[Senate Report 109-119]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 191
109th Congress                                                   Report
                                 SENATE
 1st Session                                                    109-119

======================================================================
 
             COMMODITY EXCHANGE REAUTHORIZATION ACT OF 2005

                                _______
                                

                 July 29, 2005.--Ordered to be printed

                                _______
                                

   Mr. Chambliss, from the Committee on Agriculture, Nutrition, and 
                   Forestry, submitted the following

                              R E P O R T

                         [To accompany S. 1566]

    The Committee on Agriculture, Nutrition, and Forestry, 
having considered the bill (S. 1566) to reauthorize the 
Commodity Exchange Act, and for other purposes, reports 
favorably thereon and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. Purpose, need, and background.....................................1
II. Legislative history and votes in the committee....................2
III.Section-by-section analysis.......................................5

IV. Regulatory impact statement......................................10
 V. Cost Estimate....................................................10
VI. Changes in existing law..........................................13

                    I. Purpose, Need, and Background

    The Commodity Futures Trading Commission (CFTC or the 
Commission) is due to be reauthorized by September 30, 2005. 
The CFTC is charged with protecting market users and the public 
from fraud and manipulation in the nation's futures markets 
while fostering open, competitive, and financially sound 
markets. The Commodity Exchange Act (CEA) is the basic law that 
empowers the CFTC with the regulatory authority to oversee 
futures markets.
    Futures contracts for agricultural commodities have been 
traded in the United States for more than 150 years and have 
been regulated under Federal statutes since the 1920's. In 
recent years, trading in futures contracts has expanded rapidly 
beyond physical commodities into a vast array of financial 
instruments, including foreign currencies, U.S. and foreign 
government securities, and U.S. and foreign stock indexes. More 
than one billion futures and option contracts were traded on 
U.S. futures exchanges in 2004. Futures and options exchanges 
play a vital role in the national economy as a price discovery 
mechanism and as risk management tools for individuals, 
farmers, and businesses throughout the nation. The 
responsibility of eliminating fraud and manipulation within 
these markets lies with the CFTC.
    The Commodity Exchange Act (CEA) was passed in 1922, 
marking the beginning of the modern era of government 
regulation and oversight of the U.S. futures markets. The 
Commodity Futures Trading Commission (CFTC) was created in 1974 
as the agency of the Federal government responsible for 
oversight and regulation of futures markets through the CEA. 
Landmark changes were made to the CEA in the Commodity Futures 
Modernization Act of 2000 (CFMA). Since its passage, futures 
markets have grown dramatically in volume.

              II. Legislative History and Committee Votes

    The Committee on Agriculture, Nutrition, and Forestry held 
two full Committee hearings to consider the reauthorization of 
the Commodity Futures Trading Commission (CFTC) prior to its 
markup of this legislation.
    The first hearing took place on March 8, 2005, and 
consisted of two panels. Sharon Brown-Hruska, Acting Chairman 
of the CFTC, testified before the committee that the CEA, as 
amended by the CFMA, is functioning exceptionally well. 
However, her testimony highlighted three areas of concern that 
have arisen since Congress last reauthorized the CFTC. First, 
she suggested Congress evaluate whether clarifications are 
necessary to the legal framework provided for exempt markets. 
Second, she stated Congress may wish to examine ways to further 
reduce the burdens of duplicate market regulation by multiple 
agencies. And third, Ms. Brown-Hruska recognized Congress's 
firm commitment to protecting customers from fraud and 
manipulation, and asked that Congress review whether CFTC has 
sufficient authority to police retail fraud.
    Charles P. Carey, Chairman of the Chicago Board of Trade 
(CBOT), shared his views on CFTC reauthorization. Mr. Carey 
commended Congress for the passage of the CFMA, and also called 
attention to several issues he felt deserved discussion. He 
highlighted the challenges which have been presented from dual 
regulation by the CFTC and Securities and Exchange Commission 
(SEC) of certain products. Mr. Carey also expressed his 
concerns on how Congress may choose to address a particular 
court decision, CFTC v. Zelener. He stated that the decision 
held that CFTC has no anti-fraud jurisdiction over certain 
retail foreign currency (forex) transactions and could 
potentially lead to increased opportunities for fraud. Mr. 
Carey also discussed the challenges the futures industry has 
faced with respect to international expansion and cross-border 
business arrangements.
    Terrence A. Duffy, Chairman of the Chicago Mercantile 
Exchange (CME), testified before the Committee. Mr. Duffy 
echoed the comments of others by applauding the success of the 
CFMA, but suggested some changes based on developments since 
the CFMA was enacted. One problem Mr. Duffy recognized is 
continuing fraud against retail customers in over-the-counter 
foreign exchange markets. He stated this problem has been 
compounded by the CFTC v. Zelener decision, as the court 
adopted a narrow definition of a futures contract. Mr. Duffy 
also pointed out this problem extends beyond foreign exchange 
and could be applied to any commodity. He suggested a 
compromise be worked out between SEC and CFTC's jurisdiction in 
reference to single-stock futures products to avoid duplicate 
regulation.
    James Newsome, President of New York Mercantile Exchange 
(NYMEX), testified on behalf of the exchange. Dr. Newsome spoke 
of the benefits to the market from the passage of the CFMA, and 
noted that the CFMA maintained the CFTC's exclusive 
jurisdiction over futures and options on futures. He also 
discussed the role of hedge funds in several markets, and 
explained their importance in these markets. Questions were 
raised regarding CFTC's anti-fraud authority over principal-to-
principal transactions involving exempt commodities. Dr. 
Newsome suggested that Congress consider whether clarifications 
or guidance in this area is needed.
    Frederick W. Schoenhut, Chairman of the New York Board of 
Trade (NYBOT), discussed his comments on CFTC reauthorization 
before the Committee. After stating that he believed the CFMA 
is working the way it was intended, Mr. Schoenhut expressed his 
support for a reauthorization bill that continues this 
regulatory structure. Three areas of the exchange self-
regulatory structure which he felt should be maintained were 
then listed. The first was that each exchange should continue 
to determine the composition of its governing board. Second, 
that the structure for exchange compliance and disciplinary 
functions should also remain unchanged. And third, that 
exchanges be required to establish and enforce rules that 
minimize conflicts of interest in the decision making process.
    The Chief Executive Officer of Eurex, US, Satish 
Nandapurker, was the next to appear before the Committee. Mr. 
Nandapurker concurred with earlier testimony that the CFMA has 
been a tremendous success and commended CFTC on an outstanding 
job with implementing the language.
    The final witness of the first hearing was John M. Damgard, 
President of the Futures Industry Association (FIA). Mr. 
Damgard asked that any changes made to the CEA be made by the 
Senate Committee on Agriculture, Nutrition, and Forestry during 
reauthorization of the CFTC rather than another venue. He 
agreed that the fundamental reforms in the CFMA have worked 
well, and stated that he favors no change to the basic 
statutory design.
    On March 10, 2005, the Committee met to hear testimony on 
CFTC reauthorization from representatives of the over-the-
counter (OTC) markets and other witnesses.
    First to testify was Jeffrey Spreecher, Chairman and Chief 
Executive Officer of Intercontinental Exchange (ICE). Mr. 
Spreecher thanked the Committee for its work in developing and 
adopting the CFMA, and listed three reasons why the legislation 
has been a success for his company. First, it provided legal 
certainty OTC products. Second, the CFMA created a new category 
of trading facility called the exempt commercial market (ECM). 
Lastly, the CFMA permitted the clearing of OTC transactions.
    Robert G. Pickel, Executive Director and Chief Executive 
Officer for the International Swaps and Derivatives Association 
(ISDA), shared his views on CFTC reauthorization with the 
Committee. Mr. Pickel noted that the principal interest of his 
company in the CFMA was and remains those provisions intended 
to provide legal certainty for OTC derivatives. He applauded 
the CFMA and stated that he does not believe there is a 
fundamental need for Congress to make substantive changes to 
those portions of the legislation governing OTC derivatives.
    Oliver Ireland testified before the Committee on behalf of 
Huntsman Corporation and Industrial Energy Consumers of America 
(IECA). After reiterating that the CEA as amended by the CFMA 
functions exceptionally well, he stated that price volatility 
in the natural gas contracts suggest the market for natural gas 
may not be operating efficiently and the regulatory framework 
for these contracts should be reviewed. Mr. Ireland provided 
the Committee with several suggestions, some of which included 
regulating natural gas under the same framework of the CEA 
applicable to agricultural commodities and providing the CFTC 
backup authority to require large position reporting.
    The second panel of the hearing included the testimony of 
Daniel J. Roth, President and Chief Executive Officer of the 
National Futures Association (NFA). Mr. Roth stated that 
although the CFMA is successful, it fails to achieve one of its 
customer protection objectives. He said that that CFTC's 
authority to protect retail customers investing in forex may be 
more uncertain now than before passage of the CFMA due to the 
CFTC v. Zelener court decision. Mr. Roth pointed out that the 
results of this decision are not solely a forex problem because 
nothing in the Zelener decision limited its rationale to forex 
products and that other commodities could be sold in the same 
fraudulent manner. Mr. Roth reiterated that the NFA, which is 
the self-regulatory body of the futures industry, believes this 
decision has created a customer protection issue, and Congress 
must address it.
    John G. Gaine, President of the Managed Funds Association 
(MFA), provided testimony for the Committee. Mr. Gaine 
discussed the role of hedge funds in the futures markets, and 
referenced studies that concluded hedge funds do not cause 
volatility in the energy markets. He also urged cooperation 
between the SEC and CFTC to avoid duplicative regulation. Mr. 
Gaine asked that CFTC act on petitions from various futures 
exchanges which would relax speculative position limits on a 
number of agricultural products.
    The final witness was Micah S. Green, President of the Bond 
Market Association (BMA). Mr. Green stated the CFMA is 
extremely successful, especially since it clarifies the 
exclusion from the CEA of OTC derivatives, swaps, and foreign 
exchange transactions. Mr. Green urged the Committee to not 
alter any of the fundamental elements of the CFMA with respect 
to OTC derivatives markets.

                             COMMITTEE VOTE

    In compliance with paragraph 7 of rule XXVI of the Standing 
Rules of the Senate, the following statements are made 
concerning the votes of the Committee in its consideration of 
the Committee bill: The Committee met to mark up the bill on 
Thursday, July 21, 2005. The Committee ordered that the bill be 
favorably reported by a voice vote.

                    III. Section-by-Section Analysis


Section 1: Short title

    The name of the Act is the ``Commodity Exchange 
Reauthorization Act of 2005.''

Section 2: Contracts designed to defraud or mislead

    Section 2 of the legislation amends Section 4b of the CEA, 
the CFTC's main anti-fraud authority. Section 4b is revised to 
provide the CFTC with the authority to bring fraud actions in 
off-exchange principal-to-principal futures transactions. In 
November 2000, the 7th Circuit Court of Appeals ruled that the 
CFTC could only use Section 4b in intermediated transactions--
those involving a broker, Commodity Trend Service, Inc. v. 
CFTC, 233 F.3d 981, 991-992 (7th Cir. 2000). As subsequently 
amended by the CFMA, the CEA now permits off-exchange futures 
and options transactions that are done on a principal-to-
principal basis, such as energy transactions pursuant to CEA 
Sections 2(h)(1) and 2(h)(3).
    Subsection 4b(a)(2) is amended by adding the words ``or 
with'' to address the principal-to-principal transactions. This 
new language clarifies that the CFTC has the authority to bring 
anti-fraud actions in off-exchange principal-to-principal 
futures transactions, including exempt commodity transactions 
in energy under Section 2(h) as well as all transactions 
conducted on derivatives transaction execution facilities. The 
new Section 4b clarifies that market participants in these 
transactions are not required to disclose information that may 
be material to the market price, rate or level of the commodity 
in such off-exchange transactions. It also codifies existing 
law that prohibits market participants from using half-truths 
in negotiations and solicitations by requiring a person to 
disclose all necessary information to make any statement they 
have made not misleading in any material respect. The 
prohibitions in subparagraphs (A) through (D) of the new 
Section 4b(a) would apply to all transactions covered by 
paragraphs (1) and (2). Derivatives clearing organizations 
(DCOs) are not subject to fraud actions under Section 4b in 
connection with their clearing activities.
    The amendments to Section 4b(a) of the CEA regarding 
transactions currently prohibited under subparagraph (iv) 
(found in paragraph 2(D) of this bill) are not intended to 
affect in any way the CFTC's historical ability to prosecute 
cases of indirect bucketing of orders executed on designated 
contract markets. See, e.g., Reddy v. CFTC, 191 F.3d 109 (2nd 
Cir. 1999); In re DeFrancesco, et al., CFTC Docket No. 02-09 
(CFTC May 22, 2003) (Order Making Findings and Imposing 
Remedial Sanctions as to Respondent Brian Thornton).

Section 3: Criminal and civil penalties

    Section 3 of the legislation amends CEA Section 9 to double 
the civil and criminal penalties available for certain criminal 
violations of the CEA such as manipulation, false reporting, 
and conversion. The maximum fines for individuals under Section 
9 are increased from $500,000 to $1 million, and the maximum 
prison sentence is increased from 5 to 10 years. In a similar 
vein, Section 3 includes amendments to the procedural 
enforcement provisions in Sections 6(c), 6b, and 6c of the CEA 
to increase the civil monetary penalties to $1 million or 
triple the monetary gain to the person for each violation of 
manipulation or attempted manipulation.
    Section 9 of the CEA makes it a felony for any person to 
knowingly make false, misleading or inaccurate reports 
regarding the price of any commodity, including electricity and 
natural gas. Most of the other provisions of Section 9 
similarly identify types of misconduct that constitute 
felonies. The CFTC lacks criminal powers, but it has brought 
civil enforcement proceedings under Section 9 throughout its 
history. In fact, in the last 25 years the CFTC has brought 
over 70 civil injunctive or administrative actions under 
Section 9, so it is well-established that the CFTC has such 
authority. Recently, the CFTC has used Section 9 to obtain 
settlements totaling nearly $300 million for false reporting 
violations by energy trading firms in connection with natural 
gas and electricity transactions that were falsely reported in 
an attempt to manipulate prices. These included charges based 
on the reporting of transactions that arguably were done under 
Section 2(g) of the CEA. The Committee concurs with the CFTC's 
consistent position that even if a transaction is excluded from 
CFTC jurisdiction under Section 2(g), the false reporting of 
such a transaction is a separate act and remains a violation of 
Section 9 so the CFTC has authority to prosecute.
    Regarding natural gas markets, the Committee expects the 
CFTC to aggressively oversee those markets to ensure that they 
are free from improper trading practices. The Committee is 
particularly concerned about the high volatility, but there are 
varying views about its cause. The volatility in prices for 
natural gas futures trading on the NYMEX has risen 
significantly since the year 2000. This price volatility raises 
costs for participants in the physical market for natural gas. 
The NYMEX completed a study in March, 2005, analyzing, among 
other issues, volatility in the natural gas markets. The study 
concluded that divergent trends in natural gas supply and 
demand have led to the tight balance between supply and demand, 
higher gas prices, and increased gas volatility.
    Natural gas is vitally important to the United States 
economy, and businesses that continually need natural gas 
depend on the futures markets for risk control and price 
discovery purposes. The high price volatility in the natural 
gas futures markets hurts consumers, farmers, and 
manufacturers. The Committee will continue to monitor the price 
volatility in the natural gas markets.
    The legislative change to Section 9 clarifies the CFTC's 
authority to bring civil and administrative actions, and would 
ensure that the CFTC can continue to bring false reporting 
cases in the energy arena for acts or omissions that occurred 
prior to enactment. The bill expressly provides that these 
amendments simply restate, without substantive change, existing 
CFTC civil enforcement authority. This clarifying change does 
not grant any new statutory authority, and the provisions of 
this section, as restated, continue to apply to any action 
pending on or commenced after the date of enactment for any 
alleged violation occurring before, on, or after the date of 
enactment.

Section 4: Clarification of authority

    The Committee finds that there is a significant customer 
protection problem with respect to retail forex fraud. Since 
the clarification of the CFTC's anti-fraud authority regarding 
foreign currency trading in the Commodity Futures Modernization 
Act of 2000, the CFTC has brought 79 retail forex fraud 
enforcement actions involving over 23,000 victims and $350 
million invested.
    Section 4 of the bill, ``Clarification of Authority,'' 
addresses several of the problems in the area of retail forex 
trading pursuant to Section 2(c) of the CEA. This section 
amends Sections 2(c)(2)(B) and (C) of the CEA to address three 
substantive areas: (i) the Zelener decision, CFTC v. Zelener, 
373 F.3d 861 (7th Cir. 2004); (ii) solicitors; and (iii) 
affiliates and notice-registered broker-dealers (BDs). In 
addition, the amendments also include a non-substantive, 
structural change to make Section 2(c)(2)(B) easier to explain 
in CFTC enforcement cases, and certain technical amendments to 
the reservation of CFTC anti-fraud authority in Section 
2(c)(2)(C) with respect to retail forex transactions by 
registered futures commission merchants (FCMs).
    In Zelener, the 7th Circuit held that the contracts at 
issue were spot contracts, not futures contracts, even though 
no deliveries of foreign currency were ever made. The 
amendments to Section 2(c)(2)(B)(i) address the Zelener holding 
by providing the CFTC with clear anti-fraud jurisdiction over 
forex transactions: (i) offered to, or entered into with, a 
person that is not an eligible contract participant (i.e., a 
retail customer); (ii) offered or entered into on a leveraged, 
margined, or financed on a similar basis; and (iii) offered or 
entered into for purposes other than commercial or personal use 
of such foreign currency. Personal use transactions, which are 
outside the CFTC's jurisdiction under this bill, include only 
situations where a retail customer takes immediate ownership 
and possession of foreign currency. This is the bank, or Thomas 
Cook, exception.
    If the test in Section 2(c)(2)(B)(i) is met, the CEA 
applies. Courts will no longer have to decide whether retail 
transactions that meet these requirements are futures contracts 
in order to permit the CFTC to pursue an action for fraud. But 
since anti-fraud Section 4b of the CEA is limited by its terms 
to futures, a new forex provision (Section 2(c)(2)(D)) is added 
to ensure that Section 4b applies to all covered retail forex 
transactions--e.g., rolling spot or other futures look-alike 
products. CEA Section 4(b) also is included in new Section 
2(c)(2)(D) to cover foreign markets.
    In addition, the amendments address the role of individuals 
who solicit or are otherwise engaged in retail forex 
transactions. For FCMs and BDs to qualify for the otherwise 
regulated exception to CFTC jurisdiction of their retail forex 
activities, each person who participates in the solicitation or 
recommendation of the transaction must register with the CFTC 
or SEC and be a member or associate of NFA or a registered 
securities association, as applicable. Also, Section 
2(c)(2)(B)(i) clarifies that if the CFTC has jurisdiction over 
the transaction, it also has jurisdiction over individuals who 
engage in any activity in connection with the transaction. 
Similar language is added to the reservation of CFTC anti-fraud 
authority for transactions by registered FCMs in Section 
2(c)(2)(C).
    The amendments would no longer permit unregistered 
affiliates of FCMs and BDs to qualify for the otherwise 
regulated exception to CFTC jurisdiction of their retail forex 
transactions. The result is that such affiliates must register 
or the retail forex business must be done within the registered 
FCM or BD itself. In addition, notice-registered BDs will no 
longer qualify for the otherwise regulated exception to CFTC 
jurisdiction. The exception is available only to fully-
registered BDs, not notice-registered BDs who undertake this 
type of registration with the SEC solely for the purpose of 
trading security futures products. This carve-out addresses the 
possibility that entities could avoid CFTC fraud jurisdiction 
by notice-registering as BDs with the SEC without a bona fide 
intention to trade security futures products.
    The amendments also make a non-substantive change to the 
structure of Section 2(c)(2)(B) to make it more easily 
comprehensible by reorganizing Subclauses (II) and (III). As 
amended, subclause (II) describes BDs, and subclause (III) 
describes FCMs.
    Finally, the amendments include several changes to Section 
2(c)(2)(C), which reserves CFTC anti-fraud authority for the 
retail forex transactions of registered FCMs. First, the word 
``except'' is inserted at the beginning of the parenthetical, 
as it appears that it was inadvertently omitted from the CFMA. 
Inserting this word confirms that the provisions of CEA 
Sections 6(c) and 6(d), which enable CFTC to bring 
administrative enforcement actions, are available for retail 
forex fraud cases. Second, the amendments clarify that CFTC 
anti-fraud authority is reserved with respect to the retail 
forex activities of all persons registered as FCMs, even those 
that are dually registered. Third, they reserve CFTC anti-fraud 
authority for transactions offered by, in addition to those 
entered into by, registered FCMs. Last, the amendments 
explicitly reserve CEA Sections 2(a)(1)(B) (principal-agent 
liability); 4(b) (foreign markets); 4(o) (fraud by Commodity 
Pool Operators and Commodity Trade Advisors); 13(a) (aiding and 
abetting liability); and 13(b) (controlling person liability) 
with respect to fraudulent forex activities where a registered 
FCM is the counterparty. While the secondary liability 
provisions of principal-agent, aiding-abetting, and 
controlling-person liability were implied in the CFMA, these 
amendments make that reservation of CFTC anti-fraud authority 
explicit. The amendments are not intended to suggest, nor do 
they create a negative inference, that these secondary 
liability provisions are not available in actions brought under 
other sections of the CEA where CFTC anti-fraud or anti-
manipulation authority is reserved.

Section 5: Authorization of appropriations

    Section 5 authorizes such sums as are necessary to carry 
out the Commodity Exchange Act through 2010.

Section 6: Liaison with Department of Justice

    This section requires that CFTC maintain a liaison with the 
Department of Justice to coordinate civil and criminal 
investigations and prosecutions of violations of the CEA.

Section 7: Single stock futures margining pilot program

    Following enactment of the CFMA, the CFTC and SEC jointly 
promulgated rules relating to the margining of security futures 
products. With very limited exceptions, however, portfolio 
margining for these products was not made available, which many 
have argued has contributed to the low volume of trading in 
securities futures product markets. This section authorizes a 
two-year portfolio margining pilot program for security futures 
products that would be eligible to continue beyond this initial 
period depending upon the conclusions of a report on the pilot 
program submitted to the House and Senate Agriculture 
Committees by the Board of Governors of the Federal Reserve 
System after consultation with the CFTC and the SEC not later 
than two years after enactment of this Act. Accordingly, these 
amendments are intended to promote innovation and fair 
competition between economically similar markets, and to allow 
customers to benefit from the use of a risk-based margining 
system.
    The Committee has heard from several interested parties 
about portfolio margining for security options. These parties 
have expressed interest in seeing portfolio margining expanded 
to both security options and security futures products. The 
Committee looks forward to working with all interested parties 
and the Senate Committee on Banking on this issue.

Section 8: Broad-based index definitions

    Section 8 of the bill is designed to bring clarity to 
security futures product (SFPs) definitions, which include both 
futures on individual securities as well as on narrow-based 
security indexes. SFPs are considered to be both securities and 
futures. SFPs are jointly regulated by the CFTC and the SEC. 
The CFTC has exclusive jurisdiction over futures on broad-based 
security indexes.
    The current statutory test for narrow-based security 
indexes is quite detailed. This test, which was established in 
2000 through the enactment of the CFMA, was tailored to fit the 
U.S. equity markets. The U.S. equity markets are by far the 
largest, deepest and most liquid securities markets in the 
world. The narrow-based security index test was not intended to 
apply to debt instruments or foreign equity markets, and 
therefore, should not be applied to them.
    Section 8 provides clarity in this area by requiring the 
CFTC and the SEC to jointly promulgate final rules within 180 
days providing criteria which will be used to exclude indexes 
on U.S. debt instruments, foreign equities, foreign debt 
instruments and other U.S. securities from the definition of 
narrow-based security index. The Committee believes that the 
CFTC and SEC should tailor their rule for foreign equity 
markets (which are significantly smaller than U.S. equity 
markets) and debt instruments based on the size and nature of 
those markets, including the potential for insider trading and 
market manipulation. Section 8 sets forth in subsection (b) 
certain criteria which direct the agencies to use in connection 
with promulgating their joint rule and is consistent with the 
approach the CFTC has taken over the last twenty years with 
respect to granting no-action letters for the sale of futures 
on foreign security indexes to U.S. investors. In addition, the 
Committee believes Section 8 is consistent with Congressional 
intent and language in the CFMA. For these reasons, the 
Committee would encourage the CFTC and SEC, in the strongest 
possible terms, to proceed quickly in adopting final rules in 
this area.

                    IV. Regulatory Impact Statement

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the following evaluation is made 
concerning the regulatory impact of carrying out the changes 
proposed in this legislation:
    The Commodity Futures Trading Commission is responsible for 
ensuring the economic utility of futures markets by encouraging 
their competitiveness and efficiency, ensuring their integrity, 
and protecting market participants against manipulation, 
abusive trading practices, and fraud. Futures and options 
contracts traded on U.S. exchanges regulated by the CFTC 
totaled nearly 1.5 billion contracts traded during fiscal 2004. 
These transactions occurred on the ten futures exchanges 
designated as contract markets by the CFTC and involved 
transactions on traders' own accounts and on the accounts of 
their customers. The Commission oversees the activities of more 
than 2,500 businesses and 50,000 individuals involved in the 
regulated futures industry taking and executing orders on 
behalf of customers, advising those customers, managing their 
trading, and/or handling their funds. This bill does not have a 
major impact on this already regulated marketplace. In addition 
to its oversight of the regulated futures markets, the 
Commission has anti-fraud and anti-manipulation authority with 
respect to certain off-exchange transactions. These contracts 
are otherwise exempt from most Commission regulation except 
those provisions directed at prohibiting fraud and 
manipulation. The sale of forex contracts to the retail public 
is an area of particular concern addressed in this bill. Fraud 
by firms selling retail forex has been a significant problem 
that has been of particular concern to the Commission. While 
the total amount of fraud or firms involved in that fraud is 
not known, the Commission has brought almost 80 cases since the 
CFMA clarified that the CFTC has the authority to bring 
enforcement actions for fraud by firms selling retail forex 
contracts to the public. The total amount of customer losses 
suffered by over 23,000 victims in these cases was 
approximately $350,000,000. Under this bill, those persons 
currently unregistered under the CEA who are in the business of 
selling retail forex contracts, and who would like to 
legitimately remain in that business, would have to submit the 
same sort of information to the NFA as is submitted currently 
by persons in the regulated futures industry. It is not known 
how many persons will choose to register under this bill, if 
enacted; however, current applicants for licenses as commodity 
brokers, known as associated persons under the CEA, spend 
approximately thirty minutes completing the application forms, 
which are available on the internet.

                            V. Cost Estimate

    In accordance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the following letter has been 
received from the Congressional Budget Office regarding the 
budgetary impact of the bill:
                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 28, 2005.
Hon. Saxby Chambliss,
Chairman, Committee on Agriculture, Nutrition, and Forestry,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Commodity Exchange 
Reauthorization Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Melissa E. 
Zimmerman.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

S. 1566--Commodity Exchange Reauthorization Act of 2005

    Summary: The legislation would extend the authority to 
appropriate funds for the Commodity Futures Trading Commission 
(CFTC) through 2010. The bill also would amend and clarify the 
CFTC's jurisdiction over certain futures transactions and 
financial products. CBO estimates that implementing the 
legislation would cost $89 million in 2006 and $512 million 
over the 2006-2010 period, assuming appropriation of the 
necessary amounts.
    CBO also estimates that enacting the bill would increase 
revenue collections by $30 million in 2006, $150 million over 
the 2006-2010 period, and $300 million over the 2006-2015 
period because it would increase the maximum penalty for price 
manipulation of commodities. (Civil penalties are recorded in 
the federal budget as revenues.) Enacting the bill would not 
affect direct spending.
    The bill contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    The bill would impose private-sector mandates, as defined 
in UMRA, on certain entities involved in retail foreign 
currency transactions, by changing the criteria to qualify for 
exclusion from CFTC jurisdiction with regard to those 
transactions. CBO expects that the direct cost of those 
mandates would not exceed the annual threshold established by 
UMRA ($123 million in 2005, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit). For this estimate, CBO assumes 
that the bill will be enacted by the end of 2005, that the 
estimated amounts will be appropriated for each fiscal year, 
and that outlays will follow historical trends for spending by 
the CFTC.

----------------------------------------------------------------------------------------------------------------
                                                               By fiscal year, in millions of dollars--
                                                     -----------------------------------------------------------
                                                        2005      2006      2007      2008      2009      2010
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

CFTC Spending Under Current Law:
    Budget Authority a..............................        94         0         0         0         0         0
    Estimated Outlays...............................        95        11         0         0         0         0
Proposed Changes:
    Estimated Authorization Level...................         0       100       103       106       110       113
    Estimated Outlays...............................         0        89       101       104       107       111
CFTC Spending Under the Bill:
    Estimated Authorization Level a.................        94       100       103       106       110       113
    Estimated Outlays...............................        95       100       101       104       107       111

                                               CHANGES IN REVENUES

Estimated Revenues..................................         0        30        30        30        30       30
----------------------------------------------------------------------------------------------------------------
a The 2005 level is the amount appropriated for that year for the Commodity Futures Trading Commission.

    Basis of estimate: CBO estimates that implementing the bill 
would cost $89 million in 2006 and $512 million over the 2006-
2010 period to continue current activities of the CFTC and for 
new tasks specified in the bill. Enacting the legislation would 
increase revenues by $30 million a year, CBO estimates, for 
increasing civil monetary penalties for price manipulation of 
commodities.

Spending subject to appropriation

    The legislation would extend the authority to appropriate 
funds for the CFTC through 2010 and would amend and clarify the 
jurisdiction of the CFTC over certain futures transactions and 
financial products. Finally, the bill would establish a pilot 
program involving changes in margin requirements for certain 
futures products.
    For 2005, the CFTC received an appropriation of $94 
million. Based on the agency's current budget and adjusting for 
anticipated inflation, CBO estimates that extending the 
authorization of appropriations for the current functions of 
the CFTC would require $98 million in funding for 2006 and $522 
million in appropriations over the 2006-2010 period. Based on 
information provided by the CFTC, CBO estimates that the agency 
would require 10 additional personnel to manage the increased 
workload anticipated because of the legislation's impact on the 
agency's jurisdiction over certain future transactions. We 
estimate that salaries, benefits, and overhead for those 
additional staff would cost about $2 million in 2006 and $10 
million over the 2006-2010 period.

Revenues

    The legislation would increase tenfold the maximum 
penalties for manipulation of prices in the commodities market. 
According to the CFTC, collections for these penalties have 
averaged about $40 million between 2002 and 2004, but were much 
lower over the previous three-year period. Considering that the 
CFTC has the authority to assess penalties in amounts less than 
the maximum penalty set in law, the deterrent effect of 
increased penalties, and the cyclical nature of violations of 
these laws over the last several years, CBO expects that, on 
average, collections from penalties would increase by about $40 
million per year. CBO estimates that, under the bill, revenues 
would increase by $30 million in 2006, $150 million over the 
2006-2010 period, and $300 million over the 2006-2015 period, 
net of income and payroll tax offsets.
    Estimated impact on state, local, and tribal governments: 
The bill contains no intergovernmental mandates as defined in 
UMRA and would not affect the budgets of state, local, and 
tribal governments.
    Estimated impact on the private sector: The CFTC has 
jurisdiction over certain retail foreign currency agreements, 
contracts, and transactions. The bill may expand the range of 
such products over which the CFTC has jurisdiction. Under 
current law, some entities are excluded from the jurisdiction 
of the CFTC for such transactions. The bill would impose 
private-sector mandates, as defined in UMRA, on certain 
entities involved in retail foreign currency transactions by 
changing the criteria to qualify for an exclusion from CFTC 
jurisdiction with regard to those transactions. The bill would 
no longer permit unregistered affiliates of futures commission 
merchants (FCMs), unregistered affiliates of broker dealers, or 
``notice registered'' broker dealers to be excluded from the 
jurisdiction of the CFTC regarding their retail foreign 
currency transactions. For registered FCMs and registered 
broker dealers to qualify for exclusion, the bill would require 
that each person who participates in the solicitation or 
recommendation of such transactions must register with the CFTC 
or Securities and Exchange Comission and be a member of the 
National Futures Association or a registered securities 
association, as applicable.
    Some entities that would no longer qualify for exclusion 
from CFTC jurisdiction under the bill could take certain 
actions to continue to qualify. For example, unregistered 
affiliates of broker dealers may move their foreign currency 
activities into the operations of the registered broker dealer. 
Based on information from government sources, CBO expects that 
the direct cost of the mandates in the bill would not exceed 
the annual threshold established by UMRA ($123 million in 2005, 
adjusted annually for inflation).
    Estimate prepared by: Federal costs: Melissa E. Zimmerman; 
Federal revenues: Annabelle Bartsch and Melissa E. Zimmerman; 
impact on state, local, and tribal governments: Sarah Puro; 
impact on the private sector: Judith Ruud.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      VI. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 1566 as reported are shown as follows (existing law proposed 
to be omitted is enclosed in brackets, new matter is printed in 
italic, and existing law in which no change is proposed is 
shown in roman):

COMMODITY EXCHANGE ACT

           *       *       *       *       *       *       *


SEC. 2 * * *

    [Sec. 2(a)(1)](C) Notwithstanding any other provision of 
law--* * *
          (v)(I) Notwithstanding any other provision of this 
        Act, any contract market in a stock index futures 
        contract (or option thereon) [other than] or a security 
        futures product, or any derivatives transaction 
        execution facility on which such [contract or option] 
        contract, option, or security futures product is 
        traded, shall file with the Board of Governors of the 
        Federal Reserve System any rule establishing or 
        changing the levels of margin (initial and maintenance) 
        for such stock index futures contract (or option 
        thereon) [other than] or security futures products.
          (II) The Board may at any time request any contract 
        market or derivatives transaction execution facility to 
        set the margin for any stock index futures contract (or 
        option thereon), [other than] or for any security 
        futures product, at such levels as the Board in its 
        judgment determines are appropriate to preserve the 
        financial integrity of the contract market or 
        derivatives transaction execution facility, or its 
        clearing system, or to prevent systemic risk. If the 
        contract market or derivatives transaction execution 
        facility fails to do so within the time specified by 
        the Board in its request, the Board may direct the 
        contract market or derivatives transaction execution 
        facility to alter or supplement the rules of the 
        contract market or derivatives transaction execution 
        facility as specified in the request.
          (III) Subject to such conditions as the Board may 
        determine, the Board may delegate any or all of its 
        authority, relating to margin for any stock index 
        futures contract (or option thereon), [other than] or 
        security futures products, under this clause to the 
        Commission.* * *

           *       *       *       *       *       *       *

    (D)(i) * * *
          [(XI) The margin requirements] (XI) Margin 
        requirements.--
                  (aa) In general.--The margin requirement for 
                a security futures product comply with the 
                regulations prescribed pursuant to section 
                7(c)(2)(B) of the Securities Exchange Act of 
                1934, except that nothing in this subclause 
                shall be construed to prevent a board of trade 
                from requiring higher margin levels for a 
                security futures product when it deems such 
                action to be necessary or appropriate.
                  (bb) Pilot program for margining security 
                futures products.--Notwithstanding any other 
                provision of law, for a period of 2 years 
                beginning on the date of enactment of this 
                item, an entity that is designated or 
                registered as a contract market or derivatives 
                transaction execution facility under section 5 
                and that is also notice-registered as a 
                national securities exchange under section 6(g) 
                of the Securities Exchange Act of 1934 (15 
                U.S.C. 78f(g)), and its clearing organization, 
                a futures commission merchant registered under 
                this Act, and a broker or dealer registered 
                under section 15(b) of that Act (15 U.S.C. 
                78o(b)), shall not be required to comply with 
                item (aa) or subparagraph (C)(v)(IV).
                  (cc) Acting in reliance.--Any entity acting 
                in reliance upon item (bb) shall not be 
                required to comply with regulations promulgated 
                under section 7(c)(2)(B) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78g(c)(2)(B)), 
                or with the rules of a self-regulatory 
                organization (as defined in section 3(a)(26) of 
                that Act (15 U.S.C. 78c(a)(26)), pertaining to 
                levels of initial and maintenance margin, or 
                with any regulation that operates to preclude 
                the implementation of risk-based portfolio 
                margining systems.
                  (dd) Promulgation of final rules.--Subject to 
                item (ee), an entity designated or registered 
                as a contract market or derivatives transaction 
                execution facility under section 5 and that is 
                notice-registered as a national securities 
                exchange under section 6(g) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78f(g)) and its 
                clearing organization shall be permitted to 
                promulgate final rules to--
                          (AA) set margin requirements for 
                        security futures products, held in any 
                        account, in accordance with 
                        subparagraph (C)(v)(I); and
                          (BB) permit futures commission 
                        merchants registered under this Act, 
                        and brokers and dealers registered 
                        under section 15(b) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 
                        78o(b)), to collect initial and 
                        maintenance margin for security futures 
                        products, held in any account, in 
                        accordance with the rules.
                  (ee) Effective date and reviewability of 
                final rules.--Final rules promulgated by any 
                entity under item (dd) shall become effective 
                in accordance with section 5c(c), and, 
                notwithstanding any other provision of law, 
                shall not be subject to any other approval or 
                review requirements.
                  (ff) Report.--Not later than 2 years after 
                the date of enactment of this item, the Board 
                of Governors of the Federal Reserve System, 
                after consultation with the Commission and the 
                Securities and Exchange Commission, shall 
                submit to the Committee on Agriculture of the 
                House of Representatives and the Committee on 
                Agriculture, Nutrition, and Forestry of the 
                Senate a report describing the results of the 
                pilot program for margining security futures 
                products.
                  (gg) Continuation of pilot program.--The 
                pilot program for margining security futures 
                products shall continue to apply unless the 
                report under item (ff) concludes that the pilot 
                program has resulted in undue risks to the 
                financial integrity of the relevant contract 
                markets or derivatives transaction execution 
                facilities, or to their respective clearing 
                systems, or has resulted in systemic risk to 
                financial markets or undue risk to customers. * 
                * *
    [Sec. 2(a)](2)(A) * * *
          (iii) The provisions of this subparagraph shall not 
        create any rights, liabilities, or obligations upon 
        which actions may be brought against the Commission.
    (C) Liaison with department of justice.--
          (i) In general.--The Commission shall, in cooperation 
        with the Attorney General, maintain a liaison between 
        the Commission and the Department of Justice to 
        coordinate civil and criminal investigations and 
        prosecutions of violations of this Act as appropriate.
          (ii) Designation.--The Attorney General shall 
        designate a person as liaison and take such steps as 
        are necessary to facilitate communications described in 
        clause (i). * * *
    (c) Agreements, Contracts, and Transactions in Foreign 
Currency, Government Securities, and Certain Other 
Commodities.--* * *
          (2) Commission jurisdiction.--
                  (A) Agreements, contracts, and transactions 
                traded on an organized exchange.--This Act 
                applies to, and the Commission shall have 
                jurisdiction over, an agreement, contract, or 
                transaction described in paragraph (1) that 
                is--
                          (i) a contract of sale of a commodity 
                        for future delivery (or an option on 
                        such a contract), or an option on a 
                        commodity (other than foreign currency 
                        or a security or a group or index of 
                        securities), that is executed or traded 
                        on an organized exchange; or
                          [(ii) an option on foreign currency 
                        executed or traded on an organized 
                        exchange that is not a national 
                        securities exchange registered pursuant 
                        to section 6(a) of the Securities 
                        Exchange Act of 1934.
                  [(B) Agreements, contracts, and transactions 
                in retail foreign currency.--This Act applies 
                to, and the Commission shall have jurisdiction 
                over, an agreement, contract, or transaction in 
                foreign currency that--
                          [(i) is a contract of sale of a 
                        commodity for future delivery (or an 
                        option on such a contract) or an option 
                        (other than an option executed or 
                        traded on a national securities 
                        exchange registered pursuant to section 
                        6(a) of the Securities Exchange Act of 
                        1934); and
                          [(ii) is offered to, or entered into 
                        with, a person that is not an eligible 
                        contract participant, unless the 
                        counterparty, or the person offering to 
                        be the counterparty, of the person is--
                                  [(I) a financial institution;
                                  [(II) a broker or dealer 
                                registered under section 15(b) 
                                or 15C of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 
                                78o(b), 78o 095) or a futures 
                                commission merchant registered 
                                under this Act;
                                  [(III) an associated person 
                                of a broker or dealer 
                                registered under section 15(b) 
                                or 15C of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 
                                78o(b), 78o 095), or an 
                                affiliated person of a futures 
                                commission merchant registered 
                                under this Act, concerning the 
                                financial or securities 
                                activities of which the 
                                registered person makes and 
                                keeps records under section 
                                15C(b) or 17(h) of the 
                                Securities Exchange Act of 1934 
                                (15 U.S.C. 78o 095(b), 78q(h)) 
                                or section 4f(c)(2)(B) of this 
                                Act;
                                  [(IV) an insurance company 
                                described in section 
                                1a(12)(A)(ii) of this Act, or a 
                                regulated subsidiary or 
                                affiliate of such an insurance 
                                company;
                                  [(V) a financial holding 
                                company (as defined in section 
                                2 of the Bank Holding Company 
                                Act of 1956); or
                                  [(VI) an investment bank 
                                holding company (as defined in 
                                section 17(i) of the Securities 
                                Exchange Act of 1934).
                  [(C) Notwithstanding subclauses (II) and 
                (III) of subparagraph (B)(ii), agreements, 
                contracts, or transactions described in 
                subparagraph (B) shall be subject to sections 
                4b, 4c(b), 6(c) and 6(d) (to the extent that 
                sections 6(c) and 6(d) prohibit manipulation of 
                the market price of any commodity, in 
                interstate commerce, or for future delivery on 
                or subject to the rules of any market), 6c, 6d, 
                and 8(a) if they are entered into by a futures 
                commission merchant or an affiliate of a 
                futures commission merchant that is not also an 
                entity described in subparagraph (B)(ii) of 
                this paragraph.]
                  (B) Agreements, contracts, and transactions 
                in retail foreign currency.--
                          (i) In general.--This Act applies to, 
                        and the Commission shall have 
                        jurisdiction over, any agreement, 
                        contract, or transaction in foreign 
                        currency (including agreements, 
                        contracts, or transactions described in 
                        subsection (a)(1)(A)), and any person 
                        who engages in any activity in 
                        connection with any agreement, 
                        contract, or transaction in foreign 
                        currency, that is--
                                  (I) offered to, or entered 
                                into with, a person that is not 
                                an eligible contract 
                                participant;
                                  (II) offered, or entered 
                                into, on a leveraged, margined, 
                                or financed on a similar basis; 
                                and
                                  (III) offered, or entered 
                                into, for purposes other than 
                                commercial or personal use of 
                                such foreign currency, except 
                                that personal use shall include 
                                only those agreements, 
                                contracts, or transactions in 
                                which a person takes immediate 
                                ownership and possession of 
                                foreign currency.
                          (ii) Exclusions.--Subparagraph (B)(i) 
                        shall not apply if the counterparty, or 
                        the person offering to be the 
                        counterparty, of the person that is not 
                        an eligible contract participant is--
                                  (I) a financial institution;
                                  (II) a broker or dealer 
                                registered under section 15(b) 
                                of the Securities Exchange Act 
                                of 1934 (15 U.S.C. 78o(b)) 
                                (except notice registration 
                                under paragraph (11)(A) of that 
                                section) or under section 15C 
                                of that Act (15 U.S.C. 78o-5), 
                                provided that each person who 
                                participates in the 
                                solicitation or recommendation 
                                of the agreement, contract, or 
                                transaction is--
                                          (aa) registered under 
                                        section 15(b) or 15C of 
                                        that Act (15 U.S.C. 
                                        78o(b), 78o-5);
                                          (bb) an individual 
                                        registered with a 
                                        securities association 
                                        registered under 
                                        section 15A(a) of that 
                                        Act (15 U.S.C. 78o-
                                        3(a)); and
                                          (cc) a member or 
                                        associate of a 
                                        securities association 
                                        registered under 
                                        section 15A(a) of that 
                                        Act (15 U.S.C. 78o-
                                        3(a));
                                  (III) a person that is 
                                registered as a futures 
                                commission merchant under this 
                                Act, provided that each person 
                                who participates in the 
                                solicitation or recommendation 
                                of the agreement, contract, or 
                                transaction is--
                                          (aa) registered under 
                                        section 4d, 4k, or 4m; 
                                        and
                                          (bb) a member or 
                                        associate of a futures 
                                        association registered 
                                        under section 17;
                                  (IV) an insurance company 
                                described in section 
                                1a(12)(A)(ii), or a regulated 
                                subsidiary or affiliate of such 
                                an insurance company;
                                  (V) a financial holding 
                                company (as defined in section 
                                2 of the Bank Holding Company 
                                Act of 1956 (12 U.S.C. 1841)); 
                                or
                                  (VI) an investment bank 
                                holding company (as defined in 
                                section 17(i) of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 
                                78q)).
                  (C) Notwithstanding subclause (III) of 
                subparagraph (B)(ii), agreements, contracts, or 
                transactions described in subparagraph (B), and 
                persons who engage in any activity in 
                connection with agreements, contracts, or 
                transactions described in subparagraph (B), 
                shall be subject to subsection (a)(1)(B) and 
                sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d) 
                (except to the extent that sections 6(c) and 
                6(d) prohibit manipulation of the market price 
                of any commodity in interstate commerce, or for 
                future delivery on or subject to the rules of 
                any market), 6c, 6d, 8(a), 13(a), and 13(b) if 
                the agreements, contracts, or transactions are 
                offered, or entered into, by a person that is 
                registered as a futures commission merchant 
                under this Act.
                  (D) Sections 4(b) and 4b shall apply to any 
                agreement, contract, or transaction in foreign 
                currency described in subparagraphs (B) and (C) 
                as though the agreement, contract, or 
                transaction were a contract of sale of a 
                commodity for future delivery. * * *

           *       *       *       *       *       *       *


[SEC. 4B * * *

    [(a) It shall be unlawful (1) for any member of a 
registered entity, or for any correspondent, agent, or employee 
of any member, in or in connection with any order to make, or 
the making of, any contract of sale of any commodity in 
interstate commerce, made, or to be made, on or subject to the 
rules of any registered entity, for or on behalf of any other 
person, or (2) for any person, in or in connection with any 
order to make, or the making of, any contract of sale of any 
commodity for future delivery, made, or to be made, for or on 
behalf of any other person if such contract for future delivery 
is or may be used for (A) hedging any transaction in interstate 
commerce in such commodity or the products or by products 
thereof, or (B) determining the price basis of any transaction 
in interstate commerce in such commodity, or (C) delivering any 
such commodity sold, shipped, or received in interstate 
commerce for the fulfillment thereof--
          [(i) to cheat or defraud or attempt to cheat or 
        defraud such other person;
          [(ii) willfully to make or cause to be made to such 
        other person any false report or statement thereof, or 
        willfully to enter or cause to be entered for such 
        person any false record thereof;
          [(iii) willfully to deceive or attempt to deceive 
        such other person by any means whatsoever in regard to 
        any such order or contract or the disposition or 
        execution of any such order or contract, or in regard 
        to any act of agency performed with respect to such 
        order or contract for such person; or
          [(iv) to bucket such order, or to fill such order by 
        offset against the order or orders of any other person, 
        or willfully and knowingly and without the prior 
        consent of such person to become the buyer in respect 
        to any selling order of such person, or become the 
        seller in respect to any buying order of such person.]

SEC. 4B. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.

    (a) Unlawful Actions.--It shall be unlawful--
          (1) for any person, in or in connection with any 
        order to make, or the making of, any contract of sale 
        of any commodity in interstate commerce or for future 
        delivery that is made, or to be made, on or subject to 
        the rules of a designated contract market, for or on 
        behalf of any other person;
          (2) for any person, in or in connection with any 
        order to make, or the making of, any contract of sale 
        of any commodity for future delivery, or other 
        agreement, contract, or transaction subject to 
        paragraphs (1) and (2) of section 5a(g), that is made, 
        or to be made, for or on behalf of, or with, any other 
        person, other than on or subject to the rules of a 
        designated contract market--
                  (A) to cheat or defraud or attempt to cheat 
                or defraud such other person;
                  (B) willfully to make or cause to be made to 
                such other person any false report or statement 
                or willfully to enter or cause to be entered 
                for such other person any false record;
                  (C) willfully to deceive or attempt to 
                deceive such other person by any means 
                whatsoever in regard to any order or contract 
                or the disposition or execution of any order or 
                contract, or in regard to any act of agency 
                performed, with respect to any order or 
                contract for or, in the case of paragraph (2), 
                with such other person; or
                  (D)(i) to bucket an order if such order is 
                either represented by such person as an order 
                to be executed, or is required to be executed, 
                on or subject to the rules of a designated 
                contract market; or
                  (ii) to fill an order by offset against the 
                order or orders of any other person, or 
                willfully and knowingly and without the prior 
                consent of such other person to become the 
                buyer in respect to any selling order of such 
                other person, or become the seller in respect 
                to any buying order of such other person, if 
                such order is either represented by such person 
                as an order to be executed, or is required to 
                be executed, on or subject to the rules of a 
                designated contract market unless such order is 
                executed in accordance with the rules of the 
                designated contract market.
    (b) Clarification.--Subsection (a)(2) shall not obligate 
any person, in or in connection with a transaction in a 
contract of sale of a commodity for future delivery, or other 
agreement, contract or transaction subject to paragraphs (1) 
and (2) of section 5a(g), with another person, to disclose to 
such other person nonpublic information that may be material to 
the market price, rate or level of such commodity or 
transaction, except as necessary to make any statement made to 
such other person in or in connection with such transaction, 
not misleading in any material respect.
    [(b)] (c) Nothing in this section or in any other section 
of this Act shall be construed to prevent a futures commission 
merchant or floor broker who shall have in hand, 
simultaneously, buying and selling orders at the market for 
different principals for a like quantity of a commodity for 
future delivery in the same month, from executing such buying 
and selling orders at the market price: Provided, That any such 
execution shall take place on the floor of the exchange where 
such orders are to be executed at public outcry across the ring 
and shall be duly reported, recorded, and cleared in the same 
manner as other orders executed on such exchange: And provided 
further, That such transactions shall be made in accordance 
with such rules and regulations as the Commission may 
promulgate regarding the manner of the execution of such 
transactions.
    [(c)] (d) Nothing in this section shall apply to any 
activity that occurs on a board of trade, exchange, or market, 
or clearinghouse for such board of trade, exchange, or market, 
located outside the United States, or territories or 
possessions of the United States, involving any contract of 
sale of a commodity for future delivery that is made, or to be 
made, on or subject to the rules of such board of trade, 
exchange, or market. * * *

           *       *       *       *       *       *       *


SEC. 6 * * *

    (b) The Commission is authorized to suspend for a period 
not to exceed six months or to revoke the designation or 
registration of any contract market or derivatives transaction 
execution facility on a showing that such contract market or 
derivatives transaction execution facility is not enforcing or 
has not enforced its rules of government made a condition of 
its designation or registration as set forth in sections 5 
through 5b or section 5f or that such contract market or 
derivatives transaction execution facility, or any director, 
officer, agent, or employee thereof, otherwise is violating or 
has violated any of the provisions of this Act or any of the 
rules, regulations, or orders of the Commission or the 
Commission thereunder, or, in any case of manipulation of, or 
an attempt to manipulate, the price of any commodity, a civil 
penalty of not more than $1,000,000 for each such violation. 
Such suspension or revocation shall only be after a notice to 
the officers of the contract market or derivatives transaction 
execution facility affected and upon a hearing on the record: 
Provided, That such suspension or revocation shall be final and 
conclusive, unless within fifteen days after such suspension or 
revocation by the Commission such person appeals to the court 
of appeals for the circuit in which it has its principal place 
of business, by filing with the clerk of such court a written 
petition praying that the order of the Commission be set aside 
or modified in the manner stated in the petition, together with 
a bond in such sum as the court may determine, conditioned that 
such person will pay the costs of the proceedings if the court 
so directs, except that if the failure or refusal to obey or 
comply with the order involved any offense under section 
9(a)(2), the registered entity, director, officer, agent, or 
employee shall be guilty of a felony and, on conviction, shall 
be subject to penalties under section 9(a)(2). * * *
    [Sec. 6](c) * * * Upon evidence received, the Commission 
may--
          (1) prohibit such person from trading on or subject 
        to the rules of any registered entity and require all 
        registered entities to refuse such person all 
        privileges thereon for such period as may be specified 
        in the order,
          (2) if such person is registered with the Commission 
        in any capacity, suspend, for a period not to exceed 
        six months, or revoke, the registration of such person,
          (3) assess such person--
                  (A) a civil penalty of not more than the 
                higher of $100,000 or triple the monetary gain 
                to such person for each such violation, or
                  (B) in any case of manipulation of, or 
                attempt to manipulate, the price of any 
                commodity, a civil penalty of not more than the 
                greater of $1,000,000 or triple the monetary 
                gain to such person for each such violation, 
                and
          (4) * * *

SEC. 6C. * * *

    [(d)(1) In any action brought under this section, the 
Commission may seek and the court shall have jurisdiction to 
impose, on a proper showing, on any person found in the action 
to have committed any violation a civil penalty in the amount 
of not more than the higher of $100,000 or triple the monetary 
gain to the person for each violation.]
    (d) Civil Penalties.--
          (1) In general.--In any action brought under this 
        section, the Commission may seek and the court shall 
        have jurisdiction to impose, on a proper showing, on 
        any person found in the action to have committed any 
        violation--
                  (A) a civil penalty in the amount of not more 
                than the greater of $100,000 or triple the 
                monetary gain to the person for each violation; 
                or
                  (B) in any case of manipulation of, or an 
                attempt to manipulate, the price of any 
                commodity, a civil penalty in the amount of not 
                more than the greater of $1,000,000 or triple 
                the monetary gain to the person for each 
                violation.
          (2) If a person on whom such a penalty is imposed 
        fails to pay the penalty within the time prescribed in 
        the court's order, the Commission may refer the matter 
        to the Attorney General who shall recover the penalty 
        by action in the appropriate United States district 
        court. * * *

           *       *       *       *       *       *       *


SEC. 9 * * *

    (a) It shall be a felony punishable by a fine of not more 
than $1,000,000 [(or $500,000 in the case of a person who is an 
individual)] or imprisonment for not more than [five years] 10 
years, or both, together with the costs of prosecution, for: * 
* *
    [(f)] (e) It shall be a felony for any person--
          (1) who is an employee, member of the governing 
        board, or member of any committee of a board of trade, 
        registered entity, or registered futures association, 
        in violation of a regulation issued by the Commission, 
        willfully and knowingly to trade for such person's own 
        account, or for or on behalf of any other account, in 
        contracts for future delivery or options thereon on the 
        basis of, or willfully and knowingly to disclose for 
        any purpose inconsistent with the performance of such 
        person's official duties as an employee or member, any 
        material nonpublic information obtained through special 
        access related to the performance of such duties[.]; or

           *       *       *       *       *       *       *

    (f) Commission Administrative and Civil Authority.--The 
Commission may bring an administrative or civil action under 
this Act for an alleged violation of any provision of this 
section. * * *

           *       *       *       *       *       *       *


SEC. 12 * * *

    (d) There are authorized to be appropriated such sums as 
are necessary to carry out this Act for each of fiscal years 
1995 through [2005] 2010.* * *