[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 5030 Introduced in Senate (IS)]
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117th CONGRESS
2d Session
S. 5030
To provide digital asset intermediaries with a safe harbor from certain
enforcement actions by the Securities and Exchange Commission, and for
other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
September 29, 2022
Mr. Hagerty introduced the following bill; which was read twice and
referred to the Committee on Banking, Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To provide digital asset intermediaries with a safe harbor from certain
enforcement actions by the Securities and Exchange Commission, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Digital Trading Clarity Act of
2022''.
SEC. 2. SAFE HARBOR.
(a) Definitions.--In this section:
(1) Associated person.--The term ``associated person'',
with respect to an intermediary, has the meaning given the term
by any applicable self-regulatory organization.
(2) Bank; exchange; securities laws; self-regulatory
organization; statutory disqualification.--Except as otherwise
expressly provided, the terms ``bank'', ``exchange'',
``securities laws'', ``self-regulatory organization'', and
``statutory disqualification'' have the meanings given those
terms in section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)).
(3) Broker-dealer.--The term ``broker-dealer'' means a
person that is a broker or a dealer, as those terms are defined
in section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)).
(4) Commission.--The term ``Commission'' means the
Securities and Exchange Commission.
(5) Digital asset.--The term ``digital asset'' means an
electronically native asset that--
(A) confers economic, proprietary, or access
authority; and
(B) is recorded using cryptographically-secured
distributed ledger technology or any similar analogue.
(6) Intermediary.--The term ``intermediary''--
(A) means any centralized platform, including an
exchange, that--
(i) has customers; and
(ii) makes a digital asset available for
trading among multiple buyers and sellers under
a Federal or State law, rule, or regulation
that authorizes the platform to provide those
services; and
(B) does not include any individual.
(7) List.--The term ``list'', with respect to an asset,
means--
(A) to make the asset available for trading; and
(B) to effect transactions in the asset.
(8) National securities exchange.--The term ``national
securities exchange'' means an exchange registered as a
national securities exchange pursuant to section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f).
(9) Security.--Except as otherwise expressly provided, the
term ``security''--
(A) with respect to an application of the
Securities Act of 1933 (15 U.S.C. 77a et seq.), has the
meaning given the term in section 2(a) of that Act (15
U.S.C. 77b(a)); and
(B) with respect to an application of the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.), has the meaning given the term in section 3(a)
of that Act (15 U.S.C. 78c(a)).
(b) Safe Harbor.--
(1) In general.--Any digital asset with respect to which a
determination has not been made under subsection (d), and that
is listed through an intermediary that has satisfied the
requirements described in subsection (c), shall not be
considered to be a security.
(2) Application.--Paragraph (1) shall apply to all
activities of an intermediary that lists a digital asset that
satisfies the conditions of that paragraph, including the
listing of that digital asset through the intermediary.
(c) Requirements.--The requirements described in this subsection
with respect to an intermediary are as follows:
(1) The intermediary shall establish a process for listing
digital assets through the intermediary, which shall be
reasonably designed to permit the intermediary to determine
whether the digital asset is a security.
(2) The process established under paragraph (1) shall
include written policies and procedures to conduct and document
an accurate classification of the applicable digital asset for
the purposes of the securities laws, which shall be supported
by materials that include legal analysis performed by attorneys
with expertise in the securities laws, which shall take into
consideration--
(A) relevant Commission rules, enforcement actions,
no-action letters, and exemptive orders and other
relevant guidance provided by the Commission or the
staff of the Commission;
(B) relevant guidance from, or formal action taken
by, other Federal agencies, including the Commodity
Futures Trading Commission; and
(C) relevant case law.
(3) The intermediary, and any associated person with
respect to the intermediary, shall consent to service of
process for any civil action brought by, or any proceeding
before, the Commission or a self-regulatory organization of
which the intermediary is a member.
(4) The intermediary, and each associated person to which
paragraph (3) applies, shall maintain a written record of the
consent provided under that paragraph, which shall be made
available to the Commission and any applicable self-regulatory
organization, upon request.
(5) The intermediary shall--
(A) determine and confirm that neither the
intermediary nor any associated person with respect to
the intermediary is subject to a statutory
disqualification, which may be made on a good faith
basis pursuant to a questionnaire completed by those
associated persons; and
(B) maintain a written record of the determinations
and confirmations made under subparagraph (A),
including any questionnaires described in that
subparagraph, which shall be made available to the
Commission and any applicable self-regulatory
organization, upon request.
(6)(A) The intermediary shall establish, maintain, and
enforce written policies, procedures, and controls, consistent
with industry best practices and guidance of the Commission,
that are reasonably designed to demonstrate effective control
with respect to the applicable digital asset and to protect
against theft, loss, and accidental use of the private keys, or
a shard of a private key, that the intermediary controls,
including with respect to--
(i) onboarding the digital asset and associating
the digital asset with a private key, or a shard of a
private key, in possession or under control of the
intermediary;
(ii) systems used to create, store, or use those
private keys and shards of those private keys;
(iii) the generation of cryptographically strong
private keys and shards of private keys; and
(iv) creating backup keys and shards of private
keys.
(B) Without limitation, the requirement under subparagraph
(A) may be satisfied through--
(i) a proprietary self-custody system;
(ii) a self-custody vendor that provides self-
custody services, such as key generation and recovery,
if the systems of that vendor meet or exceed the
reasonably designed security requirements of the
intermediary; or
(iii) a custodian, such as a bank, that the
Commission has determined is a satisfactory control
location.
(7) The intermediary shall--
(A) adopt customer protection measures, including--
(i) in order to identify potentially
manipulative or fraudulent conduct, by
establishing, maintaining, and enforcing
written policies, procedures, and controls that
are reasonably designed to fulfill all
applicable obligations of the intermediary
under--
(I) subchapter II of chapter 53 of
title 31, United States Code; and
(II) the International Money
Laundering Abatement and Financial
Anti-Terrorism Act of 2001 (title III
of Public Law 107-56) and the
amendments made by that Act; and
(ii) by creating and keeping records in
accordance with the obligations of the
intermediary for a period of not less than 3
years, the first 2 years of which shall be in
an easily accessible place; and
(B) make all records created and kept under
subparagraph (A) available to the Commission and any
applicable self-regulatory organization, upon request.
(8) The intermediary shall disclose on the website of the
intermediary the risks associated with trading in the
applicable digital asset, including that the protection
provided pursuant to the Securities Investor Protection Act of
1970 (15 U.S.C. 78aaa et seq.)--
(A) does not apply to digital assets that are not
securities, as defined in section 16 of that Act (15
U.S.C. 78lll); and
(B) may not apply to all digital assets that are
securities.
(9) The intermediary shall enter into a written agreement
with a bank or registered broker-dealer for the purposes of a
compliance period described in subsection (e), which shall
provide that--
(A) beginning not later than 180 days after the
date on which that compliance period begins, and until
the intermediary is registered as described in
paragraph (10)(B), that bank or broker-dealer shall
facilitate transactions in that digital asset in a
manner that is consistent with the obligations of the
bank or broker-dealer under the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.), which shall include--
(i) effecting transactions in that digital
asset;
(ii) issuing required confirmations and
statements to customers relating to the
transactions described in clause (i);
(iii) maintaining required books and
records relating to the transactions described
in clause (i);
(iv) ensuring that the broker-dealer
remains compliant with the requirements under
section 240.15c3-1 of title 17, Code of Federal
Regulations, or any successor regulation, with
respect to the transactions described in clause
(i), including that the broker-dealer shall be
subject to a $250,000 net capital requirement
under such section 240.15c3-1, in addition to
any other capital requirements that the
Commission or any applicable self-regulatory
organization may determine to be appropriate to
protect investors; and
(v) in a manner that complies with, or is
exempt from, the requirements under section
240.15c3-3 of title 17, Code of Federal
Regulations, or any successor regulation,
receiving, delivering, and safeguarding funds
and securities in connection with the
transactions described in clause (i);
(B) the intermediary shall notify customers of the
intermediary that, during the period beginning on the
date described in subparagraph (A) and ending on the
date on which that compliance period ends, that bank or
broker-dealer will effect transactions of that digital
asset, as described in subparagraph (A)(i); and
(C) within a reasonable timeframe, and not later
than 180 days after the date on which that compliance
period ends, the intermediary shall transfer operations
that support effecting transactions in that digital
asset to that bank or broker-dealer, unless that
intermediary is a bank or has registered as a broker-
dealer.
(10) The intermediary shall certify that, if the applicable
digital asset is determined under subsection (d) to be a
security, after the end of any compliance period described in
subsection (e), if applicable, the intermediary shall--
(A) stop listing the digital asset; or
(B) if the digital asset is registered under
section 5 of the Securities Act of 1933 (15 U.S.C.
77e), or otherwise qualifies for an exemption from such
registration, and the intermediary wishes to list the
digital asset through the intermediary, register as--
(i) a broker-dealer; or
(ii) a national securities exchange.
(d) Commission or Court Determination.--
(1) In general.--
(A) Determination.--If the Commission (through a
statement, formal rulemaking, or enforcement action,
and without objection from the Commodity Futures
Trading Commission), or a court of the United States in
a final judgment, determines that a digital asset is a
security, the Division of Examinations of the
Commission shall request information from any
intermediary listing the digital asset to determine if
the intermediary satisfies the requirements under
subsection (c).
(B) Request by intermediary.--An intermediary may
submit to the Commission a request for the Commission
to make a determination under subparagraph (A).
(2) Entry into compliance period.--If, after a request for
information under paragraph (1), the Division of Examinations
of the Commission determines that an intermediary has satisfied
the requirements under subsection (c) with respect to a digital
asset, the intermediary and digital asset shall enter the
compliance period described in subsection (e).
(3) Failure to comply.--If, after a request for information
under paragraph (1), the Division of Examinations of the
Commission determines that an intermediary has not satisfied
the requirements under subsection (c) with respect to a digital
asset--
(A) the digital asset shall be considered to be a
security with respect to that intermediary; and
(B) the intermediary shall be subject to all legal
requirements with respect to the activities of the
intermediary with respect to the digital asset as a
result of the application of subparagraph (A).
(e) Compliance Period.--
(1) In general.--With respect to an intermediary and a
digital asset described in subsection (d)(2), the following
shall apply:
(A) During the 2-year period beginning on the date
on which the determination described in subsection
(d)(1) is made, the following shall apply:
(i) The intermediary shall not be subject
to an enforcement action by the Commission, or
any other cause of action, for a violation of
section 5 or 17 of the Securities Act of 1933
(15 U.S.C. 77e, 77q), or of section 10(b) of
the Securities Exchange Act of 1934 (15 U.S.C.
78j(b)), solely with respect to listing that
digital asset.
(ii) The intermediary shall not be subject
to any enforcement action by the Commission for
failure to register as a broker-dealer or as a
national securities exchange (or for any
associated requirements with respect to any
such registrant) in connection with the
activities of the intermediary with respect to
that digital asset.
(iii) In the case of a determination made
by the Commission under subsection (d)(1), the
intermediary may seek declaratory relief in an
appropriate court of the United States stating
that the digital asset is not a security,
notwithstanding that determination by the
Commission.
(iv) With respect to an action brought
under clause (iii), the court may, in the
discretion of the court, permit the
intermediary to continue to list the digital
asset during the pendency of the action.
(B) Beginning on the date that is 180 days after
the date on which the 2-year period described in
subparagraph (A) begins, the bank or broker-dealer
described in subsection (c)(9) shall facilitate all
transactions of the intermediary with respect to the
relevant digital asset, as described in subsection
(c)(9)(A), until the date on which the intermediary is
registered as described in subsection (c)(10)(B).
(2) End of compliance period.--After the end of the 2-year
period described in paragraph (1)(A), any broker-dealer or
exchange that lists the applicable digital asset shall stop
listing that digital asset, if--
(A) the digital asset--
(i) is not registered under section 5 of
the Securities Act of 1933 (15 U.S.C. 77e); or
(ii) does not otherwise qualify for an
exemption from registration under section 5 of
the Securities Act of 1933 (15 U.S.C. 77e); or
(B) an appropriate court of the United States has
determined in an action described in paragraph
(1)(A)(iii) that the digital asset is a security.
(f) Retroactive Effect.--With respect to a digital asset that the
Commission has determined is a security, if the Commission subsequently
determines that the digital asset is not a security, the applicable
intermediary shall not be subject to any enforcement action by the
Commission, or any other cause of action, for a violation of section 5
or 17 of the Securities Act of 1933 (15 U.S.C. 77e, 77q), or of section
10(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78j(b)), solely
with respect to listing that digital asset.
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