[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 10561 Introduced in House (IH)]
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118th CONGRESS
2d Session
H. R. 10561
To codify the special purpose broker dealer, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
December 27, 2024
Mr. Davidson introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To codify the special purpose broker dealer, 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 ``Broker-Dealer Tokenization Act''.
SEC. 2. REGISTRATION AND REGULATION OF APPROVED BROKERS AND DEALERS FOR
QUALIFIED TOKENIZED SECURITIES.
(a) In General.--The Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.) is amended by inserting after section 15G the following:
``SEC. 15H. REGISTRATION AND REGULATION OF APPROVED BROKERS AND DEALERS
FOR QUALIFIED TOKENIZED SECURITIES.
``(a) Registration.--
``(1) In general.--A registered broker or dealer may
register with a national securities association as an `approved
broker or dealer for qualified tokenized securities', if the
registered broker or dealer complies with the requirements
specified in subsection (b).
``(2) Rule of construction.--A registered broker or dealer
performing activities unrelated to qualified tokenized
securities or permitted payment stablecoins may register with a
national securities association as an `approved broker or
dealer for qualified tokenized securities' to the same extent
as a registered broker or dealer only performing activities
related to qualified tokenized securities or permitted payment
stablecoins.
``(b) Requirements.--With respect to a registered broker or dealer,
the requirements specified in this subsection are the following:
``(1) The broker or dealer complies with Rule 15c3-3 (17
CFR 240.15c3-3) (and any successor rule), except that, for
purposes of complying with such Rule:
``(A) Permitted payment stablecoins shall be
treated as funds.
``(B) The broker or dealer shall be deemed to have
control of a qualified tokenized security or permitted
payment stablecoin if--
``(i) the broker or dealer has access to
the qualified tokenized security or permitted
payment stablecoin and the capability to
transfer it using the associated distributed
ledger technology;
``(ii) the broker or dealer establishes,
maintains, and enforces reasonably designed
written policies and procedures to assess the
characteristics of a qualified tokenized
security's distributed ledger technology and
associated network prior to undertaking to
maintain custody of the qualified tokenized
security and at reasonable intervals
thereafter;
``(iii) the broker or dealer--
``(I) is not aware of, or is aware
of and is able to promptly mitigate or
eliminate, any material security or
operational problems or weaknesses with
the distributed ledger technology and
associated network used to access and
transfer the qualified tokenized
security or permitted payment
stablecoin; and
``(II) is not aware of other
material risks posed to the business of
the broker or dealer by the qualified
tokenized security or permitted payment
stablecoin;
``(iv) the broker or dealer establishes,
maintains, and enforces reasonably designed
written policies, procedures, and controls that
are consistent with industry best practices
to--
``(I) demonstrate the broker or
dealer has exclusive control over any
qualified tokenized securities and
permitted payment stablecoins the
broker or dealer holds in custody; and
``(II) protect against the theft,
loss, and unauthorized and accidental
use of the private keys necessary to
access and transfer the qualified
tokenized securities and the permitted
payment stablecoins the broker or
dealer holds in custody; and
``(v) the broker or dealer establishes,
maintains, and enforces reasonably designed
written policies, procedures, and arrangements
to--
``(I) identify, in advance, the
steps the broker or dealer will take in
response to events that could affect
custody of qualified tokenized
securities or permitted payment
stablecoins, including--
``(aa) blockchain
malfunctions;
``(bb) 51 percent attacks;
``(cc) hard forks; or
``(dd) airdrops;
``(II) allow for the broker or
dealer to comply with a court-ordered
freeze or seizure of a qualified
tokenized security or permitted payment
stablecoin; and
``(III) allow for the transfer of
the qualified tokenized securities or
permitted payment stablecoins held by
the broker or dealer to another
approved broker or dealer for qualified
tokenized securities, a trustee,
receiver, liquidator, or person
performing a similar function, or to
another appropriate person, in the
event the broker or dealer can no
longer continue as a going concern and
self-liquidates or is subject to a
formal bankruptcy, receivership,
liquidation, or similar proceeding.
``(2) The broker or dealer establishes, maintains, and
enforces reasonably designed written policies and procedures
that protect against risks that the custody of qualified
tokenized securities or permitted payment stablecoins may have
on other aspects of the business of the broker or dealer that
are not directly related to the custody of qualified tokenized
securities and permitted payment stablecoins.
``(3) The broker or dealer establishes, maintains, and
enforces reasonably designed written policies and procedures to
conduct and document an analysis that confirms that a qualified
tokenized security is offered and sold pursuant to an effective
registration statement or an available exemption from
registration.
``(4) The broker or dealer provides written disclosures to
prospective customers on behalf of whom the broker or dealer
would be transacting in qualified tokenized securities or
permitted payment stablecoins, clarifying the following:
``(A) The broker or dealer is deemed to be in
control of qualified tokenized securities or permitted
payment stablecoins for the purposes of paragraph
(b)(1) of Rule 15c3-3.
``(B) The risks of investing in or holding
qualified tokenized securities or permitted payment
stablecoins, including by--
``(i) describing the risks of fraud,
manipulation, theft, and loss associated with
qualified tokenized securities or permitted
payment stablecoins;
``(ii) describing the risks relating to
valuation, price volatility, and liquidity
associated with qualified tokenized securities;
and
``(iii) describing, at a high level that
would not compromise any security protocols,
the processes, software and hardware systems,
and any other formats or systems utilized by
the broker or dealer to--
``(I) create, store, or use the
broker or dealer's private keys; and
``(II) protect those private keys
from loss, theft, or unauthorized or
accidental use.
``(5) The broker or dealer enters into a written agreement
with each customer on behalf of whom the broker or dealer will
be transacting in qualified tokenized securities or permitted
payment stablecoins that sets forth the terms and conditions
with respect to receiving, purchasing, holding, safekeeping,
selling, transferring, exchanging, custodying, liquidating, and
otherwise transacting in qualified tokenized securities or
permitted payment stablecoins on behalf of the customer.
``(6) The broker or dealer obtains any approval required
under the rules of any national securities association of which
the broker of dealer is a member prior to operating as an
approved broker or dealer for qualified tokenized securities.
``(c) Consideration of Applications.--With respect to a membership
application to operate as an approved broker or dealer for qualified
tokenized securities, a registered national securities association
shall--
``(1) make a final decision on the application not more
than 120 days after the later of--
``(A) the date it receives the application;
``(B) if the application is amended or supplemented
after it is received, the date of the final amendment
or supplement to such application; or
``(C) such later date as the applicant may specify
in a writing to such registered national securities
association;
``(2) with respect to an application that is denied by the
registered national securities association--
``(A) include with the denial an explanation in
detail of the reason for denial; and
``(B) permit the broker or dealer to reapply; and
``(3) prioritize applications submitted by a member which
has been approved to operate under the conditions set out in
the statement of the Securities and Exchange Commission titled
`Custody of Digital Asset Securities by Special purpose brokers
or dealers' (86 Fed. Reg. 11627; published February 26, 2021).
``(d) Rulemaking.--
``(1) Possession or control of qualified tokenized
securities and permitted payment stablecoins.--Not later than
12 months after the date of enactment of this section, the
Commission shall issue a rule to amend section 240.15c3-3 of
title 17, Code of Federal Regulations to--
``(A) apply appropriate customer protection
requirements for permitted payment stablecoins for
purposes of custodying such permitted payment
stablecoins by brokers or dealers; and
``(B) provide that a qualified tokenized security
or permitted payment stablecoin shall be deemed to be
under the control of a broker or dealer under
conditions substantially similar to those specified in
subsection (b)(1)(B), with such modifications as the
Commission may consider necessary or appropriate in the
public interest or for the protection of investors.
``(2) Clarification of recordkeeping and reporting rules.--
Following the date on which final rules are issued under
paragraph (1)(B), the Commission may amend sections 240.17a-3,
240.17a-4, and 240.17a-5 of title 17, Code of Federal
Regulations, as well as any other sections the Commission
determines necessary, to clarify the application of these
recordkeeping and reporting requirements with respect to
qualified tokenized securities and permitted payment
stablecoins, including by clarifying the manner in which
blockchain-based records are treated as meeting recordkeeping
and reporting requirements.
``(e) Definitions.--In this section:
``(1) Approved broker or dealer for qualified tokenized
securities.--The term `approved broker or dealer for qualified
tokenized securities' means a registered broker or dealer that
carries permitted payment stablecoins or qualified tokenized
securities for the account of any customers or other brokers or
dealers.
``(2) Permitted payment stablecoin.--
``(A) In general.--The term `permitted payment
stablecoin' means a digital asset issued using
distributed ledger technology--
``(i) that is or is designed to be used as
a means of payment or settlement;
``(ii) the issuer of which--
``(I) is obligated to convert,
redeem, or repurchase for a fixed
amount of monetary value;
``(II) represents will maintain or
creates the reasonable expectation that
it will maintain a stable value
relative to the value of a fixed amount
of monetary value; and
``(III) is subject to regulation by
a Federal or State regulator with
authority over entities that issue
payment stablecoins; and
``(iii) that is not--
``(I) a national currency; or
``(II) a security issued by an
investment company registered under
section 8(a) of the Investment Company
Act of 1940 (15 U.S.C. 80a-8(a)).
``(B) Monetary value defined.--For purposes of
subparagraph (A), the term `monetary value' means a
national currency, deposit (as defined under section 3
of the Federal Deposit Insurance Act), or an equivalent
instrument that is denominated in a national currency.
``(3) Qualified tokenized security.--The term `qualified
tokenized security' means a security that is issued and
transferred using distributed ledger technology as the primary
record of ownership;''.
(b) Existing Special Purpose Brokers or Dealers.--No registered
national securities association shall require a member which has been
approved to operate under the conditions set out in the statement of
the Securities and Exchange Commission titled ``Custody of Digital
Asset Securities by Special purpose brokers or dealers'' (86 Fed. Reg.
11627; published February 26, 2021) to complete a membership
application to continue its approved scope of business.
(c) Sunset.--Section 15H of the Securities Exchange Act of 1934 is
repealed effective on the effective date of the final rule required
under section 15H(d)(1) of the Securities Exchange Act of 1934 is
issued.
SEC. 3. STUDY ON FINANCIAL MARKET INFRASTRUCTURE IMPROVEMENTS.
(a) In General.--The Securities and Exchange Commission shall
conduct a study to assess whether additional guidance or rules are
necessary to facilitate the development of tokenized securities, to the
extent such guidance or rules would foster the development of fair and
orderly financial markets, be necessary or appropriate 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 Securities and Exchange Commission
shall submit to the relevant congressional committees a report
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 Committee on Financial Services of the
House of Representatives; and
(B) the Committee on Banking, Housing, and Urban
Affairs of the Senate.
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