Proposed Legislation To Regulate Digital Commodity – Commodities/Derivatives/Stock Exchanges

On August 3, Senate Agriculture Committee Chairwoman Debbie
Stabenow, a Democrat from Michigan, and John Boozman, the top
Republican on the committee, introduced a bipartisan bill aimed at regulating digital assets.

They join several other senators and representatives who have
introduced a multitude of bills to regulate markets in digital
assets in the past two years. However, Stabenow-Boozman’s
Digital Commodities Consumer Protection Act of 2022
(“DCCPA”) is narrower than some of the proposals (such as
the proposal from Senators Lummis and Gillibrand
in June or the House proposal) and is more focused on the
regulatory gaps that are most evident in crypto spot markets where
Bitcoin, Etherium and other cryptocurrencies and digital assets
trade.

Specifically, similarly to other recently proposed bills, the
DCCPA amends the Commodity Exchange Act of 1936 (“CEA”)
to grant to the Commodity Futures Trading Commission
(“CFTC”) exclusive jurisdiction over digital commodity
markets (except for when digital commodities are used to purchase
goods or services). To date, the CEA only gives the CFTC limited
authority to prosecute fraud and manipulation in spot markets,
which means that the CFTC cannot currently dictate how, where, by
whom and under what conditions spot transactions in digital
commodities take place. The CFTC, however, has exclusive
jurisdiction over derivatives – which is only a small portion of
digital commodity markets.

For the first time, DCCPA provides a clear definition of
“digital commodity” and includes this new category in the
broader definition of “commodity” as well as derivatives
involving these commodities in the category of “commodity
interests.” The bill also requires that entities that
facilitate trading in digital commodities register with the CFTC as
platforms, brokers, dealers and custodians and provides rules on
how these markets should be governed. Unlike the Lummis-Gillibrand
bill, DCCPA does not address in detail instruments that would
otherwise qualify as securities and would be regulated by the
Securities and Exchange Commission or as banking products and would
be regulated by state or federal bank regulators.

CFTC Chairman Ross Behnam made a statement welcoming introduction of this bill.
It is worth noting that Behnam, before being appointed to the CFTC,
was on Senator Stabenow’s staff and, from the design of this
bill, it is clear that the CFTC provided technical assistance.

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