Digital Commodity Exchange Act of 2020

I 116TH CONGRESS 2D SESSION H. R. 8373 To provide for orderly and secure digital commodity exchange markets, and for other purposes. IN THE HOUSE OF REPRESENTATIVES SEPTEMBER 24, 2020 Mr. CONAWAY (for himself, Mr. AUSTIN SCOTT of Georgia, Mr. JOHNSON of South Dakota, Mr. EMMER, Mr. SOTO, and Mr. SCHWEIKERT) introduced the following bill; which was referred to the Committee on Agriculture A BILL To provide for orderly and secure digital commodity exchange markets, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Digital Commodity Ex- 4 change Act of 2020’’. 5 SEC. 2. AMENDMENTS TO THE COMMODITY EXCHANGE 6 ACT. 7 (a) DEFINITIONS.—Section 1a of the Commodity Ex- 8 change Act (7 U.S.C. 1a) is amended— 9 (1) in paragraph (40)— 10 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 8373 IH (A) in subparagraph (E), by striking 1 ‘‘and’’ at the end; and 2 (B) by redesignating subparagraph (F) as 3 subparagraph (G) and inserting after subpara- 4 graph (E) the following: 5 ‘‘(F) a digital commodity exchange reg- 6 istered under section 5i; and’’; and 7 (2) by adding at the end the following: 8 ‘‘(52) DIGITAL COMMODITY.—The term ‘digital 9 commodity’ means any form of fungible intangible 10 personal property that can be exclusively possessed 11 and transferred person to person without necessary 12 reliance on an intermediary, and which does not rep- 13 resent a financial interest in a company, partner- 14 ship, or investment vehicle. 15 ‘‘(53) DIGITAL COMMODITY CUSTODIAN.—The 16 term ‘digital commodity custodian’ means an entity 17 that holds, maintains, or safeguards digital commod- 18 ities and other assets on behalf of digital commodity 19 market participants. 20 ‘‘(54) DIGITAL COMMODITY EXCHANGE.—The 21 term ‘digital commodity exchange’ means a trading 22 facility that lists for trading at least one digital com- 23 modity. 24 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 8373 IH ‘‘(55) DIGITAL COMMODITY PRESALE.—The 1 term ‘digital commodity presale’ means the delivery 2 of a unit of a digital commodity, or any promise or 3 right to a future unit of a digital commodity, to a 4 participant in a securities offering conducted in com- 5 pliance with the Securities Act of 1933 before the 6 listing of the digital commodity for trading on a reg- 7 istered digital commodity exchange.’’. 8 (b) COMMISSION JURISDICTION OVER RETAIL DIG- 9 ITAL COMMODITY TRANSACTIONS.—Section 2(c)(2) of 10 such Act (7 U.S.C. 2(c)(2)) is amended— 11 (1) in subparagraph (D)(ii)— 12 (A) in subclause (III), in the matter that 13 precedes item (aa), by inserting ‘‘of a com- 14 modity, other than a digital commodity,’’ before 15 ‘‘that’’; and 16 (B) by redesignating subclauses (IV) and 17 (V) as subclauses (V) and (VI) and inserting 18 after subclause (III) the following: 19 ‘‘(IV) a contract of sale of a dig- 20 ital commodity that— 21 ‘‘(aa) results in actual deliv- 22 ery within 2 days or such other 23 period as the Commission may 24 determine by rule or regulation 25 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 8373 IH based upon the typical commer- 1 cial practice in cash or spot mar- 2 kets for the digital commodity in- 3 volved; or 4 ‘‘(bb) is executed on or sub- 5 ject to the rules of a registered 6 digital commodity exchange;’’; 7 and 8 (2) by adding at the end the following: 9 ‘‘(F) COMMISSION JURISDICTION OVER DIGITAL 10 COMMODITY TRANSACTIONS.— 11 ‘‘(i) Notwithstanding any other provision of 12 law, the Commission shall have exclusive jurisdiction 13 over any agreement, contract, or transaction involv- 14 ing a contract of sale of any digital commodity in 15 interstate commerce which is offered, solicited, trad- 16 ed, executed, or otherwise dealt in on or subject to 17 the rules of a registered entity, including the con- 18 duct of any such office or business. 19 ‘‘(ii) Notwithstanding any other provision of 20 law, the Commission shall have exclusive jurisdiction 21 over any agreement, contract, or transaction involv- 22 ing a unit of a digital commodity, or any promise or 23 right to a future unit of a digital commodity, ob- 24 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 8373 IH tained through a digital commodity presale and sub- 1 ject to the restrictions in section 4c(h). 2 ‘‘(iii) Nothing in this subparagraph shall be 3 construed to limit the power of any State or other 4 Federal regulatory agency, or to provide the Com- 5 mission with jurisdiction, with respect to— 6 ‘‘(I) custodial or depository activities for a 7 digital asset, or custodial or depository activi- 8 ties for any promise or right to a future digital 9 asset, of an entity regulated by a State or an- 10 other Federal regulatory agency; or 11 ‘‘(II) a securities offering or transaction 12 associated with— 13 ‘‘(aa) a digital commodity presale; or 14 ‘‘(bb) a sale described in section 15 4c(h)(3)(A)(i).’’. 16 (c) PROHIBITED TRANSACTIONS.—Section 4c of such 17 Act (7 U.S.C. 6c) is amended by adding at the end the 18 following: 19 ‘‘(h) PROHIBITED DIGITAL COMMODITY TRANS- 20 ACTIONS.— 21 ‘‘(1) IN GENERAL.—It shall be a violation of 22 this Act for any person who owns or controls a unit 23 of a digital commodity, or any promise or right to 24 a future unit of a digital commodity, obtained 25 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 8373 IH through a digital commodity presale and subject to 1 the restrictions in this subsection, to offer to enter 2 into, to enter into, or to execute a contract for the 3 purchase or sale of the unit, promise, or right, ex- 4 cept as provided in paragraph (3). 5 ‘‘(2) UNLAWFUL FACILITATION OF PROHIBITED 6 TRANSACTION.—It shall be a violation of this Act for 7 any person willfully to execute, confirm the execution 8 of, or conduct any office or business for the purpose 9 of soliciting, accepting any order for, or otherwise 10 dealing in, any transaction in, or in connection with, 11 a contract for the purchase or sale of a unit of a 12 digital commodity, or any promise or right to a fu- 13 ture unit of a digital commodity, which such person 14 has reason to believe is obtained through a digital 15 commodity presale and subject to the restrictions in 16 this subsection, except as provided in paragraph (3). 17 ‘‘(3) EXCEPTIONS.— 18 ‘‘(A) OFF-EXCHANGE TRANSACTIONS.— 19 ‘‘(i) SALE OF A PROMISE OR RIGHT.— 20 A promise or right to a future unit of a 21 digital commodity obtained through a dig- 22 ital commodity presale may be sold pursu- 23 ant to a securities transaction conducted in 24 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 8373 IH compliance with the Securities Act of 1 1933. 2 ‘‘(ii) SALE OF A DIGITAL COM- 3 MODITY.—A unit of a digital commodity 4 obtained through a digital commodity 5 presale may be sold to an accredited 6 imvestor (as defined in section 2(a)(15) of 7 the Securities Act of 1933). 8 ‘‘(iii) TREATMENT.—For purposes of 9 this subsection, a unit of a digital com- 10 modity or any promise or right to a future 11 unit of a digital commodity obtained 12 through a transaction utilizing this excep- 13 tion shall continue to be considered to be 14 obtained through a digital commodity 15 presale. 16 ‘‘(B) ON-EXCHANGE TRANSACTIONS.— 17 ‘‘(i) IN GENERAL.—A unit of a digital 18 commodity that is obtained through a dig- 19 ital commodity presale or a transaction de- 20 scribed in subparagraph (A) may be of- 21 fered for sale or exchange on a registered 22 digital commodity exchange, subject to any 23 limitations imposed by the exchange. 24 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 8373 IH ‘‘(ii) TREATMENT.—For purposes of 1 this subsection, a unit of a digital com- 2 modity obtained through a transaction uti- 3 lizing this exception shall not be considered 4 to be obtained though a digital commodity 5 presale. 6 ‘‘(C) UTILIZATION OF PRESOLD DIGITAL 7 COMMODITIES.— 8 ‘‘(i) IN GENERAL.—A unit of a digital 9 commodity that is obtained through a dig- 10 ital commodity presale may be— 11 ‘‘(I) utilized for the purposes of 12 receiving the non-financial rights or 13 services associated with the digital 14 commodity; or 15 ‘‘(II) exchanged or sold in such 16 limited quantities as the Commission 17 determines support the public use and 18 functioning of services and rights as- 19 sociated with the digital commodity. 20 ‘‘(ii) TREATMENT.—For purposes of 21 this subsection, a unit of a digital com- 22 modity obtained through a transaction uti- 23 lizing this exception shall not be considered 24 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 9 •HR 8373 IH to be obtained though a digital commodity 1 presale. 2 ‘‘(D) PRIOR DIGITAL COMMODITIES.—A 3 unit of a digital commodity shall not be subject 4 to this subsection if, before the date of the en- 5 actment of this subsection, the digital com- 6 modity was publicly available for trading on a 7 trading facility licensed as a money transmitter 8 in a State or territory of the United States. 9 ‘‘(4) TRANSITION RULES.— 10 ‘‘(A) IN GENERAL.—For the purpose of a 11 transaction described in paragraph (3)(B), the 12 Commission shall consider a trading facility to 13 be a registered digital commodity exchange if— 14 ‘‘(i) the trading facility— 15 ‘‘(I) has been continuously li- 16 censed as a money transmitter in at 17 least 20 States or territories of the 18 United States since August 1, 2019; 19 ‘‘(II) is a designated contract 20 market; or 21 ‘‘(III) is a swap execution facil- 22 ity; 23 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 10 •HR 8373 IH ‘‘(ii) the trading facility submits a 1 listing notice to the Commission con- 2 taining— 3 ‘‘(I) documentation demonstrat- 4 ing its licensing referred to in clause 5 (i)(I); and 6 ‘‘(II) the determination made by 7 the trading facility under section 8 5i(c)(3) that the digital commodity 9 that is the subject of the transaction 10 is not readily susceptible to manipula- 11 tion; and 12 ‘‘(iii) the Commission has not issued a 13 notice of disapproval of the listing notice. 14 ‘‘(B) DISAPPROVAL PROCESS.—In making 15 a disapproval under subparagraph (A), the 16 Commission shall— 17 ‘‘(i) issue any disapproval within 20 18 business days after receipt of a completed 19 listing notice; and 20 ‘‘(ii) identify the specific deficiencies 21 with the listing notice that necessitated the 22 disapproval. 23 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 11 •HR 8373 IH ‘‘(C) EXTENSIONS.—The Commission may 1 extend the time for disapproval under subpara- 2 graph (B)— 3 ‘‘(i) once, for 20 days, through writ- 4 ten notice to the digital commodity ex- 5 change given by a division director; and 6 ‘‘(ii) once, for an additional 90 busi- 7 ness days, through notice given by the 8 Commission which includes a description of 9 any deficiencies with the listing notice, in- 10 cluding any— 11 ‘‘(I) novel or complex issues 12 which require additional time to ana- 13 lyze; 14 ‘‘(II) missing information or in- 15 adequate explanations; or 16 ‘‘(III) potential inconsistencies 17 with this Act. 18 ‘‘(D) EXPIRATION.—The authority pro- 19 vided by this subparagraph shall expire 1 year 20 after the date of the final promulgation of the 21 digital commodity exchange registration re- 22 quirements, or on the first registration of a dig- 23 ital commodity exchange, whichever occurs ear- 24 lier.’’. 25 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 12 •HR 8373 IH (d) COMMON PROVISIONS APPLICABLE TO REG- 1 ISTERED ENTITIES.—Section 5c of such Act (7 U.S.C. 2 7a–2) is amended— 3 (1) in subsection (a), by striking ‘‘5(d) and 4 5b(c)(2)’’ and inserting ‘‘5(d), 5b(c)(2), and 5i(c)’’; 5 (2) in subsection (b)— 6 (A) in each of paragraphs (1) and (2), by 7 inserting ‘‘digital commodity exchange,’’ before 8 ‘‘derivatives’’; and 9 (B) in paragraph (3), by inserting ‘‘digital 10 commodity exchange,’’ before ‘‘derivatives’’ each 11 place it appears; and 12 (3) in subsection (c)— 13 (A) in paragraph (2), by inserting ‘‘or par- 14 ticipants’’ before ‘‘(in’’; 15 (B) in paragraph (4)(B), by striking 16 ‘‘1a(10)’’ and inserting ‘‘1a(9)’’; and 17 (C) in paragraph (5), by adding at the end 18 the following: 19 ‘‘(D) SPECIAL RULES FOR THE LISTING OF 20 CERTAIN DIGITAL COMMODITIES.— 21 ‘‘(i) IN GENERAL.—In the case of list- 22 ing a digital commodity for trading which 23 has not yet been listed for trading on an- 24 other registered entity, paragraphs (2) and 25 VerDate Sep 11 2014 04:31 Oct 16, 2020 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H8373.IH H8373 kjohnson on DSK79L0C42PROD with BILLS 13 •HR 8373 IH (3) shall apply as if the listing were a rule, 1 and paragraph (2) shall be applied by sub- 2 stituting ‘20 business days’ for ‘10 busi- 3 ness days’. 4 ‘‘(ii) TRANSITIONAL EXTENSION.— 5 For 1 year after the registration of the 6 first digital commodity exchange, the Com- 7 mission shall have an additional 20 busi- 8 ness days review any certification under 9 clause (i). 10 ‘‘(iii) DIGITAL COMMODITY 11 PRESALES.—In conjunction with listing a 12 digital commodity in which any unit of the 13 digital commodity was obtained through a 14 digital commodity presale, the Commission 15 shall require the registered entity to pro- 16 hibit the sale of any unit of the digital 17 commodity that was obtained in violation 18 of section 4c(h).’’. 19 (e) REGISTRATION OF DIGITAL COMMODITY EX- 20 CHANGES; QUALIFIED DIGITAL COMMODITY 21 CUSTODIANS.—The Commodity Exchange Act (7 U.S.C. 22 1 et seq.) is amended by inserting after section 5h the 23 f [Text truncated for display. Full text available on Congress.gov.]