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[Congressional Bills 117th Congress]
[From the U.S. Government Publishing Office]
[S. 5030 Introduced in Senate (IS)]

<DOC>

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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