Sec. 406. Registration and regulation of digital commodity brokers and dealers
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The Commodity Exchange Act ( 7 U.S.C. 1 et seq. ) is amended by inserting after section 4t the following: 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. In order to foster the development of fair and orderly markets, protect customers, and promote responsible innovation, the Commission— shall prescribe rules to exempt an entity registered with the Commission under more than 1 section of this Act from duplicative, conflicting, or unduly burdensome provisions of this Act and the rules under this Act; shall prescribe rules to address conflicts of interests and the activities of the entity; and may after an analysis of the risks and benefits, prescribe rules to provide for portfolio margining.
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. A person shall register as a digital commodity broker or digital commodity dealer by filing a registration application with the Commission. The application shall be made in such form and manner 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.
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. Except to the extent otherwise specifically 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 associated 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.
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 interest that limit the activities of digital commodity brokers and digital commodity dealers. 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, business conduct, documentation, and supervision of employees and agents, in connection with— an agreement described in section 2(c)(2)(D)(iv); or any other margined, leveraged, or financing arrangement for the purchase or sale of a digital commodity with an eligible contract participant.
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 purposes of, this Act in connection with an agreement referred to in subparagraph
(A)of this paragraph. Each digital commodity broker and digital commodity dealer shall meet such minimum capital requirements as the Commission may prescribe to address the risks associated with digital commodity trading and to ensure that the digital commodity broker or digital commodity dealer, respectively, is able, at all times, to— meet, and continue to meet the obligations of such a registrant; and fulfill obligations to customers or counterparties for any margined, leveraged, or financed transactions. 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. ). Each digital commodity broker and digital commodity dealer— 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; 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 shall keep the books and records open to inspection and examination by any representative of the Commission. Each digital commodity broker and digital commodity dealer shall maintain daily trading records of the transactions of the digital commodity broker or digital commodity dealer, respectively, and all related records (including related forward or derivatives transactions) and recorded communications, including electronic mail, instant messages, and recordings of telephone calls, for such period as the Commission may require by rule or regulation. The daily trading records shall include such information as the Commission shall require by rule or regulation. 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 commodity transaction. Each digital commodity broker and digital commodity dealer shall maintain a complete audit trail for conducting comprehensive and accurate trade reconstructions. 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— 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); diligent supervision of the business of the registered digital commodity broker or digital commodity dealer, respectively; and such other matters as the Commission deems appropriate. The Commission shall, by rule, prescribe business conduct requirements which— require disclosure by a registered digital commodity broker and registered digital commodity dealer to any counterparty to the transaction (other than an eligible contract participant) of— information about the material risks and characteristics of the digital commodity; and information about the material risks and characteristics of the transaction; 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 dealing and good faith; establish standards governing digital commodity broker and digital commodity dealer marketing and advertising, including testimonials and endorsements; and establish such other standards and requirements as the Commission may determine are appropriate for the protection of customers. It shall be unlawful for a digital commodity broker or digital commodity dealer to— employ any device, scheme, or artifice to defraud any customer or counterparty; engage in any transaction, practice, or course of business that operates as a fraud or deceit on any customer or counterparty; or engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative. Each digital commodity broker and digital commodity dealer shall establish robust and professional risk management systems adequate for managing the day-to-day business of the digital commodity broker or digital commodity dealer, respectively. Each digital commodity broker and digital commodity dealer shall disclose to the Commission information concerning— the terms and conditions of the transactions of the digital commodity broker or digital commodity dealer, respectively; the trading operations, mechanisms, and practices of the digital commodity broker or digital commodity dealer, respectively; financial integrity protections relating to the activities of the digital commodity broker or digital commodity dealer, respectively; and other information relevant to trading in digital commodities by the digital commodity broker or digital commodity dealer, respectively. Each digital commodity broker and digital commodity dealer shall— establish and enforce internal systems and procedures to obtain any necessary information to perform any of the functions described in this section; and provide the information to the Commission, on request. Each digital commodity broker and digital commodity dealer shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of the person, to mitigate any conflicts of interest in transactions or arrangements with affiliates. Unless necessary or appropriate to achieve the purposes of this Act, a digital commodity broker or digital commodity dealer shall not— adopt any process or take any action that results in any unreasonable restraint of trade; or impose any material anticompetitive burden on trading or clearing. Each digital commodity broker and digital commodity dealer 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 registered digital commodity broker or registered digital commodity dealer; 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 described in this section; 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; be responsible for administering each policy and procedure that is required to be established pursuant to this section; ensure compliance with this Act (including regulations), including each rule prescribed by the Commission under this section; establish procedures for the remediation of noncompliance issues identified by the chief compliance officer through any— compliance office review; look-back; internal or external audit finding; self-reported error; or validated complaint; and establish and follow appropriate procedures for 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 registered digital commodity broker or registered digital commodity dealer with this Act (including regulations); and each policy and procedure of the registered digital commodity broker or registered digital commodity dealer followed by the chief compliance officer (including the code of ethics and conflict of interest policies). The chief compliance officer shall ensure that a compliance report under subparagraph (A)— 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 includes a certification that, under penalty of law, the compliance report is accurate and complete. Each digital commodity broker and digital commodity dealer 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. Each digital commodity broker and digital commodity dealer shall hold in a qualified digital asset custodian each unit of a digital asset that is— the property of a customer or counterparty of the digital commodity broker or digital commodity dealer, respectively; required to be held by the digital commodity broker or digital commodity dealer under subsection (e); or otherwise so required by the Commission to reasonably protect customers or promote the public interest. 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 commodities, as belonging to the customer. 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 digital commodity dealer, respectively, 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. 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. The 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. 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 belonging to the customer of the digital commodity broker or digital commodity dealer, respectively. Money described in paragraph
(2)may be invested 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. 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. 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 commodity contract in section 761 of title 11, United States Code. 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. Assets removed 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. It shall be unlawful— for any digital commodity broker or digital commodity 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 digital commodity broker or digital commodity dealer, respectively, or any person other than a customer of the digital commodity broker or digital commodity dealer, respectively; or 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. 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 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 digital commodity broker or digital commodity dealer (or a designee of a digital commodity broker or a digital commodity dealer) may use a unit of a digital commodity belonging to a customer to provide a blockchain service for a blockchain system to which the unit of the digital commodity relates if— the customer expressly permits the use, in writing to the digital commodity broker or digital commodity dealer, as the case may be; and the digital commodity broker or the digital commodity dealer, as the case may be, complies with subparagraph (B). The Commission shall, by rule, establish notice and disclosure requirements, and may, by rule, establish any other limitations and rules related to a permission provided under subparagraph
(A)that are reasonably necessary to protect customers, including eligible contract participants, non-eligible contract participants, or any other class of customers. A digital commodity broker or digital commodity dealer may not require a customer to provide the permission referred to in subparagraph
(A)as a condition of doing business with the broker or dealer. The Commission may, by rule, waive or modify the requirements of paragraph
(2)or subsection (h), to facilitate the use of a unit of a digital commodity belonging to a customer to provide a blockchain service. 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, including protocol consensus participation activities described in section 2(a)(30)(B) of the Securities Act of 1933, required for the ongoing operation of a blockchain system. 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. In order to promote responsible innovation and fair competition, or protect customers, the Commission may (on its own initiative or on application of the digital commodity broker or digital commodity dealer) exempt, unconditionally or on stated terms or conditions, or for stated periods, and retroactively or prospectively, or both, a digital commodity broker or digital commodity dealer from the requirements of this Act, 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 to discharge regulatory duties under this Act; or the digital commodity broker or digital commodity dealer is subject to comparable, comprehensive supervision and regulation by the appropriate government authorities in the home country of the digital commodity broker or digital commodity dealer, respectively. .
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