTECTIVE DECREE.—The term ‘‘protective decree’’
means a decree, issued by a court upon application of SIPC
under section 5(a)(3), that the customers of a member of SIPC
are in need of the protection provided under this Act.
(14) SECURITY.—The term ‘‘security’’ means any note, stock,
treasury stock, bond, debenture, evidence of indebtedness, any
collateral trust certificate, preorganization certificate or sub-
scription, transferable share, voting trust certificate, certificate
of deposit, certificate of deposit for a security, or any security
future as that term is defined in section 3(a)(55)(A) of the Se-
curities Exchange Act of 1934, any investment contract or cer-
tificate of interest or participation in any profit-sharing agree-
ment or in any oil, gas, or mineral royalty or lease (if such in-
vestment contract or interest is the subject of a registration
statement with the Commission pursuant to the provisions of
the Securities Act of 1933), any put, call, straddle, option, or
privilege on any security, or group or index of securities (in-
cluding 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, 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 or sell any of the foregoing, and any
other instrument commonly known as a security. Except as
specifically provided above, the term ‘‘security’’ does not in-
clude any currency, or any commodity or related contract or fu-
tures contract, or any warrant or right to subscribe to or pur-
chase or sell any of the foregoing. The term ‘‘investment con-
tract’’ does not include an investment contract asset (as such
term is defined under section 2(a) of the Securities Act of 1933).
The term does not include a digital commodity or permitted
payment stablecoin, as such terms are defined, respectively,
under section 2(a) of the Securities Act of 1933 (15 U.S.C.
77b(a))
BANK HOLDING COMPANY ACT OF 1956
* * * * * * *
INTERESTS IN NONBANKING ORGANIZATIONS
SEC. 4. (a) Except as otherwise provided in this Act, no bank
holding company shall—
(1) after the date of enactment of this Act acquire direct or
indirect ownership or control of any voting shares of any com-
pany which is not a bank, or
(2) after two years from the date as of which it becomes a
bank holding company, or in the case of a company which has
been continuously affiliated since May 15, 1955, with a com-
pany which was registered under the Investment Company Act
of 1940, prior to May 15, 1955, in such a manner as to con-
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stitute an affiliated company within the meaning of that Act,
after December 31, 1978, or, in the case of any company which
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421
becomes, as a result of the enactment of the Bank Holding
Company Act Amendments of 1970, a bank holding company
on the date of such enactment, after December 31, 1980, retain
direct or indirect ownership or control of any voting shares of
any company which is not a bank or bank holding company or
engage in any activities other than (A) those of banking or of
managing or controlling banks and other subsidiaries author-
ized under this Act or of furnishing services to or performing
services for its subsidiaries, and (B) those permitted under
paragraph (8) of subsection (c) of this section subject to all the
conditions specified in such paragraph or in any order or regu-
lation issued by the Board under such paragraph: Provided,
That a company covered in 1970 may also engage in those ac-
tivities in which directly or through a subsidiary (i) it was law-
fully engaged on June 30, 1968 (or on a date subsequent to
June 30, 1968 in the case of activities carried on as the result
of the acquisition by such company or subsidiary, pursuant to
a binding written contract entered into on or before June 30,
1968, of another company engaged in such activities at the
time of the acquisition), and (ii) it has been continuously en-
gaged since June 30, 1968 (or such subsequent date). The
Board by order, after opportunity for hearing, may terminate
the authority conferred by the preceding proviso on any com-
pany to engage directly or through a subsidiary in any activity
otherwise permitted by that proviso if it determines, having
due regard to the purposes of this Act, that such action is nec-
essary to prevent undue concentration of resources, decreased
or unfair competition, conflicts of interest, or unsound banking
practices; and in the case of any such company controlling a
bank having bank assets in excess of $60,000,000 on or after
the date of enactment of the Bank Holding Company Act
Amendments of 1970 the Board shall determine, within two
years after such date (or, if later, within two years after the
date on which the bank assets first exceed $60,000,000),
whether the authority conferred by the preceding proviso with
respect to such company should be terminated as provided in
this sentence. Nothing in this paragraph shall be construed to
authorize any bank holding company referred to in the pre-
ceding proviso, or any subsidiary thereof, to engage in activi-
ties authorized by that proviso through the acquisition, pursu-
ant to a contract entered into after June 30, 1968, of any inter-
est in or the assets of a going concern engaged in such activi-
ties. Any company which is authorized to engage in any activ-
ity pursuant to the preceding proviso or subsection (d) of this
section but, as a result of action of the Board, is required to
terminate such activity may (notwithstanding any otherwise
applicable time limit prescribed in this paragraph) retain the
ownership or control of shares in any company carrying on
such activity for a period of ten years from the date on which
its authority was so terminated by the Board. Notwithstanding
any other provision of this paragraph, if any company that be-
came a bank holding company as a result of the enactment of
the Competitive Equality Amendments of 1987 acquired, be-
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tween March 5, 1987, and the date of the enactment of such
Amendments, an institution that became a bank as a result of
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422
the enactment of such Amendments, that company shall, upon
the enactment of such Amendments, immediately come into
compliance with the requirements of this Act.
The Board is authorized, upon application by a bank holding com-
pany, to extend the two-year period referred to in paragraph (2)
above from time to time as to such bank holding company for not
more than one year at a time, if, in its judgment, such an extension
would not be detrimental to the public interest, but no such exten-
sions shall in the aggregate exceed three years. Notwithstanding
any other provision of this Act, the period ending December 31,
1980, referred to in paragraph (2) above, may be extended by the
Board of Governors to December 31, 1984, but only for the divesti-
ture by a bank holding company of real estate or interests in real
estate lawfully acquired for investment or development. In making
its decision whether to grant such extension, the Board shall con-
sider whether the company has made a good faith effort to divest
such interests and whether such extension is necessary to avert
substantial loss to the company.
(b) After two years from the date of enactment of this Act, no cer-
tificate evidencing shares of any bank holding company shall bear
any statement purporting to represent shares of any other company
except a bank or a bank holding company, nor shall the ownership,
sale, or transfer of shares of any bank holding company be condi-
tioned in any manner whatsoever upon the ownership, sale, or
transfer of shares of any other company except a bank or a bank
holding company.
(c) The prohibitions in this section shall not apply to (i) any com-
pany that was on January 4, 1977, both a bank holding company
and a labor, agricultural, or horticultural organization exempt from
taxation under section 501 of the Internal Revenue Code of 1954,
or to any labor, agricultural, or horticultural organization to which
all or substantially all of the assets of such company are hereafter
transferred, or (ii) a company covered in 1970 more than 85 per
centum of the voting stock of which was collectively owned on June
30, 1968, and continuously thereafter, directly or indirectly, by or
for members of the same family, or their spouses, who are lineal
descendants of common ancestors; and such prohibitions shall not,
with respect to any other bank holding company, apply to—
(1) shares of any company engaged or to be engaged solely
in one or more of the following activities: (A) holding or oper-
ating properties used wholly or substantially by any banking
subsidiary of such bank holding company in the operations of
such banking subsidiary or acquired for such future use; or (B)
conducting a safe deposit business; or (C) furnishing services
to or performing services for such bank holding company or its
banking subsidiaries; or (D) liquidating assets acquired from
such bank holding company or its banking subsidiaries or ac-
quired from any other source prior to May 9, 1956, or the date
on which such company became a bank holding company,
whichever is later;
(2) shares acquired by a bank holding company or any of its
subsidiaries in satisfaction of a debt previously contracted in
good faith, but such shares shall be disposed of within a period
dmwilson on DSK7X7S144PROD with REPORTS
of two years from the date on which they were acquired, except
that the Board is authorized upon application by such bank
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423
holding company to extend such period of two years from time
to time as to such holding company if, in its judgment, such
an extension would not be detrimental to the public interest,
and, in the case of a bank holding company which has not dis-
posed of such shares within 5 years after the date on which
such shares were acquired, the Board may, upon the applica-
tion of such company, grant additional exemptions if, in the
judgment of the Board, such extension would not be detri-
mental to the public interest and, either the bank holding com-
pany has made a good faith attempt to dispose of such shares
during such 5-year period, or the disposal of such shares dur-
ing such 5-year period would have been detrimental to the
company, except that the aggregate duration of such exten-
sions shall not extend beyond 10 years after the date on which
such shares were acquired;
(3) shares acquired by such bank holding company from any
of its subsidiaries which subsidiary has been requested to dis-
pose of such shares by any Federal or State authority having
statutory power to examine such subsidiary, but such bank
holding company shall dispose of such shares within a period
of two years from the date on which they were acquired;
(4) shares held or acquired by a bank in good faith in a fidu-
ciary capacity, except where such shares are held under a trust
that constitutes a company as defined in section 2(b) and ex-
cept as provided in paragraphs (2) and (3) of section 2(g);
(5) shares which are of the kinds and amounts eligible for in-
vestment by national banking associations under the provi-
sions of section 5136 of the Revised Statutes;
(6) shares of any company which do not include more than
5 per centum of the outstanding voting shares of such com-
pany;
(7) shares of an investment company which is not a bank
holding company and which is not engaged in any business
other than investing in securities, which securities do not in-
clude more than 5 per centum of the outstanding voting shares
of any company;
(8) shares of any company the activities of which had been
determined by the Board by regulation or order under this
paragraph as of the day before the date of the enactment of the
Gramm-Leach-Bliley Act, to be so closely related to banking as
to be a proper incident thereto (subject to such terms and con-
ditions contained in such regulation or order, unless modified
by the Board);
(9) shares held or activities conducted by any company orga-
nized under the laws of a foreign country the greater part of
whose business is conducted outside the United States, if the
Board by regulation or order determines that, under the cir-
cumstances and subject to the conditions set forth in the regu-
lation or order, the exemption would not be substantially at
variance with the purposes of this Act and would be in the
public interest;
(10) shares lawfully acquired and owned prior to May 9,
dmwilson on DSK7X7S144PROD with REPORTS
1956, by a bank which is a bank holding company, or by any
of its wholly owned subsidiaries;
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424
(11) shares owned directly or indirectly by a company cov-
ered in 1970 in a company which does not engage in any activi-
ties other than those in which the bank holding company, or
its subsidiaries, may engage by virtue of this section, but noth-
ing in this paragraph authorizes any bank holding company, or
subsidiary thereof, to acquire any interest in or the assets of
any going concern (except pursuant to a binding written con-
tract entered into before June 30, 1968, or pursuant to another
provision of this Act) other than one which was a subsidiary
on June 30, 1968;
(12) shares retained or acquired, or activities engaged in, by
any company which becomes, as a result of the enactment of
the Bank Holding Company Act Amendments of 1970, a bank
holding company on the date of such enactment, or by any sub-
sidiary thereof, if such company—
(A) within the applicable time limits prescribed in sub-
section (a)(2) of this section (i) ceases to be a bank holding
company, or (ii) ceases to retain direct or indirect owner-
ship or control of those shares and to engage in those ac-
tivities not authorized under this section; and
(B) complies with such other conditions as the Board
may by regulation or order prescribe;
(13) shares of, or activities conducted by, any company which
does no business in the United States except as an incident to
its international or foreign business, if the Board by regulation
or order determines that, under the circumstances and subject
to the conditions set forth in the regulation or order, the ex-
emption would not be substantially at variance with the pur-
poses of this Act and would be in the public interest; or
(14) shares of any company which is an export trading com-
pany whose acquisition (including each acquisition of shares)
or formation by a bank holding company has not been dis-
approved by the Board pursuant to this paragraph, except that
such investments, whether direct or indirect, in such shares
shall not exceed 5 per centum of the bank holding company’s
consolidated capital and surplus.
(A)(i) No bank holding company shall invest in an export
trading company under this paragraph unless the Board
has been given sixty days’ prior written notice of such pro-
posed investment and within such period has not issued a
notice disapproving the proposed investment or extending
for up to another thirty days the period during which such
disapproval may be issued.
(ii) The period for disapproval may be extended for such
additional thirty-day period only if the Board determines
that a bank holding company proposing to invest in an ex-
port trading company has not furnished all the informa-
tion required to be submitted or that in the Board’s judg-
ment any material information submitted is substantially
inaccurate.
(iii) The notice required to be filed by a bank holding
company shall contain such relevant information as the
dmwilson on DSK7X7S144PROD with REPORTS
Board shall require by regulation or by specific request in
connection with any particular notice.
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425
(iv) The Board may disapprove any proposed investment
only if—
(I) such disapproval is necessary to prevent unsafe
or unsound banking practices, undue concentration of
resources, decreased or unfair competition, or conflicts
of interest;
(II) the Board finds that such investment would af-
fect the financial or managerial resources of a bank
holding company to an extent which is likely to have
a materially adverse effect on the safety and sound-
ness of any subsidiary bank of such bank holding com-
pany, or
(III) the bank holding company fails to furnish the
information required under clause (iii).
(v) LEVERAGE.—The Board may not disapprove any pro-
posed investment solely on the basis of the anticipated or
proposed asset-to-equity ratio of the export trading com-
pany with respect to which such investment is proposed,
unless the anticipated or proposed annual average asset-
to-equity ratio is greater than 20-to-1.
(vi) Within three days after a decision to disapprove an
investment, the Board shall notify the bank holding com-
pany in writing of the disapproval and shall provide a
written statement of the basis for the disapproval.
(vii) A proposed investment may be made prior to the ex-
piration of the disapproval period if the Board issues writ-
ten notice of its intent not to disapprove the investment.
(B)(i) The total amount of extensions of credit by a bank
holding company which invests in an export trading com-
pany, when combined with all such extensions of credit by
all the subsidiaries of such bank holding company, to an
export trading company shall not exceed at any one time
10 per centum of the bank holding company’s consolidated
capital and surplus. For purposes of the preceding sen-
tence, an extension of credit shall not be deemed to include
any amount invested by a bank holding company in the
shares of an export trading company.
(ii) No provision of any other Federal law in effect on Oc-
tober 1, 1982, relating specifically to collateral require-
ments shall apply with respect to any such extension of
credit.
(iii) No bank holding company or subsidiary of such com-
pany which invests in an export trading company may ex-
tend credit to such export trading company or to customers
of such export trading company on terms more favorable
than those afforded similar borrowers in similar cir-
cumstances, and such extension of credit shall not involve
more than the normal risk of repayment or present other
unfavorable features.
(C) For purposes of this paragraph, an export trading
company—
(i) may engage in or hold shares of a company en-
gaged in the business of underwriting, selling, or dis-
dmwilson on DSK7X7S144PROD with REPORTS
tributing securities in the United States only to the
extent that any bank holding company which invests
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426
in such export trading company may do so under ap-
plicable Federal and State banking laws and regula-
tions; and
(ii) may not engage in agricultural production activi-
ties or in manufacturing, except for such incidental
product modification including repackaging, reassem-
bling or extracting byproducts, as is necessary to en-
able United States goods or services to conform with
requirements of a foreign country and to facilitate
their sale in foreign countries.
(D) A bank holding company which invests in an export
trading company may be required, by the Board, to termi-
nate its investment or may be made subject to such limita-
tions or conditions as may be imposed by the Board, if the
Board determines that the export trading company has
taken positions in commodities or commodity contracts, in
securities, or in foreign exchange, other than as may be
necessary in the course of the export trading company’s
business operations.
(E) Notwithstanding any other provision of law, an Edge
Act corporation, organized under section 25(a) of the Fed-
eral Reserve Act (12 U.S.C. 611–631), which is a sub-
sidiary of a bank holding company, or an agreement cor-
poration, operating subject to section 25 of the Federal Re-
serve Act (12 U.S.C. 601–604(a)), which is a subsidiary of
a bank holding company, may invest directly and indi-
rectly in the aggregate up to 5 per centum of its consoli-
dated capital and surplus (25 per centum in the case of a
corporation not engaged in banking) in the voting stock of
other evidences of ownership in one or more export trading
companies.
(F) For purposes of this paragraph—
(i) the term ‘‘export trading company’’ means a com-
pany which does business under the laws of the
United States or any State, which is exclusively en-
gaged in activities related to international trade, and
which is organized and operated principally for pur-
poses of exporting goods or services produced in the
United States or for purposes of facilitating the expor-
tation of goods or services produced in the United
States by unaffiliated persons by providing one or
more export trade services.
(ii) the term ‘‘export trade services’’ includes, but is
not limited to, consulting, international market re-
search, advertising, marketing, insurance (other than
acting as principal, agent or broker in the sale of in-
surance on risks resident or located, or activities per-
formed, in the United States, except for insurance cov-
ering the transportation of cargo from any point of ori-
gin in the United States to a point of final destination
outside the United States), product research and de-
sign, legal assistance, transportation, including trade
documentation and freight forwarding, communication
dmwilson on DSK7X7S144PROD with REPORTS
and processing of foreign orders to and for exporters
and foreign purchasers, warehousing, foreign ex-
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427
change, financing, and taking title to goods, when pro-
vided in order to facilitate the export of goods or serv-
ices produced in the United States;
(iii) the term ‘‘bank holding company’’ shall include
a bank which (I) is organized solely to do business
with other banks and their officers, directors, or em-
ployees; (II) is owned primarily by the banks with
which it does business; and (III) does not do business
with the general public. No such other bank, owning
stock in a bank described in this clause that invests
in an export trading company, shall extend credit to
an export trading company in an amount exceeding at
any one time 10 per centum of such other bank’s cap-
ital and surplus; and
(iv) the term ‘‘extension of credit’’ shall have the
same meaning given such term in the fourth para-
graph of section 23A of the Federal Reserve Act.
(G) DETERMINATION OF STATUS AS EXPORT TRADING COM-
PANY.—
(i) TIME PERIOD REQUIREMENTS.—For purposes of de-
termining whether an export trading company is oper-
ated principally for the purposes described in subpara-
graph (F)(i)—
(I) the operations of such company during the 2-
year period beginning on the date such company
commences operations shall not be taken into ac-
count in making any such determination; and
(II) not less than 4 consecutive years of oper-
ations of such company (not including any portion
of the period referred to in subclause (I)) shall be
taken into account in making any such determina-
tion.
(ii) EXPORT REVENUE REQUIREMENTS.—A company
shall not be treated as operated principally for the
purposes described in subparagraph (F)(i) unless—
(I) the revenues of such company from the ex-
port, or facilitating the export, of goods or services
produced in the United States exceed the reve-
nues of such company from the import, or facili-
tating the import, into the United States of goods
or services produced outside the United States;
and
(II) at least 1⁄3 of such company’s total revenues
are revenues from the export, or facilitating the
export, of goods or services produced in the United
States by persons not affiliated with such com-
pany.
(H) INVENTORY.—
(i) NO GENERAL LIMITATION.—The Board may not
prescribe by regulation any maximum dollar amount
limitation on the value of goods which an export trad-
ing company may maintain in inventory at any time.
(ii) SPECIFIC LIMITATION BY ORDER.—Notwith-
dmwilson on DSK7X7S144PROD with REPORTS
standing clause (i), the Board may issue an order es-
tablishing a maximum dollar amount limitation on the
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428
value of goods which a particular export trading com-
pany may maintain in inventory at any time (after
such company has been operating for a reasonable pe-
riod of time) if the Board finds that, under the facts
and circumstances, such limitation is necessary to pre-
vent risks that would affect the financial or manage-
rial resources of an investor bank holding company to
an extent which would be likely to have a materially
adverse effect on the safety and soundness of any sub-
sidiary bank of such bank holding company.
The Board shall include in its annual report to the Congress a de-
scription and a statement of the reasons for approval of each activ-
ity approved by it by order or regulation under such paragraph
during the period covered by the report.
(d) To the extent that such action would not be substantially at
variance with the purposes of this Act and subject to such condi-
tions as it considers necessary to protect the public interest, the
Board by order, after opportunity for hearing, may grant exemp-
tions from the provisions of this section to any bank holding com-
pany which controlled one bank prior to July 1, 1968, and has not
thereafter acquired the control of any other bank in order (1) to
avoid disrupting business relationships that have existed over a
long period of years without adversely affecting the banks or com-
munities involved, or (2) to avoid forced sales of small locally
owned banks to purchasers not similarly representative of commu-
nity interests, or (3) to allow retention of banks that are so small
in relation to the holding company’s total interests and so small in
relation to the banking market to be served as to minimize the
likelihood that the bank’s powers to grant or deny credit may be
influenced by a desire to further the holding company’s other inter-
ests.
(e) With respect to shares which were not subject to the prohibi-
tions of this section as originally enacted by reason of any exemp-
tion with respect thereto but which were made subject to such pro-
hibitions by the subsequent repeal of such exemption, no bank
holding company shall retain direct or indirect ownership or control
of such shares after five years from the date of the repeal of such
exemption, except as provided in paragraph (2) of subsection (a).
Any bank holding company subject to such five-year limitation on
the retention of nonbanking assets shall endeavor to divest itself
of such shares promptly and such bank holding company shall re-
port its progress in such divestiture to the Board two years after
repeal of the exemption applicable to it and annually thereafter.
(f) CERTAIN COMPANIES NOT TREATED AS BANK HOLDING COMPA-
NIES.—
(1) IN GENERAL.—Except as provided in paragraph (9), any
company which—
(A) on March 5, 1987, controlled an institution which be-
came a bank as a result of the enactment of the Competi-
tive Equality Amendments of 1987; and
(B) was not a bank holding company on the day before
dmwilson on DSK7X7S144PROD with REPORTS
the date of the enactment of the Competitive Equality
Amendments of 1987,
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429
shall not be treated as a bank holding company for purposes
of this Act solely by virtue of such company’s control of such
institution.
(2) LOSS OF EXEMPTION.—Subject to paragraph (3), a com-
pany described in paragraph (1) shall no longer qualify for the
exemption provided under that paragraph if—
(A) such company directly or indirectly—
(i) acquires control of an additional bank or an in-
sured institution (other than an insured institution de-
scribed in paragraph (10) or (12) of this subsection)
after March 5, 1987; or
(ii) acquires control of more than 5 percent of the
shares or assets of an additional bank or a savings as-
sociation other than—
(I) shares held as a bona fide fiduciary (whether
with or without the sole discretion to vote such
shares);
(II) shares held by any person as a bona fide fi-
duciary solely for the benefit of employees of ei-
ther the company described in paragraph (1) or
any subsidiary of that company and the bene-
ficiaries of those employees;
(III) shares held temporarily pursuant to an un-
derwriting commitment in the normal course of an
underwriting business;
(IV) shares held in an account solely for trading
purposes;
(V) shares over which no control is held other
than control of voting rights acquired in the nor-
mal course of a proxy solicitation;
(VI) loans or other accounts receivable acquired
in the normal course of business;
(VII) shares or assets acquired in securing or
collecting a debt previously contracted in good
faith, during the 2-year period beginning on the
date of such acquisition or for such additional
time (not exceeding 3 years) as the Board may
permit if the Board determines that such an ex-
tension will not be detrimental to the public inter-
est;
(VIII) shares or assets of a savings association
described in paragraph (10) or (12) of this sub-
section;
(IX) shares of a savings association held by any
insurance company, as defined in section 2(a)(17)
of the Investment Company Act of 1940, except as
provided in paragraph (11);
(X) shares issued in a qualified stock issuance
under section 10(q) of the Home Owners’ Loan
Act; and
(XI) assets that are derived from, or incidental
to, activities in which institutions described in
dmwilson on DSK7X7S144PROD with REPORTS
subparagraph (F) or (H) of section 2(c)(2) are per-
mitted to engage;
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430
except that the aggregate amount of shares held under this
clause (other than under subclauses (I), (II), (III), (IV), (V), and
(VIII)) may not exceed 15 percent of all outstanding shares or of
the voting power of a savings association;
(B) any bank subsidiary of such company—
(i) accepts demand deposits or deposits that the de-
positor may withdraw by check or similar means for
payment to third parties; and
(ii) engages in the business of making commercial
loans (except that, for purposes of this clause, loans
made in the ordinary course of a credit card operation
shall not be treated as commercial loans); or
(C) after the date of the enactment of the Competitive
Equality Amendments of 1987, any bank subsidiary of
such company permits any overdraft (including any
intraday overdraft), or incurs any such overdraft in the ac-
count of the bank at a Federal reserve bank, on behalf of
an affiliate, other than an overdraft described in para-
graph (3).
(3) PERMISSIBLE OVERDRAFTS DESCRIBED.—For purposes of
paragraph (2)(C), an overdraft is described in this paragraph
if—
(A) such overdraft results from an inadvertent computer
or accounting error that is beyond the control of both the
bank and the affiliate;
(B) such overdraft—
(i) is permitted or incurred on behalf of an affiliate
that is monitored by, reports to, and is recognized as
a primary dealer by the Federal Reserve Bank of New
York; and
(ii) is fully secured, as required by the Board, by
bonds, notes, or other obligations that are direct obli-
gations of the United States or on which the principal
and interest are fully guaranteed by the United States
or by securities and obligations eligible for settlement
on the Federal Reserve book entry system; or
(C) such overdraft—
(i) is permitted or incurred by, or on behalf of, an af-
filiate in connection with an activity that is financial
in nature or incidental to a financial activity; and
(ii) does not cause the bank to violate any provision
of section 23A or 23B of the Federal Reserve Act, ei-
ther directly, in the case of a bank that is a member
of the Federal Reserve System, or by virtue of section
18(j) of the Federal Deposit Insurance Act, in the case
of a bank that is not a member of the Federal Reserve
System.
(4) DIVESTITURE IN CASE OF LOSS OF EXEMPTION.—If any
company described in paragraph (1) fails to qualify for the ex-
emption provided under paragraph (1) by operation of para-
graph (2), such exemption shall cease to apply to such company
and such company shall divest control of each bank it controls
dmwilson on DSK7X7S144PROD with REPORTS
before the end of the 180-day period beginning on the date on
which the company receives notice from the Board that the
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431
company has failed to continue to qualify for such exemption,
unless, before the end of such 180-day period, the company
has—
(A) either—
(i) corrected the condition or ceased the activity that
caused the company to fail to continue to qualify for
the exemption; or
(ii) submitted a plan to the Board for approval to
cease the activity or correct the condition in a timely
manner (which shall not exceed 1 year); and
(B) implemented procedures that are reasonably adapted
to avoid the reoccurrence of such condition or activity.
(5) SUBSECTION CEASES TO APPLY UNDER CERTAIN CIR-
CUMSTANCES.—This subsection shall cease to apply to any com-
pany described in paragraph (1) if such company—
(A) registers as a bank holding company under section
5(a) of this Act;
(B) immediately upon such registration, complies with
all of the requirements of this Act, and regulations pre-
scribed by the Board pursuant to this Act, including the
nonbanking restrictions of this section; and
(C) does not, at the time of such registration, control
banks in more than one State, the acquisition of which
would be prohibited by section 3(d) of this Act if an appli-
cation for such acquisition by such company were filed
under section 3(a) of this Act.
(6) INFORMATION REQUIREMENT.—Each company described in
paragraph (1) shall, within 60 days after the date of enactment
of the Competitive Equality Amendments of 1987, provide the
Board with the name and address of such company, the name
and address of each bank such company controls, and a de-
scription of each such bank’s activities.
(7) EXAMINATION.—The Board may, from time to time, exam-
ine a company described in paragraph (1), or a bank controlled
by such company, or require reports under oath from appro-
priate officers or directors of such company or bank solely for
purposes of assuring compliance with the provisions of this
subsection and enforcing such compliance.
(8) ENFORCEMENT.—
(A) IN GENERAL.—In addition to any other power of the
Board, the Board may enforce compliance with the provi-
sions of this Act which are applicable to any company de-
scribed in paragraph (1), and any bank controlled by such
company, under section 8 of the Federal Deposit Insurance
Act and such company or bank shall be subject to such sec-
tion (for such purposes) in the same manner and to the
same extent as if such company or bank were a State
member insured bank.
(B) APPLICATION OF OTHER ACT.—Any violation of this
Act by any company described in paragraph (1), and any
bank controlled by such company, may also be treated as
a violation of the Federal Deposit Insurance Act for pur-
poses of subparagraph (A).
dmwilson on DSK7X7S144PROD with REPORTS
(C) NO EFFECT ON OTHER AUTHORITY.—No provision of
this paragraph shall be construed as limiting any author-
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432
ity of the Comptroller of the Currency or the Federal De-
posit Insurance Corporation.
(9) TYING PROVISIONS.—A company described in paragraph
(1) shall be—
(A) treated as a bank holding company for purposes of
section 106 of the Bank Holding Company Act Amend-
ments of 1970 and section 22(h) of the Federal Reserve Act
and any regulation prescribed under any such section; and
(B) subject to the restrictions of section 106 of the Bank
Holding Company Act Amendments of 1970, in connection
with any transaction involving the products or services of
such company or affiliate and those of a bank affiliate, as
if such company or affiliate were a bank and such bank
were a subsidiary of a bank holding company.
(10) EXEMPTION UNAFFECTED BY CERTAIN EMERGENCY ACQUI-
SITIONS.—For purposes of clauses (i) and (ii)(VIII) of paragraph
(2)(A), an insured institution is described in this paragraph
if—
(A) the insured institution was acquired (or any shares
or assets of such institution were acquired) by a company
described in paragraph (1) in an acquisition under section
408(m) of the National Housing Act or section 13(k) of the
Federal Deposit Insurance Act; and
(B) either—
(i) the insured institution is located in a State in
which such company controlled a bank on March 5,
1987; or
(ii) the insured institution has total assets of
$500,000,000 or more at the time of such acquisition.
(11) SHARES HELD BY INSURANCE AFFILIATES.—Shares de-
scribed in clause (ii)(IX) of paragraph (2)(A) shall not be ex-
cluded for purposes of clause (ii) of such paragraph if—
(A) all shares held under such clause (ii)(IX) by all insur-
ance company affiliates of such savings association in the
aggregate exceed 5 percent of all outstanding shares or of
the voting power of the savings association; or
(B) such shares are acquired or retained with a view to
acquiring, exercising, or transferring control of the savings
association.
(12) EXEMPTION UNAFFECTED BY CERTAIN OTHER ACQUISI-
TIONS.—For purposes of clauses (i) and (ii)(VIII) of paragraph
(2)(A), an insured institution is described in this paragraph if
the insured institution was acquired (or any shares or assets
of such institution were acquired) by a company described in
paragraph (1)—
(A) from the Resolution Trust Corporation, the Federal
Deposit Insurance Corporation, or the Director of the Of-
fice of Thrift Supervision, in any capacity; or
(B) in an acquisition in which the insured institution has
been found to be in danger of default (as defined in section
3 of the Federal Deposit Insurance Act) by the appropriate
Federal or State authority.
(13) SPECIAL RULE RELATING TO SHARES ACQUIRED IN A
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QUALIFIED STOCK ISSUANCE.—A company described in para-
graph (1) that holds shares issued in a qualified stock issuance
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433
pursuant to section 10(q) of the Home Owners’ Loan Act by
any savings association or savings and loan holding company
(neither of which is a subsidiary) shall not be deemed to con-
trol such savings association or savings and loan holding com-
pany solely because such company holds such shares unless—
(A) the company fails to comply with any requirement or
condition imposed by paragraph (2)(A)(ii)(X) or section
10(q) of the Home Owners’ Loan Act with respect to such
shares; or
(B) the shares are acquired or retained with a view to
acquiring, exercising, or transferring control of the savings
association or savings and loan holding company.
(14) FOREIGN BANK SUBSIDIARIES OF LIMITED PURPOSE CREDIT
CARD BANKS.—
(A) IN GENERAL.—An institution described in section
2(c)(2)(F) may control a foreign bank if—
(i) the investment of the institution in the foreign
bank meets the requirements of section 25 or 25A of
the Federal Reserve Act and the foreign bank qualifies
under such sections;
(ii) the foreign bank does not offer any products or
services in the United States; and
(iii) the activities of the foreign bank are permissible
under otherwise applicable law.
(B) OTHER LIMITATIONS INAPPLICABLE.—The limitations
contained in any clause of section 2(c)(2)(F) shall not apply
to a foreign bank described in subparagraph (A) that is
controlled by an institution described in such section.
(g) LIMITATIONS ON CERTAIN BANKS.—
(1) IN GENERAL.—Notwithstanding any other provision of
this section (other than the last sentence of subsection (a)(2)),
a bank holding company which controls an institution that be-
came a bank as a result of the enactment of the Competitive
Equality Amendments of 1987 may retain control of such insti-
tution if such institution does not—
(A) engage in any activity after the date of the enact-
ment of such Amendments which would have caused such
institution to be a bank (as defined in section 2(c), as in
effect before such date) if such activities had been engaged
in before such date; or
(B) increase the number of locations from which such in-
stitution conducts business after March 5, 1987.
(2) LIMITATIONS CEASE TO APPLY UNDER CERTAIN CIR-
CUMSTANCES.—The limitations contained in paragraph (1) shall
cease to apply to a bank described in such paragraph at such
time as the acquisition of such bank, by the bank holding com-
pany referred to in such paragraph, would not be prohibited
under section 3(d) of this Act if—
(A) an application for such acquisition were filed under
section 3(a) of this Act; and
(B) such bank were treated as an additional bank (under
section 3(d)).
(h) TYING PROVISIONS.—
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(1) APPLICABLE TO CERTAIN EXEMPT INSTITUTIONS AND PAR-
ENT COMPANIES.—An institution described in subparagraph
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434
(D), (F), (G), or (H) of section 2(c)(2) shall be treated as a bank,
and a company that controls such an institution shall be treat-
ed as a bank holding company, for purposes of section 106 of
the Bank Holding Company Act Amendments of 1970 and sec-
tion 22(h) of the Federal Reserve Act and any regulation pre-
scribed under any such section.
(2) APPLICABLE WITH RESPECT TO CERTAIN TRANSACTIONS.—A
company that controls an institution described in subpara-
graph (D), (F), (G), or (H) of section 2(c)(2) and any of such
company’s other affiliates, shall be subject to the tying restric-
tions of section 106 of the Bank Holding Company Act Amend-
ments of 1970 in connection with any transaction involving the
products or services of such company or affiliate and those of
such institution, as if such company or affiliate were a bank
and such institution were a subsidiary of a bank holding com-
pany.
(i) ACQUISITION OF SAVINGS ASSOCIATIONS.—
(1) IN GENERAL.—The Board may approve an application by
any bank holding company under subsection (c)(8) to acquire
any savings association in accordance with the requirements
and limitations of this section.
(2) PROHIBITION ON TANDEM RESTRICTIONS.—In approving an
application by a bank holding company to acquire a savings as-
sociation, the Board shall not impose any restriction on trans-
actions between the savings association and its holding com-
pany affiliates, except as required under sections 23A and 23B
of the Federal Reserve Act or any other applicable law.
(3) ACQUISITION OF INSOLVENT SAVINGS ASSOCIATIONS.—
(A) IN GENERAL.—Notwithstanding any other provision
of this Act, any qualified savings association which became
a federally chartered stock company in December of 1986
and which is acquired by any bank holding company with-
out Federal financial assistance after June 1, 1991, and
before March 1, 1992, and any subsidiary of any such asso-
ciation, may after such acquisition continue to engage
within the home State of the qualified savings association
in insurance agency activities in which any Federal sav-
ings association (or any subsidiary thereof) may engage in
accordance with the Home Owners’ Loan Act and regula-
tions pursuant to such Act if the qualified savings associa-
tion or subsidiary thereof was continuously engaged in
such activity from June 1, 1991, to the date of the acquisi-
tion.
(B) DEFINITION OF QUALIFIED SAVINGS ASSOCIATION.—For
purposes of this paragraph, the term ‘‘qualified savings as-
sociation’’ means any savings association that—
(i) was chartered or organized as a savings associa-
tion before June 1, 1991;
(ii) had, immediately before the acquisition of such
association by the bank holding company referred to in
subparagraph (A), negative tangible capital and total
insured deposits in excess of $3,000,000,000; and
(iii) will meet all applicable regulatory capital re-
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quirements as a result of such acquisition.
(4) SOLICITATION OF VIEWS.—
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435
(A) NOTICE.—Upon receiving any application or notice by
a bank holding company to acquire, directly or indirectly,
a savings association under subsection (c)(8), the Board
shall solicit comments and recommendations from
(i) the Comptroller of the Currency, with respect to
the acquisition of a Federal savings association; and
(ii) the Federal Deposit Insurance Corporation, with
respect to the acquisition of a State savings associa-
tion.
(B) COMMENT PERIOD.—The comments and recommenda-
tions of the Comptroller of the Currency or the Federal De-
posit Insurance Corporation, as applicable, under subpara-
graph (A) with respect to any acquisition subject to such
subparagraph shall be transmitted to the Board not later
than 30 days after the receipt by the Comptroller of the
Currency or the Federal Deposit Insurance Corporation, as
applicable, of the notice relating to such acquisition (or
such shorter period as the Board may specify if the Board
advises the Comptroller of the Currency or the Federal De-
posit Insurance Corporation, as applicable, that an emer-
gency exists that requires expeditious action).
(5) EXAMINATION.—
(A) SCOPE.—The Board shall consult with the Comp-
troller of the Currency or the Federal Deposit Insurance
Corporation, as appropriate, in establishing the scope of an
examination by the Board of a bank holding company that
directly or indirectly controls a savings association.
(B) ACCESS TO INSPECTION REPORTS.—Upon the request
of the Comptroller of the Currency or the Federal Deposit
Insurance Corporation, the Board shall furnish the Comp-
troller of the Currency or the Federal Deposit Insurance
Corporation, as applicable, with a copy of any inspection
report, additional examination materials, or supervisory
information relating to any bank holding company that di-
rectly or indirectly controls a savings association.
(6) COORDINATION OF ENFORCEMENT EFFORTS.—The Board
and the Comptroller of the Currency or the Federal Deposit In-
surance Corporation, as applicable, shall cooperate in any en-
forcement action against any bank holding company that con-
trols a savings association, if the relevant conduct involves
such association.
(8) INTERSTATE ACQUISITIONS.—
(A) IN GENERAL.—The Board may not approve an appli-
cation by a bank holding company to acquire an insured
depository institution under subsection (c)(8) or any other
provision of this Act if—
(i) the home State of such insured depository institu-
tion is a State other than the home State of the bank
holding company; and
(ii) the applicant (including all insured depository
institutions which are affiliates of the applicant) con-
trols, or upon consummation of the transaction would
control, more than 10 percent of the total amount of
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deposits of insured depository institutions in the
United States.
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436
(B) EXCEPTION.—Subparagraph (A) shall not apply to an
acquisition that involves an insured depository institution
in default or in danger of default, or with respect to which
the Federal Deposit Insurance Corporation provides assist-
ance under section 13 of the Federal Deposit Insurance Act
(12 U.S.C. 1823).
(j) NOTICE PROCEDURES FOR NONBANKING ACTIVITIES.—
(1) GENERAL NOTICE PROCEDURE.—
(A) NOTICE REQUIREMENT.—Except as provided in para-
graph (3), no bank holding company may engage in any
nonbanking activity or acquire or retain ownership or con-
trol of the shares of a company engaged in activities based
on subsection (c)(8) or (a)(2) or in any complementary ac-
tivity under subsection (k)(1)(B) without providing the
Board with written notice of the proposed transaction or
activity at least 60 days before the transaction or activity
is proposed to occur or commence.
(B) CONTENTS OF NOTICE.—The notice submitted to the
Board shall contain such information as the Board shall
prescribe by regulation or by specific request in connection
with a particular notice.
(C) PROCEDURE FOR AGENCY ACTION.—
(i) NOTICE OF DISAPPROVAL.—Any notice filed under
this subsection shall be deemed to be approved by the
Board unless, before the end of the 60-day period be-
ginning on the date the Board receives a complete no-
tice under subparagraph (A), the Board issues an
order disapproving the transaction or activity and set-
ting forth the reasons for disapproval.
(ii) EXTENSION OF PERIOD.—The Board may extend
the 60-day period referred to in clause (i) for an addi-
tional 30 days. The Board may further extend the pe-
riod with the agreement of the bank holding company
submitting the notice pursuant to this
subsection.
(iii) DETERMINATION OF PERIOD IN CASE OF PUBLIC
HEARING.—In the event a hearing is requested or the
Board determines that a hearing is warranted, the
Board may extend the notice period provided in this
subsection for such time as is reasonably necessary to
conduct a hearing and to evaluate the hearing record.
Such extension shall not exceed the 91-day period be-
ginning on the date that the hearing record is com-
plete.
(D) APPROVAL BEFORE END OF PERIOD.—
(i) IN GENERAL.—Any transaction or activity may
commence before the expiration of any period for dis-
approval established under this paragraph if the
Board issues a written notice of approval.
(ii) SHORTER PERIODS BY REGULATION.—The Board
may prescribe regulations which provide for a shorter
notice period with respect to particular activities or
transactions.
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(E) EXTENSION OF PERIOD.—In the case of any notice to
engage in, or to acquire or retain ownership or control of
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437
shares of any company engaged in, any activity pursuant
to subsection (c)(8) or (a)(2) or in any complementary activ-
ity under subsection (k)(1)(B) that has not been previously
approved by regulation, the Board may extend the notice
period under this subsection for an additional 90 days. The
Board may further extend the period with the agreement
of the bank holding company submitting the notice pursu-
ant to this subsection.
(2) GENERAL STANDARDS FOR REVIEW.—
(A) CRITERIA.—In connection with a notice under this
subsection, the Board shall consider whether performance
of the activity by a bank holding company or a subsidiary
of such company can reasonably be expected to produce
benefits to the public, such as greater convenience, in-
creased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of re-
sources, decreased or unfair competition, conflicts of inter-
ests, unsound banking practices, or risk to the stability of
the United States banking or financial system.
(B) GROUNDS FOR DISAPPROVAL.—The Board may deny
any proposed transaction or activity for which notice has
been submitted pursuant to this subsection if the bank
holding company submitting such notice neglects, fails, or
refuses to furnish the Board all the information required
by the Board.
(C) CONDITIONAL ACTION.—Nothing in this subsection
limits the authority of the Board to impose conditions in
connection with an action under this section.
(3) NO NOTICE REQUIRED FOR CERTAIN TRANSACTIONS.—No
notice under paragraph (1) of this subsection or under sub-
section (c)(8) or (a)(2)(B) is required for a proposal by a bank
holding company to engage in any activity, other than any
complementary activity under subsection (k)(1)(B), or acquire
the shares or assets of any company, other than an insured de-
pository institution or a company engaged in any complemen-
tary activity under subsection (k)(1)(B), if the proposal quali-
fies under paragraph (4).
(4) CRITERIA FOR STATUTORY APPROVAL.—A proposal qualifies
under this paragraph if all of the following criteria are met:
(A) FINANCIAL CRITERIA.—Both before and immediately
after the proposed transaction—
(i) the acquiring bank holding company is well cap-
italized;
(ii) the lead insured depository institution of such
holding company is well capitalized;
(iii) well capitalized insured depository institutions
control at least 80 percent of the aggregate total risk-
weighted assets of insured depository institutions con-
trolled by such holding company; and
(iv) no insured depository institution controlled by
such holding company is undercapitalized.
(B) MANAGERIAL CRITERIA.—
(i) WELL MANAGED.—At the time of the transaction,
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the acquiring bank holding company, its lead insured
depository institution, and insured depository institu-
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438
tions that control at least 90 percent of the aggregate
total risk-weighted assets of insured depository insti-
tutions controlled by such holding company are well
managed.
(ii) LIMITATION ON POORLY MANAGED INSTITU-
TIONS.—Except as provided in paragraph (6), no in-
sured depository institution controlled by the acquir-
ing bank holding company has received 1 of the 2 low-
est composite ratings at the later of the institution’s
most recent examination or subsequent review.
(C) ACTIVITIES PERMISSIBLE.—Following consummation
of the proposal, the bank holding company engages directly
or through a subsidiary solely in—
(i) activities that are permissible under subsection
(c)(8), as determined by the Board by regulation or
order thereunder, subject to all of the restrictions,
terms, and conditions of such subsection and such reg-
ulation or order; and
(ii) such other activities as are otherwise permissible
under this section, subject to the restrictions, terms
and conditions, including any prior notice or approval
requirements, provided in this section.
(D) SIZE OF ACQUISITION.—
(i) ASSET SIZE.—The book value of the total assets to
be acquired does not exceed 10 percent of the consoli-
dated total risk-weighted assets of the acquiring bank
holding company.
(ii) CONSIDERATION.—The gross consideration to be
paid for the securities or assets does not exceed 15
percent of the consolidated Tier 1 capital of the acquir-
ing bank holding company.
(E) NOTICE NOT OTHERWISE WARRANTED.—For proposals
described in paragraph (5)(B), the Board has not, before
the conclusion of the period provided in paragraph (5)(B),
advised the bank holding company that a notice under
paragraph (1) is required.
(F) COMPLIANCE CRITERION.—During the 12-month pe-
riod ending on the date on which the bank holding com-
pany proposes to commence an activity or acquisition, no
administrative enforcement action has been commenced,
and no cease and desist order has been issued pursuant to
section 8 of the Federal Deposit Insurance Act, against the
bank holding company or any depository institution sub-
sidiary of the holding company, and no such enforcement
action, order, or other administrative enforcement pro-
ceeding is pending as of such date.
(5) NOTIFICATION.—
(A) COMMENCEMENT OF ACTIVITIES APPROVED BY RULE.—
A bank holding company that qualifies under paragraph
(4) and that proposes to engage de novo, directly or
through a subsidiary, in any activity that is permissible
under subsection (c)(8), as determined by the Board by reg-
dmwilson on DSK7X7S144PROD with REPORTS
ulation, may commence that activity without prior notice
to the Board and must provide written notification to the
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439
Board not later than 10 business days after commencing
the activity.
(B) ACTIVITIES PERMITTED BY ORDER AND ACQUISI-
TIONS.—
(i) IN GENERAL.—At least 12 business days before
commencing any activity pursuant to paragraph (3)
(other than an activity described in subparagraph (A)
of this paragraph) or acquiring shares or assets of any
company pursuant to paragraph (3), the bank holding
company shall provide written notice of the proposal to
the Board, unless the Board determines that no notice
or a shorter notice period is appropriate.
(ii) DESCRIPTION OF ACTIVITIES AND TERMS.—A noti-
fication under this subparagraph shall include a de-
scription of the proposed activities and the terms of
any proposed acquisition.
(6) RECENTLY ACQUIRED INSTITUTIONS.—Any insured deposi-
tory institution which has been acquired by a bank holding
company during the 12-month period preceding the date on
which the company proposes to commence an activity or acqui-
sition pursuant to paragraph (3) may be excluded for purposes
of paragraph (4)(B)(ii) if—
(A) the bank holding company has developed a plan for
the institution to restore the capital and management of
the institution which is acceptable to the appropriate Fed-
eral banking agency; and
(B) all such insured depository institutions represent, in
the aggregate, less than 10 percent of the aggregate total
risk-weighted assets of all insured depository institutions
controlled by the bank holding company.
(7) ADJUSTMENT OF PERCENTAGES.—The Board may, by regu-
lation, adjust the percentages and the manner in which the
percentages of insured depository institutions are calculated
under paragraph (4)(B)(i), (4)(D), or (6)(B) if the Board deter-
mines that any such adjustment is consistent with safety and
soundness and the purposes of this Act.
(k) ENGAGING IN ACTIVITIES THAT ARE FINANCIAL IN NATURE.—
(1) IN GENERAL.—Notwithstanding subsection (a), a financial
holding company may engage in any activity, and may acquire
and retain the shares of any company engaged in any activity,
that the Board, in accordance with paragraph (2), determines
(by regulation or order)—
(A) to be financial in nature or incidental to such finan-
cial activity; or
(B) is complementary to a financial activity and does not
pose a substantial risk to the safety or soundness of depos-
itory institutions or the financial system generally.
(2) COORDINATION BETWEEN THE BOARD AND THE SECRETARY
OF THE TREASURY.—
(A) PROPOSALS RAISED BEFORE THE BOARD.—
(i) CONSULTATION.—The Board shall notify the Sec-
retary of the Treasury of, and consult with the Sec-
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retary of the Treasury concerning, any request, pro-
posal, or application under this subsection for a deter-
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440
mination of whether an activity is financial in nature
or incidental to a financial activity.
(ii) TREASURY VIEW.—The Board shall not determine
that any activity is financial in nature or incidental to
a financial activity under this subsection if the Sec-
retary of the Treasury notifies the Board in writing,
not later than 30 days after the date of receipt of the
notice described in clause (i) (or such longer period as
the Board determines to be appropriate under the cir-
cumstances) that the Secretary of the Treasury be-
lieves that the activity is not financial in nature or in-
cidental to a financial activity or is not otherwise per-
missible under this section.
(B) PROPOSALS RAISED BY THE TREASURY.—
(i) TREASURY RECOMMENDATION.—The Secretary of
the Treasury may, at any time, recommend in writing
that the Board find an activity to be financial in na-
ture or incidental to a financial activity.
(ii) TIME PERIOD FOR BOARD ACTION.—Not later than
30 days after the date of receipt of a written rec-
ommendation from the Secretary of the Treasury
under clause (i) (or such longer period as the Secretary
of the Treasury and the Board determine to be appro-
priate under the circumstances), the Board shall de-
termine whether to initiate a public rulemaking pro-
posing that the recommended activity be found to be
financial in nature or incidental to a financial activity
under this subsection, and shall notify the Secretary of
the Treasury in writing of the determination of the
Board and, if the Board determines not to seek public
comment on the proposal, the reasons for that deter-
mination.
(3) FACTORS TO BE CONSIDERED.—In determining whether an
activity is financial in nature or incidental to a financial activ-
ity, the Board shall take into account—
(A) the purposes of this Act and the Gramm-Leach-Bliley
Act;
(B) changes or reasonably expected changes in the mar-
ketplace in which financial holding companies compete;
(C) changes or reasonably expected changes in the tech-
nology for delivering financial services; and
(D) whether such activity is necessary or appropriate to
allow a financial holding company and the affiliates of a fi-
nancial holding company to—
(i) compete effectively with any company seeking to
provide financial services in the United States;
(ii) efficiently deliver information and services that
are financial in nature through the use of techno-
logical means, including any application necessary to
protect the security or efficacy of systems for the
transmission of data or financial transactions; and
(iii) offer customers any available or emerging tech-
dmwilson on DSK7X7S144PROD with REPORTS
nological means for using financial services or for the
document imaging of data.
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(4) ACTIVITIES THAT ARE FINANCIAL IN NATURE.—For pur-
poses of this subsection, the following activities shall be consid-
ered to be financial in nature:
(A) Lending, exchanging, transferring, investing for oth-
ers, or safeguarding money øor securities¿, securities, or
digital commodities.
(B) Insuring, guaranteeing, or indemnifying against loss,
harm, damage, illness, disability, or death, or providing
and issuing annuities, and acting as principal, agent, or
broker for purposes of the foregoing, in any State.
(C) Providing financial, investment, or economic advisory
services, including advising an investment company (as de-
fined in section 3 of the Investment Company Act of 1940).
(D) Issuing or selling instruments representing interests
in pools of assets permissible for a bank to hold directly.
(E) Underwriting, dealing in, or making a market in se-
curities or digital commodities
(F) Engaging in any activity that the Board has deter-
mined, by order or regulation that is in effect on the date
of the enactment of the Gramm-Leach-Bliley Act, to be so
closely related to banking or managing or controlling
banks as to be a proper incident thereto (subject to the
same terms and conditions contained in such order or reg-
ulation, unless modified by the Board).
(G) Engaging, in the United States, in any activity
that—
(i) a bank holding company may engage in outside
of the United States; and
(ii) the Board has determined, under regulations
prescribed or interpretations issued pursuant to sub-
section (c)(13) (as in effect on the day before the date
of the enactment of the Gramm-Leach-Bliley Act) to be
usual in connection with the transaction of banking or
other financial operations abroad.
(H) Directly or indirectly acquiring or controlling, wheth-
er as principal, on behalf of 1 or more entities (including
entities, other than a depository institution or subsidiary
of a depository institution, that the bank holding company
controls), or otherwise, shares, assets, or ownership inter-
ests (including debt or equity securities, partnership inter-
ests, trust certificates, or other instruments representing
ownership) of a company or other entity, whether or not
constituting control of such company or entity, engaged in
any activity not authorized pursuant to this section if—
(i) the shares, assets, or ownership interests are not
acquired or held by a depository institution or sub-
sidiary of a depository institution;
(ii) such shares, assets, or ownership interests are
acquired and held by—
(I) a securities affiliate or an affiliate thereof; or
(II) an affiliate of an insurance company de-
scribed in subparagraph (I)(ii) that provides in-
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vestment advice to an insurance company and is
registered pursuant to the Investment Advisers
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442
Act of 1940, or an affiliate of such investment ad-
viser;
as part of a bona fide underwriting or merchant or in-
vestment banking activity, including investment ac-
tivities engaged in for the purpose of appreciation and
ultimate resale or disposition of the investment;
(iii) such shares, assets, or ownership interests are
held for a period of time to enable the sale or disposi-
tion thereof on a reasonable basis consistent with the
financial viability of the activities described in clause
(ii); and
(iv) during the period such shares, assets, or owner-
ship interests are held, the bank holding company
does not routinely manage or operate such company or
entity except as may be necessary or required to ob-
tain a reasonable return on investment upon resale or
disposition.
(I) Directly or indirectly acquiring or controlling, wheth-
er as principal, on behalf of 1 or more entities (including
entities, other than a depository institution or subsidiary
of a depository institution, that the bank holding company
controls) or otherwise, shares, assets, or ownership inter-
ests (including debt or equity securities, partnership inter-
ests, trust certificates or other instruments representing
ownership) of a company or other entity, whether or not
constituting control of such company or entity, engaged in
any activity not authorized pursuant to this section if—
(i) the shares, assets, or ownership interests are not
acquired or held by a depository institution or a sub-
sidiary of a depository institution;
(ii) such shares, assets, or ownership interests are
acquired and held by an insurance company that is
predominantly engaged in underwriting life, accident
and health, or property and casualty insurance (other
than credit-related insurance) or providing and issuing
annuities;
(iii) such shares, assets, or ownership interests rep-
resent an investment made in the ordinary course of
business of such insurance company in accordance
with relevant State law governing such investments;
and
(iv) during the period such shares, assets, or owner-
ship interests are held, the bank holding company
does not routinely manage or operate such company
except as may be necessary or required to obtain a
reasonable return on investment.
(5) ACTIONS REQUIRED.—
(A) IN GENERAL.—The Board shall, by regulation or
order, define, consistent with the purposes of this Act, the
activities described in subparagraph (B) as financial in na-
ture, and the extent to which such activities are financial
in nature or incidental to a financial activity.
dmwilson on DSK7X7S144PROD with REPORTS
(B) ACTIVITIES.—The activities described in this sub-
paragraph are as follows:
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443
(i) Lending, exchanging, transferring, investing for
others, or safeguarding financial assets other than
money or securities.
(ii) Providing any device or other instrumentality for
transferring money or other financial assets.
(iii) Arranging, effecting, or facilitating financial
transactions for the account of third parties.
(6) REQUIRED NOTIFICATION.—
(A) IN GENERAL.—A financial holding company that ac-
quires any company or commences any activity pursuant
to this subsection shall provide written notice to the Board
describing the activity commenced or conducted by the
company acquired not later than 30 calendar days after
commencing the activity or consummating the acquisition,
as the case may be.
(B) APPROVAL NOT REQUIRED FOR CERTAIN FINANCIAL AC-
TIVITIES.—
(i) IN GENERAL.—Except as provided in subsection (j)
with regard to the acquisition of a savings association
and clause (ii), a financial holding company may com-
mence any activity, or acquire any company, pursuant
to paragraph (4) or any regulation prescribed or order
issued under paragraph (5), without prior approval of
the Board.
(ii) EXCEPTION.—A financial holding company may
not acquire a company, without the prior approval of
the Board, in a transaction in which the total consoli-
dated assets to be acquired by the financial holding
company exceed $10,000,000,000.
(iii) HART-SCOTT-RODINO FILING REQUIREMENT.—
Solely for purposes of section 7A(c)(8) of the Clayton
Act (15 U.S.C. 18a(c)(8)), the transactions subject to
the requirements of this paragraph shall be treated as
if the approval of the Board is not required.
(7) MERCHANT BANKING ACTIVITIES.—
(A) JOINT REGULATIONS.—The Board and the Secretary
of the Treasury may issue such regulations implementing
paragraph (4)(H), including limitations on transactions be-
tween depository institutions and companies
controlled pursuant to such paragraph, as the Board and
the Secretary jointly deem appropriate to assure compli-
ance with the purposes and prevent evasions of this Act
and the Gramm-Leach-Bliley Act and to protect depository
institutions.
(B) SUNSET OF RESTRICTIONS ON MERCHANT BANKING AC-
TIVITIES OF FINANCIAL SUBSIDIARIES.—The restrictions con-
tained in paragraph (4)(H) on the ownership and control of
shares, assets, or ownership interests by or on behalf of a
subsidiary of a depository institution shall not apply to a
financial subsidiary (as defined in section 5136A of the Re-
vised Statutes of the United States) of a bank, if the Board
and the Secretary of the Treasury jointly authorize finan-
cial subsidiaries of banks to engage in merchant banking
dmwilson on DSK7X7S144PROD with REPORTS
activities pursuant to section 122 of the Gramm-Leach-Bli-
ley Act.
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444
(l) CONDITIONS FOR ENGAGING IN EXPANDED FINANCIAL ACTIVI-
TIES.—
(1) IN GENERAL.—Notwithstanding subsection (k), (n), or (o),
a bank holding company may not engage in any activity, or di-
rectly or indirectly acquire or retain shares of any company en-
gaged in any activity, under subsection (k), (n), or (o), other
than activities permissible for any bank holding company
under subsection (c)(8), unless—
(A) all of the depository institution subsidiaries of the
bank holding company are well capitalized;
(B) all of the depository institution subsidiaries of the
bank holding company are well managed;
(C) the bank holding company is well capitalized and
well managed; and
(D) the bank holding company has filed with the
Board—
(i) a declaration that the company elects to be a fi-
nancial holding company to engage in activities or ac-
quire and retain shares of a company that were not
permissible for a bank holding company to engage in
or acquire before the enactment of the Gramm-Leach-
Bliley Act; and
(ii) a certification that the company meets the re-
quirements of subparagraphs (A), (B), and (C).
(2) CRA REQUIREMENT.—Notwithstanding subsection (k) or
(n) of this section, section 5136A(a) of the Revised Statutes of
the United States, or section 46(a) of the Federal Deposit In-
surance Act, the appropriate Federal banking agency shall pro-
hibit a financial holding company or any insured depository in-
stitution from—
(A) commencing any new activity under subsection (k) or
(n) of this section, section 5136A(a) of the Revised Statutes
of the United States, or section 46(a) of the Federal De-
posit Insurance Act; or
(B) directly or indirectly acquiring control of a company
engaged in any activity under subsection (k) or (n) of this
section, section 5136A(a) of the Revised Statutes of the
United States, or section 46(a) of the Federal Deposit In-
surance Act (other than an investment made pursuant to
subparagraph (H) or (I) of subsection (k)(4), or section 122
of the Gramm-Leach-Bliley Act, or under section 46(a) of
the Federal Deposit Insurance Act by reason of such sec-
tion 122, by an affiliate already engaged in activities under
any such provision);
if any insured depository institution subsidiary of such finan-
cial holding company, or the insured depository institution or
any of its insured depository institution affiliates, has received
in its most recent examination under the Community Reinvest-
ment Act of 1977, a rating of less than ‘‘satisfactory record of
meeting community credit needs’’.
(3) FOREIGN BANKS.—For purposes of paragraph (1), the
Board shall apply comparable capital and management stand-
dmwilson on DSK7X7S144PROD with REPORTS
ards to a foreign bank that operates a branch or agency or
owns or controls a commercial lending company in the United
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445
States, giving due regard to the principle of national treatment
and equality of competitive opportunity.
(m) PROVISIONS APPLICABLE TO FINANCIAL HOLDING COMPANIES
THAT FAIL TO MEET CERTAIN REQUIREMENTS.—
(1) IN GENERAL.—If the Board finds that—
(A) a financial holding company is engaged, directly or
indirectly, in any activity under subsection (k), (n), or (o),
other than activities that are permissible for a bank hold-
ing company under subsection (c)(8); and
(B) such financial holding company is not in compliance
with the requirements of subsection (l)(1);
the Board shall give notice to the financial holding company to
that effect, describing the conditions giving rise to the notice.
(2) AGREEMENT TO CORRECT CONDITIONS REQUIRED.—Not
later than 45 days after the date of receipt by a financial hold-
ing company of a notice given under paragraph (1) (or such ad-
ditional period as the Board may permit), the financial holding
company shall execute an agreement with the Board to comply
with the requirements applicable to a financial holding com-
pany under subsection (l)(1).
(3) BOARD MAY IMPOSE LIMITATIONS.—Until the conditions
described in a notice to a financial holding company under
paragraph (1) are corrected, the Board may impose such limi-
tations on the conduct or activities of that financial holding
company or any affiliate of that company as the Board deter-
mines to be appropriate under the circumstances and con-
sistent with the purposes of this Act.
(4) FAILURE TO CORRECT.—If the conditions described in a
notice to a financial holding company under paragraph (1) are
not corrected within 180 days after the date of receipt by the
financial holding company of a notice under paragraph (1), the
Board may require such financial holding company, under such
terms and conditions as may be imposed by the Board and sub-
ject to such extension of time as may be granted in the discre-
tion of the Board, either—
(A) to divest control of any subsidiary depository institu-
tion; or
(B) at the election of the financial holding company in-
stead to cease to engage in any activity conducted by such
financial holding company or its subsidiaries (other than a
depository institution or a subsidiary of a depository insti-
tution) that is not an activity that is permissible for a
bank holding company under subsection (c)(8).
(5) CONSULTATION.—In taking any action under this sub-
section, the Board shall consult with all relevant Federal and
State regulatory agencies and authorities.
(n) AUTHORITY TO RETAIN LIMITED NONFINANCIAL ACTIVITIES
AND AFFILIATIONS.—
(1) IN GENERAL.—Notwithstanding subsection (a), a company
that is not a bank holding company or a foreign bank (as de-
fined in section 1(b)(7) of the International Banking Act of
1978) and becomes a financial holding company after the date
dmwilson on DSK7X7S144PROD with REPORTS
of the enactment of the Gramm-Leach-Bliley Act may continue
to engage in any activity and retain direct or indirect owner-
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446
ship or control of shares of a company engaged in any activity
if—
(A) the holding company lawfully was engaged in the ac-
tivity or held the shares of such company on September
30, 1999;
(B) the holding company is predominantly engaged in fi-
nancial activities as defined in paragraph (2); and
(C) the company engaged in such activity continues to
engage only in the same activities that such company con-
ducted on September 30, 1999, and other activities permis-
sible under this Act.
(2) PREDOMINANTLY FINANCIAL.—For purposes of this sub-
section, a company is predominantly engaged in financial ac-
tivities if the annual gross revenues derived by the holding
company and all subsidiaries of the holding company (exclud-
ing revenues derived from subsidiary depository institutions),
on a consolidated basis, from engaging in activities that are fi-
nancial in nature or are incidental to a financial activity under
subsection (k) represent at least 85 percent of the consolidated
annual gross revenues of the company.
(3) NO EXPANSION OF GRANDFATHERED COMMERCIAL ACTIVI-
TIES THROUGH MERGER OR CONSOLIDATION.—A financial hold-
ing company that engages in activities or holds shares pursu-
ant to this subsection, or a subsidiary of such financial holding
company, may not acquire, in any merger, consolidation, or
other type of business combination, assets of any other com-
pany that is engaged in any activity that the Board has not de-
termined to be financial in nature or incidental to a financial
activity under subsection (k), except this paragraph shall not
apply with respect to a company that owns a broadcasting sta-
tion licensed under title III of the Communications Act of 1934
and the shares of which are under common control with an in-
surance company since January 1, 1998, unless such company
is acquired by, or otherwise becomes an affiliate of, a bank
holding company that, at the time such acquisition or affili-
ation is consummated, is 1 of the 5 largest domestic bank hold-
ing companies (as determined on the basis of the consolidated
total assets of such companies).
(4) CONTINUING REVENUE LIMITATION ON GRANDFATHERED
COMMERCIAL ACTIVITIES.—Notwithstanding any other provision
of this subsection, a financial holding company may continue
to engage in activities or hold shares in companies pursuant to
this subsection only to the extent that the aggregate annual
gross revenues derived from all such activities and all such
companies does not exceed 15 percent of the consolidated an-
nual gross revenues of the financial holding company (exclud-
ing revenues derived from subsidiary depository institutions).
(5) CROSS MARKETING RESTRICTIONS APPLICABLE TO COMMER-
CIAL ACTIVITIES.—
(A) IN GENERAL.—A depository institution controlled by
a financial holding company shall not—
(i) offer or market, directly or through any arrange-
ment, any product or service of a company whose ac-
dmwilson on DSK7X7S144PROD with REPORTS
tivities are conducted or whose shares are owned or
controlled by the financial holding company pursuant
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447
to this subsection or subparagraph (H) or (I) of sub-
section (k)(4); or
(ii) permit any of its products or services to be of-
fered or marketed, directly or through any arrange-
ment, by or through any company described in clause
(i).
(B) RULE OF CONSTRUCTION.—Subparagraph (A) shall
not be construed as prohibiting an arrangement between a
depository institution and a company owned or controlled
pursuant to subparagraph (H) or (I) of subsection (k)(4) for
the marketing of products or services through statement
inserts or Internet websites if—
(i) such arrangement does not violate section 106 of
the Bank Holding Company Act Amendments of 1970;
and
(ii) the Board determines that the arrangement is in
the public interest, does not undermine the separation
of banking and commerce, and is consistent with the
safety and soundness of depository institutions.
(6) TRANSACTIONS WITH NONFINANCIAL AFFILIATES.—A depos-
itory institution controlled by a financial holding company may
not engage in a covered transaction (as defined in section
23A(b)(7) of the Federal Reserve Act) with any affiliate con-
trolled by the company pursuant to this subsection.
(7) SUNSET OF GRANDFATHER.—A financial holding company
engaged in any activity, or retaining direct or indirect owner-
ship or control of shares of a company, pursuant to this sub-
section, shall terminate such activity and divest ownership or
control of the shares of such company before the end of the 10-
year period beginning on the date of the enactment of the
Gramm-Leach-Bliley Act. The Board may, upon application by
a financial holding company, extend such 10-year period by a
period not to exceed an additional 5 years if such extension
would not be detrimental to the public interest.
(o) REGULATION OF CERTAIN FINANCIAL HOLDING COMPANIES.—
Notwithstanding subsection (a), a company that is not a bank hold-
ing company or a foreign bank (as defined in section 1(b)(7) of the
International Banking Act of 1978) and becomes a financial holding
company after the date of enactment of the Gramm-Leach-Bliley
Act, may continue to engage in, or directly or indirectly own or con-
trol shares of a company engaged in, activities related to the trad-
ing, sale, or investment in commodities and underlying physical
properties that were not permissible for bank holding companies to
conduct in the United States as of September 30, 1997, if—
(1) the holding company, or any subsidiary of the holding
company, lawfully was engaged, directly or indirectly, in any
of such activities as of September 30, 1997, in the United
States;
(2) the attributed aggregate consolidated assets of the com-
pany held by the holding company pursuant to this subsection,
and not otherwise permitted to be held by a financial holding
company, are equal to not more than 5 percent of the total con-
dmwilson on DSK7X7S144PROD with REPORTS
solidated assets of the bank holding company, except that the
Board may increase that percentage by such amounts and
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448
under such circumstances as the Board considers appropriate,
consistent with the purposes of this Act; and
(3) the holding company does not permit—
(A) any company, the shares of which it owns or controls
pursuant to this subsection, to offer or market any product
or service of an affiliated depository institution; or
(B) any affiliated depository institution to offer or mar-
ket any product or service of any company, the shares of
which are owned or controlled by such holding company
pursuant to this subsection.
* * * * * * *
ADDITIONAL VIEWS
Millions of Americans currently hold cryptocurrencies as invest-
ments, use them for financial transactions and utilize other digital
tokens as part of new innovative technologies and services. The
number of Americans holding and trading digital assets is expected
to continue to grow regardless of whether Congress enacts digital
asset market structure legislation.
Currently, the Commodity Futures Trading Commission (CFTC)
is hamstrung in its ability to protect consumers because its author-
ity over these markets is limited to anti-fraud and anti-manipula-
tion enforcement authority. Additionally, the Securities Exchange
Commission (SEC) under the current administration has taken a
laissez-faire approach to this industry by scaling back enforcement
activities and issuing guidance that the protections afforded by the
federal securities laws do not apply to certain token transactions.
Given this gap in regulation, Congress must act to provide clarity
to the markets so that customers can be protected and so that
crypto innovators can make plans with some certainty for what the
rules of the road will be.
The CLARITY Act is not a perfect bill, but it is an important
step forward. It would put in place consumer protections that dig-
ital asset markets currently lack, like requiring customer disclo-
sures and the sequestering of consumer funds to protect retail in-
vestor deposits from being misused. In addition to protecting retail
investors, the bill provides clear rules, which will help promote re-
sponsible growth of these markets and foster the ability of
innovators to bring new ideas and solutions to market.
However, even the most expertly-crafted legislation will accom-
plish nothing if agencies do not have the resources to implement
it, both in terms of writing rules and regulations and engaging in
continual monitoring and enforcement activities. During the 118th
Congress, former CFTC Chair Russ Benham testified before the
House Agriculture Committee that the agency would need at least
$120 million over three years to fully implement digital asset mar-
ket structure legislation and have the infrastructure in place for
the CFTC to be successful.
Yet, the House Appropriations Committee approved a cut in the
CFTC’s budget by $30 million for Fiscal Year 2026. While the
CLARITY Act provides for temporary registration fees, those fees
mean nothing if appropriators reduce the total funding level for the
dmwilson on DSK7X7S144PROD with REPORTS
agency. As this legislation moves forward, it is important that we
work together to ensure the CFTC has the resources necessary to
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449
succeed in policing these markets not just in the first three years,
but also over the long term.
Additionally, we are deeply concerned by certain actions by mem-
bers of this Administration with regard to meme coins they own,
including promoting such meme coins on their social media ac-
counts and hosting a dinner for the buyers of their meme coins.
This activity raises serious ethical questions of using their official
position for personal gain and potential corruption.
There are few defenders of this conduct. Even many Republicans
agree that this conduct by members of the current Administration
creates, at the very least, an appearance of impropriety if not an
actual conflict of interest.
But the damage goes beyond the appearance of corruption. Amer-
icans observing such actions by the political elite in these markets
may wonder whether their financial interests will be prioritized if
they conflict with those of this political elite. Thus, the current ad-
ministration’s dealings in crypto will undermine confidence in this
new industry, which is not something we need to see if we want
the United States to be the world leader in blockchain,
cryptocurrency, and other digital assets.
Before this bill goes to the House floor, we should work to ad-
dress any conflicts of interest head-on. Failure to do so not only
could cost this bill broad bipartisan support but also stifle the po-
tential benefits that this industry promises. This technology should
benefit all Americans and not just increase the personal fortune of
any one man, even the President himself.
ANGIE CRAIG,
Ranking Member.
SHONTEL BROWN,
Vice Ranking Member.
ANDREA SALINAS,
DONALD DAVIS,
NIKKI BUDZINSKI,
ERIC SORENSEN,
JONATHAN JACKSON,
KRISTEN MCDONALD RIVET,
EUGENE VINDMAN,
JOSH RILEY,
APRIL MCCLAIN DELANEY,
Members of Congress.
Æ
dmwilson on DSK7X7S144PROD with REPORTS
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