S. 3755: Digital Commodity Intermediaries Act

The Digital Commodity Intermediaries Act is a piece of legislation designed to create a structured regulatory system for the sale and trading of digital commodities, such as cryptocurrencies, under the supervision of the Commodity Futures Trading Commission (CFTC). Here are the main components of the bill:

Regulatory Framework

The bill establishes a clear framework for how digital commodities should be offered and sold. This includes:

• Definitions for key terms related to digital commodities.
• Rulemaking procedures that the CFTC must follow.
• Requirements for registration and administrative processes.
• Cooperation with international regulatory bodies.

Collaboration Between Agencies

It mandates that the Securities and Exchange Commission (SEC) and the CFTC work together to create rules that will prevent regulatory overlap for entities that are registered with both agencies. This section of the bill ensures:

• Fairness in market operations.
• Protection for customers and investors.
• Guidelines for handling transactions that involve both traditional securities and digital commodities.
• A regulatory process for delisting non-compliant digital commodities.
• Regulations governing the portfolio margining of digital commodities.

Requirements for Digital Commodity Exchanges

Digital commodity exchanges are required to register with the CFTC and must adhere to several rules to promote fair trading practices. These requirements include:

• Providing notification for certain offerings and transactions.
• Compliance with established core principles regarding market operations.
• Implementing customer protection measures to reduce conflicts of interest.

The regulatory framework also aims to support innovation within the marketplace while ensuring that both market integrity and transparency are maintained.

International Compliance

Foreign digital commodity exchanges must obtain certification from their respective governments to be recognized as regulated entities. Additionally, they must:

• Establish information-sharing agreements with the U.S. CFTC.
• Face potential revocation of exemptions from regulations if they fail to comply with established rules.

Furthermore, the CFTC will have exclusive jurisdiction over exchanges and brokers that are registered under this legislation, ensuring consistent regulatory oversight and protection for consumers.

Fee Structure and Consumer Advocacy

The bill introduces a fee structure to cover the regulatory costs associated with overseeing the digital commodities market. Key aspects include:

• Annual adjustments to these fees to reflect changing regulatory needs.
• A prohibition on transaction-based fees that could be applied to customers.
• A mandate to publicize the fee rates involved.

In a commitment to consumer interests, the bill also establishes the Office of the Digital Commodity Retail Advocate. This office will assist retail participants in navigating the market and ensuring their concerns are represented.

Relevant Companies

• COIN - Coinbase Global, Inc.: As a major digital currency exchange, Coinbase may be directly affected by the regulatory requirements set forth by this bill, particularly regarding registration and compliance mandates.
• SQ - Block, Inc.: Block, which includes services related to digital currencies, could see changes in its operational landscape due to new regulations concerning digital commodities.
• ETHE - Grayscale Ethereum Trust: This investment vehicle focused on digital commodities could be impacted by the regulatory environment established in this act, especially regarding investor protections.