II 117th CONGRESS 2d Session S. 5030 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.

1. Short title This Act may be cited as the Digital Trading Clarity Act of 2022 . 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.