The CLARITY Act: what it says, who is fighting it, and what Congress cannot change
Issue 3 | 14 May 2026
The numbers before we start
Senate Banking Committee markup: today, 10:30 AM ET
Pages in the bill: 309
Titles in the bill: nine
Amendments filed before today’s hearing: 130+
Amendments filed by Senator Warren alone: 44
Probability the bill passes in 2026, according to Polymarket: 67%
Number of Polymarket bettors who have modelled PFMI compliance requirements: unknown, though probably not 130
A word on that last figure. Polymarket is a prediction market. It aggregates where money is being placed, not what practitioners who have actually read the bill expect to happen. When 67% of capital on a binary contract sits on “yes,” that tells you the market is optimistic, probably weighted toward participants who want the bill to pass and have expressed that preference with money. It does not tell you that a bill with 130 amendments, active banking lobby opposition, and fundamental disagreements between Democratic committee members on the core stablecoin provisions is going to clear the Senate floor cleanly. Prediction markets are a useful tool. They are not a substitute for reading the bill.
This issue is a working guide for anyone operating in markets who needs to understand what the CLARITY Act actually contains, who is fighting it and why, and what it genuinely changes versus what it cannot touch regardless of how it is framed in commentary. The first half covers the bill and the political fight around it, ground that is relevant to traders, fund managers, compliance teams, legal counsel, and anyone else whose work intersects with digital assets in any form. The second half goes deeper on clearing infrastructure specifically, which is where the bill’s most consequential and least-discussed provisions sit. We will signpost the transition clearly.
I have read the bill. Here is what it says.
What the CLARITY Act is
The Digital Asset Market Clarity Act of 2025 passed the House 294 to 134 on 17 July 2025. The Senate Banking Committee is marking it up today. The Senate Agriculture Committee has already cleared the CFTC-related provisions separately. If it clears committee today it goes to the Senate floor, probably in May or June. If it passes there, the President signs it. Most substantive rules come into force 360 days after enactment. Registration processes must be established within 180 days of enactment; firms then have 90 days to register once those processes exist. On a realistic timeline, most of this is operational in late 2027 at the earliest.
The bill is 309 pages across nine titles. It covers market structure, stablecoin issuance, decentralised finance, ethics provisions, central bank digital currency prohibitions, bankruptcy protections for crypto customers, and software developer safe harbours. The clearing-specific provisions are concentrated in Titles III and IV.
The three-bucket framework
The bill’s central organising principle is a three-way division of digital assets by regulatory bucket.
Digital commodities. Tokens intrinsically linked to a functioning, decentralised blockchain, where the token’s value derives from use of that blockchain. CFTC gets exclusive jurisdiction over spot and cash markets. Digital commodity exchanges, brokers, and dealers register with and answer to the CFTC.
Investment contract assets. Digital assets that constitute investment contracts under the Howey test. SEC jurisdiction, primary market fundraising and registration requirements retained.
Permitted payment stablecoins. Fiat-pegged tokens meeting specific reserve and disclosure standards. Banking regulators take supervisory authority. The CFTC and SEC retain anti-fraud jurisdiction over transactions on their respective registered platforms.
The SEC/CFTC jurisdictional division is where the political debate has focused. For traders and fund managers, the bucket your assets fall into determines which regulator you face and which registration obligations apply to your counterparties. For compliance and legal teams, it determines the disclosure regime. For clearing and capital professionals, the consequential provisions are elsewhere, and we cover those separately below.
What the CLARITY Act says about clearing
Most coverage has focused on the exchange and broker registration provisions. Four provisions in the clearing layer deserve equal attention, because they are the ones that determine how institutional derivatives flow actually moves once the regulatory frame exists.
Dual-registered clearing houses. The bill allows a single clearing house to be simultaneously registered with the SEC as a clearing agency and the CFTC as a derivatives clearing organisation. One entity, two regulatory hats, covering both securities and commodity futures or swaps in digital commodities. This is new. Currently the institutional clearing landscape is siloed by regulator. A firm clearing one class of instrument through an SEC-registered entity cannot also clear CFTC-regulated products in the same entity without a separately registered DCO. The dual registration path closes that structural gap and enables a genuinely cross-asset clearing house for the first time.
Portfolio margining mandate. The bill requires the SEC and CFTC to jointly issue rules enabling portfolio margining across securities, swaps, futures, and digital commodity accounts. This is architecturally significant and receives far less attention than the jurisdictional split. Under current arrangements, a bank or institutional participant running a mixed book, equities alongside futures alongside crypto derivatives, margins each book separately under the rules of the relevant regulator. Portfolio margining collapses those silos into a single net risk view. It reduces gross collateral requirements for hedged positions by recognising offsetting risks across asset classes. For institutional desks, this is the provision that changes the capital arithmetic. Not the headline SEC/CFTC boundary.
Bank holding company subsidiary access. Non-bank subsidiaries of bank holding companies can engage in digital commodity activities under the bill, which adds those activities to the list classified as “financial in nature” for bank holding company purposes. This is the mechanism through which bank balance sheets gain institutional access to the asset class within an existing regulatory framework, rather than having to route activity through separate, unaffiliated entities at arm’s length.
DCO margin rules confirmed. DCOs may accept crypto assets, including payment stablecoins, as initial margin for cleared transactions under existing Regulation 39.13(g)(10), provided they meet standards for minimal credit, market, and liquidity risk, with haircuts reviewed at least monthly. This is not new: the CFTC’s March 2026 FAQs already confirmed it. The bill codifies existing guidance.
The 130 amendments: who is fighting what, and why
Every bill arrives at committee markup with amendments. 130 is a lot even by Washington standards. The number reflects the bill’s scope, the political complexity of the coalition needed to pass it, and the reality that most amendments filed at markup are not expected to be incorporated into the final text. They are political statements. Understanding what each camp is actually arguing is more useful than counting the amendments.
Stablecoin yield. The bill’s current text permits stablecoin issuers and platforms to pay rewards linked to transactions and platform usage, while prohibiting interest on balances. The American Bankers Association has mounted significant opposition to this distinction, reporting over 8,000 letters sent to Senate offices. The ABA’s chief executive called it an “urgent advocacy fight requiring immediate engagement.” Senator Reed of Rhode Island filed approximately 18 amendments, several reproducing the banking industry’s preferred restrictive language on yield almost verbatim. The underlying concern is coherent: stablecoin reward products, if structured as usage rewards rather than deposit interest, create deposit-equivalent products that are not subject to the same capital and regulatory treatment as bank deposits. Banks are not wrong to flag the competitive asymmetry. Whether that asymmetry justifies blocking the bill is a separate question, and the answer in committee is almost certainly no.
Senator Warren and the Fedwire question. Senator Warren filed 44 amendments. The most consequential for clearing infrastructure is the one that would block the Federal Reserve from granting master accounts to crypto companies. A Fed master account provides direct access to Fedwire, the Federal Reserve’s real-time gross settlement system, and to the ACH network. It is how financial institutions settle with finality at the central bank rather than through commercial bank correspondents. Without one, a firm relies on a commercial bank intermediary for settlement, which introduces credit exposure and settlement delay into every transaction.
Warren’s position is grounded in the narrow banking debate, and it has more intellectual substance than most of the commentary on it acknowledges. I want to take it seriously before explaining where it breaks down.
The concern is this: a crypto firm that obtains a Fed master account can settle at the central bank without being subject to the full regulatory apparatus that applies to insured depository institutions. It holds reserves at the Fed without the capital requirements, liquidity requirements, and supervisory oversight that justify Fed access for banks. This is the structural concern behind the narrow banking critique: entities that function like banks from the settlement infrastructure side, without bearing the regulatory obligations of banks. Governor Christopher Waller of the Federal Reserve proposed a “skinny” master account concept in late 2025, limited payment system access without credit facilities, as a potential middle ground. The debate is live and the concern is genuine, particularly when applied to retail exchanges and stablecoin issuers.
Where it breaks down is when applied, as Warren’s amendment would apply it, to derivatives clearing organisations.
A DCO is the structural opposite of a narrow bank. Its entire function is to reduce counterparty credit risk across a multilateral network of participants: collecting initial margin and variation margin, holding pre-funded default resources, running default management procedures that insulate the wider market from a member failure. The clearing house absorbs credit risk on behalf of the system. A narrow bank holds deposits and does nothing with them. These are not the same thing dressed differently.
The narrow banking critique is about credit creation by lightly regulated entities gaining access to public settlement infrastructure. A clearing house removes bilateral credit risk from the system. Applying the same objection to both conflates the problem with its solution.
The practical point is equally clear. Real-time margin calls require real-time settlement. A clearing house running intraday default management procedures cannot do so through a correspondent bank operating on next-day settlement cycles. The major existing central clearing counterparties have direct central bank access in their home jurisdictions because the operational requirement demands it. A new DCO clearing crypto derivatives would face the same operational constraint, not because it resembles a bank, but because margin management at institutional scale requires settlement finality. Warren’s amendment, drawn broadly across all crypto companies, catches the entities whose specific function is managing the credit risk that narrow banking concerns exist to contain.
CBDC ban. Senator Hagerty of Tennessee filed an amendment prohibiting the Federal Reserve from issuing a central bank digital currency. This is a Republican political priority, separate from the bill’s market structure provisions and not expected to be incorporated. Its presence in the amendment list reflects that this is a convenient legislative vehicle for the statement, not that it materially affects the bill’s clearing provisions.
DeFi and developer protections. Senator Reed also filed an amendment to remove the Blockchain Regulatory Certainty Act provisions, which establish that non-custodial software developers who write code for decentralised protocols but do not control user funds are not money transmitters. DeFi advocates regard this protection as foundational. Reed’s amendment reflects banking lobby concerns that broad developer safe harbours create regulatory gaps. This is genuinely contested and its fate in committee will determine whether decentralised finance advocates continue to support the wider bill.
Ethics and conflicts of interest. Senator Van Hollen proposed amendments prohibiting senior government officials from having business ties to crypto firms. These are directed at the current administration’s involvement in digital asset ventures and are political in character. Other amendments reference peripheral political controversies. They are unlikely to affect the bill’s substance.
From here the newsletter goes deeper on clearing infrastructure specifically. Everything above applies to anyone in markets. What follows is for those working in derivatives clearing, capital modelling, or counterparty infrastructure, and for anyone who wants to understand why the provisions receiving the least attention are the ones that most directly determine how institutional flow moves.
What the bill actually changes for clearing
The political commentary has concentrated on the SEC/CFTC jurisdictional boundary. That is the least operationally significant element for anyone working in institutional derivatives clearing.
The provision that actually changes the structural landscape is the dual-registered CCP. For the first time, a single clearing house can satisfy both regulators within one entity, making cross-asset clearing of mixed digital commodity and traditional derivatives books possible in a way it has not been before. The portfolio margining mandate is the provision that most directly changes the capital arithmetic for institutional desks running those mixed books. Neither has received anything close to the attention the SEC/CFTC headline has generated.
What the bill does not do is answer the infrastructure question. It creates the legal prerequisite. It clarifies and accelerates the DCO registration path, which is one layer of the QCCP recognition process. It does not build the architecture, demonstrate operational readiness, or satisfy the international standards that determine whether a clearing house is QCCP-recognised under Basel III. Regulatory clarity and clearing infrastructure are different things. The market will treat the bill’s passage as if they are the same. That is the conflation worth tracking.
What Congress cannot change
Most of the commentary on this bill stops before reaching this part. It should not.
Basel capital treatment. Under Basel III, a bank clearing derivatives through a Qualified Central Counterparty faces approximately 2% risk weight on trade exposures and a 5-day margin period of risk under SA-CCR. For uncleared crypto derivatives, the treatment is SCO60 Group 2b: 1250% risk weight. That differential is set by the Basel Committee on Banking Supervision, an international standard-setting body. No US statute changes it. The CLARITY Act cannot and does not alter Basel capital rules.
QCCP recognition. QCCP status is not a registration the CFTC grants. No single regulator grants it. It is a capital-treatment determination that banks make, based on four things converging: Basel’s criteria under CRE54, the CCP being authorised in its jurisdiction (where DCO registration is relevant), PFMI-equivalent operational standards in substance, and the bank’s own prudential regulator accepting the CCP for that treatment. The CLARITY Act helps with the third element. The other three are governed by international standards and bank-level assessments that no US Congress can touch.
PFMI compliance. The Principles for Financial Market Infrastructures, published by CPMI-IOSCO in 2012, set 24 operational principles covering legal basis, governance, credit risk, margin, default management, segregation, transparency, and operational risk. These are the international standards against which QCCP-grade clearing infrastructure is assessed. They are not US domestic law. The CLARITY Act does not address them.
The structural gap between holding a DCO licence and being a QCCP-recognised clearing house exists today. It will exist after the CLARITY Act passes. That gap is closed by infrastructure, and by demonstrated operational compliance with the standards the global financial system agreed on after 2008. No legislation closes it. The DCO licence is the badge. The infrastructure is the benefit. They are not the same thing, and knowing the difference is what this newsletter is for.
The Clearing Gap covers clearing, capital, and the infrastructure that connects them. If this was useful, forward it to whoever in your network is working on the same questions. If you want to dig into any of it, reply directly.
James Davies
Clearing without socialised losses.
This first appeared in The Clearing Gap, my LinkedIn newsletter, on 14 May 2026. If you want to comment, discuss, or subscribe, that’s the place.