Sec. 404. Registration of crypto asset 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: In this section, the term customer means any person that maintains an account for the trading of crypto assets or payment stablecoins directly with a registered crypto asset exchange (other than a person that is owned or controlled, directly or indirectly, by the registered crypto asset exchange). Any trading facility that offers or seeks to offer a market in crypto assets or payment stablecoins shall register with the Commission as a crypto asset exchange by submitting 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 under subsections
(d)and (f). A registered designated contract market or registered swap execution facility that fulfills the requirements of this section may elect to be considered a registered crypto asset exchange, in such form and manner as the Commission shall prescribe. A registered crypto asset exchange shall be registered with the Secretary of the Treasury as a money services business and with a customer protection and market integrity authority registered under section 9809 of title 31, United States Code. A registered crypto asset exchange may make available for trading any crypto asset or payment stablecoin, that is not readily susceptible to manipulation, subject to this subsection. An ancillary asset shall not be made available for trading on a registered crypto asset exchange unless the asset is in compliance with section 42 of the Securities Exchange Act of 1934. A registered crypto asset exchange shall have a duty to confirm an ancillary asset is in compliance before making the asset available for trading. The Commission may make, promulgate, and enforce such additional rules governing margined, leveraged, or financed transactions as are reasonably necessary to protect market participants and promote the orderly settlement of transactions with respect to— disclosure; recordkeeping; capital, margin, and other financial resources; reporting; business conduct; documentation; and such other matters as the Commission determines to be necessary. Registration as a crypto asset exchange shall not permit a trading facility to offer any contract of sale of a commodity for future delivery, option, or swap for trading without also being registered as a designated contract market or swap execution facility. A registered crypto asset exchange shall not conduct proprietary trading, but may conduct market making under standards established by the Commission by rule. To be registered, and maintain registration, as a crypto asset exchange, the registered crypto asset exchange shall comply with— the core principles described in this subsection, and annually certify such compliance; and any requirement that the Commission may impose by rule pursuant to section 8a(5). Unless otherwise determined by the Commission by rule, a registered crypto asset exchange described in subparagraph
(A)shall have reasonable discretion in establishing the manner in which the registered crypto asset exchange complies with the core principles described in this subsection. A registered crypto asset exchange shall— establish and enforce compliance with 1 or more rules of the registered crypto asset exchange, including— the terms and conditions of the trades traded or processed on or through the registered crypto asset exchange; and any limitation on access to the registered crypto asset exchange; establish and enforce compliance with trading, trade processing, and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce violations of 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 registered crypto asset exchange, including rules specifying trading procedures to be used in entering and executing orders traded or posted on the registered crypto asset exchange. A registered crypto asset exchange shall permit trading only in assets that are not readily susceptible to manipulation. A registered crypto asset exchange shall not permit trading in a crypto asset or payment stablecoin if it is reasonably likely that— the transaction history of the asset can be fraudulently altered by any person or group of persons acting collectively; or the functionality or operation of the asset can be materially altered by any person or group of persons under common control. In assessing a crypto asset or payment stablecoin under this paragraph, a registered crypto asset exchange shall consider— the purpose and use of the asset; the creation or release process of the asset; the consensus mechanism of the asset; the governance structure of the asset; the participation and distribution of the asset; the current and proposed functionality of the asset; the legal classification of the asset; and any other factor required by the Commission. A registered crypto asset exchange shall establish standards and procedures that are designed to protect and ensure the safety of customer money, assets, and property. A registered crypto asset exchange shall hold customer money, assets, and property in a manner to minimize the customer’s risk of loss of, or unreasonable delay in the access to, the money, assets, and property. A registered crypto asset exchange shall treat and deal with all money, assets, and property of any customer received as belonging to the customer. Money, assets, and property of a customer described in subclause (I)— shall be separately accounted for; and shall not be— commingled with the funds of the registered crypto asset exchange; or used 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. Notwithstanding clause (ii), money, assets, and property of customers of a registered crypto asset exchange may, for the purposes described in item (bb), be commingled and deposited with an entity described in section 4d(i)(1)(B). Notwithstanding clause (ii), the share of the money, assets, and property described in item
(aa)as in the normal course of business is necessary to margin, guarantee, secure, transfer, adjust, or settle a crypto asset transaction with a registered entity may be withdrawn and applied to those purposes, including the payment of commissions, brokerage, interest, taxes, storage, and other charges, lawfully accruing in connection with the crypto asset transaction. Notwithstanding clause (ii), in accordance with such terms and conditions as the Commission may prescribe by rule or order, any money, assets, or property of the customers of a registered crypto asset exchange may be commingled and deposited in customer accounts with any other money, assets, or property received by the registered crypto asset exchange and required by the Commission to be separately accounted for and treated and dealt with as belonging to the customer of the registered crypto asset exchange. Money referred to in subparagraph (B)(ii)(I) may be invested— in— obligations of the United States; general obligations of any State or of any political subdivision of a State that are investment-grade; obligations fully guaranteed as to principal and interest by the United States; or any other investment that the Commission may by rule prescribe; and in accordance with such rules and subject to such conditions as the Commission may prescribe. It shall be unlawful— for any registered crypto asset exchange that has received any customer money, assets, or property for custody to dispose of, or use any of the money, assets, or property as belonging to the registered crypto asset exchange; or for any other person, including any other registered crypto asset exchange or custodian that has received any customer money, assets, or property for deposit, to hold, dispose of, or use any of the money, assets, or property as belonging to— the registered crypto asset exchange that deposited the money, assets, or property; or any person other than the customers of the registered crypto asset exchange. A customer shall have the right to waive any requirement under subparagraph
(B)by affirmatively electing, in writing to the registered crypto asset exchange, to waive the requirement. The Commission may, by rule, establish notice and disclosure requirements, segregation requirements, investment limitations, and other rules relating to the waiving of any requirement under this paragraph that is reasonably necessary to protect customers, including eligible contract participants, non-eligible contract participants, or any other class of customers. A registered crypto asset exchange shall provide a competitive, open, and efficient market and mechanism for executing transactions that protects the price discovery process of trading on the registered crypto asset exchange. A registered crypto asset exchange shall establish and enforce compliance with 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 registered crypto asset exchange. A registered crypto asset exchange shall— establish and enforce compliance with 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 registered crypto asset exchange; and procedures for trade processing of crypto assets on or through the facilities of the registered crypto asset exchange; and monitor trading in crypto assets to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through surveillance, and compliance, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions. A registered crypto asset exchange shall— establish and enforce rules that will allow the registered crypto asset exchange 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 registered crypto asset 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 crypto asset or to suspend or curtail trading in a crypto asset. A registered crypto asset exchange shall provide to the Commission information that is determined by the Commission to be necessary to perform any responsibility of the Commission under this Act. A registered crypto asset exchange shall make public timely information on price, trading volume, and other trading data on crypto assets to the extent prescribed by the Commission. A registered crypto asset exchange may make trading data freely accessible to the public under rules established by the Commission. A registered crypto asset exchange shall be required to have the capacity to electronically capture and transmit trade information with respect to transactions executed on the registered crypto asset exchange. A registered crypto asset exchange shall— maintain records of all activities relating to the business of the registered crypto asset exchange, 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 records relating to ancillary assets 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— a customer protection and market integrity authority or other entity delegated regulatory and disciplinary authority by a governmental agency; the Securities and Exchange Commission; an appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act ( 12 U.S.C. 1813 )); a State bank supervisor (as defined in that section); a State securities or commodities regulator; 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 enter into a written agreement with each entity stating that the entity shall abide by the confidentiality requirements described in section 8 relating to the information on crypto asset transactions that is provided. Each registered crypto asset 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 registered crypto asset 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 crypto asset exchange shall— establish and enforce rules to minimize conflicts of interest in the decisionmaking process of the registered crypto asset exchange; establish a process for resolving conflicts of interest described in subparagraph (A); and disclose fee arrangements from affiliates and third-party service providers, and crypto assets traded on the exchange in which the exchange may have a financial interest. A registered crypto asset exchange shall have adequate financial, operational, and managerial resources, as determined by the Commission, to discharge each responsibility of the registered crypto asset exchange. A registered crypto asset exchange shall possess financial resources that, at a minimum, exceed the total amount that would enable the registered crypto asset exchange to conduct an orderly wind-down of the activities of the registered crypto asset exchange. The Commission may require such additional financial resources as are necessary to enable a registered crypto asset exchange that offers margined, leveraged, or financed transactions to fulfill the customer obligations of the registered crypto asset exchange. A registered crypto asset exchange shall— establish governance arrangements that are transparent to fulfill public interest requirements; and at all times, maintain a chief compliance officer and an appropriate compliance and risk management function. A registered crypto asset exchange shall establish and enforce appropriate fitness standards for— directors; any individual or entity with legal or technological authority to execute the settlement activities of the registered crypto asset exchange; any individual or entity with direct access to any custodian affiliated with the registered crypto asset exchange; any entity offering affiliated services for the registered crypto asset exchange; and any party affiliated with any individual or entity described in clauses
(i)through (iv). A registered crypto asset 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 registered crypto asset exchange; and periodically conduct tests to verify that the backup resources of the registered crypto asset exchange are sufficient to ensure continued— order processing and trade matching; price reporting; market surveillance; and maintenance of a comprehensive and accurate audit trail. Prior to conducting trading activity (including routing orders and directed trading) through a decentralized crypto asset exchange, or otherwise providing customer access to a decentralized crypto asset exchange, a crypto asset exchange shall implement risk management standards with respect to its trading activity using that decentralized crypto asset exchange. A crypto asset exchange shall— implement an effective risk-based procedure for determining whether to execute, reject, or suspend an incoming or outgoing transaction relating to a decentralized crypto asset exchange, including a determination based on suspected money laundering, sanctions evasion, fraud, or market manipulation; conduct an effective risk-based analysis of the code of the decentralized crypto asset exchange to determine whether crypto asset transactions can occur on the exchange securely, consistently, and immutably; verify that the code for the decentralized crypto asset exchange is widely available to the public; verify that there are appropriate developer documents relating to the decentralized crypto asset exchange that appropriately disclose all risks of the software; conduct an effective risk analysis with respect to the decentralized crypto asset exchange, including— money laundering and sanctions evasion; settlement; fraud and market manipulation; and operational and cybersecurity risk, including— the use of multi-signature wallets; integration with third-party software or vendors; any material efforts to alter the functionality of the protocol; and all other material risks; implement robust policies and procedures to mitigate the risks identified under clause (v); disclose the risks identified under clause
(v)using plain language to customers; maintain robust capability to detect market manipulation, fraud, money laundering, and sanctions evasion occurring on the decentralized crypto asset exchange, including through the use of alternative tools that will properly target those risks, including through distributed ledger intelligence companies; ensure that the merchant is not trading with a decentralized crypto asset exchange on a principal basis, but solely on an agency basis at the request of a customer; and consistent with this subsection, implement other standards which may be required by the Commission by rule. The Commission shall adopt risk management standards relating to money laundering, customer identification, and sanctions for self-hosted wallets that conduct transactions with a registered crypto asset exchange, which shall be consistent with standards under section 4d(k). In this subsection, the term self-hosted wallet means a digital interface used to secure and transfer crypto assets, in which the owner of the assets retains independent control in a manner that is secured by that interface. If a proceeding under section 5e results in the suspension or revocation of the registration of a crypto asset exchange, or if a crypto asset exchange withdraws from registration, the Commission, after providing notice to the crypto asset exchange, may apply to the district court of the United States for the judicial district in which the crypto asset exchange is located for the appointment of a trustee. If the Commission applies to a court for appointment of a trustee under paragraph (1)— the court may take exclusive jurisdiction over— the crypto asset exchange; and the records and assets of the crypto asset exchange, wherever those records and assets are 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 crypto asset exchange in an orderly manner for the protection of customers, subject to such terms and conditions as the court may prescribe. A registered crypto asset exchange shall deposit with an entity described in section 4d(i)(1)(B) each crypto asset that is— the property of a customer of the registered crypto asset exchange; required to be held by the registered crypto asset exchange under subsection (c)(3) or (d)(12); or otherwise required by the Commission to be so held to reasonably protect customers or promote the public interest. No person, acting directly or indirectly, or through or in concert with 1 or more persons, shall acquire control of a crypto asset exchange unless— the person has provided to the Commission prior notice of the proposed acquisition; and the Commission has not disapproved the acquisition during the 60-day period beginning on the date of the notice under subparagraph (A). No person who has been approved to acquire control of a crypto asset exchange and who has maintained that control shall acquire, directly or indirectly, or through or in concert with 1 or more persons, voting securities of the exchange if the ownership, control, or power to vote of that person will increase from less than 25 percent to 25 percent or more of any class of voting securities of the exchange unless— the person has provided to the Commission prior notice of the proposed acquisition; and the Commission has not disapproved the acquisition during the 60-day period beginning on the date of the notice under subparagraph (A). The Commission may, by rule, specify information relating to a proposed acquisition described in paragraph
(1)or (2), which shall be submitted with an application. As specified by the Commission, public notice of a proposed acquisition described in paragraph
(1)or
(2)shall be given at the time an application is filed. The Commission shall approve a proposed acquisition described in paragraph
(1)or
(2)unless, by order, it finds either of the following: The proposed acquisition would pose an unacceptable risk to customers or to the operation of the exchange. The proposed acquisition would otherwise violate Federal law. In this subsection, the term control means the power, directly or indirectly, to direct the management or policies of a crypto asset exchange, to vote 25 percent or more of any class of voting securities of the exchange or control in any manner the election of a majority of the directors of the exchange, as may be provided by rule. Except as otherwise provided by Federal law, the Commission shall have exclusive jurisdiction over the regulation, supervision, and all other activities of a registered crypto asset exchange. The Commission shall prescribe rules to implement this section. . Section 4f(c) of the Commodity Exchange Act ( 7 U.S.C. 6f(c) ) is amended by adding at the end the following: A registered crypto asset exchange shall not be required to register as a futures commission merchant for any activity for which the registered crypto asset exchange is regulated under section 5i. .
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