Sec. 504. Registration of digital commodity exchanges
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The Commodity Exchange Act ( 7 U.S.C. 1 et seq. ) is amended by inserting after section 5h the following: A trading facility that offers or seeks to offer a cash or spot market in at least 1 digital commodity shall register with the Commission as a digital commodity exchange. 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.
A trading facility that offers or seeks to offer a cash or spot market in at least 1 digital commodity shall not be required to register under this section if the trading facility— permits no more than a de minimis amount of trading activity in a digital commodity; or serves only customers in a single State or territory. A registered digital commodity exchange may also register as— a designated contract market; or a swap execution facility. For an entity with multiple registrations under clause (i), the Commission— shall prescribe rules to exempt the entity from duplicative, conflicting, or unduly burdensome provisions of this Act and the rules under this Act, to the extent such an exemption would foster the development of fair and orderly cash or spot markets in digital commodities, be necessary or appropriate in the public interest, and be consistent with the protection of customers; and may, after an analysis of the risks and benefits, prescribe rules to provide for portfolio margining, as may be necessary to protect market participants, promote fair and equitable trading in digital commodity markets, and promote responsible economic or financial innovation.
A registered digital commodity exchange may register with the Securities and Exchange Commission as a digital asset trading system to list or trade contracts of sale for restricted digital assets. A registered digital commodity exchange shall also be a member of a registered futures association and comply with rules related to such activity, if the registered digital commodity exchange accepts customer funds required to be segregated under subsection (d). The Commission shall require any registered futures association with a digital commodity exchange as a member to provide such rules as may be necessary to further compliance with subsection (d), protect customers, and promote the public interest.
A person required to be registered as a digital commodity exchange under this section shall register with the Commission as such regardless of whether the person is registered with another State or Federal regulator. 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. 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.
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. 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. The Commission shall, by rule, permit a digital commodity exchange or any affiliate of a digital commodity exchange to engage in trading on an affiliated exchange so long as the trading is not solely for the purpose of the profit of the exchange, including the following:
A transaction for, or entered into at the direction of, or for the benefit of, an unaffiliated customer. A transaction to manage the risks associated with the digital commodity business of the exchange. A transaction related to the functional operation of a blockchain network. 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 principles of the Act. The Commission may, by rule, delegate authority to the Director of the Division of Market Oversight, or such other employee or employees as the Director of the Division of Market Oversight may designate from time to time, to carry out these provisions. A registered digital commodity exchange that is also registered with the Securities and Exchange Commission may offer a contract of sale of a restricted digital asset. The digital commodity exchange shall have in place such rules as may be necessary to reasonably ensure the orderly sale of any unit of a digital commodity sold by a related person or an affiliated person. To be registered, and maintain registration, as a digital commodity exchange, a digital commodity exchange shall comply with— the core principles described in this subsection; and any requirement that the Commission may impose by rule or regulation pursuant to section 8a(5). Unless otherwise determined by the Commission by rule or regulation, a digital commodity exchange described in subparagraph
(A)shall have reasonable discretion in establishing the manner in which the digital commodity exchange complies with the core principles described in this subsection. A digital commodity exchange shall— establish and enforce compliance with any rule of the digital commodity exchange, including— the terms and conditions of the trades traded or processed on or through the digital commodity exchange; and any limitation on access to the digital commodity exchange; 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— to provide market participants with impartial access to the market; and to capture information that may be used in establishing whether rule violations have occurred; and establish rules governing the operation of the exchange, including rules specifying trading procedures to be used in entering and executing orders traded or posted on the facility. A digital commodity exchange shall permit trading only in a digital commodity that is not readily susceptible to manipulation. A digital commodity exchange shall permit trading only in a digital commodity if the information required in clause
(ii)is correct, current, and available to the public. 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 information required in this clause is as follows: The source code for any blockchain system to which the digital commodity relates. A narrative description of the steps necessary to independently access, search, and verify the transaction history of any blockchain system to which the digital commodity relates. A narrative description of the purpose of any blockchain system to which the digital asset relates and the operation of any such blockchain system, including— 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 assets to be created, the release schedule for the digital assets, and the total number of digital assets then outstanding; information detailing any applicable consensus mechanism or process for validating transactions, method of generating or mining digital assets, and any process for burning or destroying digital assets on the blockchain system; an explanation of governance mechanisms for implementing changes to the blockchain system or forming consensus among holders of the digital assets; and sufficient information for a third party to create a tool for verifying the transaction history of the digital asset. The trading volume and volatility of the digital commodity. Such additional information as the Commission may, by rule, determine to be necessary for a customer to understand the financial and operational risks of a digital commodity, and to be in the public interest or in furtherance of the requirements of this Act. The Commission shall prescribe rules and regulations for the standardization and simplification of disclosures under clause (ii), including requiring that disclosures— be conspicuous; use plain language comprehensible to customers; and succinctly explain the information that is required to be communicated to the customer. In addition to the requirements of subparagraphs
(A)and (B), a digital commodity exchange shall consider— if a sufficient percentage of the units of the digital asset are units of a digital commodity to permit robust price discovery; if it is reasonably unlikely that the transaction history can be fraudulently altered by any person or group of persons acting collectively; if the operating structure and system of the digital commodity is secure from cybersecurity threats; if the functionality of the digital commodity will protect holders from operational failures; if sufficient public information about the operation, functionality, and use of the digital commodity is available; and any other factor which the Commission has, by rule, determined to be in the public interest or in furtherance of the requirements of this Act. A digital commodity exchange shall not permit the trading of a unit of a digital asset that is a restricted digital asset. A digital commodity exchange shall establish standards and procedures that are designed to protect and ensure the safety of customer money, assets, and property. A digital commodity exchange shall provide a competitive, open, and efficient market and mechanism for executing transactions that protects the price discovery process of trading on the exchange. A digital commodity exchange shall establish and enforce rules— 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 to promote fair and equitable trading on the exchange. A digital commodity exchange shall— establish and enforce rules or terms and conditions defining, or specifications detailing— trading procedures to be used in entering and executing orders traded on or through the facilities of the digital commodity exchange; and procedures for trade processing of digital commodities on or through the facilities of the digital commodity exchange; and monitor trading in digital commodities to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through surveillance, compliance, and disciplinary practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions. A digital commodity exchange shall— establish and enforce rules that will allow the facility to obtain any necessary information to perform any of the functions described in this section; provide the information to the Commission on request; and have the capacity to carry out such international information-sharing agreements as the Commission may require. A digital commodity exchange shall adopt rules to provide for the exercise of emergency authority, in consultation or cooperation with the Commission or a registered entity, as is necessary and appropriate, including the authority to facilitate the liquidation or transfer of open positions in any digital commodity or to suspend or curtail trading in a digital commodity. 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. A digital commodity exchange shall have the capacity to electronically capture and transmit trade information with respect to transactions executed on the exchange. A digital commodity exchange shall— 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 Commission for a period of 5 years; 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 keep any such records of digital commodities which relate to a security open to inspection and examination by the Securities and Exchange Commission. Subject to section 8, and on request, the Commission shall share information collected under subparagraph
(A)with— the Board; the Securities and Exchange Commission; each appropriate Federal banking agency; each appropriate State bank supervisor (within the meaning of section 3 of the Federal Deposit Insurance Act); the Financial Stability Oversight Council; the Department of Justice; and any other person that the Commission determines to be appropriate, including— foreign financial supervisors (including foreign futures authorities); foreign central banks; and foreign ministries. Before the Commission may share information with any entity described in subparagraph (B), the Commission shall receive a written agreement from the entity stating that the entity shall abide by the confidentiality requirements described in section 8 relating to the information on digital commodities that is provided. A digital commodity exchange shall provide to the Commission (including any designee of the Commission) information under subparagraph
(A)in such form and at such frequency as is required by the Commission. Unless necessary or appropriate to achieve the purposes of this Act, a digital commodity exchange shall not— adopt any rules or take any actions that result in any unreasonable restraint of trade; or impose any material anticompetitive burden on trading. A registered digital commodity exchange shall implement conflict-of-interest systems and procedures that— establish structural and institutional safeguards— to minimize conflicts of interest that might potentially bias the judgment or supervision of the digital commodity exchange and contravene the principles of fair and equitable trading and the business conduct standards described in this Act, including conflicts arising out of transactions or arrangements with affiliates (including affiliates engaging in digital commodity activities) or between self-regulatory obligations and commercial interests, which may include information partitions, restrictions on employees and directors, and the legal separation of different persons or entities involved in digital commodity activities; and to ensure that the activities of any person within the digital commodity exchange or any affiliated entity relating to research or analysis of the price or market for any digital commodity or acting in a role of providing dealing, brokering, or advising activities are separated by appropriate informational partitions within the digital commodity exchange or any affiliated entity from the review, pressure, or oversight of persons whose involvement in pricing, trading, exchange, or clearing activities might potentially bias their judgment or supervision and contravene the core principles of open access and the business conduct standards described in this Act; and address such other issues as the Commission determines to be appropriate. A digital commodity exchange shall have adequate financial, operational, and managerial resources, as determined by the Commission, to discharge each responsibility of the digital commodity exchange. A digital commodity exchange shall possess financial resources that, at a minimum, exceed the greater of— the total amount that would enable the digital commodity exchange to conduct an orderly wind-down of its activities or the total amount that would enable the digital commodity exchange to cover the operating costs of the digital commodity exchange for a 1-year period, as calculated on a rolling basis. A digital commodity exchange shall establish and enforce disciplinary procedures that authorize the digital commodity exchange to discipline, suspend, or expel members or market participants that violate the rules of the digital commodity exchange, or similar methods for performing the same functions, including delegation of the functions to third parties. A digital commodity exchange shall establish governance arrangements that are transparent to fulfill public interest requirements. A digital commodity exchange shall establish and enforce appropriate fitness standards for— directors; and any individual or entity with direct access to, or control of, customer assets. A digital commodity exchange shall— establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational and security risks, through the development of appropriate controls and procedures, and automated systems, that— are reliable and secure; and have adequate scalable capacity; 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 digital commodity exchange; and periodically conduct tests to verify that the backup resources of the digital commodity exchange are sufficient to ensure continued— order processing and trade matching; price reporting; market surveillance; and maintenance of a comprehensive and accurate audit trail. 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 the access to the money, assets, and property of the customer. 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. Money, assets, and property of a customer described in clause
(i)shall be separately accounted for and shall not be commingled with the funds of the digital commodity exchange or be used to margin, secure, or guarantee any trades or accounts of any customer or person other than the person for whom the same are held. Notwithstanding subparagraph (A), money, assets, and property of customers of a digital commodity exchange described in subparagraph
(A)may, for convenience, be commingled and deposited in the same account or accounts with any bank, trust company, derivatives clearing organization, or qualified digital commodity custodian. Notwithstanding subparagraph (A), such share of the money, assets, and property described in item
(aa)as in the normal course of business shall be necessary to margin, guarantee, secure, transfer, adjust, or settle a contract of sale of a digital commodity with a registered entity may be withdrawn and applied to such purposes, including the payment of commissions, brokerage, interest, taxes, storage, and other charges, lawfully accruing in connection with the contract of sale of a digital commodity. Notwithstanding subparagraph (A), in accordance with such terms and conditions as the Commission may prescribe by rule, regulation, or order, any money, assets, or property of the customers of a digital commodity exchange described in subparagraph
(A)may be commingled and deposited in customer accounts with any other money, assets, or property received by the digital commodity exchange and required by the Commission to be separately accounted for and treated and dealt with as belonging to the customer of the digital commodity exchange. Money described in subparagraph
(A)may be invested in obligations of the United States, in general obligations of any State or of any political subdivision of a State, and in obligations fully guaranteed as to principal and interest by the United States, or in any other investment that the Commission may by rule or regulation prescribe, and such investments shall be made in accordance with such rules and regulations and subject to such conditions as the Commission may prescribe. 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. A transaction involving a unit of a digital commodity occurring on or subject to the rules of a digital commodity exchange shall be considered a contract for the purchase or sale of a commodity for future delivery, on or subject to the rules of, a contract market or board of trade for the purposes of the definition of a commodity contract in section 761 of title 11, United States Code. A digital commodity exchange shall be considered a futures commission merchant for purposes of section 761 of title 11, United States Code. Assets removed from segregation due to a customer election under paragraph
(5)shall not be considered customer property for purposes of section 761 of title 11, United States Code. It shall be unlawful— for any digital commodity exchange that has received any customer money, assets, or property for custody to dispose of, or use any such money, assets, or property as belonging to the digital commodity exchange or any person other than a customer of the digital commodity exchange; or for any other person, including any depository, other digital commodity exchange, 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, or property, as belonging to the depositing digital commodity exchange or any person other than the customers of the digital commodity exchange. 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
(5)or a decentralized governance system associated with the digital commodity or the blockchain system to which the digital commodity relates in any manner other than that expressly directed by the customer from whom the unit of a digital commodity was received. A customer shall have the right to waive the restrictions in paragraph
(1)for any unit of a digital commodity to be used under subparagraph (B), by affirmatively electing, in writing to the digital commodity exchange, to waive the restrictions. Customer digital commodities removed 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. The Commission may, by rule, establish notice and disclosure requirements, and any other limitations and rules related to the waiving of any restrictions under this paragraph that are reasonably necessary to protect customers, including eligible contract participants, non-eligible contract participants, or any other class of customers. A digital commodity exchange may not require a waiver from a customer described in subparagraph
(A)as a condition of doing business on the exchange. In this subparagraph, 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. A digital commodity exchange shall require any person who is not an eligible contract participant to access trading on the exchange through a digital commodity broker. A registered digital commodity exchange may permit an affiliated digital commodity broker to facilitate access to the digital commodity exchange. Nothing in this section shall prohibit a digital commodity exchange in compliance with this section from permitting direct access for eligible contract participants. The Commission may, by rule, impose any additional requirements related to the operations and activities of the digital commodity exchange and an affiliated digital commodity broker necessary to protect market participants, promote fair and equitable trading on the digital commodity exchange, and promote responsible economic or financial innovation. A digital commodity exchange shall designate an individual to serve as a chief compliance officer. The chief compliance officer shall— report directly to the board or to the senior officer of the exchange; review compliance with the core principles in this subsection; 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; establish and administer the policies and procedures required to be established pursuant to this section; 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 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. In establishing procedures under paragraph (2)(F), the chief compliance officer shall design the procedures to establish the handling, management response, remediation, retesting, and closing of noncompliance issues. In accordance with rules prescribed by the Commission, the chief compliance officer shall annually prepare and sign a report that contains a description of— the compliance of the digital commodity exchange with this Act; and the policies and procedures, including the code of ethics and conflict of interest policies, of the digital commodity exchange. The chief compliance officer shall— 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 include in the report a certification that, under penalty of law, the report is accurate and complete. If a proceeding under section 5e results in the suspension or revocation of the registration of a digital commodity exchange, or if a digital commodity exchange withdraws from registration, the Commission, on notice to the digital commodity exchange, may apply to the appropriate United States district court where the digital commodity exchange is located for the appointment of a trustee. If the Commission applies for appointment of a trustee under paragraph (1)— the court may take exclusive jurisdiction over the digital commodity exchange and the records and assets of the digital commodity exchange, wherever located; and if the court takes jurisdiction under subparagraph (A), the court shall appoint the Commission, or a person designated by the Commission, as trustee with power to take possession and continue to operate or terminate the operations of the digital commodity exchange in an orderly manner for the protection of customers subject to such terms and conditions as the court may prescribe. A digital commodity exchange shall hold in a qualified digital commodity custodian each unit of a digital commodity that is— the property of a customer of the digital commodity exchange; required to be held by the digital commodity exchange under subsection (c)(12) of this section; or otherwise so required by the Commission to reasonably protect customers or promote the public interest. In order to promote responsible economic or financial 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 stated terms or conditions or for stated periods and either retroactively or prospectively, or both, a registered digital commodity exchange from the requirements of this section, if the Commission determines that— the exemption would be consistent with the public interest and the purposes of this Act; and 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. The Commission may exempt, conditionally or unconditionally, a digital commodity exchange from registration under this section if the Commission finds that the digital commodity exchange is subject to comparable, comprehensive supervision and regulation on a consolidated basis by the appropriate governmental authorities in the home country of the facility. In this section, the term customer means any person that maintains an account for the trading of digital commodities directly with a digital commodity exchange (other than a person that is owned or controlled, directly or indirectly, by the digital commodity exchange) for its own behalf or on behalf of any other person. Notwithstanding any other provision of law, the Commission shall have exclusive jurisdiction over any digital commodity exchange registered under this section. With respect to a certification of a blockchain system that becomes effective pursuant to section 44(f) of the Securities Exchange Act of 1934, if a digital commodity exchange determines that the blockchain system may not be a decentralized system, the digital commodity exchange shall notify the Commission of such determination. With respect to each notification received under subparagraph (A), the Commission shall initiate a withdrawal process under which the Commission shall— publish a notice announcing the proposed withdrawal; provide a 30 day comment period with respect to the proposed withdrawal; and after the end of the 30-day comment required under clause (ii), publish either— a notification of withdrawal of the applicable certification; or a notice that the Commission is not withdrawing the certification. The Commission shall include, with each publication of a notification of withdrawal described under subparagraph (B)(iii)(I), a detailed analysis of the factors on which the decision was based. With respect to a blockchain system for which a certification has been withdrawn under this subsection, no person may make a certification under section 44(a) of the Securities Exchange Act of 1934 with respect to such blockchain system during the 90-day period beginning on the date of such withdrawal. If a certification is withdrawn under this subsection, a person making 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 withdrawal is made. In an appeal under subparagraph (A), the court shall have de novo review of the determination to withdraw the certification. .
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Sec. 504
Registration of digital commodity exchanges
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