[House Report 106-711]
[From the U.S. Government Publishing Office]
106th Congress Rept. 106-711
HOUSE OF REPRESENTATIVES
2d Session Part 2
======================================================================
COMMODITY FUTURES MODERNIZATION AND FINANCIAL CONTRACT NETTING
IMPROVEMENT ACT OF 2000
_______
September 6, 2000.--Ordered to be printed
_______
Mr. Leach, from the Committee on Banking and Financial Services,
submitted the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 4541]
[Including cost estimate of the Congressional Budget Office]
The Committee on Banking and Financial Services, to whom was
referred the bill (H.R. 4541) to reauthorize and amend the
Commodity Exchange Act to promote legal certainty, enhance
competition, and reduce systemic risk in markets for futures
and over-the-counter derivatives, and for other purposes,
having considered the same, report favorably thereon with
amendments and recommend that the bill as amended do pass.
The amendments are as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Commodity Futures
Modernization and Financial Contract Netting Improvement Act of 2000''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--COMMODITY FUTURES MODERNIZATION
Sec. 101. Short title.
Sec. 102. Purposes.
Sec. 103. Definitions.
Sec. 104. Agreements, contracts, and transactions in foreign currency,
government securities, and certain other commodities.
Sec. 105. Legal certainty for excluded derivative transactions.
Sec. 106. Excluded electronic trading facilities.
Sec. 107. Conformity with the Gramm-Leach-Bliley Act; hybrid
instruments.
Sec. 108. Futures on securities.
Sec. 109. Transactions in exempt commodities.
Sec. 110. Swap transactions.
Sec. 111. Application of the Commodity Exchange Act.
Sec. 112. Protection of the public interest.
Sec. 113. Prohibited transactions.
Sec. 114. Designation of boards of trade as contract markets.
Sec. 115. Derivatives transaction execution facilities.
Sec. 116. Derivatives clearing.
Sec. 117. Common provisions applicable to registered entities.
Sec. 118. Exempt boards of trade.
Sec. 119. Suspension or revocation of designation as contract market.
Sec. 120. Authorization of appropriations.
Sec. 121. Preemption.
Sec. 122. Predispute resolution agreements for institutional customers.
Sec. 123. Consideration of costs and benefits and antitrust laws.
Sec. 124. Contract enforcement.
Sec. 125. Special procedures to encourage and facilitate bona fide
hedging by agricultural producers.
Sec. 126. Rule of construction.
Sec. 127. Authority of agencies to construe the term ``contract
market''.
Sec. 128. Technical and conforming amendments.
Sec. 129. Report to Congress.
Sec. 130. Effective date.
Sec. 131. International activities of the Commodity Futures Trading
Commission.
Sec. 132. Antifraud provisions.
Sec. 133. Retail swap customer protections.
TITLE II--FINANCIAL CONTRACT NETTING IMPROVEMENT
Sec. 201. Short title.
Sec. 202. Treatment of certain agreements by conservators or receivers
of insured depository institutions.
Sec. 203. Authority of the Corporation with respect to failed and
failing institutions.
Sec. 204. Amendments relating to transfers of qualified financial
contracts.
Sec. 205. Amendments relating to disaffirmance or repudiation of
qualified financial contracts.
Sec. 206. Clarifying amendment relating to master agreements.
Sec. 207. Federal Deposit Insurance Corporation Improvement Act of
1991.
Sec. 208. Bankruptcy code amendments.
Sec. 209. Recordkeeping requirements.
Sec. 210. Exemptions from contemporaneous execution requirement.
Sec. 211. Damage measure.
Sec. 212. SIPC stay.
Sec. 213. Asset-backed securitizations.
Sec. 214. Application of amendments.
TITLE I--COMMODITY FUTURES MODERNIZATION
SEC. 101. SHORT TITLE.
This title may be cited as the ``Commodity Futures Modernization Act
of 2000''.
SEC. 102. PURPOSES.
The purposes of this title are--
(1) to reauthorize the appropriation for the Commodity
Futures Trading Commission;
(2) to streamline and eliminate unnecessary regulation for
the commodity futures exchanges and other entities regulated
under the Commodity Exchange Act;
(3) to transform the role of the Commodity Futures Trading
Commission to oversight of the futures markets;
(4) to provide a statutory and regulatory framework for
allowing the trading of futures on securities;
(5) to provide the Commission jurisdiction over certain
retail foreign exchange transactions and bucket shops that may
not be otherwise regulated;
(6) to promote innovation for futures and derivatives and to
reduce systemic risk by enhancing legal certainty in the
markets for certain futures and derivatives transactions;
(7) to reduce systemic risk and provide greater stability to
markets during times of market disorder by allowing the
clearing of transactions in over-the-counter derivatives
through appropriately regulated clearing organizations; and
(8) to enhance the competitive position of United States
financial institutions and financial markets.
SEC. 103. DEFINITIONS.
Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended--
(1) by redesignating--
(A) paragraphs (1) through (7) as paragraphs (2)
through (8), respectively;
(B) paragraphs (8) through (12) as paragraphs (16)
through (20), respectively;
(C) paragraphs (13) through (15) as paragraphs (22)
through (24), respectively; and
(D) paragraph (16) as paragraph (28);
(2) by inserting before paragraph (2) (as so redesignated by
paragraph (1) of this section) the following new paragraph:
``(1) Banking product.--
``(A) In general.--The term `banking product' means
any agreement, contract, or transaction that is an
identified banking product (as defined in section
206(a) of the Gramm-Leach-Bliley Act).
``(B) Exclusion.--The term `banking product' does not
include a contract for the sale of a commodity for
future delivery traded on a contract market designated
under section 5 of this Act or an agreement, contract,
or transaction traded on a derivatives transaction
execution facility registered under section 5a.'';
(3) by inserting after paragraph (8) (as so redesignated by
paragraph (1) of this section) the following new paragraphs:
``(9) Derivatives clearing organization.--
``(A) In general.--The term `derivatives clearing
organization' means a clearinghouse, clearing
association, clearing corporation, or similar entity,
facility, system, or organization that, with respect to
a derivative agreement, contract, or transaction--
``(i) enables each party to the derivative
agreement, contract, or transaction to
substitute, through novation or otherwise, the
credit of the derivatives clearing organization
for the credit of the parties;
``(ii) arranges or provides, on a
multilateral basis, for the settlement or
netting of obligations resulting from such
agreements, contracts, or transactions executed
by parties in the derivatives clearing
organization; or
``(iii) otherwise provides clearing services
or arrangements that mutualize or transfer
among parties in the derivatives clearing
organization the credit risk arising from such
agreements, contracts, or transactions executed
by the parties.
``(B) Exclusions.--The term `derivatives clearing
organization' does not include an entity, facility,
system, or organization solely because it arranges or
provides for--
``(i) settlement, netting, or novation of
obligations resulting from agreements,
contracts, or transactions, on a bilateral
basis and without a centralized counterparty;
``(ii) settlement or netting of cash payments
through an interbank payment system; or
``(iii) settlement, netting, or novation of
obligations resulting from a sale of a
commodity in a transaction in the spot market
for the commodity.
``(10) Electronic trading facility.--The term `electronic
trading facility' means a trading facility that--
``(A) operates by means of an electronic network; and
``(B) maintains a real-time audit trail of bids,
offers, and the matching of orders or the execution of
transactions.
``(11) Eligible commercial participant.--The term `eligible
commercial participant' means a party or entity described in
paragraph (11)(A)(i), (ii), (v), or (vii) or paragraph (11)(C),
who, in connection with its business--
``(A) has a demonstrable capacity or ability,
directly or through separate contractual arrangements,
to make or take delivery of the underlying physical
commodity;
``(B) incurs risks, in addition to price risk,
related to the commodity; or
``(C) is a dealer that regularly provides hedging,
risk management, or market-making services to the
foregoing entities.
``(12) Eligible contract participant.--The term `eligible
contract participant' means--
``(A) acting for its own account--
``(i) a financial institution;
``(ii) an insurance company regulated by a
State (including a subsidiary or affiliate of
such an insurance company);
``(iii) an investment company subject to
regulation under the Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.) or a foreign
person performing a similar role or function
subject as such to foreign regulation
(regardless of whether each investor in the
investment company or the foreign person is
itself an eligible contract participant);
``(iv) a commodity pool that--
``(I) has total assets exceeding
$5,000,000; and
``(II) is formed and operated by a
person subject to regulation under this
Act or a foreign person performing a
similar role or function subject as
such to foreign regulation (regardless
of whether each investor in the
commodity pool or the foreign person is
itself an eligible contract
participant);
``(v) a corporation, partnership,
proprietorship, organization, trust, or other
entity--
``(I) that has total assets exceeding
$10,000,000;
``(II) the obligations of which under
an agreement, contract, or transaction
are guaranteed or otherwise supported
by a letter of credit or keepwell,
support, or other agreement by an
entity described in subclause (I), in
clause (i), (ii), (iii), (iv), or
(vii), or in subparagraph (C); or
``(III) that--
``(aa) has a net worth
exceeding $1,000,000; and
``(bb) enters into an
agreement, contract, or
transaction in connection with
the conduct of the entity's
business or to manage the risk
associated with an asset or
liability owned or incurred or
reasonably likely to be owned
or incurred by the entity in
the conduct of the entity's
business;
``(vi) an employee benefit plan subject to
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1001 et seq.) or a foreign
person performing a similar role or function
subject as such to foreign regulation--
``(I) that has total assets exceeding
$5,000,000; or
``(II) the investment decisions of
which are made by--
``(aa) an investment advisor
or commodity trading advisor
subject to regulation under the
Investment Advisers Act of 1940
(15 U.S.C. 80b-1 et seq.) or
this Act;
``(bb) a foreign person
performing a similar role or
function subject as such to
foreign regulation;
``(cc) a financial
institution; or
``(dd) an insurance company
regulated by a State (including
a subsidiary or affiliate of
such an insurance company);
``(vii)(I) a governmental entity (including
the United States, a State, or a foreign
government) or political subdivision of a
governmental entity;
``(II) a multinational or supranational
government entity; or
``(III) an instrumentality, agency, or
department of an entity described in subclause
(I) or (II);
``(viii) a broker or dealer subject to
regulation under the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) or a foreign
person performing a similar role or function
subject as such to foreign regulation, except
that, if the broker or dealer or foreign person
is a natural person or proprietorship, the
broker or dealer or foreign person shall not be
considered to be an eligible contract
participant unless the broker or dealer or
foreign person also meets the requirements of
clause (v) or (xi);
``(ix) a futures commission merchant subject
to regulation under this Act or a foreign
person performing a similar role or function
subject as such to foreign regulation, except
that, if the futures commission merchant or
foreign person is a natural person or
proprietorship, the futures commission merchant
or foreign person shall not be considered to be
an eligible contract participant unless the
futures commission merchant or foreign person
also meets the requirements of clause (v) or
(xi);
``(x) a floor broker or floor trader subject
to regulation under this Act in connection with
any transaction that takes place on or through
the facilities of a registered entity or an
exempt board of trade, or any affiliate
thereof, on which such person regularly trades;
or
``(xi) an individual who has total assets in
an amount in excess of--
``(I) $10,000,000; or
``(II) $5,000,000 and who enters into
the agreement, contract, or transaction
in order to manage the risk associated
with an asset owned or liability
incurred, or reasonably likely to be
owned or incurred, by such individual
with total assets exceeding
$10,000,000;
``(B)(i) a person described in any of clauses (i)
through (x) of subparagraph (A) or in subparagraph (C),
acting as broker or performing an equivalent agency
function on behalf of another person described in
subparagraph (A) or (C);
``(ii) an investment adviser subject to regulation
under the Investment Advisors Act of 1940, a commodity
trading advisor subject to regulation under this Act, a
foreign person performing a similar role or function
subject as such to foreign regulation, or a person
described in any of clauses (i) through (x) of
subparagraph (A) or in subparagraph (C), in any such
case acting as investment manager or fiduciary (but
excluding a person acting as broker or performing an
equivalent agency function) for another person
described in subparagraph (A) or (C) and who is
authorized by such person to commit such person to the
transaction; or
``(iii) a commodity trading advisor subject to
regulation under this Act, having assets under
management of not less than $25,000,000 and acting as
investment manager or fiduciary for another person and
authorized by such person to commit such person to the
transaction; or
``(C) any other person that the Commission determines
to be eligible in light of the financial or other
qualifications of the person.
``(13) Exclusion-eligible commodity.--
``(A) In general.--The term `exclusion-eligible
commodity' means--
``(i) an interest rate, exchange rate,
currency, security, security index, credit risk
or measure, debt or equity instrument, index or
measure of inflation, or other macroeconomic
index or measure;
``(ii) any other rate, differential, index,
or measure of economic or commercial risk,
return, or value that is--
``(I) not based in substantial part
on the value of a narrow group of
commodities not described in clause
(i); or
``(II) based solely on 1 or more
commodities that have no cash market;
``(iii) any economic or commercial index
based on prices, rates, values, or levels that
are not within the control of any party to the
relevant contract, agreement, or transaction;
or
``(iv) an occurrence, extent of an
occurrence, or contingency (other than a change
in the price, rate, value, or level of a
commodity not described in clause (i)) that
is--
``(I) beyond the control of the
parties to the relevant contract,
agreement, or transaction; and
``(II) associated with a financial,
commercial, or economic consequence.
``(B) Reference to excluded commodity.--Any reference
in this Act to the term `excluded commodity' shall be
deemed to be a reference to `exclusion-eligible
commodity'.
``(14) Exempt commodity.--The term `exempt commodity' means a
commodity that is not an excluded commodity or an agricultural
commodity.
``(15) Financial institution.--The term `financial
institution' means--
``(A) a corporation operating under the fifth
undesignated paragraph of section 25 of the Federal
Reserve Act (12 U.S.C. 603), commonly known as `an
agreement corporation';
``(B) a corporation organized under section 25A of
the Federal Reserve Act (12 U.S.C. 611 et seq.),
commonly known as an `Edge Act corporation';
``(C) an institution that is regulated by the Farm
Credit Administration;
``(D) a Federal credit union or State credit union
(as defined in section 101 of the Federal Credit Union
Act (12 U.S.C. 1752));
``(E) a depository institution (as defined in section
3 of the Federal Deposit Insurance Act (12 U.S.C.
1813));
``(F) a foreign bank or a branch or agency of a
foreign bank (each as defined in section 1(b) of the
International Banking Act of 1978 (12 U.S.C. 3101(b)));
``(G) any financial holding company (as defined in
section 2 of the Bank Holding Company Act of 1956);
``(H) a trust company; or
``(I) a similarly regulated subsidiary or affiliate
of an entity described in any of subparagraphs (A)
through (H).'';
(3) by inserting after paragraph (20) (as so redesignated by
paragraph (1)) the following new paragraph:
``(21) Hybrid instrument.--
``(A) In general.--The term `hybrid instrument' means
a deposit instrument offered by a financial
institution, or a security, having 1 or more payments
indexed to the value, level, or rate of 1 or more
commodities.
``(B) Deposit instrument defined.--The term `deposit
instrument' means an instrument representing an
interest described in paragraph (1), (2), (3), (4), or
(5) of section 3(l) of the Federal Deposit Insurance
Act, other than in subparagraph (A), (B), or (C) at the
end of paragraph (5).'';
(4) by inserting after paragraph (24) (as so redesignated by
paragraph (1)) the following new paragraphs:
``(25) Nonexempt security.--The term `nonexempt security'
means a security that is not an exempted security under section
3 of the Securities Act of 1933 or section 3(a)(12) of the
Securities Exchange Act of 1934 (other than any municipal
security, as defined in section 3(a)(29) of the Securities
Exchange Act of 1934).
``(26) Option.--The term `option' means an agreement,
contract, or transaction that is of the character of, or is
commonly known to the trade as, an `option', `privilege',
`indemnity', `bid', `offer', `put', `call', `advance guaranty',
or `decline guaranty'.
``(27) Organized exchange.--The term `organized exchange'
means a trading facility that--
``(A) permits trading by persons other than--
``(i) eligible contract participants trading
on a principal-to-principal basis; or
``(ii) eligible contract participants
described in subclause (I), (II), (III), (IV),
(V) or (VI) of section 2(c)(2)(B), acting as a
broker or performing an equivalent agency
function on behalf of eligible contract
participants; or
``(B) has adopted (directly or through another
nongovernmental entity) rules that--
``(i) govern the conduct of participants,
other than rules that govern the submission of
orders or execution of transactions on the
trading facility; or
``(ii) include disciplinary sanctions other
than the exclusion of participants from
trading.''; and
(5) by adding at the end the following new paragraphs:
``(29) Registered entity.--The term `registered entity'
means--
``(A) a board of trade designated as a contract
market under section 5;
``(B) a derivatives transaction execution facility
registered under section 5a; or
``(C) a derivatives clearing organization registered
under section 5b.
``(30) Security.--The term `security' has the meaning given
the term in section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)) as in effect on date of the enactment of
this paragraph.
``(31) Trading facility.--
``(A) In general.--The term `trading facility' means
a person or group of persons that constitutes,
maintains, or provides a physical or electronic
facility or system in which multiple participants have
the ability to execute or trade agreements, contracts,
or transactions by accepting bids and offers made by
other participants that are open to multiple
participants in the facility or system.
``(B) Exclusions.--The term `trading facility' does
not include--
``(i) a person or group of persons solely
because the person or group of persons
constitutes, maintains, or provides an
electronic facility or system that enables
participants to negotiate the terms of and
enter into bilateral transactions as a result
of communications exchanged by the parties and
not from interaction of multiple orders within
a predetermined, nondiscretionary automated
trade matching algorithm;
``(ii) a government securities dealer or
government securities broker, to the extent
that the dealer or broker executes or trades
agreements, contracts, or transactions in
government securities, or assists persons in
communicating about, negotiating, entering
into, executing, or trading an agreement,
contract, or transaction in government
securities (as the terms `government securities
dealer', `government securities broker', and
`government securities' are defined in section
3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)));
``(iii) facilities on which bids and offers,
and acceptances of bids and offers effected on
the facility, are not binding; or
``(iv) a person or group of persons solely
because the person or group of persons
constitutes, maintains, or provides an
electronic facility or system that--
``(I) enables participants to enter
into bilateral transactions with other
participants; and
``(II) incorporates credit screens or
filters that prevent any participant
from executing a transaction with
another participant unless both
participants have approved the
extension of credit to the other.''.
SEC. 104. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN FOREIGN CURRENCY,
GOVERNMENT SECURITIES, AND CERTAIN OTHER
COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) is
amended by adding at the end the following:
``(c) Agreements, Contracts, and Transactions in Foreign Currency,
Government Securities, and Certain Other Commodities.--
``(1) In general.--Except as provided in paragraph (2),
nothing in this Act (other than section 5b or 12(e)(2)(B))
governs or applies to an agreement, contract, or transaction
in--
``(A) foreign currency;
``(B) government securities;
``(C) security warrants;
``(D) security rights;
``(E) resales of installment loan contracts;
``(F) repurchase transactions in an excluded
commodity; or
``(G) mortgages or mortgage purchase commitments.
``(2) Commission jurisdiction.--
``(A) Agreements, contracts, and transactions that
are futures 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 thereon), or an
option on a commodity (other than foreign
currency or a security), that is executed or
traded on an organized exchange; or
``(ii) an option on foreign currency and is
executed or traded on an organized exchange
that is not a national securities exchange.
``(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 for future
delivery (or an option on such a contract) or
an option; 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-5) 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-5), 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-5(b), 78q(h)) or
section 4f(c)(2)(B) of this Act;
``(IV) an insurance company that is
subject to State regulation (including
a 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).''.
SEC. 105. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 104) is amended by adding at the end the
following:
``(d) Excluded Derivative Transactions.--
``(1) In general.--Nothing in this Act (other than section 5b
or 12(e)(2)(B)) governs or applies to an agreement, contract,
or transaction in an excluded commodity if--
``(A) the agreement, contract, or transaction is
entered into only between persons that are eligible
contract participants at the time at which the persons
enter into the agreement, contract, or transaction; and
``(B) the agreement, contract, or transaction is not
executed or traded on a trading facility.
``(2) Electronic trading facility exclusion.--Nothing in this
Act (other than section 5a, 5b, or 12(e)(2)(B)) governs or
applies to an agreement, contract, or transaction in an
excluded commodity if--
``(A) the agreement, contract, or transaction is--
``(i) entered into--
``(I) on a principal-to-principal
basis between parties trading for their
own accounts or as described in section
1a(12)(B)(ii) of this Act; and
``(II) only between eligible contract
participants (as defined in
subparagraphs (A), (B)(ii), and (C)
section 1a(12)) at the time at which
the persons enter into the agreement,
contract, or transaction; or
``(ii) entered into only between eligible
contract participants described in subclause
(I), (II), (III), (IV), (V), or (VI) of section
2(c)(2)(B)(ii) acting as a broker or performing
a similar agency function on behalf of persons
that are eligible contract participants at the
time at which the persons enter into the
agreement, contract, or transaction; and
``(B) the agreement, contract, or transaction is
executed or traded on an electronic trading
facility.''.
SEC. 106. EXCLUDED ELECTRONIC TRADING FACILITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 105) is amended by adding at the end the
following:
``(e) Excluded Electronic Trading Facilities.--
``(1) In general.--Nothing in this Act (other than section
12(e)(2)(B)) governs or is applicable to an electronic trading
facility that limits transactions authorized to be conducted on
its facilities to those satisfying the requirements of sections
2(d)(2) and 2(h)(3)(B) of this Act.
``(2) Effect on authority to establish and operate.--Nothing
in this Act shall prohibit a board of trade designated by the
Commission as a contract market or derivatives transaction
execution facility, or an exempt board of trade, from
establishing and operating an electronic trading facility
excluded under this Act pursuant to paragraph (1).''.
SEC. 107. CONFORMITY WITH THE GRAMM-LEACH-BLILEY ACT; HYBRID
INSTRUMENTS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 106) is amended by adding at the end the
following:
``(f) Exclusion for Qualifying Hybrid Instruments.--
``(1) In general.--Nothing in this Act (other than section
12(e)(2)(B)) governs or is applicable to--
``(A) a banking product or security sold or provided
by an entity that is listed in any of subclauses (I)
through (VI) of section 2(c)(2)(B)(ii); or
``(B) a hybrid instrument that is predominantly a
security or a deposit instrument.
``(2) Exception.--Paragraph (1)(A) shall not apply to any
swap agreement (as defined in section 206(b) of the Gramm-
Leach-Bliley Act) with any party who is not an eligible
contract participant unless such swap agreement is entered into
after final regulations have been prescribed under section 49
of the Federal Deposit Insurance Act.
``(3) Predominance.--A hybrid instrument shall be considered
to be predominantly a security or deposit instrument if--
``(A) the issuer of the hybrid instrument receives
payment in full of the purchase price of the hybrid
instrument, substantially contemporaneously with
delivery of the hybrid instrument;
``(B) the purchaser or holder of the hybrid
instrument is not required to make any payment to the
issuer in addition to the purchase price paid under
subparagraph (A), whether as margin, settlement
payment, or otherwise, during the life of the hybrid
instrument or at maturity;
``(C) the issuer of the hybrid instrument is not
subject by the terms of the instrument to mark-to-
market margining requirements; and
``(D) the hybrid instrument is not marketed as a
contract of sale for future delivery of a commodity (or
option on such a contract) subject to this Act.
``(4) Mark-to-market margining requirements.--For the
purposes of paragraph (3)(C), mark-to-market margining
requirements do not include the obligation of an issuer of a
secured debt instrument to increase the amount of collateral
held in pledge for the benefit of the purchaser of the secured
debt instrument to secure the repayment obligations of the
issuer under the secured debt instrument.''.
SEC. 108. FUTURES ON SECURITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 107) is amended by adding at the end the
following:
``(g) Notwithstanding any other provision of law:
``(1) This Act shall not apply to and the Commission shall
have no jurisdiction to designate a board of trade as a
contract market for any transaction whereby any party to the
transaction acquires a put, call, or other option on 1 or more
securities (as defined in section 2(a)(1) of the Securities Act
of 1933 or section 3(a)(10) of the Securities Exchange Act of
1934, on the date of enactment of the Futures Trading Act of
1982), including any group or index of securities and any
interest in or based on the value of securities.
``(2) Nothing in this subsection governs or applies to--
``(A) an agreement, contract, or transaction in a
commodity that is excluded under subsection (c) or (d);
``(B) an electronic trading facility that is excluded
under subsection (e); or
``(C) a hybrid instrument that is covered by an
exclusion under subsection (f) or an exemption granted
by the Commission under section 4(c) (whether or not
the hybrid instrument is otherwise subject to this
Act).
``(3) Except as provided in paragraph (4) of this subsection,
or unless excluded by paragraph (2) of this subsection, a
person shall not offer to enter into, enter into, or confirm
the execution of any contract of sale (or option on the
contract) for future delivery of any security or interest in or
based on the value of a nonexempt security.
``(4)(A) Except as excluded by paragraph (2) of this
subsection, this Act shall apply to and the Commission shall
have exclusive jurisdiction with respect to accounts,
agreements (including any transaction which is of the character
of, or is commonly known to the trade as an option, privilege,
indemnity, bid, offer, put, call, advance guaranty, or decline
guaranty), and transactions involving, and may designate a
board of trade as a contract market under section 5 or register
the board of trade as a derivatives transaction execution
facility under section 5a in, contracts of sale (or options on
the contracts) for future delivery of 1 or more securities (as
defined in section 2(a)(1) of the Securities Act of 1933 or
section 3(a)(10) of the Securities Exchange Act of 1934),
including any group or index of securities and any interest in
or based on the value of securities.
``(B) The Commission shall not designate a board of trade as
a contract market under section 5 or register a board of trade
as a derivatives transaction execution facility under section
5a with respect to any such contracts of sale (or options on
the contracts) for future delivery unless the board of trade
demonstrates and the Commission expressly finds that the
specific contract (or option on the contract) with respect to
which the application for the designation or recognition has
been made meets the following requirements:
``(i) Settlement of or delivery on the contract (or
option on the contract) shall be effected in cash or by
means other than the transfer or receipt of a nonexempt
security.
``(ii) Susceptibility to price manipulation.--Trading
in a contract (or option on such a contract) described
in subparagraph (A) shall not be readily susceptible
to--
``(I) manipulation of the price of the
contract (or option on such a contract); or
``(II) causing or being used in the
manipulation of the price of any underlying
security, option on a security, or option on a
group or index that includes a security.
``(iii) If the contract is based on a single
nonexempt security, an option on the security
underlying the contract would meet all Securities and
Exchange Commission requirements for listing on a
national securities exchange.
``(iv) If the contract is based on any group or index
of nonexempt securities comprised of fewer than 5
securities, or on an index in which a single nonexempt
security predominates, an option on each security
comprising the group or index would meet all
requirements for listing on a national securities
exchange.
``(v)(I) In general.--The contract will be traded on
a board of trade that establishes the level of margin
for futures contracts (or options on the contracts)
based on a single nonexempt security, an index of fewer
than 5 nonexempt securities, or an index in which a
single nonexempt security predominates, at a level
consistent with the level of margin on comparable
option contracts listed on any national securities
exchange.
``(II) Consistency.--For the purposes of subclause
(I), a margin for designated futures on securities and
options on securities shall be considered to be
consistent if the margin provides a similar level of
protection against defaults by counterparties, taking
into account any differences in--
``(aa) the price volatility of the contracts;
``(bb) the frequency with which margin
requirements are made; and
``(cc) the period of time within which margin
calls must be met.
``(vi) The contract will be traded on a board
of trade that prohibits a person who acts as a
floor broker for any contract of sale (or
options on the contract) for future delivery of
a nonexempt security, an index based on fewer
than 5 nonexempt securities, or an index in
which a single nonexempt security predominates,
from trading that contract for the broker's own
account during the same trading session.
``(vii) The contract will be traded on a board of
trade that collects, maintains, and promptly provides
to the Securities and Exchange Commission such
information as the Commission and the Securities and
Exchange Commission jointly consider necessary to
perform the enforcement responsibilities described in
paragraph (6).
``(5) The Commission shall consult with the Securities and
Exchange Commission with respect to any application submitted
by a board of trade for designation as a contract market or
derivatives transaction execution facility with respect to any
contract of sale (or option on the contract) for future
delivery of a nonexempt security or a group or index of such
securities. If, not later than 15 days after the consultation,
the Securities and Exchange Commission objects to the
designation of a board of trade as a contract market or
derivatives transaction execution facility in the contract (or
option on the contract) on the ground that any requirement of
paragraph (4)(B) is not met, the Commission shall afford the
Securities and Exchange Commission an opportunity for an oral
hearing to be transcribed before the Commission, and shall give
appropriate weight to the views of the Securities and Exchange
Commission. The oral hearing shall be held before Commission
action upon the application for the designation, and not less
than 30 nor more than 45 days after the Securities and Exchange
Commission has objected. If such an oral hearing is held, the
Securities and Exchange Commission fails to withdraw its
objections, and the Commission issues an order designating a
board of trade as a contract market or recognizes the board of
trade as a derivatives transaction execution facility with
respect to any such contract (or option on the contract), the
Securities and Exchange Commission may seek judicial review of
the order in accordance with the procedural requirements set
forth in section 6(c). If, pursuant to section 6, there is a
hearing on the record with respect to an application for such
designation, the Securities and Exchange Commission may
participate in that hearing as an interested party.
``(6) Notwithstanding any other provision of this Act, the
Securities and Exchange Commission may enforce against a person
that purchases or sells any contract of sale (or option on the
contract) for future delivery of any nonexempt security, any
index comprised of fewer than 5 nonexempt securities, or any
index in which a single nonexempt security predominates to the
same extent as if the person had purchased or sold an option on
the security or index under the following provisions of the
securities laws and regulations with respect to the following
categories of conduct:
``(A) Section 10(b) and 21A of the Securities
Exchange Act of 1934 (15 U.S.C. 78j(b), 78u-1) with
respect to insider trading.
``(B) Section 16(b) of such Act (15 U.S.C. 78p(b))
with respect to unfair use of information in short
swing trading by a corporate insider.
``(C) Section 9 of such Act (15 U.S.C. 78i) with
respect to manipulation of securities prices.
``(D) Section 10(b) of such Act (15 U.S.C. 78J(b))
and section 204A of the Investment Adviser's Act of
1940 (15 U.S.C. 80b-4a) with respect to frontrunning.
``(E) Section 14 of the Securities Exchange Act of
1934 (15 U.S.C. 78n) with respect to the pricing and
integrity of tender offers.
``(F) Rule 144 of the rules of the Securities and
Exchange Commission (17 C.F.R. 230.144) with respect to
trading in restricted securities.
``(7)(A) Notwithstanding any other provision of this Act, any
contract market or derivatives transaction execution facility
in a nonexempt security or stock index futures contract (or
option thereon) 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 the nonexempt
security or stock index futures contract (or option on the
contract).
``(B) The Board may at any time request any contract market
or derivatives transaction execution facility to set the level
of margin for any nonexempt security or stock index futures
contract (or option on the contract) 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.
``(C) Subject to such conditions as the Board may determine,
the Board may delegate any or all of its authority under this
paragraph to the Commission or an intermarket margin board as
provided in subparagraph (D).
``(D) Intermarket margin board.--
``(i) Establishment.--With the concurrence of the
Securities and Exchange Commission and the Commission,
the Board may establish an intermarket margin board,
consisting of representatives of any or all of the
three agencies.
``(ii) Duties.--The intermarket margin board may set
and maintain margin levels and rules pertaining to
margin for futures on a single nonexempt security, an
index of fewer than 5 nonexempt securities, or an index
in which a single nonexempt security predominates,
listed on a contract market or derivatives transaction
execution facility. In discharging these duties, the
intermarket margin board shall endeavor to make the
levels of margin for futures and options on a single
nonexempt security consistent taking into account any
material differences in such contracts, including--
``(I) the price volatility of the contracts;
``(II) the frequency with which margin calls
are made; and
``(III) the period of time within which
margin calls must be met.
``(E) This paragraph shall not be construed to supersede or
limit the authority granted to the Commission in section 8a(9)
to direct a contract market or derivatives transaction
execution facility, on finding an emergency to exist, to raise
temporary emergency margin levels on any futures contract or
option on the contract covered by this paragraph.
``(F) Any action taken by the Board under this paragraph, or
by the Commission acting under the delegation of authority
under subparagraph (C), directing a contract market or
derivatives transaction execution facility to alter or
supplement a contract market or derivatives transaction
execution facility rule shall be subject to review only in the
United States Court of Appeals for the judicial circuit in
which the party seeking review resides or has its principal
place of business, or in the United States Court of Appeals for
the District of Columbia Circuit. The review shall be based on
the examination of all information before the Board or the
Commission, as the case may be, at the time the determination
was made. The court reviewing the action of the Board or the
Commission shall not enter a stay or order of mandamus unless
the court determines, after notice and a hearing before a panel
of the court, that the agency action complained of was
arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.
``(8) This subsection shall not be construed to prohibit--
``(A) an agreement, contract, or transaction excluded
from this Act by paragraph (2); or
``(B) any hybrid instrument that is covered by the
terms of any exemption granted by the Commission under
section 4(c) (whether or not any such hybrid instrument
is otherwise subject to this Act).
``(9)(A) No futures commission merchant, commodity trading
advisor, or introducing broker shall recommend to any customer
the purchase or sale of any contract of sale for future
delivery of a single nonexempt security, an index of fewer than
5 nonexempt securities, or an index in which a single nonexempt
security predominates, unless the futures commission merchant,
commodity trading advisor, or introducing broker complies with
the rules described in subparagraph (B) of a registered futures
association of which such merchant, advisor, or broker is a
member.
``(B) Within 9 months of the date of enactment of the
Commodity Futures Modernization Act of 2000, a registered
futures association shall adopt rules requiring a futures
commission merchant, a commodity trading advisor, or an
introducing broker which recommends to any customer the
purchase or sale of any contract of sale for future delivery of
a single nonexempt security, an index of fewer than 5 nonexempt
securities, or an index in which a single nonexempt security
predominates to ascertain through reasonable due diligence that
the recommendation is suitable for that customer in light of
the customer's financial position and trading goals. The
registered futures association shall consult with the
Commission and the Securities and Exchange Commission prior to
the adoption of any such rule, and shall submit any such rule
to the Commission for approval in the manner and according to
the procedures described in section 17(j) of this Act,
provided, that in such case the rule shall become effective if
the Commission fails to disapprove such rule within 90 days of
submission.
``(10)(A) Nothing in this Act shall be construed to require
or authorize the Commission to review or approve, directly or
indirectly, any contract, rule, regulation, or action adopted
by a foreign board of trade, exchange, or market, or a
clearinghouse for such a board of trade, exchange, or market,
relating to any transaction involving a contract of sale for
future delivery (or option on such a contract) in or involving
any security, including any foreign government debt security,
or group or index of such securities, if--
``(i)(I) in the case of a contract of sale for future
delivery (or option on such a contract) in or involving
a single equity security, the United States is not the
primary trading market for the underlying security; or
``(II) in the case of a contract of sale for future
delivery (or option on such a contract) in or involving
a group or index of equity securities, less than 25
percent of the weighting of the group or index is
derived from securities for which the United States is
the primary trading market for the securities
underlying the contract for future delivery (or option
on the contract); and
``(ii) settlement of or delivery on the contract for
future delivery (or option on such a contract) is to be
effected in cash or by means other than the transfer or
receipt of a security in the United States other than
an exempted security.
``(B) Within 90 days after the date of the enactment of this
paragraph, the Commission shall adopt such procedures as it
deems appropriate pursuant to which, consistent with this Act,
the Commission shall authorize the offer and sale in the United
States of any contract of sale for future delivery (or option
on such a contract) of a security, other than a security of the
type described in subparagraph (A)(i)(I) or a group or index of
securities of the type described in subparagraph (A)(i)(II),
traded on or subject to the rules of a foreign board of trade,
exchange, or market, or a clearinghouse for such a board of
trade, exchange, or market, except that such procedures shall
not require a foreign board of trade, exchange, or market, or a
clearinghouse for such a board of trade, exchange, or market to
apply for designation as a contract market under this Act with
respect to such a contract for future delivery (or option on
such a contract).''.
SEC. 109. TRANSACTIONS IN EXEMPT COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 108) is amended by adding at the end the
following.
``(h) Legal Certainty for Certain Transactions in Exempt
Commodities.--
``(1) Except as provided in paragraph (2) of this subsection,
nothing in this Act shall apply to a contract, agreement or
transaction in an exempt commodity which--
``(A) is entered into solely between persons that are
eligible contract participants at the time they enter
into the agreement, contract, or transaction; and
``(B) is not entered into on a trading facility.
``(2) An agreement, contract, or transaction described in
paragraph (1) of this subsection shall be subject to--
``(A) sections 5b and 12(e)(2)(B) of this Act;
``(B) sections 4b and 4n of this Act and the
regulations of the Commission pursuant to section 4c(b)
of this Act proscribing fraud in connection with
commodity option transactions, to the extent such
agreement, contract, or transaction is not between
eligible commercial participants and would otherwise be
subject to those provisions; and
``(C) sections 6(c) and 9(a)(2) of this Act to the
extent they prohibit manipulation of the market price
of any commodity in interstate commerce, to the extent
such agreement, contract, or transaction would
otherwise be subject to those provisions.
``(3) Except as provided in paragraph (4) of this subsection,
nothing in this Act shall apply to an agreement, contract, or
transaction in an exempt commodity (other than a metal
commodity enumerated in section 1a(3) of this Act) which--
``(A) is entered into solely between persons that are
eligible contract participants at the time at which the
persons enter into the agreement, contract, or
transaction; and
``(B) is executed or traded on an electronic trading
facility.
``(4) An agreement, contract, or transaction described in
paragraph (3) shall be subject to--
``(A) sections 5b and 12(e)(2)(B) of this Act;
``(B) sections 4b and 4n of this Act and the
regulations of the Commission pursuant to section 4c(b)
of this Act proscribing fraud in connection with
commodity option transactions and section 6(c) and
9(a)(2) of this Act, to the extent these provisions
prohibit manipulation of the market price of any
commodity in interstate commerce, to the extent such
agreement, contract, or transaction would otherwise be
subject to those provisions; and
``(C) such rules and regulations as the Commission
may prescribe if necessary to ensure timely
dissemination by the electronic trading facility of
price, trading volume, and other trading data to the
extent appropriate, if the Commission determines that
the electronic trading facility performs a significant
price discovery function for transactions related to
the commodity executed or traded on the electronic
trading facility.''.
SEC. 110. SWAP TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 109) is amended by adding at the end the
following new subsection:
``(i) Excluded Swap Transactions.--
``(1) In general.--No provision of this Act (other than
section 5b or 12(e)(2)(B)) shall apply to or govern any
agreement, contract, or transaction in a commodity other than
an agricultural commodity enumerated in section 1a(3) if--
``(A) the agreement, contract, or transaction is
entered into only between persons that are eligible
contract participants at the time they enter into the
agreement, contract, or transaction; and
``(B) the material economic terms of the agreement,
contract, or transaction are subject to individual
negotiation and are not specified by the rules terms or
conditions of a trading facility.
``(2) Exclusion.--Paragraph (1) shall not apply to--
``(A) a contract for the sale of a commodity for
future delivery traded on a contract market designated
under section 5; or
``(B) any agreement, contract, or transaction traded
on a derivatives transaction execution facility
registered under section 5a.''.
SEC. 111. APPLICATION OF THE COMMODITY EXCHANGE ACT.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 110) is amended by adding at the end the
following new subsection:
``(j) Application of the Act.--No provision of this Act shall be
construed as--
``(1) implying or creating any presumption that--
``(A) any agreement, contract, or transaction that is
eligible for an exclusion or exemption from regulation
under this Act; or
``(B) any agreement, contract, or transaction that is
not eligible for an exclusion or exemption from
regulation under this Act,
is or would otherwise be subject to this Act; or
``(2) conferring jurisdiction on the Commission with respect
to any such agreement, contract, or transaction, except as
expressly provided in section 5b.''.
SEC. 112. PROTECTION OF THE PUBLIC INTEREST.
The Commodity Exchange Act is amended by striking section 3 (7 U.S.C.
5) and inserting the following:
``SEC. 3. FINDINGS AND PURPOSE.
``(a) Findings.--The futures contracts and options contracts that are
subject to this Act are entered into regularly in interstate and
international commerce and are affected with a national public interest
by providing a means for managing and assuming price risks, discovering
prices, and disseminating pricing information through trading in
liquid, fair and financially secure trading facilities.
``(b) Purpose.--It is the purpose of this Act to serve the public
interests described in subsection (a) through a system of effective
self-regulation of trading facilities, clearing systems, market
participants and market professionals under the oversight of the
Commission. To foster these public interests, it is further the purpose
of this Act to deter and prevent price manipulation or any other
disruptions to market integrity; to ensure the financial integrity of
all transactions subject to this Act and the avoidance of systemic
risk; to protect all market participants from fraudulent or other
abusive sales practices and misuses of customer assets; and to promote
responsible innovation and fair competition among boards of trade,
other markets and market participants.''.
SEC. 113. PROHIBITED TRANSACTIONS.
Section 4c of the Commodity Exchange Act (7 U.S.C. 6c) is amended by
striking ``Sec. 4c.'' and all that follows through subsection (a) and
inserting the following:
``SEC. 4C. PROHIBITED TRANSACTIONS.
``(a) In General.--
``(1) Prohibition.--It shall be unlawful for any person to
offer to enter into, enter into, or confirm the execution of a
transaction described in paragraph (2) involving any commodity
if the transaction is used or may be used to--
``(A) hedge any transaction in interstate commerce in
the commodity or the product or byproduct of the
commodity;
``(B) determine the price basis of any such
transaction in interstate commerce in the commodity; or
``(C) deliver any such commodity sold, shipped, or
received in interstate commerce for the execution of
the transaction.
``(2) Transaction.--A transaction referred to in paragraph
(1) is a transaction that--
``(A)(i) is, is of the character of, or is commonly
known to the trade as, a `wash sale' or `accommodation
trade'; or
``(ii) is a fictitious sale; or
``(B) is used to cause any price to be reported,
registered, or recorded that is not a true and bona
fide price.''.
SEC. 114. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
The Commodity Exchange Act is amended--
(1) by redesignating section 5b (7 U.S.C. 7b) as section 5e;
and
(2) by striking sections 5 and 5a (7 U.S.C. 7, 7a) and
inserting the following:
``SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
``(a) Applications.--A board of trade applying to the Commission for
designation as a contract market shall submit an application to the
Commission that includes any relevant materials and records the
Commission may require consistent with this Act.
``(b) Criteria for Designation.--
``(1) In general.--To be designated as a contract market, the
board of trade shall demonstrate to the Commission that the
board of trade meets the criteria specified in this subsection.
``(2) Prevention of market manipulation.--The board of trade
shall have the capacity to prevent market manipulation through
market surveillance, compliance, and enforcement practices and
procedures, including methods for conducting real-time
monitoring of trading and comprehensive and accurate trade
reconstructions.
``(3) Fair and equitable trading.--The board of trade shall
establish and enforce trading rules to ensure fair and
equitable trading through the facilities of the contract
market, and the capacity to detect, investigate, and discipline
any person that violates the rules. Such rules may authorize--
``(A) an exchange of--
``(i) futures in connection with a cash
commodity transaction;
``(ii) futures for cash commodities;
``(iii) transfer trades or office trades; or
``(iv) futures for swaps; and
``(B) a futures commission merchant, acting as
principal or agent, to enter into or confirm the
execution of a contract for the purchase or sale of a
commodity for future delivery if the contract is
reported, recorded, or cleared in accordance with the
rules of the contract market or a derivatives clearing
organization.
``(4) Trade execution facility.--The board of trade shall--
``(A) establish and enforce rules defining, or
specifications detailing, the manner of operation of
the trade execution facility maintained by the board of
trade, including rules or specifications describing the
operation of any electronic matching platform; and
``(B) demonstrate that the trading facility operates
in accordance with the rules or specifications.
``(5) Financial integrity of transactions.--The board of
trade shall establish and enforce rules and procedures for
ensuring the financial integrity of transactions entered into
by or through the facilities of the contract market.
``(6) Disciplinary procedures.--The board of trade shall
establish and enforce disciplinary procedures that authorize
the board of trade to discipline, suspend, or expel members or
market participants that violate the rules of the board of
trade, or similar methods for performing the same functions,
including delegation of the functions to third parties.
``(7) Public access.--The board of trade shall provide the
public with access to the rules, regulations, and contract
specifications of the board of trade.
``(8) Ability to obtain information.--The board of trade
shall establish and enforce rules that will allow the board of
trade to obtain any necessary information to perform any of the
functions described in this subsection, including the capacity
to carry out such international information-sharing agreements
as the Commission may require.
``(c) Existing Contract Markets.--A board of trade that is designated
as a contract market on the effective date of the Commodity Futures
Modernization Act of 2000 shall be considered to be a designated
contract market under this section.
``(d) Core Principles for Contract Markets.--
``(1) In general.--To maintain the designation of a board of
trade as a contract market, a board of trade shall comply with
the core principles specified in this subsection.
``(2) Compliance with rules.--The board of trade shall
monitor and enforce compliance with the rules of the contract
market, including the terms and conditions of any contracts to
be traded and any limitations on access to the contract market.
``(3) Contracts not readily subject to manipulation.--The
board of trade shall list on the contract market only contracts
that are not readily susceptible to manipulation.
``(4) Monitoring of trading.--The board of trade shall
monitor trading to prevent manipulation, price distortion, and
disruptions of the delivery or cash-settlement process.
``(5) Position limitations or accountability.--To reduce the
potential threat of market manipulation or congestion,
especially during trading in the delivery month, the board of
trade shall adopt position limitations or position
accountability for speculators, where necessary and
appropriate.
``(6) Emergency authority.--The board of trade shall adopt
rules to provide for the exercise of emergency authority, in
consultation or cooperation with the Commission, where
necessary and appropriate, including the authority to--
``(A) liquidate or transfer open positions in any
contract;
``(B) suspend or curtail trading in any contract; and
``(C) require market participants in any contract to
meet special margin requirements.
``(7) Availability of general information.--The board of
trade shall make available to market authorities, market
participants, and the public information concerning--
``(A) the terms and conditions of the contracts of
the contract market; and
``(B) the mechanisms for executing transactions on or
through the facilities of the contract market.
``(8) Daily publication of trading information.--The board of
trade shall make public daily information on settlement prices,
volume, open interest, and opening and closing ranges for
actively traded contracts on the contract market.
``(9) Execution of transactions.--The board of trade shall
provide a competitive, open, and efficient market and mechanism
for executing transactions.
``(10) Trade information.--The board of trade shall maintain
rules and procedures to provide for the recording and safe
storage of all identifying trade information in a manner that
enables the contract market to use the information for purposes
of assisting in the prevention of customer and market abuses
and providing evidence of any violations of the rules of the
contract market.
``(11) Financial integrity of contracts.--The board of trade
shall establish and enforce rules providing for the financial
integrity of any contracts traded on the contract market,
including rules to ensure the financial integrity of any
futures commission merchants and introducing brokers and the
protection of customer funds.
``(12) Protection of market participants.--The board of trade
shall establish and enforce rules to protect market
participants from abusive practices committed by any party
acting as an agent for the participants.
``(13) Dispute resolution.--The board of trade shall
establish and enforce rules regarding and provide facilities
for alternative dispute resolution as appropriate for market
participants and any market intermediaries.
``(14) Governance fitness standards.--The board of trade
shall establish and enforce appropriate fitness standards for
directors, members of any disciplinary committee, members of
the contract market, and any other persons with direct access
to the facility (including any parties affiliated with any of
the persons described in this paragraph).
``(15) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of interest
in the decisionmaking process of the contract market and
establish a process for resolving such conflicts of interest.
``(16) Composition of boards of mutually owned contract
markets.--In the case of a mutually owned contract market, the
board of trade shall ensure that the composition of the
governing board reflects market participants.
``(17) Recordkeeping.--The board of trade shall--
``(A) maintain full records of all activities related
to the business of the contract market in a form and
manner acceptable to the Commission for a period of at
least 5 years;
``(B) make the records readily available during at
least the first 2 years of the 5-year period and
provide the records to the Commission at the expense of
the person required to maintain the records; and
``(C) keep the records open to inspection by any
representative of the Commission or the Department of
Justice.
``(18) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the board of
trade shall endeavor to avoid--
``(A) adopting any rules or taking any actions that
result in any unreasonable restraints of trade; or
``(B) imposing any material anticompetitive burden on
trading on the contract market.
``(e) Current Agricultural and Metal Commodities.--
``(1) Subject to paragraph (2), a contract for purchase or
sale for future delivery of an agricultural or metal commodity
enumerated in section 1a(3) that is available for trade on a
contract market, as of the date of the enactment of this
subsection, may be traded only on a contract market designated
under this section.
``(2) In order to promote responsible economic or financial
innovation and fair competition, the Commission, on application
by any person, after notice and public comment and opportunity
for hearing, may prescribe rules and regulations to provide for
the offer and sale of contracts for future delivery or options
thereon to be conducted on a derivatives transaction execution
facility.''.
SEC. 115. DERIVATIVES TRANSACTION EXECUTION FACILITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5 (as amended by section 112(2)) the following:
``SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.
``(a) In General.--In lieu of compliance with the contract market
designation requirements of section 5, a board of trade may elect to
operate as a registered derivatives transaction execution facility if
the facility is--
``(1) designated as a contract market and meets the
requirements of this section; or
``(2) registered as a derivatives transaction execution
facility under subsection (c).
``(b) Requirements for Trading Futures Contracts or Other Derivatives
Transactions.--
``(1) In general.--A registered derivatives transaction
execution facility under subsection (a) may trade any futures
contract (or option on such a contract) on or through the
facility only by satisfying the requirements of this section.
``(2) Requirements for underlying commodities.--A registered
derivatives transaction execution facility may trade any
futures contract only if--
``(A) the underlying commodity has a nearly
inexhaustible deliverable supply;
``(B) the underlying commodity has a deliverable
supply that is sufficiently large that the contract is
highly unlikely to be susceptible to the threat of
manipulation;
``(C) the underlying commodity has no cash market; or
``(D) the Commission determines, based on the market
characteristics, surveillance history, self-regulatory
record, and capacity of the facility that trading in
the futures contract is highly unlikely to be
susceptible to the threat of manipulation.
``(3) Eligible traders.--To trade on a registered derivatives
transaction execution facility, a person shall--
``(A) be authorized by the board of trade to trade on
the facility; and
``(B)(i) be an eligible contract participant; or
``(ii) be a person trading through a futures
commission merchant that--
``(I) is registered with the Commission;
``(II) is a member of a futures self-
regulatory organization;
``(III) is a clearing member of a derivatives
clearing organization; and
``(IV) has net capital of at least
$20,000,000.
``(4) Trading by contract markets.--A board of trade that is
designated as a contract market shall, to the extent that the
contract market also operates a registered derivatives
transaction execution facility--
``(A) provide a physical location for the contract
market trading of the board of trade that is separate
from trading on the derivatives transaction execution
facility of the board of trade; or
``(B) if the board of trade uses the same electronic
trading system for trading on the contract market and
derivatives transaction execution facility of the board
of trade, identify whether the electronic trading is
taking place on the contract market or the derivatives
transaction execution facility.
``(c) Criteria for Registration.--
``(1) In general.--To be registered as a registered
derivatives transaction execution facility, the board of trade
shall demonstrate to the Commission that the board of trade
meets the criteria specified in this paragraph.
``(2) Deterrence of abuses.--The board of trade shall
establish and enforce trading rules that will deter abuses and
has the capacity to detect, investigate, and enforce those
rules, including means to--
``(A) obtain information necessary to perform the
functions required under this section; or
``(B) use technological means to--
``(i) provide market participants with
impartial access to the market; and
``(ii) capture information that may be used
in establishing whether rule violations have
occurred.
``(3) Trading procedures.--The board of trade shall establish
and enforce rules or terms and conditions defining, or
specifications detailing, trading procedures to be used in
entering and executing orders traded on the facilities of the
board of trade. Such rules may authorize--
``(A) an exchange of--
``(i) futures in connection with a cash
commodity transaction;
``(ii) futures for cash commodities;
``(iii) transfer trades or office trades; or
``(iv) futures for swaps; and
``(B) a futures commission merchant, acting as
principal or agent, to enter into or confirm the
execution of a contract for the purchase or sale of a
commodity for future delivery if the contract is
reported, recorded, or cleared in accordance with the
rules of the registered derivatives transaction
execution facility or a derivatives clearing
organization.
``(4) Financial integrity of transactions.--The board of
trade shall establish and enforce rules or terms and conditions
providing for the financial integrity of transactions entered
on or through the facilities of the board of trade, including
rules or terms and conditions to ensure the financial integrity
of any futures commission merchants and introducing brokers and
the protection of customer funds.
``(d) Core Principles for Registered Derivatives Transaction
Execution Facilities.--
``(1) In general.--To maintain the registration of a board of
trade as a derivatives transaction execution facility, a board
of trade shall comply with the core principles specified in
this subsection.
``(2) Compliance with rules.--The board of trade shall
monitor and enforce the rules of the facility, including any
terms and conditions of any contracts traded on or through the
facility and any limitations on access to the facility.
``(3) Monitoring of trading.--The board of trade shall
monitor trading in the contracts of the facility to ensure
orderly trading in the contract and to maintain an orderly
market while providing any necessary trading information to the
Commission to allow the Commission to discharge the
responsibilities of the Commission under the Act.
``(4) Disclosure of general information.--The board of trade
shall disclose publicly and to the Commission information
concerning--
``(A) contract terms and conditions;
``(B) trading conventions, mechanisms, and practices;
``(C) financial integrity protections; and
``(D) other information relevant to participation in
trading on the facility.
``(5) Daily publication of trading information.--The board of
trade shall make public daily information on settlement prices,
volume, open interest, and opening and closing ranges for
actively traded contracts on the facility.
``(6) Fitness standards.--The board of trade shall establish
and enforce appropriate fitness standards for directors,
members of any disciplinary committee, members, and any other
persons with direct access to the facility, including any
parties affiliated with any of the persons described in this
paragraph.
``(7) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of interest
in the decisionmaking process of the derivatives transaction
execution facility and establish a process for resolving such
conflicts of interest.
``(8) Recordkeeping.--The board of trade shall--
``(A) maintain full records of all activities related
to the business of the derivatives transaction
execution facility in a form and manner acceptable to
the Commission for a period of at least 5 years;
``(B) make the records readily available during at
least the first 2 years of the 5-year period and
provide the records to the Commission at the expense of
the person required to maintain the records; and
``(C) keep the records open to inspection by any
representatives of the Commission or the Department of
Justice.
``(9) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the board of
trade shall endeavor to avoid--
``(A) adopting any rules or taking any actions that
result in any unreasonable restraint of trade; or
``(B) imposing any material anticompetitive burden on
trading on the derivatives transaction execution
facility.
``(e) Use of Broker-Dealers, Depository Institutions, and Farm Credit
System Institutions as Intermediaries.--
``(1) In general.--A registered derivatives transaction
execution facility may by rule allow a broker-dealer,
depository institution, or institution of the Farm Credit
System that meets the requirements of paragraph (2) to--
``(A) act as an intermediary in transactions executed
on the facility on behalf of customers of the broker-
dealer, depository institution, or institution of the
Farm Credit System; and
``(B) receive funds of customers to serve as margin
or security for such transactions.
``(2) Requirements.--The requirements referred to in
paragraph (1) are that--
``(A) the broker-dealer be in good standing with the
Securities and Exchange Commission, or the depository
institution or institution of the Farm Credit System be
in good standing with Federal bank regulatory agencies
(including the Farm Credit Administration), as
applicable; and
``(B) if the broker-dealer, depository institution,
or institution of the Farm Credit System carries or
holds customer accounts or funds for transactions on
the derivatives transaction execution facility for more
than 1 business day, the broker-dealer, depository
institution, or institution of the Farm Credit System
is registered as a futures commission merchant and is a
member of a registered futures association.
``(3) Implementation.--The Commission shall cooperate and
coordinate with the Securities and Exchange Commission, the
Secretary of the Treasury, and Federal banking regulatory
agencies (including the Farm Credit Administration) in adopting
rules and taking any other appropriate action to facilitate the
implementation of this subsection.
``(f) Segregation of Customer Funds.--Not later than 180 days after
the effective date of the Commodity Futures Modernization Act of 2000,
consistent with regulations adopted by the Commission, a registered
derivatives transaction execution facility may authorize a futures
commission merchant to offer any customer of the futures commission
merchant that is an eligible contract participant the right to not
segregate the customer funds of the futures commission merchant for
purposes of trading on or through the facilities of the registered
derivatives transaction execution facility.
``(g) Election To Trade Excluded Commodities.--
``(1) In general.--A board of trade that is a registered
derivatives transaction execution facility may trade on the
facility any agreements, contracts, or transactions involving
excluded commodities that are otherwise excluded from this Act
under section 2(c), 2(d), or 2(h).
``(2) Exclusive jurisdiction of the commission.--The
Commission shall have exclusive jurisdiction over agreements,
contracts, or transactions described in paragraph (1) to the
extent that the agreements, contracts, or transactions are
traded on a derivatives transaction execution facility.''.
SEC. 116. DERIVATIVES CLEARING.
(a) In General.--Subtitle A of title IV of the Federal Deposit
Insurance Corporation Improvement Act of 1991 is amended--
(1) by inserting before the section heading for section 401,
the following new heading:
``CHAPTER 1--BILATERAL AND CLEARING ORGANIZATION NETTING'';
(2) in section 402, by striking ``this subtitle'' and
inserting ``this chapter''; and
(3) by inserting after section 407, the following new
chapter:
``CHAPTER 2--MULTILATERAL CLEARING ORGANIZATIONS
``SEC. 408. DEFINITIONS.
``For purposes of this chapter, the following definitions shall
apply:
``(1) Multilateral clearing organization.--The term
`multilateral clearing organization' means a system utilized by
more than 2 participants in which the bilateral credit
exposures of participants arising from the transactions cleared
are effectively eliminated and replaced by a system of
guarantees, insurance, or mutualized risk of loss.
``(2) Over-the-counter derivative instrument.--The term
`over-the-counter derivative instrument' means--
``(A) any agreement, contract, or transaction,
including the terms and conditions incorporated by
reference in any such agreement, contract, or
transaction, which is an interest rate swap, option, or
forward agreement, including a rate floor, rate cap,
rate collar, cross-currency rate swap, basis swap, and
forward rate agreement; a spot, same day-tomorrow,
tomorrow-next, forward, or other foreign exchange or
precious metals agreement; acurrency swap, option, or
forward agreement; an equity index or equity swap, option, or forward
agreement; a debt index or debt swap, option, or forward agreement; a
credit spread or credit swap, option, or forward agreement; a commodity
index or commodity swap, option, or forward agreement; and a weather
swap, weather derivative, or weather option;
``(B) any agreement, contract or transaction similar
to any other agreement, contract, or transaction
referred to in this clause that is presently, or in the
future becomes, regularly entered into by parties that
participate in swap transactions (including terms and
conditions incorporated by reference in such agreement)
and that is a forward, swap, or option on 1 or more
occurrences of any event, rates, currencies,
commodities, equity securities or other equity
instruments, debt securities or other debt instruments,
economic or other indices or measures of economic or
other risk or value;
``(C) any contract of sale of a commodity for future
delivery or commodity option described in subsection
(c), (d), (f), (h), or (i) of section 2 of the
Commodity Exchange Act or exempted under section 4(c)
of such Act; and
``(D) any option to enter into any, or any
combination of, agreements, contracts or transactions
referred to in this subparagraph.
``(3) Other definitions.--The terms `State member bank' and
`affiliate' have the meanings given the terms in section 3 of
the Federal Deposit Insurance Act.
``SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.
``(a) In General.--Except with respect to clearing organizations
described in subsection (b), no person may operate a multilateral
clearing organization for over-the-counter derivative instruments, or
otherwise engage in activities that constitute such a multilateral
clearing organization unless the person is a national bank, State
member bank, an affiliate of a national bank or a State member bank, or
a corporation chartered under section 25A of the Federal Reserve Act.
``(b) Clearing Organizations.--Subsection (a) shall not apply to any
clearing organization that--
``(1) is registered as a clearing agency under the Securities
Exchange Act of 1934;
``(2) performs clearing functions for a contract market
designated pursuant to the Commodity Exchange Act; or
``(3) is supervised by a foreign financial regulator that an
appropriate Federal financial regulatory agency has determined
satisfies appropriate standards.''.
(b) Enforcement Powers of the Board of Governors of the Federal
Reserve System.--Section 9 of the Federal Reserve Act (12 U.S.C. 221)
is amended by adding at the end the following new paragraph:
``(24) Enforcement authority.--Section 3(u), subsections (j)
and (k) of section 7, subsections (b) through (n), (s), (u),
and (v) of section 8, and section 19 of the Federal Deposit
Insurance Act shall apply to a State member bank which is not
an insured depository institution (as defined in section 3 of
the Federal Deposit Insurance Act) in the same manner and to
the same extent as such provisions apply to State member
insured banks, and any reference in such sections to an insured
depository institution shall be deemed to include a reference
to any such noninsured State member bank.''.
(c) Resolution of Clearing Banks.--The Federal Reserve Act (12 U.S.C.
221 et seq.) is amended by inserting after section 9A the following new
section:
``SEC. 9B. RESOLUTION OF CLEARING BANKS.
``(a) Conservatorship or Receivership.--
``(1) Appointment.--The Board may appoint a conservator or
receiver to take possession and control of any uninsured State
member bank which operates, or operates as, a multilateral
clearing organization pursuant to section 409 of the Federal
Deposit Insurance Corporation Improvement Act of 1991 to the
same extent and in the same manner as the Comptroller of the
Currency may appoint a conservator or receiver for a national
bank.
``(2) Powers.--The conservator or receiver for an uninsured
State member bank referred to in paragraph (1) shall exercise
the same powers, functions, and duties, subject to the same
limitations, as a conservator or receiver for a national bank.
``(b) Board Authority.--The Board shall have the same authority with
respect to any conservator or receiver appointed under subsection (a),
and the uninsured State member bank for which the conservator or
receiver has been appointed, as the Comptroller of the Currency has
with respect to a conservator or receiver for a national bank and the
national bank for which the conservator or receiver has been appointed.
``(c) Bankruptcy Proceedings.--The Board (in the case of an uninsured
State member bank which operates, or operates as, such a multilateral
clearing organization) may direct a conservator or receiver appointed
for such bank to file a petition pursuant to title 11, United States
Code, in which case, title 11, United States Code, shall apply to such
bank in lieu of otherwise applicable Federal or State insolvency
law.''.
(d) Technical and Conforming Amendments to Title 11, United States
Code.--
(1) Bankruptcy code debtors.--Section 109(b)(2) of title 11,
United States Code, is amended by striking ``; or'' and
inserting the following: ``, except that an uninsured State
member bank, or a corporation organized under section 25A of
the Federal Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to section 409 of
the Federal Deposit Insurance Corporation Improvement Act of
1991 may be a debtor if a petition is filed at the direction of
the Board of Governors of the Federal Reserve System; or''.
(2) Chapter 7 debtors.--Section 109(d) of title 11, United
States Code, is amended to read as follows:
``(d) Only a railroad, a person that may be a debtor under chapter 7
of this title (except a stockbroker or a commodity broker), and an
uninsured State member bank, or a corporation organized under section
25A of the Federal Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to section 409 of the
Federal Deposit Insurance Corporation Improvement Act of 1991 may be a
debtor under chapter 11 of this title.''.
(3) Definition of financial institution.--Section 101(22) of
title 11, United States Code, is amended to read as follows:
``(22) the term `financial institution'--
``(A) means a Federal reserve bank or an entity
(domestic or foreign) that is a commercial or savings
bank, industrial savings bank, savings and loan
association, trust company, a bank or a corporation
organized under section 25A of the Federal Reserve Act
and, when any such bank or entity is acting as agent or
custodian for a customer in connection with a
securities contract, as defined in section 741, such
customer; and
``(B) includes any person described in subparagraph
(A) which operates, or operates as, a multilateral
clearing organization pursuant to section 409 of the
Federal Deposit Insurance Corporation Improvement Act
of 1991;''.
(4) Definition of uninsured state member bank.--Section 101
of title 11, United States Code, is amended by inserting after
paragraph (54) the following new paragraph--
``(54A) the term `uninsured State member bank' means a State member
bank (as defined in section 3 of the Federal Deposit Insurance Act) the
deposits of which are not insured by the Federal Deposit Insurance
Corporation; and''.
(5) Subchapter v of chapter 7.--
(A) In general.--Section 103 of title 11, United
States Code, is amended--
(i) by redesignating subsections (e) through
(i) as subsections (f) through (j),
respectively; and
(ii) by inserting after subsection (d) the
following new subsection:
``(e) Scope of Application.--Subchapter V of chapter 7 of this title
shall apply only in a case under such chapter concerning the
liquidation of an uninsured State member bank, or a corporation
organized under section 25A of the Federal Reserve Act, which operates,
or operates as, a multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance Corporation Improvement
Act of 1991.''.
(B) Clearing bank liquidation.--Chapter 7 of title
11, United States Code, is amended by adding at the end
the following new subchapter:
``SUBCHAPTER V--CLEARING BANK LIQUIDATION
``Sec. 781. Definitions
``For purposes of this subchapter, the following definitions shall
apply:
``(1) Board.--The term `Board' means the Board of Governors
of the Federal Reserve System.
``(2) Depository institution.--The term `depository
institution' has the same meaning as in section 3 of the
Federal Deposit Insurance Act, and includes any wholesale bank.
``(3) Clearing bank.--The term `clearing bank' means an
uninsured State member bank, or a corporation organized under
section 25A of the Federal Reserve Act, which operates, or
operates as, a multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991.
``Sec. 782. Selection of trustee
``(a) In General.--
``(1) Appointment.--Notwithstanding any other provision of
this title, the conservator or receiver who files the petition
shall be the trustee under this chapter, unless the Board
designates an alternative trustee.
``(2) Successor.--The Board may designate a successor trustee
if required.
``(b) Authority of Trustee.--Whenever the Board appoints or
designates a trustee, chapter 3 and sections 704 and 705 of this title
shall apply to the Board in the same way and to the same extent that
they apply to a United States trustee.
``Sec. 783. Additional powers of trustee
``(a) Distribution of Property Not of the Estate.--The trustee under
this subchapter has power to distribute property not of the estate,
including distributions to customers that are mandated by subchapters
III and IV of this chapter.
``(b) Disposition of Institution.--The trustee under this subchapter
may, after notice and a hearing--
``(1) sell the clearing bank to a depository institution or
consortium of depository institutions(which consortium may
agree on the allocation of the clearing bank among the consortium);
``(2) merge the clearing bank with a depository institution;
``(3) transfer contracts to the same extent as could a
receiver for a depository institution under paragraphs (9) and
(10) of section 11(e) of the Federal Deposit Insurance Act;
``(4) transfer assets or liabilities to a depository
institution;
``(5) transfer assets and liabilities to a bridge bank as
provided in paragraphs (1), (3)(A), (5), (6), of section 11(n)
of the Federal Deposit Insurance Act, paragraphs (9) through
(13) of such section, and subparagraphs (A) through (H) and
subparagraph (K) of paragraph (4) of such section 11(n), except
that--
``(A) the bridge bank to which such assets or
liabilities are transferred shall be treated as a
clearing bank for the purpose of this subsection; and
``(B) any references in any such provision of law to
the Federal Deposit Insurance Corporation shall be
construed to be references to the appointing agency and
that references to deposit insurance shall be omitted.
``(c) Certain Transfers Included.--Any reference in this section to
transfers of liabilities includes a ratable transfer of liabilities
within a priority class.
``Sec. 784. Right to be heard
``The Board or a Federal reserve bank (in the case of a clearing bank
that is a member of that bank) may raise and may appear and be heard on
any issue in a case under this subchapter.''.
(e) Clerical Amendment.--The table of sections for chapter 7 of title
11, United States Code, is amended by adding at the end the following
new items:
``SUBCHAPTER V--CLEARING BANK LIQUIDATION
``Sec.
``781. Definitions.
``782. Selection of trustee.
``783. Additional powers of trustee.
``784. Right to be heard.''.
(f) Resolution of Edge Act Corporations.--The 16th undesignated
paragraph of section 25A of the Federal Reserve Act (12 U.S.C. 624) is
amended to read as follows:
``(16) Appointment of receiver or conservator.--
``(A) In general.--The Board may appoint a
conservator or receiver for a corporation organized
under the provisions of this section to the same extent
and in the same manner as the Comptroller of the
Currency may appoint a conservator or receiver for a
national bank, and the conservator or receiver for such
corporation shall exercise the same powers, functions,
and duties, subject to the same limitations, as a
conservator or receiver for a national bank.
``(B) Equivalent authority.--The Board shall have the
same authority with respect to any conservator or
receiver appointed for a corporation organized under
the provisions of this section under this paragraph and
any such corporation as the Comptroller of the Currency
has with respect to a conservator or receiver of a
national bank and the national bank for which a
conservator or receiver has been appointed.
``(C) Title 11 petitions.--The Board may direct the
conservator or receiver of a corporation organized
under the provisions of this section to file a petition
pursuant to title 11, United States Code, in which
case, title 11, United States Code, shall apply to the
corporation in lieu of otherwise applicable Federal or
State insolvency law.''.
(g) Derivatives Clearing Organizations.--The Commodity Exchange Act
(7 U.S.C. 1 et seq.) is amended by inserting after section 5a (as added
by section 15) the following new section:
``SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.
``(a) Registration Requirement.--Except as provided in subsection
(b), it shall be unlawful for a derivatives clearing organization,
unless registered with the Commission, directly or indirectly to make
use of the mails or any means or instrumentality of interstate commerce
to perform the functions of a derivatives clearing organization
described in section 1a(8) with respect to a contract of sale of a
commodity for future delivery, option on a contract of sale of a
commodity for future delivery, or option on a commodity that is not an
exclusion-eligible commodity (unless the contract or option is
described in subsection (c), (d), (f), (h), or (i) of section 2 or
exempted under section 4(c)).
``(b) Voluntary Registration.--A derivatives clearing organization
that clears agreements, contracts, or transactions described in
subsection (c), (d), (f), (h), or (i) of section 2 or exempted under
section 4(c) may register with the Commission as a derivatives clearing
organization.
``(c) Registration of Derivatives Clearing Organizations.--
``(1) Application.--A person desiring to register as a
derivatives clearing organization shall submit to the
Commission an application in such form and containing such
information as the Commission may require for the purpose of
making the determinations required for approval under paragraph
(2).
``(2) Core principles.--
``(A) In general.--To be registered and to maintain
registration as a derivatives clearing organization, an
applicant shall demonstrate to the Commission that the
applicant complies with the core principles specified
in this paragraph.
``(B) Financial resources.--The applicant shall
demonstrate that the applicant has adequate financial,
operational, and managerial resources to discharge the
responsibilities of a derivatives clearing organization
without interruption in various market conditions.
``(C) Participant and product eligibility.--The
applicant shall establish--
``(i) appropriate admission and continuing
eligibility standards (including appropriate
minimum financial requirements) for members of
and participants in the organization; and
``(ii) appropriate standards for determining
eligibility of agreements, contracts, or
transactions submitted to the applicant.
``(D) Risk management.--The applicant shall have the
ability to manage the risks associated with discharging
the responsibilities of a derivatives clearing
organization through the use of appropriate tools and
procedures.
``(E) Settlement procedures.--The applicant shall
have the ability to--
``(i) complete settlements on a timely basis
under varying circumstances;
``(ii) maintain an adequate record of the
flow of funds associated with each transaction
that the applicant clears; and
``(iii) comply with the terms and conditions
of any permitted netting or offset arrangements
with other clearing organizations.
``(F) Treatment of funds.--The applicant shall have
standards and procedures designed to protect and ensure
the safety of member and participant funds.
``(G) Default rules and procedures.--The applicant
shall have rules and procedures designed to allow for
efficient, fair, and safe management of events when
members or participants become insolvent or otherwise
default on their obligations to the derivatives
clearing organization.
``(H) Rule enforcement.--The applicant shall--
``(i) maintain adequate arrangements and
resources for the effective monitoring and
enforcement of compliance with rules of the
applicant and for resolution of disputes; and
``(ii) have the authority and ability to
discipline, limit, suspend, or terminate a
member's or participant's activities for
violations of rules of the applicant.
``(I) System safeguards.--The applicant shall
demonstrate that the applicant--
``(i) has established and will maintain a
program of oversight and risk analysis to
ensure that the automated systems of the
applicant function properly and have adequate
capacity and security; and
``(ii) has established and will maintain
emergency procedures and a plan for disaster
recovery, and will periodically test backup
facilities sufficient to ensure daily
processing, clearing, and settlement of
transactions.
``(J) Reporting.--The applicant shall provide to the
Commission all information necessary for the Commission
to conduct the oversight function of the applicant with
respect to the activities of the derivatives clearing
organization.
``(K) Recordkeeping.--The applicant shall--
``(i) maintain full records of all activities
related to the business of the applicant as a
derivatives clearing organization in a form and
manner acceptable to the Commission for a
period of at least 5 years;
``(ii) make the records readily available
during at least the first 2 years of the 5-year
period and provide the records to the
Commission at the expense of the person
required to maintain the records; and
``(iii) keep the records open to inspection
by any representative of the Commission or the
Department of Justice.
``(L) Public information.--The applicant shall make
information concerning the rules and operating
procedures governing the clearing and settlement
systems (including default procedures) available to
market participants.
``(M) Information sharing.--The applicant shall--
``(i) enter into and abide by the terms of
all appropriate and applicable domestic and
international information-sharing agreements;
and
``(ii) use relevant information obtained from
the agreements in carrying out the clearing
organization's risk management program.
``(N) Antitrust considerations.--Unless appropriate
to achieve the purposes of this Act, the derivatives
clearing organization shall avoid--
``(i) adopting any rule or taking any action
that results in any unreasonable restraint of
trade; or
``(ii) imposing any material anticompetitive
burden on trading on the contract market.
``(3) Orders concerning competition.--A derivatives clearing
organization may request the Commission to issue an order
concerning whether a rule or practice of the applicant is the
least anticompetitive means of achieving the objectives,
purposes, and policies of this Act.
``(d) Existing Derivatives Clearing Organizations.--A derivatives
clearing organization shall be deemed to be registered under this
section to the extent that--
``(1) the derivatives clearing organization clears
agreements, contracts, or transactions for a board of trade
that has been designated by the Commission as a contract market
for such agreements, contracts, or transactions before the date
of enactment of this section; and
``(2) the Commission has reviewed and approved the rules of
the derivatives clearing organization before that date.
``(e) Appointment of Trustee.--
``(1) In general.--If a proceeding under section 5e results
in the suspension or revocation of the registration of a
derivatives clearing organization, or if a derivatives clearing
organization withdraws from registration, the Commission, on
notice to the derivatives clearing organization, may apply to
the appropriate United States district court where the
derivatives clearing organization is located for the
appointment of a trustee.
``(2) Assumption of jurisdiction.--If the Commission applies
for appointment of a trustee under paragraph (1)--
``(A) the court may take exclusive jurisdiction over
the derivatives clearing organization and the records
and assets of the derivatives clearing organization,
wherever located; and
``(B) if the court takes jurisdiction under
subparagraph (A), the court shall appoint the
Commission, or a person designated by the Commission,
as trustee with power to take possession and continue
to operate or terminate the operations of the
derivatives clearing organization in an orderly manner
for the protection of participants, subject to such
terms and conditions as the court may prescribe.
``(f) Linking of Regulated Clearing Facilities.--
``(1) In general.--The Commission shall facilitate the
linking or coordination of derivatives clearing organizations
registered under this Act with other regulated clearance
facilities for the coordinated settlement of cleared
transactions.
``(2) Coordination.--In carrying out paragraph (1), the
Commission shall coordinate with the Federal banking agencies
and the Securities and Exchange Commission.''.
SEC. 117. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5b (as added by section 14) the following:
``SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.
``(a) Acceptable Business Practices Under Core Principles.--
``(1) In general.--Consistent with the purposes of this Act,
the Commission may issue interpretations, or approve
interpretations submitted to the Commission, of sections 5(d),
5a(d), and 5b(d)(2) to describe what would constitute an
acceptable business practice under such sections.
``(2) Effect of interpretation.--An interpretation issued
under paragraph (1) shall not provide the exclusive means for
complying with such sections.
``(b) Delegation of Functions Under Core Principles.--
``(1) In general.--A contract market or derivatives
transaction execution facility may comply with any applicable
core principle through delegation of any relevant function to a
registered futures association or another registered entity.
``(2) Responsibility.--A contract market or derivatives
transaction execution facility that delegates a function under
paragraph (1) shall remain responsible for carrying out the
function.
``(c) New Contracts, New Rules, and Rule Amendments.--
``(1) In general.--Subject to paragraph (2), a registered
entity may elect to list for trading any new contract or other
instrument, or may elect to approve and implement any new rule
or rule amendment, by providing to the Commission (and the
Secretary of the Treasury, in the case of a contract of sale
for future delivery of a government security (or option
thereon) or a rule or rule amendment specifically related to
such a contract) a written certification that the new contract,
new rule, or rule amendment complies with this Act (including
regulations under this Act).
``(2) Prior approval.--
``(A) In general.--A registered entity may request
that the Commission grant prior approval to any new
contract or other instrument, new rule, or rule
amendment.
``(B) Prior approval required.--Notwithstanding any
other provision of this section, a designated contract
market shall submit to the Commission for prior
approval each rule amendment that materially changes
the terms and conditions, as determined by the
Commission, in any contract of sale for future delivery
of a commodity specifically enumerated in section 1a(3)
of this Act (or any option thereon) traded through its
facilities if such rule amendment applies to contracts
and delivery months which have already been listed for
trading and have open interest.
``(C) Deadline.--If prior approval is requested under
subparagraph (A), the Commission shall take final
action on the request not later than 90 days after
submission of the request, unless the person submitting
the request agrees to an extension of the time
limitation established under this subparagraph.
``(3) Approval.--The Commission shall approve any such new
contract or instrument, new rule, or rule amendment unless the
Commission finds that the new contract or instrument, new rule,
or rule amendment would violate this Act.
``(d) Violation of Core Principles.--
``(1) In general.--If the Commission has reason to believe
that a registered entity is violating any applicable provision
specified in section 5(d), 5a(d), or5b(d)(2), the Commission
shall notify the registered entity in writing of the reasons for the
preliminary determination by the Commission of a violation, including
any data, materials, and facts the Commission relied on in making the
preliminary determination.
``(2) Injunctive or administrative action.--The Commission
may initiate an action for an injunction under section 6c or an
administrative proceeding, to demonstrate, by the preponderance
of the evidence, that--
``(A) the registered entity is violating any
applicable provision specified in section 5(d), 5a(d),
or 5b(d)(2); and
``(B) the Commission has recommended an appropriate
remedial action to remove the deficiency based on an
analysis of the costs and benefits in the public
interest of the Commission recommendation.
``(3) Burden of proof.--In making a determination that a
registered entity is violating any applicable provision
specified in section 5(d), 5a(d), or 5b(d)(2), the Commission
shall have the burden of proving that the registered entity is
violating the applicable core principle.
``(e) Reservation of Emergency Authority.--Nothing in this section
shall limit or in any way affect the emergency powers of the Commission
provided in section 8a(9) of this Act.''.
SEC. 118. EXEMPT BOARDS OF TRADE.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5c (as added by section 115) the following:
``SEC. 5D. EXEMPT BOARDS OF TRADE.
``(a) In General.--Except as otherwise provided in this section, a
contract of sale (or option on such a contract) of a commodity for
future delivery traded on or through the facilities of an exempt board
of trade shall be exempt from all provisions of this Act, other than
section 2(g).
``(b) Criteria for Exemption.--To qualify for an exemption under
subsection (a), a board of trade shall limit trading on or through the
facilities of the board of trade to contracts of sale of a commodity
for future delivery (or options on such contracts)--
``(1) that have--
``(A) a nearly inexhaustible deliverable supply;
``(B) a deliverable supply that is sufficiently
large, and a cash market sufficiently liquid, to render
any contract traded on the commodity highly unlikely to
be susceptible to the threat of manipulation; or
``(C) no cash market;
``(2) that are entered into only between persons that are
eligible contract participants at the time at which the persons
enter into the contract; and
``(3) that are not contracts of sale (or options on the
contract) for future delivery of any security, including any
group or index of securities or any interest in, or interest
that is based on the value of, any security.
``(c) Antimanipulation Requirements.--A party to a futures contract
or related option that is traded on an exempt board of trade shall be
subject to sections 4b, 4n, 6(c), and 9(a)(2), and the Commission shall
enforce those provisions with respect to any such trading.
``(d) Price Discovery.--If the Commission finds that an exempt board
of trade is a significant source ofprice discovery for any underlying
commodity in any transaction traded on or through the facilities of the
board of trade, the board of trade shall disseminate publicly on a
daily basis trading volume, opening and closing price ranges, open
interest, and other trading data as appropriate to the market.
``(e) Jurisdiction.--The Commission shall have exclusive jurisdiction
over any account, agreement, or transaction involving a contract of
sale of a commodity for future delivery, or related option, to the
extent that such account, agreement, or transaction is traded on an
exempt board of trade.
``(f) Subsidiaries.--A board of trade that is designated as a
contract market or registered as a derivatives transaction execution
facility may operate an exempt board of trade by establishing a
separate subsidiary or other legal entity and otherwise satisfying the
requirements of this section.''.
SEC. 119. SUSPENSION OR REVOCATION OF DESIGNATION AS CONTRACT MARKET.
Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) (as
redesignated by section 112(1)) is amended to read as follows:
``SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS REGISTERED
ENTITY.
``The failure of a registered entity to comply with any provision of
this Act, or any regulation or order of the Commission under this Act,
shall be cause for the suspension of the registered entity for a period
not to exceed 180 days, or revocation of designation as a registered
entity in accordance with the procedures and subject to the judicial
review provided in section 6(b).''.
SEC. 120. AUTHORIZATION OF APPROPRIATIONS.
Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is
amended by striking ``2000'' and inserting ``2005''.
SEC. 121. PREEMPTION.
Section 12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) is
amended by striking paragraph (2) and inserting the following:
``(2) the application of any Federal or State law (including
any regulation) to an agreement, contract, or transaction in or
involving any commodity, product, right, service, or interest,
except that this Act shall supersede and preempt--
``(A) in the case of any such agreement, contract, or
transaction--
``(i) that is conducted on or subject to the
rules of a registered entity or exempt board of
trade;
``(ii) that is conducted on or subject to the
rules of any board of trade, exchange, or
market located outside the United States, or
any territory or possession of the United
States (in accordance with any terms or
conditions specified by the Commission by
regulation); and
``(iii) that is subject to regulation by the
Commission under section 4c or 19; and
``(B) any State or local law that prohibits or
regulates gaming or the operation of bucket shops
(other than antifraud provisions of general
applicability) in the case of--
``(i) an electronic trading facility under
section 2(e); or
``(ii) an agreement, contract, or transaction
that is excluded or exempt under section 2(c),
2(d), 2(f), or 2(h) or is covered by the terms
of an exemption granted by the Commission under
section 4(c) (regardless of whether any such
agreement, contract, or transaction is
otherwise subject to this Act); or''.
SEC. 122. PREDISPUTE RESOLUTION AGREEMENTS FOR INSTITUTIONAL CUSTOMERS.
Section 14 of the Commodity Exchange Act (7 U.S.C. 18) is amended by
striking subsection (g) and inserting the following:
``(g) Predispute Resolution Agreements for Institutional Customers.--
Nothing in this section prohibits a registered futures commission
merchant from requiring a customer that is an eligible contract
participant, as a condition to the commission merchant's conducting a
transaction for the customer, to enter into an agreement waiving the
right to file a claim under this section.''.
SEC. 123. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.
Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is amended by
striking ``Sec. 15. The Commission'' and inserting the following:
``SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.
``(a) Costs and Benefits.--
``(1) In general.--Before promulgating a regulation under
this Act or issuing an order (except as provided in paragraph
(3)), the Commission shall consider the costs and benefits of
the action of the Commission.
``(2) Considerations.--The costs and benefits of the proposed
Commission action shall be evaluated in light of--
``(A) considerations of protection of market
participants and the public;
``(B) considerations of the efficiency,
competitiveness, and financial integrity of futures
markets;
``(C) considerations of price discovery;
``(D) considerations of sound risk management
practices; and
``(E) other public interest considerations.
``(3) Applicability.--This subsection does not apply to the
following actions of the Commission:
``(A) An order that initiates, is part of, or is the
result of an adjudicatory or investigative process of
the Commission.
``(B) An emergency action.
``(C) A finding of fact regarding compliance with a
requirement of the Commission.
``(b) Antitrust Laws.--The Commission''.
SEC. 124. CONTRACT ENFORCEMENT.
Section 22(a) of the Commodity Exchange Act (7 U.S.C. 25(a)) is
amended by adding at the end the following:
``(4) Contract Enforcement Between Eligible Counterparties.--
``(A) In general.--No agreement, contract, or transaction
involving a party described in subclauses (I) through (VI) of
section 2(c)(2)(B)(ii) or between eligible contract
participants shall be void, voidable, or unenforceable, and no
such counterparty or eligible contract participant shall be
entitled to rescind, or recover any payment made with respect
to, such an agreement, contract, or transaction, under this
section or any other provision of Federal or State law based
solely on the failure of the agreement, contract, or
transaction to comply with the terms or conditions of an
exemption or exclusion from any provision of this Act or
regulations of the Commission.
``(B) Exception.--This paragraph shall not apply to any swap
agreement (as defined in section 206(b) of the Gramm-Leach-
Bliley Act) with any party who is not an eligible contract
participant unless such swap agreement is entered into after
final regulations have been prescribed under section 49 of the
Federal Deposit Insurance Act.
SEC. 125. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE
HEDGING BY AGRICULTURAL PRODUCERS.
The Commodity Exchange Act, as otherwise amended by this Act, is
amended by inserting after section 4o the following:
``SEC. 4P. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE
HEDGING BY AGRICULTURAL PRODUCERS.
``(a) Authority.--The Commission shall consider issuing rules or
orders which--
``(1) prescribe procedures under which each contract market
is to provide for orderly delivery, including temporary storage
costs, of any agricultural commodity enumerated in section
1a(3) which is the subject of a contract for purchase or sale
for future delivery;
``(2) increase the ease with which domestic agricultural
producers may participate in contract markets, including by
addressing cost and margin requirements, so as to better enable
such producers to hedge price risk associated with their
production;
``(3) provide flexibility in the minimum quantities of such
agricultural commodities that may be the subject of a contract
for purchase or sale for future delivery that is traded on a
contract market, to better allow domestic agricultural
producers to hedge such price risk; and
``(4) encourage exchanges to provide information and
otherwise facilitate the participation of domestic agricultural
producers in contract markets.
``(b) Report.--Within 1 year after the date of enactment of this
section, the 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 on the steps it has
taken to implement this section and on the activities of contract
markets pursuant to this section.''.
SEC. 126. RULE OF CONSTRUCTION.
Except as expressly provided in this title or an amendment made by
this title, nothing in this title or an amendment made by the title
supersedes, affects, or otherwise limits or expands the scope and
applicability of laws governing the Securities and Exchange Commission.
SEC. 127. AUTHORITY OF AGENCIES TO CONSTRUE THE TERM ``CONTRACT
MARKET''.
Each executive agency of the United States Government that has
authority to prescribe regulations under a statute that uses the term
``contract market'' may prescribe regulations construing such term as
referring to any contract market, derivatives transaction execution
facility, or derivatives clearing organization that is registered with
the Commodity Futures Trading Commission.
SEC. 128. TECHNICAL AND CONFORMING AMENDMENTS.
(a) Commodity Exchange Act.--
(1) Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is
amended--
(A) in paragraph (3), by inserting ``aluminum,
copper, gold, palladium, platinum, silver,'' after
``orange juice,'';
(B) in paragraphs (4), (5), (8), (9), (12), and (14),
by inserting ``or derivatives transaction execution
facility'' after ``contract market'' each place it
appears; and
(C) in paragraph (15)--
(i) in the paragraph heading, by striking
``contract market'' and inserting ``registered
entity''; and
(ii) by striking ``contract market'' each
place it appears and inserting ``registered
entity''.
(2) Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a,
4, 4a, 3) is amended--
(A) by striking ``Sec. 2. (a)(1)(A)(i) The'' and
inserting the following:
``SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF
AGENT; COMMODITY FUTURES TRADING COMMISSION;
TRANSACTION IN INTERSTATE COMMERCE.
``(a) Jurisdiction of Commission; Commodity Futures Trading
Commission.--
``(1) Jurisdiction of commission.--
``(A) In general.--The''; and
(B) in subsection (a)--
(i) in paragraph (1) (as amended by
subparagraph (A))--
(I) by striking subparagraph (B);
(II) by striking ``subparagraph (B)
of this paragraph'' and inserting
``subsection (c), (d), (e), (f), (g),
or (i)'';
(III) by striking ``contract market
designated pursuant to section 5 of
this Act'' and inserting ``contract
market designated or derivatives
transaction execution facility
registered pursuant to section 5 or
5a'';
(IV) by redesignating subclauses (I)
and (II) as clauses (i) and (ii);
(V) by striking clause (ii); and
(VI) in clause (iii), by striking
``(iii) The'' and inserting the
following:
``(B) Liability of principal for act of agent.--
The'';
(ii) in paragraph (7), by striking ``contract
market'' and inserting ``registered entity'';
(iii) in paragraph (8)(B)(ii)--
(I) in the first sentence, by
striking ``designation as a contract
market'' and inserting ``designation or
registration as a contract market or
derivatives transaction execution
facility'';
(II) in the second sentence, by
striking ``designate a board of trade
as a contract market'' and inserting
``designate or register a board of
trade as a contract market or
derivatives transaction execution
facility''; and
(III) in the fourth sentence, by
striking ``designating, or refusing,
suspending, or revoking the designation
of, a board of trade as a contract
market involving transactions for
future delivery referred to in this
clause or in considering possible
emergency action under section 8a(9) of
this Act'' and inserting ``designating,
registering, or refusing, suspending,
or revoking the designation or
registration of, a board of trade as a
contract market or derivatives
transaction execution facility
involving transactions for future
delivery referred to in this clause or
in considering any possible action
under this Act (including without
limitation emergency action under
section 8a(9))'', and by striking
``designation, suspension, revocation,
or emergency action'' and inserting
``designation, registration,
suspension, revocation, or action'';
and
(iv) by moving paragraphs (2) through (11) 2
ems to the right.
(3) Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is
amended--
(A) in subsection (a)--
(i) in paragraph (1), by striking
``designated by the Commission as a `contract
market' for'' and inserting ``designated or
registered by the Commission as a contract
market or derivatives transaction execution
facility for'';
(ii) in paragraph (2), by striking ``member
of such''; and
(iii) in paragraph (3), by inserting ``or
derivatives transaction execution facility''
after ``contract market''; and
(B) in subsection (c)--
(i) in paragraph (1)--
(I) by striking ``designated as a
contract market'' and inserting
``designated or registered as a
contract market or derivatives
transaction execution facility''; and
(II) by striking ``section
2(a)(1)(B)'' and inserting ``section
2(g)''; and
(ii) in paragraph (2)(B)(ii), by inserting
``or derivatives transaction execution
facility'' after ``contract market''.
(4) Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is
amended--
(A) in subsection (a)--
(i) in the first sentence, by inserting ``or
derivatives transaction execution facilities''
after ``contract markets''; and
(ii) in the second sentence, by inserting
``or derivatives transaction execution
facility'' after ``contract market'';
(B) in subsection (b)--
(i) in paragraph (1), by inserting ``, or
derivatives transaction execution facility or
facilities,'' after ``markets''; and
(ii) in paragraph (2), by inserting ``or
derivatives transaction execution facility''
after ``contract market''; and
(C) in subsection (e)--
(i) by striking ``contract market or'' each
place it appears and inserting ``contract
market, derivatives transaction execution
facility, or'';
(ii) by striking ``licensed or designated''
each place it appears and inserting ``licensed,
designated, or registered''; and
(iii) by striking ``contract market, or'' and
inserting ``contract market or derivatives
transaction execution facility, or''.
(5) Section 4b(a) of the Commodity Exchange Act (7 U.S.C.
6b(a)) is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(6) Sections 4c(g), 4d, 4e, and 4f of the Commodity Exchange
Act (7 U.S.C. 6c(g), 6d, 6e, 6f) are amended by inserting ``or
derivatives transaction execution facility'' after ``contract
market'' each place it appears.
(7) Section 4g of the Commodity Exchange Act (7 U.S.C. 6g) is
amended--
(A) in subsection (b), by striking ``clearinghouse
and contract market'' and inserting ``registered
entity''; and
(B) in subsection (f), by striking ``clearinghouses,
contract markets, and exchanges'' and inserting
``registered entities''.
(8) Section 4h of the Commodity Exchange Act (7 U.S.C. 6h) is
amended by striking ``contract market'' each place it appears
and inserting ``registered entity''.
(9) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i) is
amended in the first sentence by inserting ``or derivatives
transaction execution facility'' after ``contract market''.
(10) Section 4j of the Commodity Exchange Act (7 U.S.C. 6j)
is repealed.
(11) Section 4l of the Commodity Exchange Act (7 U.S.C. 6l)
is amended by inserting ``or derivatives transaction execution
facilities'' after ``contract markets'' each place it appears.
(12) Section 4p of the Commodity Exchange Act (7 U.S.C. 6p)
(as determined before the redesignation by paragraph (13) of
this subsection) is amended--
(A) in the third sentence of subsection (a), by
striking ``Act or contract markets'' and inserting
``Act, contract markets, or derivatives transaction
execution facilities''; and
(B) in subsection (b), by inserting ``derivatives
transaction execution facility,'' after ``contract
market,''.
(13) The Commodity Exchange Act (as amended by paragraphs
(10), (11), and (12)) is amended by redesignating section 4k
through 4p (7 U.S.C. 6k through 6p) as sections 4j through 4o,
respectively.
(14) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 9,
9a, 9b, 13b, 15) is amended--
(A) in subsection (a)--
(i) in the first sentence--
(I) by striking ``board of trade
desiring to be designated a `contract
market' shall make application to the
Commission for such designation'' and
inserting ``person desiring to be
designated or registered as a contract
market or derivatives transaction
execution facility shall make
application to the Commission for such
designation or registration'';
(II) by striking ``above conditions''
and inserting ``conditions set forth in
this Act''; and
(III) by striking ``above
requirements'' and inserting ``the
requirements of this Act'';
(ii) in the second sentence, by striking
``designation as a contract market within one
year'' and inserting ``designation or
registration as a contract market or
derivatives transaction execution facility
within 180 days'';
(iii) in the third sentence--
(I) by striking ``board of trade''
and inserting ``person''; and
(II) by striking ``one-year period''
and inserting ``180-day period''; and
(iv) in the last sentence, by striking
``designate as a `contract market' any board of
trade that has made application therefor, such
board of trade'' and inserting ``designate or
register as a contract market or derivatives
transaction execution facility any person that
has made application therefor, such person'';
(B) in subsection (b)--
(i) in the first sentence--
(I) by striking ``designation of any
board of trade as a `contract market'
upon'' and inserting ``designation or
registration of any contract market or
derivatives transaction execution
facility on'';
(II) by striking ``board of trade''
each place it appears and inserting
``contract market or derivatives
transaction execution facility''; and
(III) by striking ``designation as
set forth in section 5 of this Act''
and inserting ``designation or
registration as set forth in sections 5
through 5b'';
(ii) in the second sentence--
(I) by striking ``board of trade''
the first place it appears and
inserting ``contract market or
derivatives transaction execution
facility''; and
(II) by striking ``board of trade''
the second and third places it appears
and inserting ``person''; and
(iii) in the last sentence, by striking
``board of trade'' each place it appears and
inserting ``person'';
(C) in subsection (c)--
(i) by striking ``contract market'' each
place it appears and inserting ``registered
entity'';
(ii) by striking ``contract markets'' each
place it appears and inserting ``registered
entities''; and
(iii) by striking ``trading privileges'' each
place it appears and inserting ``privileges'';
(D) in subsection (d), by striking ``contract
market'' each place it appears and inserting
``registered entity''; and
(E) in subsection (e), by striking ``trading on all
contract markets'' each place it appears and inserting
``the privileges of all registered entities''.
(15) Section 6a of the Commodity Exchange Act (7 U.S.C. 10a)
is amended--
(A) in the first sentence of subsection (a), by
striking ``designated as a `contract market' shall''
and inserting ``designated or registered as a contract
market or a derivatives transaction execution
facility''; and
(B) in subsection (b), by striking ``designated as a
contract market'' and inserting ``designated or
registered as a contract market or a derivatives
transaction execution facility''.
(16) Section 6b of the Commodity Exchange Act (7 U.S.C. 13a)
is amended--
(A) by striking ``contract market'' each place it
appears and inserting ``registered entity'';
(B) in the first sentence, by striking ``designation
as set forth in section 5 of this Act'' and inserting
``designation or registration as set forth in sections
5 through 5c''; and
(C) in the last sentence, by striking ``the contract
market's ability'' and inserting ``the ability of the
registered entity''.
(17) Section 6c(a) of the Commodity Exchange Act (7 U.S.C.
13a-1(a)) by striking ``contract market'' and inserting
``registered entity''.
(18) Section 6d(1) of the Commodity Exchange Act (7 U.S.C.
13a-2(1)) is amended by inserting ``derivatives transaction
execution facility,'' after ``contract market,''.
(19) Section 7 of the Commodity Exchange Act (7 U.S.C. 11) is
amended--
(A) in the first sentence--
(i) by striking ``board of trade'' and
inserting ``person'';
(ii) by inserting ``or registered'' after
``designated'';
(iii) by inserting ``or registration'' after
``designation'' each place it appears; and
(iv) by striking ``contract market'' each
place it appears and inserting ``registered
entity'';
(B) in the second sentence--
(i) by striking ``designation of such board
of trade as a contract market'' and inserting
``designation or registration of the registered
entity''; and
(ii) by striking ``contract markets'' and
inserting ``registered entities''; and
(C) in the last sentence--
(i) by striking ``board of trade'' and
inserting ``person''; and
(ii) by striking ``designated again a
contract market'' and inserting ``designated or
registered again a registered entity''.
(20) Section 8(c) of the Commodity Exchange Act (7 U.S.C.
12(c)) is amended in the first sentence by striking ``board of
trade'' and inserting ``registered entity''.
(21) Section 8a of the Commodity Exchange Act (7 U.S.C. 12a)
is amended--
(A) by striking ``contract market'' each place it
appears and inserting ``registered entity''; and
(B) in paragraph (2)(F), by striking ``trading
privileges'' and inserting ``privileges''.
(22) Sections 8b and 8c(e) of the Commodity Exchange Act (7
U.S.C. 12b, 12c(e)) are amended by striking ``contract market''
each place it appears and inserting ``registered entity''.
(23) Section 8e of the Commodity Exchange Act (7 U.S.C. 12e)
is amended--
(A) by striking ``contract market'' each place it
appears and inserting ``registered entity'';
(B) in subsection (a), by striking ``section 5a(b)''
and inserting ``sections 5 through 5c'';
(C) in subsection (b)--
(i) in paragraph (1), by striking ``a
contract market's trade monitoring system
implemented pursuant to section 5a(b)'' and
inserting ``the trade monitoring system of a
registered entity implemented pursuant to
sections 5 through 5c'';
(ii) by striking paragraph (3) and inserting
the following:
``(3) Remedies.--On becoming final, the Commission deficiency
order may require the registered entity to--
``(A) institute appropriate improvements in its trade
monitoring system necessary to correct the deficiencies
in the order;
``(B) satisfy stated objective performance criteria
to correct the deficiencies;
``(C) upgrade or reconfigure existing systems for
collecting or processing relevant data on trading and
trader or broker activity, including, where
appropriate, the commitment of additional resources.'';
and
(iii) in paragraph (5)--
(I) in the paragraph heading, by
striking ``Designation as contract
market'' and inserting ``Designation or
registration as registered entity'';
(II) by inserting ``or registration''
after ``designation''; and
(III) by striking ``board of trade''
and inserting ``person'';
(D) in subsection (d)(2), by striking ``section 5b''
and inserting ``section 5e''; and
(E) in the paragraph heading of subsection (e)(2), by
striking ``Contract markets'' and inserting
``Registered entities''.
(24) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is
amended--
(A) by striking ``contract market'' each place it
appears and inserting ``registered entity''; and
(B) in subsection (a)(2), by striking ``section
4o(1),'' and inserting ``section 4n(1),''.
(25) Section 14 of the Commodity Exchange Act (7 U.S.C. 18)
is amended--
(A) in subsection (a)(1)(B), by striking ``contract
market'' and inserting ``registered entity''; and
(B) in subsection (f), by striking ``contract
markets'' and inserting ``registered entities''.
(26) Section 17 of the Commodity Exchange Act (7 U.S.C. 21)
is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(27) Section 22 of the Commodity Exchange Act (7 U.S.C. 25)
is amended--
(A) in subsection (a)--
(i) in paragraph (1)--
(I) by striking ``contract market,
clearing organization of a contract
market, licensed board of trade,'' and
inserting ``registered entity''; and
(II) in subparagraph (C)(i), by
striking ``contract market'' and
inserting ``registered entity'';
(ii) in paragraph (2), by striking ``sections
5a(11),'' and inserting ``sections 5(d)(13),
5b(b)(1)(E),''; and
(iii) in paragraph (3), by striking
``contract market'' and inserting ``registered
entity''; and
(B) in subsection (b)--
(i) in paragraph (1)--
(I) by striking ``contract market or
clearing organization of a contract
market'' and inserting ``registered
entity'';
(II) by striking ``section 5a(8) and
section 5a(9) of this Act'' and
inserting ``sections 5 through 5c'';
(III) by striking ``contract market,
clearing organization of a contract
market, or licensed board of trade''
and inserting ``registered entity'';
and
(IV) by striking ``contract market or
licensed board of trade'' and inserting
``registered entity'';
(ii) in paragraph (3)--
(I) by striking ``contract market,
clearing organization, licensed board
of trade,'' and inserting ``registered
entity''; and
(II) by striking ``contract market,
licensed board of trade'' and inserting
``registered entity'';
(iii) in paragraph (4), by striking
``contract market, licensed board of trade,
clearing organization'' and inserting
``registered entity''; and
(iv) in paragraph (5), by striking ``contract
market, licensed board of trade, clearing
organization,'' and inserting ``registered
entity''.
(b) Federal Deposit Insurance Corporation Improvement Act of 1991.--
Section 402(2) of the Federal Deposit Insurance Corporation Improvement
Act of 1991 (12 U.S.C. 4402(2)) is amended by striking subparagraph (B)
and inserting the following:
``(B) that is registered as a derivatives clearing
organization under section 5b of the Commodity Exchange
Act.''.
SEC. 129. REPORT TO CONGRESS.
(a) The Commodity Futures Trading Commission (in this section
referred to as the ``Commission'') shall undertake and complete a study
of the Commodity Exchange Act (in this section referred to as ``the
Act'') and the Commission's rules, regulations and orders governing the
conduct of persons required to be registered under the Act, not later
than 1 year after the date of the enactment of this Act. The study
shall identify--
(1) the core principles and interpretations of acceptable
business practices that the Commission has adopted or intends
to adopt to replace the provisions of the Act and the
Commission's rules and regulations thereunder;
(2) the rules and regulations that the Commission has
determined must be retained and the reasons therefor;
(3) the extent to which the Commission believes it can effect
the changes identified in paragraph (1) of this subsection
through its exemptive authority under section 4(c) of the Act;
and
(4) the regulatory functions the Commission currently
performs that can be delegated to a registered futures
association (within the meaning of the Act) and the regulatory
functions that the Commission has determined must be retained
and the reasons therefor.
(b) In conducting the study, the Commission shall solicit the views
of the public as well as Commission registrants, registered entities,
and registered futures associations (all within the meaning of the
Act).
(c) The Commission shall transmit to the Committee on Agriculture of
the House of Representatives and the Committee on Agriculture,
Nutrition, and Forestry of the Senate a report of the results of its
study, which shall include an analysis of comments received.
SEC. 130. EFFECTIVE DATE.
(a) In General.--Except as provided in subsection (b), this title
shall take effect on the date of enactment of this Act.
(b) Jurisdiction of Commission.--Section 108, and the amendments made
by that section, shall take effect 1 year after the date of enactment
of this Act.
SEC. 131. INTERNATIONAL ACTIVITIES OF THE COMMODITY FUTURES TRADING
COMMISSION.
(a) Findings.--The Congress finds that--
(1) derivatives markets serving United States industry are
increasingly global in scope;
(2) developments in data processing and communications
technologies enable users of risk management services to
analyze and compare those services on a worldwide basis;
(3) financial services regulatory policy must be flexible to
account for rapidly changing derivatives industry business
practices;
(4) regulatory impediments to the operation of global
business interests can compromise the competitiveness of United
States businesses;
(5) events that disrupt financial markets and economies are
often global in scope, require rapid regulatory response, and
coordinated regulatory effort across international
jurisdictions;
(6) through its membership in the International Organisation
of Securities Commissions, the Commodity Futures Trading
Commission has promoted beneficial communication among market
regulators and international regulatory cooperation; and
(7) the Commodity Futures Trading Commission and other United
States financial regulators and self-regulatory organizations
should continue to foster productive and cooperative working
relationships with their counterparts in foreign jurisdictions.
(b) Sense of the Congress.--It is the sense of the Congress that,
consistent with its responsibilities under the Commodity Exchange Act,
the Commodity Futures Trading Commission should, as part of its
international activities, continue to coordinate with foreign
regulatory authorities, to participate in international regulatory
organizations and forums, and to provide technical assistance to
foreign government authorities, in order to encourage--
(1) the facilitation of cross-border transactions through the
removal or lessening of any unnecessary legal or practical
obstacles;
(2) the development of internationally accepted regulatory
standards of best practice;
(3) the enhancement of international supervisory cooperation
and emergency procedures;
(4) the strengthening of international cooperation for
customer and market protection; and
(5) improvements in the quality and timeliness of
international information sharing.
SEC. 132. ANTIFRAUD PROVISIONS.
(a) In General.--It shall be unlawful to commit retail derivatives
fraud by the use of any means or instruments of transportation or
communication in interstate commerce or of the mails.
(b) Definitions.--For purposes of this section, the following
definitions shall apply:
(1) Eligible contract participant.--The term ``eligible
contract participant'' has the same meaning as in section 1a of
the Commodity Exchange Act.
(2) Federal financial institution regulator.--The term
``Federal financial institution regulator'' means--
(A) any Federal functional regulator (as defined in
section 509(2) of the Gramm-Leach-Bliley Act) in the
case of any financial institution described in
paragraph (3)(A); and
(B) the Commodity Futures Trading Commission, in the
case of a financial institution described in paragraph
(3)(B).
(3) Financial institution.--The term ``financial
institution''--
(A) has the meaning given to such term in
subparagraph (A) of section 509(3) of the Gramm-Leach-
Bliley Act; and
(B) includes any person or entity described in
subparagraph (B) of such section 509(3).
(4) Retail derivatives fraud.--The term ``retail derivatives
fraud'' means any fraud perpetrated by a party on a
counterparty (other than a counterparty that is an eligible
contract participant) to any agreement, contract, transaction,
warrant, note or option (other than a contract of sale of a
commodity for future delivery or an option on such contract
(unless such contract or option has been excluded from the
Commodity Exchange Act under subsection (c), (d), (f), or (i)
of section 2 of such Act), or a security) that is based, in
whole or in part, on the value of any interest in, or a
quantitative measure relating to 1 or more commodities,
securities, currencies, interest or other rates, indices, or
other assets, or the occurrence of any event.
(5) Security.--The term ``security'' has the same meaning as
in section 3 of the Securities Exchange Act of 1934.
(c) Enforcement.--This section shall be enforced by the appropriate
Federal financial institution regulator, any appropriate State
insurance authority, and the Federal Trade Commission with respect to
financial institutions and other persons subject to the jurisdiction of
such agency or authority under applicable law, as follows:
(1) Under section 8 of the Federal Deposit Insurance Act, in
the case of--
(A) national banks, Federal branches and Federal
agencies of foreign banks, and any subsidiaries of such
entities (except brokers, dealers, futures commission
merchants, persons providing insurance, investment
companies, and investment advisers), by the office of
the Comptroller of the Currency;
(B) member banks of the Federal Reserve System (other
than national banks), branches and agencies of foreign
banks (other than Federal branches, Federal agencies,
and insured State branches of foreign banks),
commercial lending companies owned or controlled by
foreign banks, organizations operating under section 25
or 25A of the Federal Reserve Act, and bank holding
companies and their nonbank affiliates (other than
financial institutions of whom the Securities and
Exchange Commission is the federal functional
regulator), by the Board of Governors of the Federal
Reserve System;
(C) banks insured by the Federal Deposit Insurance
Corporation (other than members of the Federal Reserve
System), insured State branches of foreign banks, and
any subsidiaries of such entities (other than
subsidiaries of whom the Securities and Exchange
Commission is the Federal functional regulator), by the
Board of Directors of the Federal Deposit Insurance
Corporation; and
(D) savings associations the deposits of which are
insured by the Federal Deposit Insurance Corporation,
and any subsidiaries of such savings associations
(other than a subsidiary of whom the Securities and
Exchange Commission is the Federal functional
regulator), by the Director of the Office of Thrift
Supervision.
(2) Under the Federal Credit Union Act, by the Board of the
National Credit Union Administration with respect to any
federally insured credit union, and any subsidiary of any such
credit union (other than a subsidiary of whom the Securities
and Exchange Commission is the Federal functional regulator).
(3) Under the Securities Exchange Act of 1934, by the
Securities and Exchange Commission with respect to--
(A) any broker, dealer, or investment bank holding
company; or
(B) any associated person of a broker or dealer,
concerning the financial or securities activities of
which the broker or dealer makes and keeps records
under section 15C(b) or 17(h) of the Securities
Exchange Act of 1934.
(4) Under the Investment Company Act of 1940, by the
Securities and Exchange Commission with respect to investment
companies.
(5) Under the Investment Advisers Act of 1940, by the
Securities and Exchange Commission with respect to investment
advisers.
(6) Under the Commodity Exchange Act, by the Commodity
Futures Trading Commission with respect to a commodity trading
adviser, commodity pool operator, or futures commission
merchant.
(7) Under State insurance law, in the case of any person
engaged in providing insurance, by the applicable State
insurance authority of the State in which the defrauded person
is domiciled.
(8) Under the Federal Trade Commission Act, by the Federal
Trade Commission for any other financial institution or other
person that is not subject to the jurisdiction of any agency or
authority under any other paragraph of this subsection.
(d) Criminal Penalties.--Any person who willfully violates subsection
(a) shall be fined not more than $1,000,000, in the case of an
individual, or $2,500,000 in the case of any person other than an
individual, or imprisoned not more than 10 years, or both.
SEC. 133. RETAIL SWAP CUSTOMER PROTECTIONS.
(a) In General.--The Federal Deposit Insurance Act (12 U.S.C. 1811 et
seq.) is amended by adding at the end the following new section:
``SEC. 49. RETAIL SWAP CUSTOMER PROTECTIONS.
``(a) Regulations Authorized.--The Board of Governors of the Federal
Reserve System and the Secretary of the Treasury may, in consultation
with appropriate Federal banking agencies, the Securities and Exchange
Commission, and the Commodity Futures Trading Commission, jointly
prescribe customer protection regulations that apply to sales practices
relating to swap agreements (as defined in section 206(b) of the Gramm-
Leach-Bliley Act) between financial institutions and retail customers.
``(b) Sales Practice Regulations.--The regulations prescribed under
subsection (a) may address--
``(1) the information that financial institutions shall
obtain from retail customers in order to determine whether swap
agreements recommended by the financial institution to retail
customers are appropriate in light of the retail customer's net
worth, ability and willingness to incur losses, risk management
needs, financial goals, investment experience and history, and
other indicia of appropriateness;
``(2) information that financial institutions shall provide
to retail customers to help the retail customers understand the
economic characteristics and risks of swap agreements
recommended by financial institutions;
``(3) measures to protect retail customers against
fraudulent, deceptive, and manipulative acts and practices;
``(4) the extent to which access of retail customers to
particular classes of swap agreements should be restricted; and
``(5) such other matters as the Secretary of the Treasury and
the Board of Governors of the Federal Reserve System determine
are necessary or appropriate for the protection of retail
customers of swap agreements.
``(c) Definitions.--
``(1) Financial Institution.--The term `financial
institution' means a person described in subclause (I), (II),
(III), (IV), (V), or (VI) of section 2(c)(2)(B)(ii) of the
Commodity Exchange Act.
``(2) Retail Customer.--The term `retail customer' means a
person other than an eligible contract participant (as defined
in section 1a(11) of the Commodity Exchange Act).
``(d) Enforcement.--The regulations prescribed under subsection (a)
shall be enforced as follows:
``(1) Subject to section 45 of the Federal Deposit Insurance
Act, under section 8 of the Federal Deposit Insurance Act, in
the case of--
``(A) any national bank, Federal branch or Federal
agency of a foreign bank, or any subsidiary of a
national bank (other than any broker, dealer,
investment company or investment adviser) by the
Comptroller of the Currency;
``(B) any member bank (other than a national bank),
branch or agency of a foreign bank (other than a
Federal branch, Federal agency, or insured State branch
of a foreign bank), commercial lending company owned or
controlled by a foreign bank, organization operating
under section 25 or 25A of the Federal Reserve Act, any
subsidiary of any such entity (other than any broker,
dealer, investment company or investment adviser) and
any bank holding company and any nonbank affiliate of
any such company (other than any broker, dealer,
investment company or investment adviser) by the Board
of Governors of the Federal Reserve System;
``(C) any insured State nonmember bank, insured State
branch of a foreign bank, or any subsidiary of any such
entity (other than any broker, dealer, investment
company, or investment adviser) by the Board of
Directors of the Federal Deposit Insurance Corporation;
and
``(D) any savings association the deposits of which
are insured by the Corporation, any savings and loan
holding company, or any subsidiary of any such savings
association or holding company (other than any broker,
dealer, investment company or investment adviser) by
the Director of the Office of Thrift Supervision.
``(2) Under the Federal Credit Union Act, by the National
Credit Union Administration Board with respect to any federally
insured credit union, and any subsidiaries of such an entity.
``(3) Under the Securities Exchange Act of 1934, by the
Securities and Exchange Commission with respect to any
registered broker or dealer, or any associated person thereof
that is not otherwise regulated.
``(4) Under the Commodity Exchange Act, by the Commodity
Futures Trading Commission, with respect to any registered
futures commission merchant, or any affiliated person of any
such futures commission merchant that is not otherwise
regulated.
``(5) Under State insurance law, in the case of any person
engaged in providing insurance, or any affiliate of any such
person that is not otherwise regulated, by the applicable State
insurance authority of the State in which the person is
domiciled.''.
(b) Report.--If regulations authorized under the amendment made by
subsection (a) have not been prescribed in final form before the end of
the 1-year period beginning on the date of the enactment of this Act,
the Board of Governors of the Federal Reserve System and the Secretary
of the Treasury shall each submit a report to the Congress within 15
days after the end of such period containing an explanation of why such
regulations were not prescribed in final form by the end of such
period.
TITLE II--FINANCIAL CONTRACT NETTING IMPROVEMENT
SEC. 201. SHORT TITLE.
This title may be cited as the ``Financial Contract Netting
Improvement Act of 2000''.
SEC. 202. TREATMENT OF CERTAIN AGREEMENTS BY CONSERVATORS OR RECEIVERS
OF INSURED DEPOSITORY INSTITUTIONS.
(a) Definition of Qualified Financial Contract.--Section
11(e)(8)(D)(i) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(i)) is amended by inserting ``, resolution or order''
after ``any similar agreement that the Corporation determines by
regulation''.
(b) Definition of Securities Contract.--Section 11(e)(8)(D)(ii) of
the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(ii)) is
amended to read as follows:
``(ii) Securities contract.--The term
`securities contract'--
``(I) means a contract for the
purchase, sale, or loan of a security,
a certificate of deposit, a mortgage
loan, or any interest in a mortgage
loan, a group or index of securities,
certificates of deposit, or mortgage
loans or interests therein (including
any interest therein or based on the
value thereof) or any option on any of
the foregoing, including any option to
purchase or sell any such security,
certificate of deposit, loan, interest,
group or index, or option;
``(II) does not include any purchase,
sale, or repurchase obligation under a
participation in a commercial mortgage
loan unless the Corporation determines
by regulation, resolution, or order to
include any such agreement within the
meaning of such term;
``(III) means any option entered into
on a national securities exchange
relating to foreign currencies;
``(IV) means the guarantee by or to
any securities clearing agency of any
settlement of cash, securities,
certificates of deposit, mortgage loans
or interests therein, group or index of
securities, certificates of deposit, or
mortgage loans or interests therein
(including any interest therein or
based on the value thereof) or option
on any of the foregoing, including any
option to purchase or sell any such
security, certificate of deposit, loan,
interest, group or index, or option;
``(V) means any margin loan;
``(VI) means any other agreement or
transaction that is similar to any
agreement or transaction referred to in
this clause;
``(VII) means any combination of the
agreements or transactions referred to
in this clause;
``(VIII) means any option to enter
into any agreement or transaction
referred to in this clause;
``(IX) means a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (III), (IV), (V), (VI), (VII), or
(VIII), together with all supplements
to any such masteragreement, without
regard to whether the master agreement provides for an agreement or
transaction that is not a securities contract under this clause, except
that the master agreement shall be considered to be a securities
contract under this clause only with respect to each agreement or
transaction under the master agreement that is referred to in subclause
(I), (III), (IV), (V), (VI), (VII), or (VIII); and
``(X) means any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this clause.''.
(c) Definition of Commodity Contract.--Section 11(e)(8)(D)(iii) of
the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(iii)) is
amended to read as follows:
``(iii) Commodity contract.--The term
`commodity contract' means--
``(I) with respect to a futures
commission merchant, a contract for the
purchase or sale of a commodity for
future delivery on, or subject to the
rules of, a contract market or board of
trade;
``(II) with respect to a foreign
futures commission merchant, a foreign
future;
``(III) with respect to a leverage
transaction merchant, a leverage
transaction;
``(IV) with respect to a clearing
organization, a contract for the
purchase or sale of a commodity for
future delivery on, or subject to the
rules of, a contract market or board of
trade that is cleared by such clearing
organization, or commodity option
traded on, or subject to the rules of,
a contract market or board of trade
that is cleared by such clearing
organization;
``(V) with respect to a commodity
options dealer, a commodity option;
``(VI) any other agreement or
transaction that is similar to any
agreement or transaction referred to in
this clause;
``(VII) any combination of the
agreements or transactions referred to
in this clause;
``(VIII) any option to enter into any
agreement or transaction referred to in
this clause;
``(IX) a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (II), (III), (IV), (V), (VI),
(VII), or (VIII), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
commodity contract under this clause,
except that the master agreement shall
be considered to be a commodity
contract under this clause only with
respect to each agreement or
transaction under the master agreement
that is referred to in subclause (I),
(II), (III), (IV), (V), (VI), (VII), or
(VIII); or
``(X) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this clause.''.
(d) Definition of Forward Contract.--Section 11(e)(8)(D)(iv) of the
Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(iv)) is amended
to read as follows:
``(iv) Forward contract.--The term `forward
contract' means--
``(I) a contract (other than a
commodity contract) for the purchase,
sale, or transfer of a commodity or any
similar good, article, service, right,
or interest which is presently or in
the future becomes the subject of
dealing in the forward contract trade,
or product or byproduct thereof, with a
maturity date more than 2 days after
the date the contract is entered into,
including a repurchase transaction,
reverse repurchase transaction,
consignment, lease, swap, hedge
transaction, deposit, loan, option,
allocated transaction, unallocated
transaction, or any other similar
agreement;
``(II) any combination of agreements
or transactions referred to in
subclauses (I) and (III);
``(III) any option to enter into any
agreement or transaction referred to in
subclause (I) or (II);
``(IV) a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (II), or (III), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
forward contract under this clause,
except that the master agreement shall
be considered to be a forward contract
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (II), or (III); or
``(V) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in subclause (I), (II),
(III), or (IV).''.
(e) Definition of Repurchase Agreement.--Section 11(e)(8)(D)(v) of
the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(v)) is
amended to read as follows:
``(v) Repurchase agreement.--The term
`repurchase agreement' (which definition also
applies to the term `reverse repurchase
agreement')--
``(I) means an agreement, including
related terms, which provides for the
transfer of 1 or more certificates of
deposit, mortgage-related securities
(as such term is defined in the
Securities Exchange Act of 1934),
mortgage loans, interests in mortgage-
related securities or mortgage loans,
eligible bankers' acceptances,
qualified foreign government securities
or securities that are direct
obligations of, or that are fully
guaranteed by, the United States or any
agency of the United States against the
transfer of funds by the transferee of
such certificates of deposit, eligible
bankers' acceptances, securities,
loans, or interests with a simultaneous
agreement by such transferee to
transfer to the transferor thereof
certificates of deposit, eligible
bankers' acceptances, securities,
loans, or interests as described above,
at a date certain not later than 1 year
after such transfers or on demand,
against the transfer of funds, or any
other similar agreement;
``(II) does not include any
repurchase obligation under a
participation in a commercial mortgage
loan unless the Corporation determines
by regulation, resolution, or order to
include any such participation within
the meaning of such term;
``(III) means any combination of
agreements or transactions referred to
in subclauses (I) and (IV);
``(IV) means any option to enter into
any agreement or transaction referred
to in subclause (I) or (III);
``(V) means a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (III), or (IV), together with all
supplements to any such master
agreement, without regard to whether
the master agreement provides for an
agreement or transaction that is not a
repurchase agreement under this clause,
except that the master agreement shall
be considered to be a repurchase
agreement under this subclause only
with respect to each agreement or
transaction under the master agreement
that is referred to in subclause (I),
(III), or (IV); and
``(VI) means any security agreement
or arrangement or other credit
enhancement related to any agreement or
transaction referred to in subclause
(I), (III), (IV), or (V).
For purposes of this clause, the term
`qualified foreign government security' means a
security that is a direct obligation of, or
that is fully guaranteed by, the central
government of a member of the Organization for
Economic Cooperation and Development (as
determined by regulation or order adopted by
the appropriate Federal banking authority).''.
(f) Definition of Swap Agreement.--Section 11(e)(8)(D)(vi) of the
Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(vi)) is amended
to read as follows:
``(vi) Swap agreement.--The term `swap
agreement' means--
``(I) any agreement, including the
terms and conditions incorporated by
reference in any such agreement, which
is an interest rate swap, option,
future, or forward agreement, including
a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis
swap; a spot, same day-tomorrow,
tomorrow-next, forward, or other
foreign exchange or precious metals
agreement; a currency swap, option,
future, or forward agreement; an equity
index or equity swap, option, future,
or forward agreement; a debt index or
debt swap, option, future, or forward
agreement; a credit spread or credit
swap, option, future, or forward
agreement; a commodity indexor
commodity swap, option, future, or forward agreement; or a weather
swap, weather derivative, or a weather option;
``(II) any agreement or transaction
similar to any other agreement or
transaction referred to in this clause
that is presently, or in the future
becomes, regularly entered into in the
swap market (including terms and
conditions incorporated by reference in
such agreement) and that is a forward,
swap, future, or option on 1 or more
rates, currencies, commodities, equity
securities or other equity instruments,
debt securities or other debt
instruments, or economic indices or
measures of economic risk or value;
``(III) any combination of agreements
or transactions referred to in this
clause;
``(IV) any option to enter into any
agreement or transaction referred to in
this clause;
``(V) a master agreement that
provides for an agreement or
transaction referred to in subclause
(I), (II), (III), or (IV), together
with all supplements to any such master
agreement, without regard to whether
the master agreement contains an
agreement or transaction that is not a
swap agreement under this clause,
except that the master agreement shall
be considered to be a swap agreement
under this clause only with respect to
each agreement or transaction under the
master agreement that is referred to in
subclause (I), (II), (III), or (IV);
and
``(VI) any security agreement or
arrangement or other credit enhancement
related to any agreements or
transactions referred to in
subparagraph (I), (II), (III), (IV), or
(V).
Such term is applicable for purposes of this
title only and shall not be construed or
applied so as to challenge or affect the
characterization, definition, or treatment of
any swap agreement under any other statute,
regulation, or rule, including the Securities
Act of 1933, the Securities Exchange Act of
1934, the Public Utility Holding Company Act of
1935, the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the Investment
Advisers Act of 1940, the Securities Investor
Protection Act of 1970, the Commodity Exchange
Act, and the regulations promulgated by the
Securities and Exchange Commission or the
Commodity Futures Trading Commission.''.
(g) Definition of Transfer.--Section 11(e)(8)(D)(viii) of the Federal
Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)(viii)) is amended to
read as follows:
``(viii) Transfer.--The term `transfer' means
every mode, direct or indirect, absolute or
conditional, voluntary or involuntary, of
disposing of or parting with property or with
an interest in property, including retention of
title as a security interest and foreclosure of
the depository institutions's equity of
redemption.''.
(h) Treatment of Qualified Financial Contracts.--Section 11(e)(8) of
the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)) is amended--
(1) in subparagraph (A), by striking ``paragraph (10)'' and
inserting ``paragraphs (9) and (10)'';
(2) in subparagraph (A)(i), by striking ``to cause the
termination or liquidation'' and inserting ``such person has to
cause the termination, liquidation, or acceleration'';
(3) by amending subparagraph (A)(ii) to read as follows:
``(ii) any right under any security agreement
or arrangement or other credit enhancement
related to 1 or more qualified financial
contracts described in clause (i);''; and
(4) by amending subparagraph (E)(ii) to read as follows:
``(ii) any right under any security agreement
or arrangement or other credit enhancement
related to 1 or more qualified financial
contracts described in clause (i);''.
(i) Avoidance of Transfers.--Section 11(e)(8)(C)(i) of the Federal
Deposit Insurance Act (12 U.S.C. 1821(e)(8)(C)(i)) is amended by
inserting ``section 5242 of the Revised Statutes of the United States
(12 U.S.C. 91) or any other Federal or State law relating to the
avoidance of preferential or fraudulent transfers,'' before ``the
Corporation''.
SEC. 203. AUTHORITY OF THE CORPORATION WITH RESPECT TO FAILED AND
FAILING INSTITUTIONS.
(a) In General.--Section 11(e)(8) of the Federal Deposit Insurance
Act (12 U.S.C. 1821(e)(8)) is amended--
(1) in subparagraph (E), by striking ``other than paragraph
(12) of this subsection, subsection (d)(9)'' and inserting
``other than subsections (d)(9) and (e)(10)''; and
(2) by adding at the end the following new subparagraphs:
``(F) Clarification.--No provision of law shall be
construed as limiting the right or power of the
Corporation, or authorizing any court or agency to
limit or delay, in any manner, the right or power of
the Corporation to transfer any qualified financial
contract in accordance with paragraphs (9) and (10) of
this subsection or to disaffirm or repudiate any such
contract in accordance with paragraph (1).
``(G) Walkaway clauses not effective.--
``(i) In general.--Notwithstanding the
provisions of subparagraphs (A) and (E), and
sections 403 and 404 of the Federal Deposit
Insurance Corporation Improvement Act of 1991,
no walkaway clause shall be enforceable in a
qualified financial contract of an insured
depository institution in default.
``(ii) Walkaway clause defined.--For purposes
of this subparagraph, the term `walkaway
clause' means a provision in a qualified
financial contract that, after calculation of a
value of a party's position or an amount due to
or from 1 of the parties in accordance with its
terms upon termination, liquidation, or
acceleration of the qualified financial
contract, either does not create a payment
obligation of a party or extinguishes a payment
obligation of a party in whole or in part
solely because of such party's status as a
nondefaulting party.''.
(b) Technical and Conforming Amendment.--Section 11(e)(12)(A) of the
Federal Deposit Insurance Act (12 U.S.C. 1821(e)(12)(A)) is amended by
inserting ``or the exercise of rights or powers'' after ``the
appointment''.
SEC. 204. AMENDMENTS RELATING TO TRANSFERS OF QUALIFIED FINANCIAL
CONTRACTS.
(a) Transfers of Qualified Financial Contracts to Financial
Institutions.--Section 11(e)(9) of the Federal Deposit Insurance Act
(12 U.S.C. 1821(e)(9)) is amended to read as follows:
``(9) Transfer of qualified financial contracts.--
``(A) In general.--In making any transfer of assets
or liabilities of a depository institution in default
which includes any qualified financial contract, the
conservator or receiver for such depository institution
shall either--
``(i) transfer to 1 financial institution,
other than a financial institution for which a
conservator, receiver, trustee in bankruptcy,
or other legal custodian has been appointed or
which is otherwise the subject of a bankruptcy
or insolvency proceeding--
``(I) all qualified financial
contracts between any person or any
affiliate of such person and the
depository institution in default;
``(II) all claims of such person or
any affiliate of such person against
such depository institution under any
such contract (other than any claim
which, under the terms of any such
contract, is subordinated to the claims
of general unsecured creditors of such
institution);
``(III) all claims of such depository
institution against such person or any
affiliate of such person under any such
contract; and
``(IV) all property securing or any
other credit enhancement for any
contract described in subclause (I) or
any claim described in subclause (II)
or (III) under any such contract; or
``(ii) transfer none of the qualified
financial contracts, claims, property or other
credit enhancement referred to in clause (i)
(with respect to such person and any affiliate
of such person).
``(B) Transfer to foreign bank, foreign financial
institution, or branch or agency of a foreign bank or
financial institution.--In transferring any qualified
financial contracts and related claims and property
pursuant to subparagraph (A)(i), the conservator or
receiver for such depository institution shall not make
such transfer to a foreign bank, financial institution
organized under the laws of a foreign country, or a
branch or agency of a foreign bank or financial
institution unless, under the law applicable to such
bank, financial institution, branch or agency, to the
qualified financial contracts, and to any netting
contract, any security agreement or arrangement or
other credit enhancement related to 1 or more qualified
financial contracts, the contractual rights of the
parties to such qualified financial contracts, netting
contracts, security agreements orarrangements, or other
credit enhancements are enforceable substantially to the same extent as
permitted under this section.
``(C) Transfer of contracts subject to the rules of a
clearing organization.--In the event that a conservator
or receiver transfers any qualified financial contract
and related claims, property and credit enhancements
pursuant to subparagraph (A)(i) and such contract is
subject to the rules of a clearing organization, the
clearing organization shall not be required to accept
the transferee as a member by virtue of the transfer.
``(D) Definition.--For purposes of this section, the
term `financial institution' means a broker or dealer,
a depository institution, a futures commission
merchant, or any other institution as determined by the
Corporation by regulation to be a financial
institution.''.
(b) Notice to Qualified Financial Contract Counterparties.--Section
11(e)(10)(A) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(10)(A)) is amended by amending the flush material following
clause (ii) to read as follows: ``the conservator or receiver shall
notify any person who is a party to any such contract of such transfer
by 5:00 p.m. (eastern time) on the business day following the date of
the appointment of the receiver, in the case of a receivership, or the
business day following such transfer, in the case of a
conservatorship.''.
(c) Rights Against Receiver and Treatment of Bridge Banks.--Section
11(e)(10) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(10))
is further amended--
(1) by redesignating subparagraph (B) as subparagraph (D);
and
(2) by inserting after subparagraph (A) the following new
subparagraphs:
``(B) Certain rights not enforceable.--
``(i) Receivership.--A person who is a party
to a qualified financial contract with an
insured depository institution may not exercise
any right such person has to terminate,
liquidate, or net such contract under paragraph
(8)(A) or section 403 or 404 of the Federal
Deposit Insurance Corporation Improvement Act
of 1991 solely by reason of or incidental to
the appointment of a receiver for the
depository institution (or the insolvency or
financial condition of the depository
institution for which the receiver has been
appointed)--
``(I) until 5:00 p.m. (eastern time)
on the business day following the date
of the appointment of the receiver; or
``(II) after the person has received
notice that the contract has been
transferred pursuant to paragraph
(9)(A).
``(ii) Conservatorship.--A person who is a
party to a qualified financial contract with an
insured depository institution may not exercise
any right such person has to terminate,
liquidate, or net such contract under paragraph
(8)(E) or section 403 or 404 of the Federal
Deposit Insurance Corporation Improvement Act
of 1991, solely by reason of or incidental to
the appointment of a conservator for the
depository institution (or the insolvency or
financial condition of the depository
institution for which the conservator has been
appointed).
``(iii) Notice.--For purposes of this
subsection, the Corporation as receiver or
conservator of an insured depository
institution shall be deemed to have notified a
person who is a party to a qualified financial
contract with such depository institution if
the Corporation has taken steps reasonably
calculated to provide notice to such person by
the time specified in subparagraph (A) of this
subsection.
``(C) Treatment of bridge banks.--The following
institutions shall not be considered a financial
institution for which a conservator, receiver, trustee
in bankruptcy, or other legal custodian has been
appointed or which is otherwise the subject of a
bankruptcy or insolvency proceeding for purposes of
paragraph (9)--
``(i) a bridge bank; or
``(ii) a depository institution organized by
the Corporation, for which a conservator is
appointed either--
``(I) immediately upon the
organization of the institution; or
``(II) at the time of a purchase and
assumption transaction between such
institution and the Corporation as
receiver for a depository institution
in default.''.
SEC. 205. AMENDMENTS RELATING TO DISAFFIRMANCE OR REPUDIATION OF
QUALIFIED FINANCIAL CONTRACTS.
(a) In General.--Section 11(e) of the Federal Deposit Insurance Act
(12 U.S.C. 1821(e)) is further amended--
(1) by redesignating paragraphs (11) through (15) as
paragraphs (12) through (16), respectively; and
(2) by inserting after paragraph (10) the following new
paragraph:
``(11) Disaffirmance or repudiation of qualified financial
contracts.--In exercising the rights of disaffirmance or
repudiation of a conservator or receiver with respect to any
qualified financial contract to which an insured depository
institution is a party, the conservator or receiver for such
institution shall either--
``(A) disaffirm or repudiate all qualified financial
contracts between--
``(i) any person or any affiliate of such
person; and
``(ii) the depository institution in default;
or
``(B) disaffirm or repudiate none of the qualified
financial contracts referred to in subparagraph (A)
(with respect to such person or any affiliate of such
person).''.
(b) Technical and Conforming Amendments.--Section 11(e)(8) of the
Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)) is amended in
subparagraph (C)(i), by striking ``(11)'' and inserting ``(12)''.
SEC. 206. CLARIFYING AMENDMENT RELATING TO MASTER AGREEMENTS.
Section 11(e)(8)(D)(vii) of the Federal Deposit Insurance Act (12
U.S.C. 1821(e)(8)(D)(vii)) is amended to read as follows:
``(vii) Treatment of master agreement as 1
agreement.--Any master agreement for any
contract or agreement described in any
preceding clause of this subparagraph (or any
master agreement for such master agreement or
agreements), together with all supplements to
such master agreement, shall be treated as a
single agreement and a single qualified
financial contract. If a master agreement
contains provisions relating to agreements or
transactions that are not themselves qualified
financial contracts, the master agreement shall
be deemed to be a qualified financial contract
only with respect to those transactions that
are themselves qualified financial
contracts.''.
SEC. 207. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF
1991.
(a) Definitions.--Section 402 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (12 U.S.C. 4402) is amended--
(1) in paragraph (2)--
(A) by inserting ``or exempt from such registration
pursuant to an order of the Securities and Exchange
Commission'' before the semicolon at the end of
subparagraph (A)(ii); and
(B) by inserting ``or that has been granted an
exemption pursuant to section 4(c)(1) of such Act''
before the period at the end of subparagraph (B);
(2) in paragraph (6)--
(A) by redesignating subparagraphs (B) through (D) as
subparagraphs (C) through (E), respectively;
(B) by inserting after subparagraph (A) the following
new subparagraph:
``(B) an uninsured national bank or an uninsured
State bank that is a member of the Federal Reserve
System if the national bank or State member bank is not
eligible to make application to become an insured bank
under section 5 of the Federal Deposit Insurance
Act;''; and
(C) by amending subparagraph (C) (as redesignated) to
read as follows:
``(C) a branch or agency of a foreign bank, a foreign
bank and any branch or agency of the foreign bank, or
the foreign bank that established the branch or agency,
as those terms are defined in section 1(b) of the
International Banking Act of 1978;'';
(3) in paragraph (11), by adding before the period ``and any
other clearing organization with which such clearing
organization has a netting contract'';
(4) by amending paragraph (14)(A)(i) to read as follows:
``(i) means a contract or agreement between
two or more financial institutions, clearing
organizations, or members that provides for
netting present or future payment obligations
or payment entitlements (including liquidation
or closeout values relating to such obligations
or entitlements) among the parties to the
agreement; and''; and
(5) by adding at the end the following new paragraph:
``(15) Payment.--The term `payment' means a payment of United
States dollars, another currency, or a composite currency, and
a noncash delivery, including a payment or delivery to
liquidate an unmatured obligation.''.
(b) Enforceability of Bilateral Netting Contracts.--Section 403 of
the Federal Deposit Insurance Corporation Improvement Act of 1991 (12
U.S.C. 4403) is amended--
(1) by amending subsection (a) to read as follows:
``(a) General Rule.--Notwithstanding any other provision of State or
Federal law (other than paragraphs (8)(E), (8)(F), and (10)(B) of
section 11(e) of the Federal Deposit Insurance Act or any order
authorized under section 5(b)(2) of the Securities Investor Protection
Act of 1970), the covered contractual payment obligations and the
covered contractual payment entitlements between any two financial
institutions shall be netted in accordance with, and subject to the
conditions of, the terms of any applicable netting contract (except as
provided in section 561(b)(2) of title 11, United States Code).''; and
(2) by adding at the end the following new subsection:
``(f) Enforceability of Security Agreements.--The provisions of any
security agreement or arrangement or other credit enhancement related
to 1 or more netting contracts between any two financial institutions
shall be enforceable in accordance with their terms (except as provided
in section 561(b)(2) of title 11, United States Code) and shall not be
stayed, avoided, or otherwise limited by any State or Federal law
(other than paragraphs (8)(E), (8)(F), and (10)(B) of section 11(e) of
the Federal Deposit Insurance Act and section 5(b)(2) of the Securities
Investor Protection Act of 1970).''.
(c) Enforceability of Clearing Organization Netting Contracts.--
Section 404 of the Federal Deposit Insurance Corporation Improvement
Act of 1991 (12 U.S.C. 4404) is amended--
(1) by amending subsection (a) to read as follows:
``(a) General Rule.--Notwithstanding any other provision of State or
Federal law (other than paragraphs (8)(E), (8)(F), and (10)(B) of
section 11(e) of the Federal Deposit Insurance Act and any order
authorized under section 5(b)(2) of the Securities Investor Protection
Act of 1970), the covered contractual payment obligations and the
covered contractual payment entitlements of a member of a clearing
organization to and from all other members of a clearing organization
shall be netted in accordance with and subject to the conditions of any
applicable netting contract (except as provided in section 561(b)(2) of
title 11, United States Code).''; and
(2) by adding at the end the following new subsection:
``(h) Enforceability of Security Agreements.--The provisions of any
security agreement or arrangement or other credit enhancement related
to 1 or more netting contracts between any two members of a clearing
organization shall be enforceable in accordance with their terms
(except as provided in section 561(b)(2) of title 11, United States
Code) and shall not be stayed, avoided, or otherwise limited by any
State or Federal law (other than paragraphs (8)(E), (8)(F), and (10)(B)
of section 11(e) of the Federal Deposit Insurance Act and section
5(b)(2) of the Securities Investor Protection Act of 1970).''.
(d) Enforceability of Contracts With Uninsured National Banks and
Uninsured Federal Branches and Agencies.--The Federal Deposit Insurance
Corporation Improvement Act of 1991 (12 U.S.C. 4401 et seq.) is
amended--
(1) by redesignating section 407 as section 407A; and
(2) by adding after section 406 the following new section:
``SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS AND
UNINSURED FEDERAL BRANCHES AND AGENCIES.
``(a) In General.--Notwithstanding any other provision of law,
paragraphs (8), (9), (10), and (11) of section 11(e) of the Federal
Deposit Insurance Act shall apply to an uninsured national bank or
uninsured Federal branch or Federal agency except--
``(1) any reference to the `Corporation as receiver' or `the
receiver or the Corporation' shall refer to the receiver of an
uninsured national bank or uninsured Federal branch or Federal
agency appointed by the Comptroller of the Currency;
``(2) any reference to the `Corporation' (other than in
section 11(e)(8)(D) of such Act), the `Corporation, whether
acting as such or as conservator or receiver', a `receiver', or
a `conservator' shall refer to the receiver or conservator of
an uninsured national bank or uninsured Federal branch or
Federal agency appointed by the Comptroller of the Currency;
and
``(3) any reference to an `insured depository institution' or
`depository institution' shall refer to an uninsured national
bank or an uninsured Federal branch or Federal agency.
``(b) Liability.--The liability of a receiver or conservator of an
uninsured national bank or uninsured Federal branch or agency shall be
determined in the same manner and subject to the same limitations that
apply to receivers and conservators of insured depository institutions
under section 11(e) of the Federal Deposit Insurance Act.
``(c) Regulatory Authority.--
``(1) In general.--The Comptroller of the Currency, in
consultation with the Federal Deposit Insurance Corporation,
may promulgate regulations to implement this section.
``(2) Specific requirement.--In promulgating regulations to
implement this section, the Comptroller of the Currency shall
ensure that the regulations generally are consistent with the
regulations and policies of the Federal Deposit Insurance
Corporation adopted pursuant to the Federal Deposit Insurance
Act.
``(d) Definitions.--For purposes of this section, the terms `Federal
branch', `Federal agency', and `foreign bank' have the same meaning as
in section 1(b) of the International Banking Act.''.
SEC. 208. BANKRUPTCY CODE AMENDMENTS.
(a) Definitions of Forward Contract, Repurchase Agreement, Securities
Clearing Agency, Swap Agreement, Commodity Contract, and Securities
Contract.--Title 11, United States Code, is amended--
(1) in section 101--
(A) in paragraph (25)--
(i) by striking ``means a contract'' and
inserting ``means--
``(A) a contract'';
(ii) by striking ``, or any combination
thereof or option thereon;'' and inserting ``,
or any other similar agreement;''; and
(iii) by adding at the end the following:
``(B) any combination of agreements or transactions
referred to in subparagraphs (A) and (C);
``(C) any option to enter into an agreement or
transaction referred to in subparagraph (A) or (B);
``(D) a master agreement that provides for an
agreement or transaction referred to in subparagraph
(A), (B), or (C), together with all supplements to any
such master agreement, without regard to whether such
master agreement provides for an agreement or
transaction that is not a forward contract under this
paragraph, except that such master agreement shall be
considered to be a forward contract under this
paragraph only with respect to each agreement or
transaction under such master agreement that is
referred to in subparagraph (A), (B) or (C); or
``(E) any security agreement or arrangement, or other
credit enhancement related to any agreement or
transaction referred to in subparagraph (A), (B), (C),
or (D), but not to exceed the actual value of such
contract on the date of the filing of the petition;'';
(B) in paragraph (46), by striking ``on any day
during the period beginning 90 days before the date
of'' and replacing it with ``at any time before'';
(C) by amending paragraph (47) to read as follows:
``(47) `repurchase agreement' (which definition also applies
to a `reverse repurchase agreement')--
``(A) means--
``(i) an agreement, including related terms,
which provides for the transfer of 1 or more
certificates of deposit, mortgage-related
securities (as defined in the Securities
Exchange Act of 1934), mortgage loans,
interests in mortgage-related securities or
mortgage loans, eligible bankers' acceptances,
qualified foreign government securities, or
securities that are direct obligations of, or
that are fully guaranteed by, the United States
or any agency of the United States against the
transfer of funds by the transferee of such
certificates of deposit, eligible bankers'
acceptances, securities, loans, or interests,
with a simultaneous agreement by such
transferee to transfer to the transferor
thereof certificates of deposit, eligible
bankers' acceptance, securities, loans, or
interests of the kind described above, at a
date certain not later than 1 year after such
transfer or on demand, against the transfer of
funds;
``(ii) any combination of agreements or
transactions referred to in clauses (i) and
(iii);
``(iii) an option to enter into an agreement
or transaction referred to in clause (i) or
(ii);
``(iv) a master agreement that provides for
an agreement or transaction referred to in
clause (i), (ii), or (iii), together with all
supplements to any such master agreement,
without regard to whether suchmaster agreement
provides for an agreement or transaction that is not a repurchase
agreement under this paragraph, except that such master agreement shall
be considered to be a repurchase agreement under this paragraph only
with respect to each agreement or transaction under the master
agreement that is referred to in clause (i), (ii), or (iii); or
``(v) any security agreement or arrangement
or other credit enhancement related to any
agreement or transaction referred to in clause
(i), (ii), (iii), or (iv), but not to exceed
the actual value of such contract on the date
of the filing of the petition; and
``(B) does not include a repurchase obligation under
a participation in a commercial mortgage loan,
and, for purposes of this paragraph, the term `qualified
foreign government security' means a security that is a direct
obligation of, or that is fully guaranteed by, the central
government of a member of the Organization for Economic
Cooperation and Development;'';
(D) in paragraph (48) by inserting ``or exempt from
such registration under such section pursuant to an
order of the Securities and Exchange Commission'' after
``1934''; and
(E) by amending paragraph (53B) to read as follows:
``(53B) `swap agreement'--
``(A) means--
``(i) any agreement, including the terms and
conditions incorporated by reference in such
agreement, which is an interest rate swap,
option, future, or forward agreement, including
a rate floor, rate cap, rate collar, cross-
currency rate swap, and basis swap; a spot,
same day-tomorrow, tomorrow-next, forward, or
other foreign exchange or precious metals
agreement; a currency swap, option, future, or
forward agreement; an equity index or an equity
swap, option, future, or forward agreement; a
debt index or a debt swap, option, future, or
forward agreement; a credit spread or a credit
swap, option, future, or forward agreement; a
commodity index or a commodity swap, option,
future, or forward agreement; or a weather
swap, weather derivative, or weather option;
``(ii) any agreement or transaction similar
to any other agreement or transaction referred
to in this paragraph that--
``(I) is presently, or in the future
becomes, regularly entered into in the
swap market (including terms and
conditions incorporated by reference
therein); and
``(II) is a forward, swap, future, or
option on 1 or more rates, currencies,
commodities, equity securities, or
other equity instruments, debt
securities or other debt instruments,
or economic indices or measures of
economic risk or value;
``(iii) any combination of agreements or
transactions referred to in this paragraph;
``(iv) any option to enter into an agreement
or transaction referred to in this paragraph;
``(v) a master agreement that provides for an
agreement or transaction referred to in clause
(i), (ii), (iii), or (iv), together with all
supplements to any such master agreement, and
without regard to whether the master agreement
contains an agreement or transaction that is
not a swap agreement under this paragraph,
except that the master agreement shall be
considered to be a swap agreement under this
paragraph only with respect to each agreement
or transaction under the master agreement that
is referred to in clause (i), (ii), (iii), or
(iv); or
``(B) any security agreement or arrangement or other
credit enhancement related to any agreements or
transactions referred to in subparagraph (A), but not
to exceed the actual value of such contract on the date
of the filing of the petition; and
``(C) is applicable for purposes of this title only
and shall not be construed or applied so as to
challenge or affect the characterization, definition,
or treatment of any swap agreement under any other
statute, regulation, or rule, including the Securities
Act of 1933, the Securities Exchange Act of 1934, the
Public Utility Holding Company Act of 1935, the Trust
Indenture Act of 1939, the Investment Company Act of
1940, the Investment Advisers Act of 1940, the
Securities Investor Protection Act of 1970, the
Commodity Exchange Act, and the regulations prescribed
by the Securities and Exchange Commission or the
Commodity Futures Trading Commission.'';
(2) by amending section 741(7) to read as follows:
``(7) `securities contract'--
``(A) means--
``(i) a contract for the purchase, sale, or
loan of a security, a certificate of deposit, a
mortgage loan or any interest in a mortgage
loan, a group or index of securities,
certificates of deposit or mortgage loans or
interests therein (including an interest
therein or based on the value thereof), or
option on any of the foregoing, including an
option to purchase or sell any such security,
certificate of deposit, loan, interest, group
or index, or option;
``(ii) any option entered into on a national
securities exchange relating to foreign
currencies;
``(iii) the guarantee by or to any securities
clearing agency of a settlement of cash,
securities, certificates of deposit, mortgage
loans or interests therein, group or index of
securities, or mortgage loans or interests
therein (including any interest therein or
based on the value thereof), or option on any
of the foregoing, including an option to
purchase or sell any such security, certificate
of deposit, loan, interest, group or index, or
option;
``(iv) any margin loan;
``(v) any other agreement or transaction that
is similar to an agreement or transaction
referred to in this paragraph;
``(vi) any combination of the agreements or
transactions referred to in this paragraph;
``(vii) any option to enter into any
agreement or transaction referred to in this
paragraph;
``(viii) a master agreement that provides for
an agreement or transaction referred to in
clause (i), (ii), (iii), (iv), (v), (vi), or
(vii), together with all supplements to any
such master agreement, without regard to
whether the master agreement provides for an
agreement or transaction that is not a
securities contract under this paragraph,
except that such master agreement shall be
considered to be a securities contract under
this paragraph only with respect to each
agreement or transaction under such master
agreement that is referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii); or
``(ix) any security agreement or arrangement
or other credit enhancement related to any
agreement or transaction referred to in this
paragraph, but not to exceed the actual value
of such contract on the date of the filing of
the petition; and
``(B) does not include any purchase, sale, or
repurchase obligation under a participation in a
commercial mortgage loan.''; and
(3) in section 761(4)--
(A) by striking ``or'' at the end of subparagraph
(D); and
(B) by adding at the end the following:
``(F) any other agreement or transaction that is
similar to an agreement or transaction referred to in
this paragraph;
``(G) any combination of the agreements or
transactions referred to in this paragraph;
``(H) any option to enter into an agreement or
transaction referred to in this paragraph;
``(I) a master agreement that provides for an
agreement or transaction referred to in subparagraph
(A), (B), (C), (D), (E), (F), (G), or (H), together
with all supplements to such master agreement, without
regard to whether the master agreement provides for an
agreement or transaction that is not a commodity
contract under this paragraph, except that the master
agreement shall be considered to be a commodity
contract under this paragraph only with respect to each
agreement or transaction under the master agreement
that is referred to in subparagraph (A), (B), (C), (D),
(E), (F), (G), or (H); or
``(J) any security agreement or arrangement or other
credit enhancement related to any agreement or
transaction referred to in this paragraph, but not to
exceed the actual value of such contract on the date of
the filing of the petition;''.
(b) Definitions of Financial Participant and Forward Contract
Merchant.--Section 101 of title 11, United States Code, is amended--
(1) by inserting after paragraph (22) the following:
``(22A) `financial participant' means an entity that, at the
time it enters into a securities contract, commodity contract
or forward contract, or at the time ofthe filing of the
petition, has 1 or more agreements or transactions described in
paragraph (1), (2), (3), (4), (5), or (6) of section 561(a) with the
debtor or any other entity (other than an affiliate) of a total gross
dollar value of at least $1,000,000,000 in notional or actual principal
amount outstanding on any day during the previous 15-month period, or
has gross mark-to-market positions of at least $100,000,000 (aggregated
across counterparties) in 1 or more such agreement or transaction with
the debtor or any other entity (other than an affiliate) on any day
during the previous 15-month period;''; and
(2) by amending paragraph (26) to read as follows:
``(26) `forward contract merchant' means a Federal reserve
bank, or an entity whose business consists in whole or in part
of entering into forward contracts as or with merchants or in a
commodity, as defined or in section 761, or any similar good,
article, service, right, or interest which is presently or in
the future becomes the subject of dealing or in the forward
contract trade;''.
(c) Definition of Master Netting Agreement and Master Netting
Agreement Participant.--Section 101 of title 11, United States Code, is
amended by inserting after paragraph (38) the following new paragraphs:
``(38A) `master netting agreement' means an agreement
providing for the exercise of rights, including rights of
netting, setoff, liquidation, termination, acceleration, or
closeout, under or in connection with 1 or more contracts that
are described in any 1 or more of paragraphs (1) through (5) of
section 561(a), or any security agreement or arrangement or
other credit enhancement related to 1 or more of the foregoing.
If a master netting agreement contains provisions relating to
agreements or transactions that are not contracts described in
paragraphs (1) through (5) of section 561(a), the master
netting agreement shall be deemed to be a master netting
agreement only with respect to those agreements or transactions
that are described in any 1 or more of the paragraphs (1)
through (5) of section 561(a);
``(38B) `master netting agreement participant' means an
entity that, at any time before the filing of the petition, is
a party to an outstanding master netting agreement with the
debtor;''.
(d) Swap Agreements, Securities Contracts, Commodity Contracts,
Forward Contracts, Repurchase Agreements, and Master Netting Agreements
Under the Automatic-Stay.--
(1) In general.--Section 362(b) of title 11, United States
Code, is amended--
(A) in paragraph (6), by inserting ``, pledged to and
under the control of,'' after ``held by'';
(B) in paragraph (7), by inserting ``, pledged to and
under the control of,'' after ``held by'';
(C) by amending paragraph (17) to read as follows:
``(17) under subsection (a), of the setoff by a swap
participant of a mutual debt and claim under or in connection
with 1 or more swap agreements that constitutes the setoff of a
claim against the debtor for any payment or other transfer of
property due from the debtor under or in connection with any
swap agreement against any payment due to the debtor from the
swap participant under or in connection with any swap agreement
or against cash, securities, or other property held by, pledged
to and under the control of, or due from such swap participant
to margin, guarantee, secure, or settle any swap agreement;'';
(D) in paragraph (18) by striking the period at the
end and inserting ``; or''; and
(E) by inserting after paragraph (18) the following
new paragraph:
``(19) under subsection (a), of the setoff by a master
netting agreement participant of a mutual debt and claim under
or in connection with 1 or more master netting agreements or
any contract or agreement subject to such agreements that
constitutes the setoff of a claim against the debtor for any
payment or other transfer of property due from the debtor under
or in connection with such agreements or any contract or
agreement subject to such agreements against any payment due to
the debtor from such master netting agreement participant under
or in connection with such agreements or any contract or
agreement subject to such agreements or against cash,
securities, or other property held by, pledged to and under the
control of, or due from such master netting agreement
participant to margin, guarantee, secure, or settle such
agreements or any contract or agreement subject to such
agreements, to the extent such participant is eligible to
exercise such offset rights under paragraph (6), (7), or (17)
for each individual contract covered by the master netting
agreement in issue.''.
(2) Limitation.--Section 362 of title 11, United States Code,
is amended by adding at the end the following:
``(i) Limitation.--The exercise of rights not subject to the stay
arising under subsection (a) pursuant to paragraph (6), (7), or (17),
or (32) of subsection (b) shall not be stayed by any order of a court
or administrative agency in any proceeding under this title.''.
(e) Limitation of Avoidance Powers Under Master Netting Agreement.--
Section 546 of title 11, United States Code, is amended--
(1) in subsection (g) (as added by section 103 of Public Law
101-311)--
(A) by striking ``under a swap agreement''; and
(B) by striking ``in connection with a swap
agreement'' and inserting ``under or in connection with
any swap agreement''; and
(2) by adding at the end the following:
``(j) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b), the trustee may not avoid a transfer made by or to a master
netting agreement participant under or in connection with any master
netting agreement or any individual contract covered thereby that is
made before the commencement of the case, except under section
548(a)(1)(A), and except to the extent the trustee could otherwise
avoid such a transfer made under an individual contract covered by such
master netting agreement.''.
(f) Fraudulent Transfers of Master Netting Agreements.--Section
548(d)(2) of title 11, United States Code, is amended--
(1) in subparagraph (C), by striking ``and'';
(2) in subparagraph (D), by striking the period and inserting
``; and''; and
(3) by adding at the end the following new subparagraph:
``(E) a master netting agreement participant that receives a
transfer in connection with a master netting agreement or any
individual contract covered thereby takes for value to the
extent of such transfer, except, with respect to a transfer
under any individual contract covered thereby, to the extent
such master netting agreement participant otherwise did not
take (or is otherwise not deemed to have taken) such transfer
for value.''.
(g) Termination or Acceleration of Securities Contracts.--Section 555
of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 555. Contractual right to liquidate, terminate, or accelerate a
securities contract'';
and
(2) in the first sentence, by striking ``liquidation'' and
inserting ``liquidation, termination, or acceleration''.
(h) Termination or Acceleration of Commodities or Forward
Contracts.--Section 556 of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract'';
and
(2) in the first sentence, by striking ``liquidation'' and
inserting ``liquidation, termination, or acceleration''.
(i) Termination or Acceleration of Repurchase Agreements.--Section
559 of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement'';
and
(2) in the first sentence, by striking ``liquidation'' and
inserting ``liquidation, termination, or acceleration''.
(j) Liquidation, Termination, or Acceleration of Swap Agreements.--
Section 560 of title 11, United States Code, is amended--
(1) by amending the section heading to read as follows:
``Sec. 560. Contractual right to liquidate, terminate, or accelerate a
swap agreement'';
(2) in the first sentence, by striking ``termination of a
swap agreement'' and inserting ``liquidation, termination, or
acceleration of 1 or more swap agreements''; and
(3) by striking ``in connection with any swap agreement'' and
inserting ``in connection with the termination, liquidation, or
acceleration of 1 or more swap agreements''.
(k) Liquidation, Termination, Acceleration, or Offset Under a Master
Netting Agreement and Across Contracts.--(1) Title 11, United States
Code, is amended by inserting after section 560 the following:
``Sec. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across
contracts
``(a) In General.--Subject to subsection (b), the exercise of any
contractual right, because of a condition of the kind specified in
section 365(e)(1), to cause the termination, liquidation, or
acceleration of or to offset or net termination values, payment amounts
or other transfer obligations arising under or in connection with 1 or
more (or the termination, liquidation, or acceleration of 1 or more)--
``(1) securities contracts, as defined in section 741(7);
``(2) commodity contracts, as defined in section 761(4);
``(3) forward contracts;
``(4) repurchase agreements;
``(5) swap agreements; or
``(6) master netting agreements,
shall not be stayed, avoided, or otherwise limited by operation of any
provision of this title or by any order of a court or administrative
agency in any proceeding under this title.
``(b) Exception.--
``(1) A party may exercise a contractual right described in
subsection (a) to terminate, liquidate, or accelerate only to
the extent that such party could exercise such a right under
section 555, 556, 559, or 560 for each individual contract
covered by the master netting agreement in issue.
``(2) If a debtor is a commodity broker subject to subchapter
IV of chapter 7--
``(A) a party may not net or offset an obligation to
the debtor arising under, or in connection with, a
commodity contract against any claim arising under, or
in connection with, other instruments, contracts, or
agreements listed in subsection (a), except to the
extent the party has positive net equity in the
commodity accounts at the debtor, as calculated under
such subchapter; and
``(B) another commodity broker may not net or offset
an obligation to the debtor arising under, or in
connection with, a commodity contract entered into or
held on behalf of a customer of the debtor against any
claim arising under, or in connection with, other
instruments, contracts, or agreements listed in
subsection (a).
``(c) Rule of Application.--Subparagraphs (A) and (B) of subsection
(b)(2) shall not be construed as prohibiting the offset of claims and
obligations arising pursuant to--
``(1) a cross-margining arrangement that has been approved by
the Commodity Futures Trading Commission or that has been
submitted to such Commission pursuant to section 5a(a)(12) of
the Commodity Exchange Act and has been permitted to go into
effect; or
``(2) another netting arrangement, between a clearing
organization (as defined in section 761) and another entity,
that has been approved by the Commodity Futures Trading
Commission.
``(d) Definition.--As used in this section, the term `contractual
right' includes a right set forth in a rule or bylaw of a national
securities exchange, a national securities association, or a securities
clearing agency, a right set forth in a bylaw of a clearing
organization or contract market or in a resolution of the governing
board thereof, and a right, whether or not evidenced in writing,
arising under common law, under law merchant, or by reason of normal
business practice.''.
(2) Conforming amendment.--The table of sections of chapter 5 of
title 11, United States Code, is amended by inserting after the item
relating to section 560 the following:
``561. Contractual right to terminate, liquidate, accelerate, or offset
under a master netting agreement and across contracts.''.
(l) Municipal Bankruptcies.--Section 901(a) of title 11, United
States Code, is amended--
(1) by inserting ``555, 556,'' after ``553,''; and
(2) by inserting ``559, 560, 561, 562,'' after ``557,''.
(m) Ancillary Proceedings.--Section 304 of title 11, United States
Code, is amended by adding at the end the following new subsection:
``(d) Any provisions of this title relating to securities contracts,
commodity contracts, forward contracts, repurchase agreements, swap
agreements, or master netting agreements shall apply in a case
ancillary to a foreign proceeding under this section or any other
section of this title so that enforcement of contractual provisions of
such contracts and agreements in accordance with their terms will not
be stayed or otherwise limited by operation of any provision of this
title or by order of a court in any proceeding under this title, and to
limit avoidance powers to the same extent as in a proceeding under
chapter 7 or 11 (such enforcement not to be limited based on the
presence or absence of assets of the debtor in the United States).''.
(n) Commodity Broker Liquidations.--Title 11, United States Code, is
amended by inserting after section 766 the following:
``Sec. 767. Commodity broker liquidation and forward contract
merchants, commodity brokers, stockbrokers,
financial institutions, financial participants,
securities clearing agencies, swap participants,
repo participants, and master netting agreement
participants
``Notwithstanding any other provision of this title, the exercise of
rights by a forward contract merchant, commodity broker, stockbroker,
financial institution, financial participant, securities clearing
agency, swap participant, repo participant, or master netting agreement
participant under this title shall not affect the priority of any
unsecured claim it may have after the exercise of such rights.''.
(o) Stockbroker Liquidations.--Title 11, United States Code, is
amended by inserting after section 752 the following:
``Sec. 753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, financial participants, securities
clearing agencies, swap participants, repo
participants, and master netting agreement
participants
``Notwithstanding any other provision of this title, the exercise of
rights by a forward contract merchant, commodity broker, stockbroker,
financial institution, securities clearing agency, swap participant,
repo participant, financial participant, or master netting agreement
participant under this title shall not affect the priority of any
unsecured claim it may have after the exercise of such rights.''.
(p) Setoff.--Section 553 of title 11, United States Code, is
amended--
(1) in subsection (a)(3)(C), by inserting ``(except for a
setoff of a kind described in section 362(b)(6), 362(b)(7),
362(b)(17), 362(b)(32), 555, 556, 559, 560 or 561)'' before the
period; and
(2) in subsection (b)(1), by striking ``362(b)(14)'' and
inserting ``362(b)(17), 362(b)(32), 555, 556, 559, 560, 561''.
(q) Securities Contracts, Commodity Contracts, and Forward
Contracts.--Title 11, United States Code, is amended--
(1) in section 362(b)(6), by striking ``financial
institutions,'' each place such term appears and inserting
``financial institution, financial participant'';
(2) in section 546(e), by inserting ``financial
participant,'' after ``financial institution,'';
(3) in section 548(d)(2)(B), by inserting ``financial
participant,'' after ``financial institution,'';
(4) in section 555--
(A) by inserting ``financial participant,'' after
``financial institution,''; and
(B) by inserting before the period at the end ``, a
right set forth in a bylaw of a clearing organization
or contract market or in a resolution of the governing
board thereof, and a right, whether or not in writing,
arising under common law, under law merchant, or by
reason of normal business practice''; and
(5) in section 556, by inserting ``, financial participant''
after ``commodity broker''.
(r) Conforming Amendments.--Title 11, United States Code, is
amended--
(1) in the table of sections of chapter 5--
(A) by amending the items relating to sections 555
and 556 to read as follows:
``555. Contractual right to liquidate, terminate, or accelerate a
securities contract.
``556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract.'';
and
(B) by amending the items relating to sections 559
and 560 to read as follows:
``559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement.
``560. Contractual right to liquidate, terminate, or accelerate a swap
agreement.'';
and
(2) in the table of sections of chapter 7--
(A) by inserting after the item relating to section
766 the following:
``767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial institutions, financial
participants, securities clearing agencies, swap participants, repo
participants, and master netting agreement participants.'';
and
(B) by inserting after the item relating to section
752 the following:
``753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial institutions, financial
participants, securities clearing agencies, swap participants, repo
participants, and master netting agreement participants.''.
SEC. 209. RECORDKEEPING REQUIREMENTS.
Section 11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)) is amended by adding at the end the following new
subparagraph:
``(H) Recordkeeping requirements.--The Corporation,
in consultation with the appropriate Federal banking
agencies, may prescribe regulations requiring more
detailed recordkeeping with respect to qualified
financial contracts (including market valuations) by
insured depository institutions.''.
SEC. 210. EXEMPTIONS FROM CONTEMPORANEOUS EXECUTION REQUIREMENT.
Section 13(e)(2) of the Federal Deposit Insurance Act (12 U.S.C.
1823(e)(2)) is amended to read as follows:
``(2) Exemptions from contemporaneous execution
requirement.--An agreement to provide for the lawful
collateralization of--
``(A) deposits of, or other credit extension by, a
Federal, State, or local governmental entity, or of any
depositor referred to in section 11(a)(2), including an
agreement to provide collateral in lieu of a surety
bond;
``(B) bankruptcy estate funds pursuant to section
345(b)(2) of title 11, United States Code;
``(C) extensions of credit, including any overdraft,
from a Federal reserve bank or Federal home loan bank;
or
``(D) 1 or more qualified financial contracts, as
defined in section 11(e)(8)(D),
shall not be deemed invalid pursuant to paragraph (1)(B) solely
because such agreement was not executed contemporaneously with
the acquisition of the collateral or because of pledges,
delivery, or substitution of the collateral made in accordance
with such agreement.''.
SEC. 211. DAMAGE MEASURE.
(a) In General.--Title 11, United States Code, is amended--
(1) by inserting after section 561 the following:
``Sec. 562. Damage measure in connection with swap agreements,
securities contracts, forward contracts, commodity
contracts, repurchase agreements, or master netting
agreements
``If the trustee rejects a swap agreement, securities contract as
defined in section 741, forward contract, commodity contract (as
defined in section 761) repurchase agreement, or master netting
agreement pursuant to section 365(a), or if a forward contract
merchant, stockbroker, financial institution, securities clearing
agency, repo participant, financial participant, master netting
agreement participant, or swap participant liquidates, terminates, or
accelerates such contract or agreement, damages shall be measured as of
the earlier of--
``(1) the date of such rejection; or
``(2) the date of such liquidation, termination, or
acceleration.''; and
(2) in the table of sections of chapter 5 by inserting after
the item relating to section 561 the following:
``562. Damage measure in connection with swap agreements, securities
contracts, forward contracts, commodity contracts, repurchase
agreements, or master netting agreements.''.
(b) Claims Arising From Rejection.--Section 502(g) of title 11,
United States Code, is amended--
(1) by designating the existing text as paragraph (1); and
(2) by adding at the end the following:
``(2) A claim for damages calculated in accordance with section 562
shall be allowed under subsection (a), (b), or (c), or disallowed under
subsection (d) or (e), as if such claim had arisen before the date of
the filing of the petition.''.
SEC. 212. SIPC STAY.
Section 5(b)(2) of the Securities Investor Protection Act of 1970 (15
U.S.C. 78eee(b)(2)) is amended by adding after subparagraph (B) the
following new subparagraph:
``(C) Exception from stay.--
``(i) Notwithstanding section 362 of title
11, United States Code, neither the filing of
an application under subsection (a)(3) nor any
order or decree obtained by the Securities
Investor Protection Corporation from the court
shall operate as a stay of any contractual
rights of a creditor to liquidate, terminate,
or accelerate a securities contract, commodity
contract, forward contract, repurchase
agreement, swap agreement, or master netting
agreement, each as defined in title 11, United
States Code, to offset or net termination
values, payment amounts, or other transfer
obligations arising under or in connection with
1 or more of such contracts or agreements, or
to foreclose on any cash collateral pledged by
the debtor whether or not with respect to 1 or
more of such contracts or agreements.
``(ii) Notwithstanding clause (i), such
application, order, or decree may operate as a
stay of the foreclosure on or disposition of
securities collateral pledged by the debtor,
whether or not with respect to 1 or more of
such contracts or agreements, securities sold
by the debtor under a repurchase agreement or
securities lent under a securities lending
agreement.
``(iii) As used in this section, the term
`contractual right' includes a right set forth
in a rule or bylaw of a national securities
exchange, a national securities association, or
a securities clearing agency, a right set forth
in a bylaw of a clearing organization or
contract market or in a resolution of the
governing board thereof, and a right, whether
or not in writing, arising under common law,
under law merchant, or by reason of normal
business practice.''.
SEC. 213. ASSET-BACKED SECURITIZATIONS.
Section 541 of title 11, United States Code, is amended--
(1) in subsection (b)--
(A) by striking ``or'' at the end of paragraph
(4)(B)(ii);
(B) by redesignating paragraph (5) as paragraph (6);
and
(C) by inserting after paragraph (4) the following
new paragraph:
``(5) any eligible asset (or proceeds thereof), to the extent
that such eligible asset was transferred by the debtor before
the date of commencement of the case, to an eligible entity in
connection with an asset-backed securitization, except to the
extent such asset (or proceeds or value thereof) may be
recovered by the trustee under section 550 by virtue of
avoidance under section 548(a)(1); or''; and
(2) by adding at the end the following new subsection:
``(e) For purposes of this section, the following definitions shall
apply:
``(1) the term `asset-backed securitization' means a
transaction in which eligible assets transferred to an eligible
entity are used as the source of payment on securities,
including all securities issued by governmental units, at least
1 class or tranche of which is rated investment grade by 1 or
more nationally recognized securities rating organizations,
when the securities are initially issued by an issuer;
``(2) the term `eligible asset' means--
``(A) financial assets (including interests therein
and proceeds thereof), either fixed or revolving,
whether or not such assets are in existence as of the
date of the transfer, including residential and
commercial mortgage loans, consumer receivables, trade
receivables, assets of governmental units (including
payment obligations relating to taxes, receipts, fines,
tickets, and other sources of revenue), and lease
receivables, that, by their terms, convert into cash
within a finite time period, plus any residual interest
in property subject to receivables included in such
financial assets plus any rights or other assets
designed to assure the servicing or timely distribution
of proceeds to security holders;
``(B) cash; and
``(C) securities, including all securities issued by
governmental units.
``(3) the term `eligible entity' means--
``(A) an issuer; or
``(B) a trust, corporation, partnership, governmental
unit, limited liability company (including a single
member limited liability company), or other entity
engaged exclusively in the business of acquiring and
transferring eligible assets directly or indirectly to
an issuer and taking actions ancillary thereto;
``(4) the term `issuer' means a trust, corporation,
partnership, governmental unit, limited liability company
(including a single member limited liability company), or other
entity engaged exclusively in the business of acquiring and
holding eligible assets, issuing securities backed by eligible
assets, and taking actions ancillary thereto; and
``(5) the term `transferred' means the debtor, pursuant to a
written agreement, represented and warranted that eligible
assets were sold, contributed, or otherwise conveyed with the
intention of removing them from the estate of the debtor
pursuant to subsection (b)(5) (whether or not reference is made
to this title or any section of this title), irrespective,
without limitation, of--
``(A) whether the debtor directly or indirectly
obtained or held an interest in the issuer or in any
securities issued by the issuer;
``(B) whether the debtor had an obligation to
repurchase or to service or supervise the servicing of
all or any portion of such eligible assets; or
``(C) the characterization of such sale,
contribution, or other conveyance for tax, accounting,
regulatory reporting, or other purposes.''.
SEC. 214. APPLICATION OF AMENDMENTS.
The amendments made by this title shall apply with respect to cases
commenced or appointments made under any Federal or State law after the
date of the enactment of this Act, but shall not apply with respect to
cases commenced or appointments made under any Federal or State law
before the date of the enactment of this Act.
Amend the title so as to read:
A bill to reauthorize and amend the Commodity Exchange
Act to promote legal certainty, enhance competition, and reduce
systemic risk in markets for futures and over-the-counter
derivatives, to revise the banking and bankruptcy insolvency
laws with respect to the termination and netting of financial
contracts, and for other purposes.
Purpose of Summary
H.R. 4541, ``Commodity Futures Modernization and Financial
Contract Netting Improvement Act of 2000'', as amended by the
Committee on Banking and Financial Services, is intended to
reduce systemic risk to the Nation's financial markets by
providing legal certainty to certain over-the-counter (OTC)
derivatives and to update Federal insolvency laws concerning
the treatment of derivatives contracts. Both aspects of the
legislation are responsive to recommendations from the
President's Working Group on Financial Markets.\1\
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\1\ The President's Working Group on Financial Markets (PWG) is
composed of the Secretary of the Treasury, the Chairman of the Board of
Governors of the Federal Reserve System, the Chairman of the Securities
and Exchange Commission (SEC), and the Chairman of the Commodity
Trading Commission (CFTC), In addition, the Federal Deposit Insurance
Corporation (FDIC), the Federal Reserve Bank of New York, the Office of
the Comptroller of the Currency (OCC), and the Office of Thrift
Supervision (OTS) participated in the Working Group reports.
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The purpose of Title I, the ``Commodity Futures
Modernization Act of 2000'', is threefold. First, Title I
reauthorizes the CFTC, the regulatory body established under
the Commodity Exchange Act (CEA), for five years. Second, it
modernizes the regulatory structure of U.S. futures markets by
providing regulatory relief for futures exchanges and their
markets and by allowing futures on securities. Third, and of
most importance to the Committee, it provides greater legal
certainty to certain OTC transactions by explicitly excluding
such transactions from the CEA and by providing for the
clearing of derivatives contracts by banks and other regulated
entities. The purpose of Title II, the ``Financial Contract
Netting Improvement Act of 2000'', is to update bank insolvency
laws and the Bankruptcy Code to minimize risk of a disruption
with or between financial markets upon the insolvency of a
market participant.\2\
---------------------------------------------------------------------------
\2\ On July 27, 2000, the Committee also ordered to be reported
H.R. 1161, the ``Financial Contract Netting Improvement Act of 2000.''
Title II incorporates the provisions of H.R. 1161 as reported by the
Committee. See the report accompanying H.R. 1161 for further
explanation of the purpose and summary of these provisions.
---------------------------------------------------------------------------
Background and Need for Legislation
title i--The Commodity Futures Modernization Act of 2000
In modernizing the CEA, Title I ensures that as banks and
other financial institutions continue to reinvent the risk
management business, consumers are protected and the safety and
soundness of the financial system are enhanced without
diminishing the competitiveness of U.S. markets.
Over the past ten years there has been enormous growth in
the use of swaps \3\ and related off-exchange derivatives. This
phenomenal growth can be attributed to the fact that swaps
offer genuine economic value to the parties that use them. The
overwhelming majority of the trillions of dollars of swaps are
financial transactions engaged in by banks. According to recent
figures from the OCC, the notional measure of U.S. commercial
banks' derivatives transactions is almost $35 trillion, and of
this amount $31 trillion represents OTC derivatives activities,
yielding some $2.5 billion in revenues. The most recent total
of banks' credit exposure from off-balance sheet derivatives
contracts is $396 billion.
---------------------------------------------------------------------------
\3\ As noted in the PWG report on Over-the-Counter Derivatives
Markets and the Commodity Exchange Act the terminology used to describe
derivative instruments is not precise. As in the PWG report, the term
``OTC derivatives'' is meant to include swaps with both terms to be
construed broadly.
---------------------------------------------------------------------------
OTC derivatives have become essential to banks' risk
management strategies, their propriety trading activities, and
the services they provide their customers. Large banks have
made customized risk management readily available to a wide
range of enterprises, providing liquid and creditworthy
contracts. At the same time, banks of all sizes in communities
across the country have used swaps to insulate themselves
against the vicissitudes of interest rate and other economic
risks. In sum, banks are central to financial OTC derivatives
markets and these markets have become central to a wide range
of banking activities.
The United States has been at the forefront of innovation
in swap activity to the great benefit of global financial
markets. U.S. leadership in swaps, however, has been
periodically threatened by the peculiarities of the CEA, which
governs the trading of futures contracts on futures exchanges.
The CEA does not contain a definition of ``futures contract,''
referring instead to ``contracts of sale of a commodity for
future delivery.'' The CEA requires that futures contracts must
be traded on a CFTC regulated exchange, unless a statutory
exclusion or regulatory exemption from such requirement can be
found. A futures contract that must be traded on an exchange
under the CEA, but is instead traded over-the-counter, is
illegal and unenforceable. The risk that the CFTC or a court
might determine that a particular group swap agreement is an
illegal off-exchange futures contract is known as ``legal
uncertainty.''
Legal uncertainty raised the prospect that a banking
product might be found to be a futures contract, thus subject
to commodity futures law and regulation. In the unlikely event
that the CFTC or a court determines that a swap is an illegal
off-exchange futures contract, systemic difficulties could
result. A determination that a swap is a future contract could
jeopardize the value of billions of dollars worth of swaps on
the books of banks. Legal uncertainty is a potential impediment
to the growth of the swaps business in the United States and
poses unwarranted and unnecessary risk on the financial system
as a whole.
Legal uncertainty for derivatives has for years been of
particular concern to the Committee. Outdated statutes that
raise questions about the enforceability of contracts with
banks and bar improvements in the ways banks reduce risk pose a
palpable threat to the safety and soundness of the financial
system. U.S. banking regulators warn that uncertainties and
unintended consequences associated with the CEA could
potentially turn financial disruptions in the global system
into financial disasters.
The CFTC itself has tried to address these serious
concerns. In 1989 the CFTC established, in its Swaps Policy
Statement, that swaps are not appropriately regulated as
futures. Since then, the CFTC has generally adhered to this
policy in its actions. In addition, no Federal agency, no
court, and no Congress has ever found that swaps are futures.
As a result, the de facto reality is that swaps have never been
regulated as futures under the CEA. Every day banks write an
enormous volume of swaps contracts that are sustained by this
consensus.
On November 9, 1999, the PWG transmitted its report
entitled Over-the-Counter Derivatives Markets and the Commodity
Exchange Act. The report made a number of legislative
recommendations to clarify that certain off-exchange
transactions are not subject to the CEA. H.R. 4541, as reported
by the Committee on Agriculture, implements the PWG's
legislative recommendations. The Banking Committee amendment
builds on the PWG recommendations by expanding the kinds of
derivative transactions that are excluded from the CEA and,
thus, provides legal certainty.
To address concerns that consumers are adequately protected
as these complex financial products become more readily
available to a broader class of end users, the Committee
amendment alsoprovides a regulatory framework in which these
markets can develop. First, retail derivatives fraud is made a criminal
offense and relevant agencies are provided with clear civil enforcement
powers to pursue fraud. Second, certain swaps provided to retail
customers are not given the legal certainty afforded swaps to more
sophisticated customers unless the Federal Reserve and the Treasury
Department jointly prescribe customer protection regulations.
title ii--financial contract netting improvement Act of 2000
Title II amends the U.S. Bankruptcy Code and a number of
Federal banking laws to address the treatment of certain
financial transactions following the insolvency of a party to
such transactions. The amendments clarify and improve
consistency between the applicable statutes and minimize risk
of a disruption within or between financial markets upon the
insolvency of a market participant. The near failure of Long-
Term Capital Management in the fall of 1998 highlights the need
for the U.S. to further refine its bankruptcy and insolvency
laws in order to avoid systemic risk to the nation's financial
system in the event of a failure of a large bank, hedge fund,
or securities firm with substantial exposures to interest rate
and currency swaps and other complex financial instruments.
Explanation
The Committee on Agriculture reported to the full House its
amendment to H.R. 4541 on June 29, 2000. The Committee on
Banking and Financial Services (Committee) in its consideration
of H.R. 4541 used as the base text the Agriculture Committee
amendment, with the committee modifying those provisions in the
bill providing legal certainty to OTC transactions, describing
margin requirements on futures on securities, making retail
derivatives fraud illegal and incorporating the PWG's
recommendations on netting. Specifically, H.R. 4541, as
reported by the Committee on Agriculture, is amended as
follows.
1. In section 107, banking products and securities (when
either are offered by banks, broker-dealers, insurance
companies, or affiliates of any of these institutions) are
excluded from the CEA. The CEA exclusion for swaps (as defined
in the Gramm-Leach-Bliley Act) involving counterparties other
than eligible contract participants does not take effect unless
and until the Federal Reserve Board and the Department of
Treasury jointly prescribe retail customer protection
regulations as provided for in new section 133.
2. A new anti-fraud section (section 132) is added that:
(1) defines retail derivatives fraud in connection with certain
derivatives transactions that are neither futures nor
securities as fraud perpetrated on parties that are not
eligible contract participants; (2) clarifies which agencies
exercise civil enforcement authority over retail derivatives
fraud; and (3) imposes criminal penalties for retail
derivatives fraud.
3. A new section (section 110) is added which excludes from
the CEA nonagricultural swaps if the swap is entered into
between persons that are eligible participants and the terms of
the swap are subject to individual negotiation and not
specified by terms of a trading facility. This new section does
not apply to swaps executed on a CFTC-designated or CFTC-
registered facility.
4. A new section (Section 111) is added to clarify that
nothing in the CEA is to imply or create any presumption that a
transaction is or is not subject to the CEA or CFTC
jurisdiction because it is or is not eligible for an exclusion
or exemption provided for under the CEA or by the CFTC.
5. The section on Contract Enforcement (section 124) is
amended to provide that a transaction shall not be
unenforceable under Federal or State law based solely on the
failure of the transaction to comply with the terms of an
exemption or exclusion provided for under the CEA or by the
CFTC. The provision applies to transactions between eligible
contract participants or involving institutions excluded under
the retail foreign exchange provisions of section 104.
6. The definition of ``eligible contract participant'' is
amended to include an individual (acting for his or her own
account) with total assets of $5 million and who enters into a
transaction in order to manage the risk associated with an
asset or liability owned or incurred or reasonably likely to be
owned or incurred by such person.
7. The definition of ``financial institution'' is amended
to include a financial holding company, a new category of
financial services firm authorized under provisions of the
Gramm-Leach-Bliley Act.
8. The term ``excluded commodity'' is renamed ``exclusion-
eligible commodity'' and the definition for such term is
conformed to the scope of the PWG recommendation to exclude
from the CEA certain derivatives with a non-finite supply.
9. The exclusive jurisdiction clause of the CEA is amended
to ensure that this clause may not be construed to apply to any
transaction that is excluded from the CEA by H.R. 4541.
10. The section on futures on securities (section 108) is
amended to clarify what criteria are to be taken into
consideration when determining if a margin requirement for a
futures on securities is consistent with a margin requirement
for a comparable options contract listed on any national
securities exchange. Because the Committee was working under
tight time constraints the Committee devoted most of its
consideration to the provisions of the bill relating to legal
certainty rather than these provisions relating to futures
contracts on non-exempt securities traded on CFTC regulated
markets.
11. The section on derivatives clearing (section 116) is
modified to include amendments to banking and other laws to
allow the Federal Reserve to supervise derivatives clearing by
multilateral clearing organizations and clarify the laws that
govern the resolution of insolvent clearing banks. These
amendments also allow clearing organizations supervised as
banks to clear the full range of transactions that are
exclusion- or exemption-eligible.
12. The definition of ``trading facility'' is amended to
exclude electronic systems that facilitate bilateral
transactions and prevent any participant from executing a
transaction with another participant unless both participants
have approved the extension of credit to the other.
13. The principal-to-principal requirement for the
exclusions in sections 104, 105, and 106 is modified to clarify
that financial institutions, broker-dealers and their
affiliates, insurance companies and their affiliates, financial
holding companies, and investment bank holding companies can
act as agents for eligible contract participants in an excluded
trading facility.
14. A new title (Title II) is added incorporating the PWG's
legislative recommendations to clarify the treatment and cross-
product netting of derivatives contracts upon the insolvency of
a counter party.
Hearings
On April 11, 2000, the Committee held a hearing on the
Working Group legislative recommendations concerning OTC
derivatives, hedge funds, and netting provisions.
Appearingbefore the Committee were: The Honorable Richard H. Baker,
Chairman, Subcommittee on Capital Markets, Securities, and Government-
Sponsored Enterprises; Lewis A. Sachs, Assistant Secretary for
Financial Markets, Department of the Treasury; Patrick M. Parkinson,
Associate Director, Division of Research and Statistics, Board of
Governors of the Federal Reserve System; Annette L. Nazareth, Director,
Division of Market Regulation, U.S. Securities and Exchange Commission;
C. Robert Paul, General Counsel, Commodity Futures Trading Commission;
Daniel P. Cunningham, Partner, Cravath, Swaine & Moore, on behalf of
The International Swaps and Derivatives Association, Inc.; Mr. Shawn
Dorsch, President, Chief Operating Officer, and Co-Founder, DNI
Holdings, Inc. (Blackbird); Mark D. Young, Partner, Kirkland & Ellis,
on behalf of The Chicago Board of Trade; Terrence A. Duffy, Vice
Chairman, The Chicago Mercantile Exchange; Mark C. Brickell, Managing
Director, J.P. Morgan & Co., Inc.; Michael A. Watkins, Deputy General
Counsel, First Union Corporation, on behalf of The ABA Securities
Association; Garrett Glass, Chief Market Risk Officer, Bank One
Corporation, on behalf of The Financial Services Roundtable; George
Crapple, Chairman, The Managed Funds Association; and William P. Miller
II, Chairman of the Executive Committee, The End Users of Derivatives
Council of the Association for Financial Professionals.
On July 19, 2000, the Committee held a hearing on H.R.
4541: the ``Commodity Futures Modernization Act of 2000.''
Appearing before the Committee were: Lee Sachs, Assistant
Secretary for Financial Markets, Department of the Treasury;
Patrick M. Parkinson, Associate Director, Division of Research
and Statistics, Board of Governors of the Federal Reserve
System; Annette L. Nazareth, Director, Division of Market
Regulation, U.S. Securities and Exchange Commission; C. Robert
Paul, General Counsel, Commodity Futures Trading Commission;
Hal S. Scott, Nomura Professor of International Financial
Systems and Director of the International Financial Systems
Program, Harvard Law School; Shawn Dorsch, President, Chief
Operating Officer, and Co-Founder, DNI Holdings, Inc.
(Blackbird); Mark C. Brickell, Managing Director, J.P. Morgan &
Co., Inc.; Richard E. Grove, Jr., Executive Director and CEO,
International Swaps and Derivatives Association, Inc.; Dennis
Oakley, Managing Partner, Chase Manhattan Bank; Mark D. Young,
Kirkland & Ellis on behalf of the Chicago Board of Trade and
the Chicago Mercantile Exchange.
Committee Consideration and Votes
On July 27, 2000, the full Committee met in open session to
consider H.R. 4541. A quorum being present, the Committee by
voice vote passed H.R. 4541 wth an amendment, and ordered it to
be favorably reported with an amendment to the full House of
Representatives for consideration. Also, the Committee adopted,
by voice vote, a motion to authorize the Chairman to offer such
motions as may be necessary in the House of Representatives to
go to conference with the Senate on a similar bill.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee reports that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
As provided for in clause 3(c)(4) of rule XIII of the Rules
of the House of Representatives, no oversight findings have
been submitted to the Committee by the Committee on Government
Reform.
Constitutional Authority
In compliance with clause 3(d)(1) of rule XIII of the Rules
of the House of Representatives, the Constitutional Authority
of Congress to enact this legislation is derived from Article
I, section 8, clause 1 (relating to the general welfare of the
United States); Article I, section 8, clause 3 (relating to
Congressional power to regulate commerce); Article 1, section
8, clause 5 (relating to the power ``to coin money'' and
``regulate the value thereof ''); and Article I, section 8,
clause 18 (relating to making all laws necessary and proper for
carrying into execution powers vested by the Constitution in
the government of the United States).
New Budget Authority and Tax expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Congressional Accountability Act
The reporting requirement under section 102(b)(3) of the
Congressional Accountability Act (P.L. 104-1) is inapplicable
because this legislation does not relate to terms and
conditions of employment or access to public services or
accommodations.
Congressional Budget Office Cost Estimate and Unfunded Mandates
Analysis
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 6, 2000.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services, U.S. House of
Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4541, the
Commodity Futures Modernization and Financial Contract Netting
Improvement Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark Hadley,
who can be reached at 226-2860.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 4541--Commodity Futures Modernization and Financial Contract
Netting Improvement Act of 2000
Summary: H.R. 4541 would reauthorize funding for the
activities of Commodity Futures Trading Commission (CFTC)
during the 2001-2005 period. The bill also would allow trading
of futures contracts based on single stocks (single-stock
futures) under certain conditions, with oversight being shared
by the CFTC and the Securities and Exchange Commission (SEC).
In addition, H.R. 4541 would clarify that certain over-the-
counter derivative transactions are outside of the jurisdiction
of the CFTC. The bill also would establish a new crime related
to derivatives fraud and would authorize the Federal Trade
Commission (FTC) to combat such fraud. Finally, the bill would
amend banking and bankruptcy laws to provide consistent
treatment of certain financial contracts and to encourage the
settlement by a single payment, on a net basis, of all the
contracted-but-not-yet-due claims and liabilities of an
insolvent institution.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing this legislation would cost $368
million over the 2001-2005 period. Most of this cost would be
incurred by the CFTC; CBO estimates that the SEC would spend $3
million a year to regulate trading of futures contracts on
individual securities and fight derivatives fraud, and that the
FTC would spend and additional $1 million a year to help combat
securities fraud.
By imposing new duties on financial institutions
regulators, establishing a new crime, and allowing trading of
single-stock futures, H.R. 4541 would affect direct spending
and receipts; therefore, pay-as-you-go procedures would apply.
CBO estimates that any impact on direct spending and receipts
would not be significant in any year.
H.R. 4541 contains intergovernmental mandates as defined in
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that
the costs would not exceed the threshold established in the act
($55 million in 2000, adjusted annually for inflation). CBO's
estimate of the impact of H.R. 4541 on the private sector will
be provided later in a separate statement.
Estimated cost for the Federal Government: The estimated
budgetary impact of H.R. 4541 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION \1\
Proposed Changes to CFTC Spending:
Estimated Authorization Level............................. 67 69 72 74 77
Estimated Outlays......................................... 60 68 71 73 76
Proposed Changes to SEC Spending:
Estimated Authorization Level............................. 3 3 3 3 3
Estimated Outlays......................................... 3 3 3 3 3
Proposed Changes to FTC Spending:
Estimated Authorization Level............................. 1 1 1 1 1
Estimated Outlays......................................... 1 1 1 1 1
Total Changes in Spending:
Estimated Authorization Level............................. 71 73 76 78 81
Estimated Outlays......................................... 64 72 75 77 80
----------------------------------------------------------------------------------------------------------------
\1\ In addition to authorizing additional spending subject to appropriation, enacting H.R. 4541 would have an
insignificant effect on direct spending and receipts.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted near the start of fiscal year 2001 and
that the necessary amounts will be appropriated for each fiscal
year. Outlay estimates are based on historical spending rates
for the affected agencies. Enactment of H.R. 4541 also would
affect direct spending and receipts because it would assign new
duties to regulators of financial institutions, it would create
a new crime, and would result in additional SEC fee
collections. CBO estimates that those additional effects would
not be significant.
Spending subject to appropriation
H.R. 4541 would reauthorize funding for activities of the
CFTC over the 2001-2005 period. Based on the agency's current
budget and adjusting for anticipated inflation, CBO estimates
that this reauthorization would cost $59 million in 2001 and a
total of $343 million over the five-year period.
The bill also would make several changes to the Commodity
Exchange Act that would increase the administrative costs of
the CFTC. The CFTC would share oversight of single-stock
futures transactions with the SEC. CBO estimates that this
change to the CFTC's regulatory responsibilities would require
the agency to hire new staff. Based on information from the
CFTC, CBO estimates that these changes to the CFTC's
administrative responsibilities would cost $1 million a year
over the 2001-2005 period. The bill also clarifies that the
CFTC does not have jurisdiction over certain over-the-counter
derivatives transactions.
H.R. 4541 also would require that the SEC play a
significant role in overseeing single-stock futures
transactions and combating fraud related to such transactions.
Based on information from the SEC, CBO estimates that the SEC
would have to hire additional staff to handle these new
responsibilities. We estimate this new effort would cost about
$3 million a year during the 2001+2005 period.
H.R. 4541 would require the FTC to combat certain
securities fraud among parties who are not regulated by the
SEC, CFTC, or banking regulators. Based on information from the
FTC, CBO estimates implementing this provision would cost about
$1 million a year.
Although enacting this bill could eliminate certain
bankruptcy proceedings, CBO estimates that any subsequent
reduction in the workload of federal agencies would not have a
significant impact on the budgets of the Executive Office for
United States Trustees or the federal court system.
Direct spending
H.R. 4541 would required the Office of the Comptroller of
the Currency (OCC), and the Federal Deposit Insurance
Corporation (FDIC), to issue regulations to implement the
provisions of the legislation concerning bankrupt financial
institutions and to combat fraud in certain securities trading.
The OCC charges fees to cover all its administrative costs;
therefore, additional spending by the OCC would have no net
budgetary effect over time. That is not the case with the FDIC,
however, which uses deposit insurance premiums paid by all
banks to cover the expenses it incurs to supervise state-
chartered banks. Because the balances in the deposit insurance
funds exceed the levels required under current law, very few
banks or savings and loans pay premiums for deposit insurance
at this time. Therefore, CBO expects that the FDIC would
recover from premium income very little, if any, of the
administrative costs associated with implementing H.R. 4541.
However, we do not expect these costs to be significant.
The bill would give the FDIC, acting as receiver for
insolvent financial institutions, additional flexibility to
determine the most appropriate method for resolving a failing
bank or savings and loan. As a result, we expect that enacting
H.R. 4541 could help reduce the losses associated with closing
insured institutions. Although it is difficult to assess the
amount of savings, if any, associated with the bill's
clarification of the treatment of certain financial
transactions affecting failing banks and savings and loans, CBO
estimates that the net effect on FDIC outlays would probably be
negligible.
Revenues
H.R. 4541 would establish a new federal crime relating to
derivatives fraud. As a result, the federal government would be
able to pursue cases that it otherwise would not be able to
prosecute. Because those prosecuted and convicted under H.R.
4541 could be subject to criminal fines, the federal government
might collect additional fines if the bill is enacted.
Collections of such fines are recorded in the budget as
governmental receipts (revenues), which are deposited in the
Crime Victims Fund and spent in subsequent years. CBO expects
that any additional receipts and direct spending would be less
than $500,000 each year.
H.R. 4541 would require the Federal Reserve Board to issue
new regulations to implement provisions of the bill to combat
fraud in derivatives trading. Budgetary effects of these
additional responsibilities on the Federal Reserve would be
recorded as a change in revenues. Based on information from the
Federal Reserve, CBO estimates that enacting H.R. 4541 would
reduce such revenues by less than $500,000 a year over the
2001-2005 period.
Under current law, the SEC collects a fee equal to \1/
300\th of a percent of the aggregate value of securities traded
through national securities exchanges, brokers, and dealers.
Such fees are recorded as revenues. H.R. 4541 would allow the
trading of single-stock futures on national securities
exchanges. By creating a new category of financial transactions
that would be subject to SEC fees, this bill would increase
revenues collected by the SEC. However, based on information
provided by the CFTC, the SEC, and by private groups, CBO
estimates that any increase in such revenues would not be
significant.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act (BBEDCA) sets up pay-as-you-go
procedures for legislation affecting direct spending or
receipts. CBO estimates that enacting H.R. 4541 would affect
spending and governmental receipts but that there would be no
significant impact in any year.
Under BBEDCA, provisions providing funding necessary to
meet the government's deposit insurance commitment are excluded
from pay-as-you-go procedures. CBO believes that the
administrative costs associated with FDIC issuing regulations
under H.R. 4541 are related to safety and soundness of deposit
insurance, and thus, would be excluded. In any case, we
estimate that those changes would be less than $500,000
annually.
Estimated impact on State, local, and tribal governments:
H.R. 4541 would require state insurance regulators to enforce
antifraud and consumer protection regulations with regard to
certain derivative and swap transactions. The bill also would
preempt state laws affecting bankruptcy proceedings of certain
state banks that are members of the Federal Reserve, certain
commodities transactions that are conducted in markets
regulated by the Commodity Futures Trading Commission (CFTC),
and certain commodities contracts that are excluded from
regulation by the CFTC. Both the new duties for state insurance
regulators and the preemptions of state law would be mandates
as defined by UMRA. CBO estimates that the costs of these
mandates would not be significant and would not exceed the
threshold established in the act ($55 million in 2000, adjusted
annually for inflation).
Estimated impact on the private sector: CBO's estimate of
the impact of H.R. 4541 on the private sector will be provided
later in a separate statement.
Previous CBO estimates: CBO has transmitted cost estimates
for three other bills that would reauthorize the CFTC.
Differences in the estimates reflect differences in the bills.
On September 6, 2000, CBO transmitted a cost estimate for H.R.
4541 as ordered reported by the House Committee on Commerce on
July 27, 2000. On June 29, 2000, CBO transmitted a cost
estimate for H.R. 4541 as ordered reported by the House
Committee on Agriculture on June 27, 2000. On July 11, 2000,
CBO transmitted a cost estimate for S. 2697, the Commodity
Futures Modernization Act of 2000, as ordered reported by the
Senate Committee on Agriculture, Nutrition, and Forestry, on
June 29, 2000.
Estimate prepared by: Federal Costs: Mark Hadley; Impact on
State, Local, and Tribal Governments: Susan Sieg Tompkins.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
Section-by-Section Analysis of H.R. 4541 \4\
Title I--Commodity Futures Modernization Act of 2000
Section 101. Short title and table of contents
The title is entitled the ``Commodity Futures Modernization
Act of 2000.''
---------------------------------------------------------------------------
\4\ Given that the amendment reported by the Committee on
Agriculture was the base text for Committee consideration of H.R. 4541,
the Committee has relied on the section-by-section analysis of that
amendment as contained in House Report #106-711, Part I.
---------------------------------------------------------------------------
Section 102. Purposes
The section lists eight purposes for the title including
reauthorizing the CFTC; streamlining the CEA; eliminating
unnecessary regulation for futures exchanges; transforming the
regulatory role of the CFTC; providing a legislative and
regulatory framework for the trading of futures on securities;
providing CFTC jurisdiction over the retail foreign exchange
market and bucket shops; promoting innovation and reducing
systemic risk for OTC derivatives; allowing clearing of OTC
derivatives and enhancing the competitive position of the U.S.
financial institutions and markets.
Section 103. Definitions
Section 103 adds definitions to section 1a of the CEA for
the following terms: ``banking product''; ``derivatives
clearing organizations''; ``designated future on a security'';
``electronic trading facility''; ``eligible commercial
participant'', ``eligible contract participant''; ``exempt
commodity''; ``exclusion-eligible commodity''; ``financial
institution''; ``hybrid instrument''; ``nonexempt security'';
``option''; ``organized exchange''; ``registered entity'';
``security''; and ``trading facility''.
Section 103 differs from section 3 of the Agriculture
Committee reported bill in that it adds a definition for
``banking product'' and modifies the definitions for ``eligible
contract participant'', ``excluded commodity'', ``financial
institution'', ``hybrid instrument'', ``organized exchange'',
and ``trading facility''. Section 103 defines ``banking
product'' as meaning any agreement, contract, or transaction
that is an identified banking product (as defined in section
206(a) of the Gramm-Leach-Bliley Act).
The section modifies the definition of ``eligible contract
participant'' to include natural persons (acting for their own
account) with total assets of $5 million and who enter into a
transaction in order to manage the risk associated with an
asset or liability owned or incurred or reasonably likely to be
owned or incurred by such persons. It modifies the definition
of ``financial institution'' to include a financial holding
company, a new category of financial services firm authorized
under provisions of the Gramm-Leach-Bliley Act. It renames the
term ``excluded commodity'' to ``exclusion-eligible commodity''
and modifies the definition of such term in keeping with the
President's Working Group recommendation to exclude from the
CEA derivatives with a non-finite supply. It excludes from the
definition of ``trading facility'' electronic systems that
facilitate bilateral transactions and prevent any participant
from executing a transaction with another participant unless
both participants have approved the extension of credit to the
other.
Section 104. Agreements, contracts, and transactions in foreign
currency, government securities and certain other commodities
Section 104 clarifies section 2 of the CEA (the ``Treasury
Amendment'') with respect to CFTC jurisdiction over foreign
currency transactions by adding a new subsection (c).
New paragraph (c)(2) excludes foreign currency transactions
from CFTC regulation, other than those conducted on an
organized exchange or as between unregulated entities and
persons who are not eligible contract participants.
The Committee amendment excludes from the definition of
``organized exchange'', a facility that permits trading (1) by
eligible contract participants trading on a principal-to-
principal basis; or (2) by eligible contract participants that
are financial institutions, broker-dealers or the affiliates,
insurance companies of their affiliates, financial holding
companies, or investment bank holding companies acting as
agents on behalf of eligible contract participants.
New subparagraph (c)(2)(B) provides the CFTC with
jurisdiction over retail foreign currency futures and options
transactions that are not regulated by another federal
regulator. This would allow the CFTC to take enforcement action
against illegal bucket shops.
Section 105. Legal certainty for excluded derivatives transactions
(over-the-counter transactions)
Section 105 amends section 2 of the CEA to create a new
subsection (d), which states that nothing in the CEA applies to
transactions in an excluded commodity if the transaction (1) is
entered into between eligible contract participants and is not
conducted on a trading facility; or (2) is between eligible
contract participants, trading on a principal-to-principal
basis, and the transaction is conducted on an electronic
trading facility. In addition, under section 105 of the
Committee amendment the ``principal-to-principal'' requirement
does not apply to transactions entered into between eligible
contract participants that are specified regulated entities if
the transaction is executed or traded on an electronic trading
facility.
Section 106. Excluded electronic trading facilities
This section amends section 2 of the CEA to create a new
subsection (e) that allows for the electronic trading of
excluded commodities. Paragraph (e)(2) states that nothing in
the CEA shall prohibit a contract market or derivatives
transaction execution facility from establishing and operating
an excluded electronic trading facility.
Section 107. Conformity with the Gramm-Leach-Bliley Act; hybrid
instruments
This section amends section 2 of the CEA to create a new
subsection (f) that provides that nothing in the CEA applies to
a hybrid instrument that is predominantly a security or
depository instrument, or to banking products or securities
offered by certain regulated entities or their affiliates.
Banking products, as defined in the Gramm-Leach-Bliley Act,
encompasses instruments and transactions that are not properly
regulated under the CEA when entered into by the enumerated
regulated entities described in the section. New paragraph
(f)(2) excepts from this exclusion swap agreements (as defined
in section 106(b) of the Gramm-Leach-Bliley Act) with any party
who is not an eligible contract participant until the Federal
Reserve and Treasury Department promulgate new retail swap
customer protection rules as provided for in section 133. New
paragraph (f)(3) sets forth conditions for determining
predominance to cover any hybrid instrument in which (1) the
issuer of the instrument receives payment in full of the
purchase price at the time the instrument is delivered; (2) the
purchaser is not required to make additional payments; (3) the
issuer of the instrument is not subject to mark-to-market
margining requirements; and (4) the instrument is not marketed
as a futures contract. New paragraph (4) clarifies that mark-
to-marketing requirements do not include the obligation of an
issuer of a secured debt instrument to increase the amount of
collateral for the instrument.
Section 108. Futures on securities
This section amends section 2 of the CEA by adding a new
subsection (g) that reforms the Shad-Johnson jurisdictional
accord.
Paragraph (1) provides that CFTC has no jurisdiction to
designate a board of trade as a contract market for any
transaction whereby any party to the transaction acquires a
put, call, or other option on 1 or more securities (as defined
in section 2(a)(1) of the Securities Act of 1933 or section
3(a)(10) of the Securities Exchange Act of 1934, on the date of
enactment of the Futures Trading Act of 1982), including any
group or index of securities and any interest in or based on
the value of securities.
Paragraph (2) is a savings clause to ensure that excluded
OTC equity derivatives remain outside the CEA and jurisdiction
of the CFTC.
Paragraph (3) states that it is illegal to provide for the
trading of futures on securities except as provided for in the
Act.
Paragraph (4) provides CFTC with exclusive jurisdiction for
futures on securities and provides criteria for contract market
designation of these products including: cash settlement;
insusceptibility to price manipulation (both of the contract
and the underlying stock or an option on that stock); margin
requirements; and making information available to the
regulators. With regard to the establishment of margin
requirements, the Committee amendment provides that a margin
requirement for a futures on securities is to be consistent
with a margin requirement for a comparable options contract
listed on any national securities exchange. A margin
requirement meets this consistency test if the margin provides
a similar level of protection against defaults by
counterparties taking into account any difference in the price
volatility of the contracts, the frequency with which margin
requirements are made, and the period of time within which
margin calls must be met.
Paragraph (5) requires the CFTC and SEC to consult with
regard to the listing of a futures on a security. If the SEC is
not satisfied that all requirements regarding a single stock
future are being met by a contract market, the CFTC shall give
the SEC an opportunity for an oral hearing. If the hearing is
held and the SEC's objections are not resolved, the SEC may
seek judicial review. Paragraph (6) authorizes the SEC to
enforce the securities laws related to insider trading with
respect to futures on securities.
Paragraph (7) authorizes the FED to establish an
Intermarket Margin Board with the concurrence of the CFTC and
SEC. This would allow the CFTC, FED, and SEC to work jointly to
set the margin on single stock futures at appropriate levels to
preserve market financial integrity or to prevent systemic
risk.
Paragraph (8) provides that this subsection shall not be
construed to prohibit any agreement, contract, or transaction
excluded from this Act by paragraph (2); or any hybrid
instrument that is covered by the terms of any exemption
granted by CFTC.
Paragraph (9) directs a registered futures association to
adopt rules requiring a futures commission merchant (FCM),
commodity trading advisor (CTA) or an introducing broker (IB)
to determine if a customer is suitable to purchase single stock
futures. FCM's already follow a `know your customer' rule,
however, this paragraph will ensure customer protection adheres
to suitability standards currently used when selling securities
and options on securities.
Paragraph (10) authorizes the offer and sale in the United
States of any futures or option contracts on securities
(excluding securities described in subparagraphs (A)(i) (I) or
(II)), traded on a foreign board of trade without being a
designated contract market under the CEA, if (1) for single
stock futures, the United States is not the primary trading
market for the underlying security; or (2) for stock index
futures, less than 25 percent of the index is based on
securities that are primarily traded in the United States; and
settlement of the futures contract does not involve the
transfer or receipt of a security in the United States. The
CFTC is required to promulgate appropriate regulations
implementing this section within 90 days of enactment.
Section 109. Transactions in exempt commodities
This section amends section 2 of the CEA by adding a new
subsection (h) to provide legal certainty for exempt
commodities. Exempt commodities must be traded between eligible
participants and not traded on a trading facility (except an
electronic trading facility). The amendment further provides
that transactions in an exempt commodity, other than a metal
commodity, can be conducted between eligible contract
participants and traded on an electronic trading facility. All
transactions are also subject to the clearing system provisions
of the bill, state fraud statutes, and the fraud and anti-
manipulation provisions of the Act. In addition, CFTC may
prescribe rules to ensure the timely dissemination of
electronic trading facility data if CFTC determines that the
electronic facility performs a significant price discovery
function.
Section 110. Swap transactions
This section amends section 2 of the CEA to exclude from
the CEA a nonagricultural swap if the swap is entered into
between persons that are eligible participants and the terms of
the swap are subject to individual negotiation and not
specified by terms of a trading facility. This exclusion does
not apply to swaps executed on a CFTC-designated or CFTC-
registered facility.
Section 111. Application of the Commodity Exchange Act
This section modifies section 2 of the CEA to clarify that
nothing in the CEA is to imply or create any presumption that a
transaction is or is not subject to the CEA or CFTC
jurisdiction because it is or is not eligible for an exclusion
or exemption provided for under the CEA or by the CFTC.
Section 112. Protection of the public interest
This section rewrites section 3 of the CEA that lists the
responsibilities of the CFTC and purposes of the CEA in
protecting the public interest. These include: protecting
investors from fraud and manipulation; fostering efficiency and
fairness with transparent price dissemination; preventing
market manipulation and minimizing the risk of systemic
failure; and promoting financial innovation and fair
competition.
Section 113. Prohibited transactions
This section rewrites section 4c of the CEA for clarity.
Section 114. Designation of Boards of Trade as contract markets
This section strikes current law sections 5 and 5a and adds
a new section 5 to the CEA providing for the designation of
boards of trade as contract markets. Subsection (b) contains
criteria that boards of trade must meet in order to be
designated as a contract market. These include establishing and
enforcing rules preventing market manipulation; ensuring fair
and equitable trading by authorizing various futures exchange
transactions; specifying how the trade execution facility
operates, including any electronic matching systems; ensuring
the financial integrity of transactions; disciplining members
or market participants who violate the rules; allowing for
public access to the board of trade rules and enabling the
board of trade to obtain information in order to enforce its
rules. Existing contract markets are grandfathered in under new
subsection (c). The 18 core principles that must be met to
maintain designation as a contract market are contained in new
subsection (d) and provide that a board of trade must:
Monitor and enforce compliance with the contract
market rules;
List only contracts that are not susceptible to
manipulation;
Monitor trading to prevent manipulation, price
distortion and delivery or settlement disruptions;
Adopt position limits for speculators and hedgers;
Adopt rules to provide for the exercise of emergency
authority, including the authority to liquidate or
transfer open positions, suspend trading and make
margin calls;
Make available the terms and conditions of the
contracts and the mechanisms for executing
transactions;
Publish daily information on prices, bids, offers,
volume, open interest, and opening and closing ranges;
Provide a competitive, open and efficient market and
mechanism for executing transactions;
Provide for the safe storage of all trade information
in a readily usable manner to assist in fraud
prevention;
Provide for the financial integrity of the contracts,
the futures commission merchants and customer funds;
Protect market participants from abusive practices;
Provide for alternative dispute resolutions for
market participants and intermediaries;
Establish and enforce rules regarding fitness
standards for those involved in market governance;
Establish and enforce rules to minimize conflicts of
interest in a contract market;
Ensure that the governing board reflects the
composition of the market participants (in the case of
mutually owned exchanges);
Maintain records and make them available at any time
for inspection by the Attorney General; and
Avoid taking any action that restrains trade or
imposes anticompetitive burdens on the markets.
Subsection (e) provides that, with respect to futures
contracts involving agricultural or metal commodities
enumerated in section 1a(3) of the CEA, such contracts may only
trade on designated contract markets. However, upon application
by any person, the CFTC may prescribe rules and regulations to
allow such agricultural or metal commodities to trade on a
derivatives transaction execution facility in instances where
it would promote responsible economic or financial innovation
and fair competition.
Section 114. Derivatives transaction execution facilities
This section amends the CEA by adding a new section 5a
authorizing a new trading designation called a derivatives
transaction execution facility (DTEF). Under subsection (b), a
board of trade may elect to operate as a DTEF rather than a
contract market if they meet the DTEF designation requirements.
registered DTEF may trade any non-designated futures contract
if the commodity underlying the contract has a nearly
inexhaustible supply, is not susceptible to manipulation, and
does not have a cash market in commercial practice. Eligible
DTEF traders include authorized contract market participants
and persons trading through registered futures commission
merchants with capital of at least $20,000,000 that are members
of a self-regulatory organization (SRO) and a clearing
organization. Boards of trade that have been designated as
contract markets may operate as DTEFs if they provide a
separate location for DTEF trading or, in the case of an
electronic system, identify whether the trading is on a DTEF or
contract market.
Subsection (c) provides criteria for boards of trade that
wish to register as DTEFs, including: establishing and
enforcing trading rules, by authorizing various futures
exchange transactions, that will deter abuses and provide
market participants impartial access to the markets and capture
information that may be used in rule enforcement; and defining
trading procedures to be used and provide for the financial
integrity of DTEF transactions.
To maintain registration as a DTEF, a board of trade must
comply with 9 core principles listed in subsection (d):
Maintain and enforce rules
Ensure orderly trading and provide trading
information to the CFTC;
Publicly disclose information regarding contract
terms, trading practices, and financial integrity
protections;
Provide information on prices, bids and offers to
market participants as well as daily information in
volume and open interest for the actively traded
contracts;
Establish and enforce rules regarding fitness
standards for those involved in DTEF governance;
Establish and enforce rules to minimum conflicts of
interest in a derivatives transaction execution
facility;
Maintian records and make them available at any time
for inspection by the Attorney General; and
Avoid taking any action that restrains trade or
imposes anticompetitive burdens on the markets.
Subsection (e) allows a broker-dealer, bank, or Farm Credit
Institution in good standing to act as an intermediary on
behalf of its customers and to receive funds serving as margin
or security for the customer's transactions. If such entity
holds the DTEF customer funds or accounts for more than 1
business day, such entity must be a registered FCM and a member
of a registered futures association. The CFTC and SEC are to
coordinate in adopting rules to implement this subsection.
Under subsection (f), the CFTC may adopt regulations to
allow FCMs to give their customers the right to not segregate
customer funds for purposes of trading on the DTEF.
Subsection (g) clarifies that a DTEF may trade derivatives
that otherwise would be excluded, exempted or not subject to
the CEA and the CFTC has exclusive jurisdiction only when these
instruments are traded on a DTEF.
Section 116. Derivatives clearing organizations
This section amends the Federal banking laws, bankruptcy
code and the CEA to provide a clear statutory basis for the
regulation of clearing systems that develop for OTC
derivatives.
Subsection (a) amends the Federal Deposit Insurance
Corporation Improvement Act to prohibit persons from operating
a multilateral clearing organization for derivative
transactions unless the person is a national or state member
bank, an affiliate of such a bank or an Edge Act corporation.
This prohibition does not apply to a clearing organization that
(1) is registered as a clearing agency under the Securities
Exchange Act of 1934, (2) performs clearing functions for a
CFTC registered market, or (3) is supervised by a foreign
financial regulator which satisfies appropriate standards
determined by an appropriate Federal financial regulator.
Subsections (b) and (c) amend the Federal Reserve Act (FRA)
to provide the FED with enforcement authority over uninsured
state member banks and resolution authority over such banks
which operate as multilateral clearing organizations.
Subsections (d) and (e) make technical and conforming
changes to the Bankruptcy Code.
Subsection (f) amends the FRA to provide the FED resolution
authority over insolvent Edge Act corporations.
Subsection (g) amends the CEA to create a new section 5(b)
regarding derivatives clearing organizations.
Section 117. Common provisions applicable to registered entities.
The section amends the CEA to create a new section 5c that
contains provisions affecting all registered entities (contract
markets, DTEFs, and derivatives clearing organizations).
Subsection (a) allows the CFTC to issue or approve
interpretations to describe what would constitute an acceptable
business practice under the core principals for registered
entities.
Subsection (b) allows a registered entity to delegate its
self regulatory functions to a registered futures association,
while specifying that responsibility for carrying out these
functions remain with th4e registered entity.
Subsection (c) enables the registered entity to trade new
products or adopt or amend rules by providing the CFTC (or, in
the case of a government security product, the Secretary of the
Treasury) a written certification that the new contract or new
rule or amendment complies with the CEA. This subsection would
allow a registered entity to request that the CFTC grant prior
approval of a new contract, new rule or rule amendment. For
enumerated commodity products, a contract market (futures
exchange) shall submit to the CFTC for prior approval each rule
amendment that materially changes the terms and conditions of a
contract that has already been listed and has substantial open
interest.
Subsection (d) grants the CFTC the authority to informally
resolve potential violations of the core principals for
registered entities.
Subsection (e) reserves all of CFTC's emergency powers.
Section 118. Exempt boards of trade
This section amends the CEA to create a new section 5d
regarding exempt boards of trade. Under subsections (a) and
(b), futures contracts traded on an exempt board of trade would
be exempt from the CEA (except section 2(g) regarding equity
futures) if:
(1) The commodity underlying the futures contract has
an inexhaustible deliverable supply, is not subject to
manipulation, or has no cash market;
(2) Participants are eligible contract participants
(large institutional investors); and
(3) The contracts do not involve securities
(including security indices).
Subsection (c) subjects futures contracts traded on an
exempt board of trade to the anti-fraud and anti-manipulation
provisions of the CEA.
Under subsection (d), if the CFTC finds that an exempt
board of trade is a significant source of price discovery for
the underlying commodity, the board of trade shall disseminate
publicly on a daily basis trading volume, opening and closing
price ranges, open interest, and other trading data as
appropriate to the market.
Section 119. Suspension or revocation of designation as contract market
This section amends the CEA to authorize the CFTC to
suspend the registration of a registered entity for 180 days
for any violation of the CEA.
Section 120. Authorization of appropriations
This section amends section 12(d) of the CEA by striking
2000 and reauthorizing appropriations through fiscal year 2005.
Section 121. Preemption
This section rewrites paragraph 12(e)(2) of the CEA for
clarity and to conform with changes made in the bill. It
restates the current provisions that the CEA supersedes and
preempts other laws in the case of transactions conducted on a
registered entity or subject to regulation by the CFTC (even if
outside the United States), and adds that in the case of
excluded electronic trading facilities and any agreements,
contracts or transactions that are excluded commodities or
covered by a 4(c) exemption, the CEA supersedes and preempts
State gaming and bucket shop laws (except State antifraud laws
of general applicability).
Section 122. Predispute resolution agreements for institutional
customers
This section amends subsection 14(g) of the CEA to clarify
that futures commission merchants, as a condition of doing
business, may require customers, that are eligible contract
participants, to waive their right to file a reparations claim
with the CFTC.
Section 123. Consideration of costs and benefits and antitrust laws
This section amends section 15 of the CEA to add a new
subsection (a) requiring the CFTC, before promulgating
regulations and issuing orders, to consider the costs and
benefits of its action. This does not apply to orders
associated with an adjudicatory or investigative process, or to
emergency actions or findings of fact regarding compliance with
CFTC rules.
Section 124. Contract enforcement
This section amends subsection 22(a) of the CEA to provide
that a transaction shall not be unenforceable under Federal or
State law based solely on the failure of the transaction to
comply with the terms of an exemption or exclusion provided for
under the CEA or by the CFTC. The provision applies to
transactions between eligible contract participants or
involving institutions excluded under the retail foreign
exchange provisions of section 104. This safe harbor does not
apply to any swap agreement (as defined in the Gramm-Leach-
Bliley Act) with any party who is not an eligible contract
participant unless such swap agreement is entered into after
regulations have been prescribed under section 133 of the
Commodities Futures Modernization Act of 2000.
Some swaps may not meet the terms of exemptions or
exclusions provided for in the legislation. Any failure to
provide a statutory exclusion or exemption for these categories
of swaps transactions does not reflect, and should not be
construed to reflect, a determination by Congress that these
categories of swaps transactions are subject to the Commodity
Exchange Act.
Section 125. Special procedures to encourage and facilitate bona fide
hedging by agricultural producers
This section authorizes the CFTC to consider several
factors to improve domestic agricultural producers' ability to
use contract markets for hedging price risk. Specifically, this
section authorizes CFTC, in issuing rules or orders, to
consider: procedures to facilitate the orderly delivery of
agricultural commodities, including temporary storage costs;
the ease with which domestic agricultural producers may
participate in contract markets, including cost and margin
requirements; and flexibility in the minimum quantities of
contract size. This section also requires the CFTC to report to
the House and Senate Agriculture Committees regarding steps
taken to implement this section.
Section 126. Rule of construction
This section provides that nothing in this Act supersedes,
affects, or otherwise limits or expands the scope and
applicability of laws governing the Securities and Exchange
Commission unless expressly provided.
Section 127. Authority of agencies to construe the term ``Contract
Market''
This section authorizes Federal agencies to prescribe
regulations construing the term ``contract market.'' Many
statutes other than the CEA, including the Federal securities
laws and the Internal Revenue Code, refer to transactions
occurring on a contract market. Because the bill amends the CEA
to createnew categories of regulated entities, this section
gives other agencies rulemaking authority to construe the term to cover
these entities as well as contract markets.
Section 128. Technical and conforming amendments
This section makes technical and conforming amendments
throughout the CEA to reflect changes made by the bill.
Section 129. Report to Congress
This section requires the CFTC to study the CEA and its
rules, regulations and orders governing the conduct of CFTC
registrants and report to Congress within one year.
Section 130. Effective date
This section provides that Title I shall take effect on the
date of enactment, except section 109 (dealing with equity
futures), which takes effect one year after enactment.
Section 131. International activities of the Commodity Futures Trading
Commission
This section contains Congressional findings about the
changing and global nature of derivatives markets, the increase
in the use of data processing and communications technologies
that enable users of risk management services to analyze and
compare services on a worldwide basis, and the need for
financial regulatory policy to be flexible and to avoid
compromising U.S. competitiveness.
This section also contains a Sense of Congress regarding
the importance of the CFTC, as part of its international
activities, to continue to coordinate with foreign regulatory
authorities, participate in international regulatory
organizations and forums, and provide technical assistance to
foreign government authorities in order to encourage and
facilitate cross-border transactions, reduce unnecessary
obstacles, and enhance international cooperation and
information sharing.
Section 132. Antifraud provisions
This section makes it unlawful to commit retail derivatives
fraud by the use of any means or instruments of transportation
or communication in interstate commerce or the mails. Under the
section, retail derivatives fraud is defined, in connection
with certain derivatives transactions that are neither futures
nor securities, as fraud perpetrated on parties that are not
eligible contract participants. This section is enforced by the
appropriate Federal financial regulator, state insurance
authority, and the Federal Trade Commission with respect to
financial institutions subject to their jurisdiction. The
section criminal penalties for retail derivatives fraud.
Section 133. Retail swap customer protections
This section adds a new section to the Federal Deposit
Insurance Act authorizing the FED and the Treasury Department
to jointly prescribe consumer protection regulations that apply
to sales practices relating to swap agreements (as defined in
section 206(b) of the Gramm-Leach-Bliley Act) between financial
institutions and retail customers. If such regulations are not
prescribed after one year after enactment, the two agencies
must submit a report to the Congress within 15 days explaining
why such regulations were not prescribed in final form.
title ii--financial contract Netting improvement act of 2000
Section 201. Short title
Title II is entitled the ``Financial Contract Netting
Improvement Act of 2000''.
Section 202. Treatment of certain agreements by conservators or
receivers of insured depository institutions
Subsections (a) through (f) amend the FDIA definitions of
``qualified financial contract,'' ``securities contract,''
``commodity contract,'' ``forward contract,'' ``repurchase
agreement'' and ``swap agreement'' to make them consistent with
the definitions in the Bankruptcy Code.
Subsection (b) amends the definition of ``securities
contract'' to encompass options on securities and margin loans.
The inclusion of ``margin loans'' in the definition is intended
to encompass only those loans commonly known in the securities
industry as ``margin loans'' and does not include other loans
utilizing securities as collateral, however documented.
Subsection (b) also specifies that purchase, sale and
repurchase obligations under a participation in a commercial
mortgage loan do not constitute ``securities contracts.'' While
a contract for the purchase or sale or a participation may
constitute a ``securities contract'', the purchase, sale or
repurchase obligation embedded in a participation agreement
does not make that agreement a ``securities contract.''
Subsection (e) amends the definition of ``repurchase
agreement'' to codify the substance of the FDIC's 1995
regulation defining repurchase agreement to include those on
qualified foreign government securities. See 12 C.F.R.
Sec. 360.5. The term ``qualified foreign government
securities'' is defined to include those that are direct
obligations of, or fully guaranteed by, central governments of
members of the Organization for Economic Cooperation and
Development (OECD). Subsection (e) reflects developments in the
repurchase agreement markets, which increasingly use foreign
government securities as the underlying asset. Any risk
presented by this modification is addressed by limiting it to
those issued or guaranteed by OECD member states.
Subsection (e), like subsection (b) for ``securities
contracts'', specifies that repurchase obligations under a
participation in a commercial mortgage loan do not make the
participation agreement a ``repurchase agreement.'' Such
repurchase obligations embedded in participations in commercial
loans (such as recourse obligations) do not constitute a
``repurchase agreement.'' However, a repurchase agreement
involving the transfer of participations in commercial mortgage
loans with a simultaneous agreement to repurchase the
participation on demand or at a date certain one year or less
after such transfer would constitute a ``repurchase
agreement.''
Subsection (f) amends the definition of ``swap agreement''
to include an ``interest rate swap, option, future, or forward
agreement, including a rate floor, rate cap, rate collar,
cross-currency rate swap, and basis swap; a spot, same day-
tomorrow, tomorrow-next, forward or other foreign exchange or
precious metals agreements; a currency swap, option, future, or
forward agreement; an equity index or equity swap, option,
spread, future, or forward agreement; a debt index or debt
swap, option, future, or forward agreement; a credit swap,
option, future, or forward agreement; a commodity index or
commodity swap, option, future, or forward agreement; or a
weather swap, weather derivative, or a weather option.'' This
amendment would achieve contractual netting across economically
similar over-the-counter products that can be terminated and
closed out on a mark-to-market basis.
These definitions apply only for purposes of the FDIA and
the Bankruptcy Code. These definitions, and the
characterization of a certain transaction as a ``swap
agreement'', are not intended to effect the characterization,
definition, or treatment of any instruments under any other
statute, regulation, or rule including, but not limited to, the
statutes, regulations or rules enumerated in subsection (f).
Subsection (g) amends the FDIA by adding a definition for
``transfer,'' which is a key term used in the FDIA, to ensure
that it is broadly construed to encompass dispositions of
property or interests in property. The definition tracks that
in section 101 of the Bankruptcy Code.
Subsection (h) makes clarifying technical changes to
conform the receivership and conservatorship provisions of the
FDIA. This subsection (h) also clarifies that the FDIA
expressly protects rights under security agreements,
arrangements or other credit enhancement related to one or more
qualified financial contracts (QFCs). An example of a
securityarrangement is a right of set off, and examples of other credit
enhancements are letters of credit, guarantees, reimbursement
obligations and other similar agreements.
Subsection (i) clarifies that no provision of Federal or
state law relating to the avoidance of preferential or
fraudulent transfers (including the anti-preference provision
of the National Bank Act) can be invoked to avoid a transfer
made in connection with any QFC of an insured depository
institution in conservatorship or receivership, absent actual
fraudulent intent on the part of the transferee.
Section 203. Authority of the corporation with respect to failed and
failing institutions
Section 203 provides that no provision of law, including
FDICIA, shall be construed to limit the power of the FDIC to
transfer or to repudiate any QFC in accordance with its powers
under the FDIA. As discussed below, there has been some
uncertainty regarding whether or not FDICIA limits the
authority of the FDIC to transfer or to repudiate QFCs of an
insolvent financial institution. Section 203--as well as other
provisions in the Act--clarify that FDICIA does not limit the
transfer powers of the FDIC with respect to QFCs.
Section 203 denies enforcement to ``walkaway'' clause in
QFCs. A walkaway clauses is defined as a provision that, after
calculation of a value of a party's position or an amount due
to or from one of the parties upon termination, liquidation or
acceleration of the QFC, either does not create a payment
obligation of a party or extinguishes a payment obligation of a
party in whole or in part solely because of such party's status
as a non-defaulting party.
Section 204. Amendments relating to transfers of qualified financial
contracts
Subsection (a) amends the FDIA to expand the transfer
authority of the FDIC to permit transfers of QFCs to
``financial institutions'' as defined in FDICIA or in
regulations. This provision will allow the FDIC to transfer
QFCs to a non-depository financial institution, provided the
institution is not subject to bankruptcy or insolvency
proceedings.
The new FDIA provision specifies that when the FDIC
transfers QFCs that are subject to the rules of a particular
clearing organization, the transfer will not require the
clearing organization to accept the transferee as a member of
the organization. This provision gives the FDIC flexibility in
resolving QFCs subject to the rules of a clearing organization,
while preserving the ability of such organizations to enforce
appropriate risk reducing membership requirements.
The new FDIA provision also permits transfers to an
eligible financial institution that is a non-U.S. person, or
the branch or agency of a non-U.S. person if, following the
transfer, the contractual rights of the parties would be
enforceable substantially to the same extent as under the FDIA.
Subsection (b) amends the notification requirements
following a transfer of the QFCs of a failed depository
institution to require the FDIC to notify any party to a
transferred QFC of such transfer by 5:00 p.m. (Eastern Time) on
the business day following the date of the appointment of the
FDIC acting as receiver or following the date of such transfer
by the FDIC acting as a conservator. This amendment is
consistent with the policy statement on QFCs issued by the FDIC
on December 12, 1989.
Subsection (c) amends the FDIA to clarify the relationship
between the FDIA and FDICIA. There has been some uncertainty
whether FDICIA permits counterparties to terminate or liquidate
a QFC before the expiration of the time period provided by the
FDIA during which the FDIC may repudiate or transfer a QFC in a
conservatorship or receivership. Subsection (c) provides that a
party may not terminate a QFC based solely on the appointment
of the FDIC as receiver until 5:00 p.m. (Eastern Time) on the
business day following the appointment of the receiver or after
the person has received notice of a transfer under FDIA section
11(d)(9), or based solely on the appointment of the FDIC as
conservator, notwithstanding the provisions of FDICIA. This
provides the FDIC with an opportunity to undertake an orderly
resolution of the insured depository institution.
The amendment also prohibits the enforcement of rights of
termination or liquidation that are based solely on the
``financial condition'' of the depository institution in
receivership or conservatorship. For example, termination based
on a cross-default provision in a QFC that is triggered upon a
default under another contract could be stayed if such other
default was caused by an acceleration of amounts due under that
other contract, and such acceleration was based solely on the
appointment of a conservator or receiver for that depository
institution. Similarly, a provision in a QFC permitting
termination of the QFC based solely on a downgraded credit
rating of a party will not be enforceable in an FDIC
receivership or conservatorship because the provision is based
solely on the financial condition of the depository institution
in default. However, any payment, delivery or other
performance-based default, or breach of a representation or
covenant putting in question the enforceability of the
agreement, will not be deemed to be based solely on financial
condition for purposes of this provision. The amendment is not
intended to prevent counterparties from taking all actions
permitted and recovering all damages authorized upon
repudiation of any QFC by a conservator or receiver.
The amendment allows the FDIC to meet its obligation to
provide notice to parties to transferred QFCs by taking steps
reasonably calculated to provide notice to such parties by the
required time. This is consistent with the existing policy
statement on QFCs issued by the FDIC on December 12, 1989.
Finally, the amendment permits the FDIC to transfer QFCs of
a failed depository institution to a bridge bank or a
depository institution organized by the FDIC for which a
conservator is appointed either (i) immediately upon the
organization of such institution or (ii) at the time of a
purchase and assumption transaction between the FDIC and the
institution. This provision clarifies that such institutions
are not to be considered financial institutions that are
ineligible to receive such transfers under FDIA section
11(e)(9). This is consistent with the existing policy statement
on QFCs issued by the FDIC on December 12, 1989.
Section 205. Amendments relating to disaffirmance or repudiation of
qualified financial contracts
Section 205 limits the disaffirmance and repudiation
authority of the FDIC with respect to QFCs so that such
authority is consistent with the FDIC's transfer authority
under FDIA section 11(e)(9). This ensures that no
disaffirmance, repudiation or transfer authority of the FDIC
may be exercised to ``cherry-pick'' or otherwise treat
independently all the QFCs between a depository institution in
default and a person or any affiliate of such person. The FDIC
has announced that its policy is not to repudiate or disaffirm
QFCs selectively. This unified treatment is fundamental to the
reduction of systemic risk.
Section 206. Clarifying amendment relating to master agreements
Section 206 states that a master agreement for one or more
securities contracts, commodity contracts, forward contracts,
repurchase agreements or swap agreements will be treated as a
single QFC under the FDIA. This provision ensures that cross-
product netting pursuant to a master agreement will be
enforceable under the FDIA. Cross-product netting permits a
wide variety of financial transactions between two parties to
be netted, thereby maximizing the present and potential future
risk-reducing benefits of the netting arrangement between the
parties. Express recognition of the enforceability of such
cross-product master agreements furthers the policy of
increasing legal certainty and reducing systemic risks in the
case of an insolvency of a large financial participant. Similar
Bankruptcy Code clarifications to recognize cross-product
netting both under a master agreement and in the absence of a
master agreement are described below.
Section 207. Federal Deposit Insurance Corporation Improvement Act of
1991
Subsection (a)(1) amends the definition of ``clearing
organization'' to include clearinghouses that are subject to
exemptions pursuant to orders of the SEC or the CFTC.
Subsection (a)(2). FDICIA provides that a netting
arrangement will be enforced pursuant to its terms,
notwithstanding the failure of a party to the agreement.
However, the current netting provisions of FDICIA limit this
protection to ``financial institutions,'' which include
depository institutions. Subsection (a)(2) amends the FDICIA
definition of covered institutions to include (i) uninsured
national and State member banks, irrespective of their
eligibility for deposit insurance and (ii) foreign banks
(including the foreign bank and its branches or agencies as a
combined group, or only the foreign bank parent of a branch or
agency). The Federal Reserve Board already has by regulation
included certain foreign banks in the definition of a
``financial institution'' for purposes of FDICIA and the latter
change will statutorily extend the protections of FDICIA to
ensure that U.S. financial organizations participating in
netting agreements with foreign banks are covered by the Act,
thereby enhancing the safety and soundness of these
arrangements.
Subsection (a)(3) amends FDICIA to provide that, for
purposes of FDICIA, two or more clearing organizations that
enter into a netting contract are considered ``members'' of
each other. This assures the enforceability of netting
arrangements involving two or more clearing organizations and a
member common to all such organizations, thus reducing systemic
risk in the event of the failure of such a member. Under the
current FDICIA provisions, the enforceability of such
arrangements depends on a case-by-case determination that
clearing organizations could be regarded as members of each
other for purposes of FDICIA.
Subsection (a)(4) amends the FDICIA definition of netting
contract and the general rules applicable to netting contracts.
The current FDICIA provisions require that the netting
agreement must be governed by the law of the United States or a
State to receive the protections of FDICIA. However, many of
these agreements, particularly netting arrangements covering
positions taken in foreign exchange dealings, are governed by
the laws of a foreign country. This subsection broadens the
definition of ``netting contract'' to include those agreements
governed by foreign law, and preserves the FDICIA requirement
that a netting contract is not invalid under, or precluded by,
Federal law.
Subsection (a)(5) adds a new definition of ``payment'' to
FDICIA.
Subsections (b) and (c) establish two exceptions to
FDICIA's protection of the enforceability of the provisions of
netting contracts between financial institutions and among
clearing organization members.
First, the termination provisions of netting contracts will
not be enforceable based solely on (i) the appointment of a
conservator for an insolvent depository institution under the
FDIA or (ii) the appointment of a receiver for such institution
under the FDIA, if such receiver transfers or repudiates QFCs
in accordance with the FDIA and gives notice of a transfer by
5:00 p.m. on the business day following the appointment of a
receiver. This change is made to confirm the FDIC's flexibility
to transfer or repudiate the QFCs of an insolvent depository
institution in accordance with the terms of the FDIA. This
modification also provides important legal certainty regarding
the treatment of QFCs under the FDIA, because the current
relationship between the FDIA and FDICIA is unclear.
The second exception provides that FDICIA does not override
a stay order under SIPA with respect to foreclosure on
securities (but not cash) collateral of a debtor (section 212
makes a conforming change to SIPA). There is also an exception
relating to insolvent commodity brokers.
Subsections (b) and (c) also clarify that a security
agreement or other credit enhancement related to a netting
contract is enforceable to the same extent as the underlying
netting contract.
Subsection (d) adds a new section 407 to FDICIA. This new
section provides that, notwithstanding any other law, QFCs with
uninsured national banks or uninsured Federal branches or
agencies that are placed in receivership or conservatorship
will be treated in the same manner as if the contract were with
an insured national bank or insured Federal branch for which a
receiver or conservator was appointed. This provision will
ensure that parties to QFCs with uninsured national banks or
uninsured Federal branches or agencies will have the same
rights and obligations as parties entering into the same
agreements with insured depository institutions. The new
section also specifically limits the powers of a receiver or
conservator for an uninsured national bank or uninsured Federal
branch or agency to those contained in 12 U.S.C.
Sec. 1821(e)(8), (9), (10), and (11), which address QFCs.
While the amendment would apply the same rules to uninsured
national banks and Federal branches and agencies that apply to
insured institutions, the provision would not change the rules
that apply to insured institutions. Nothing in this section
would amend the International Banking Act, the Federal Deposit
Insurance Act, the National Bank Act, or other statutory
provisions with respect to receiverships of insured national
banks or Federal branches.
Section 208. Bankruptcy code amendments
Subsection (a)(1) amends the Bankruptcy Code definitions of
``repurchase agreement'' and ``swap agreement'' to conform with
the amendments to the FDIA contained in sections 202(e) and 20-
2(f) of the Act.
In connection with the definition of ``repurchase
agreement,'' the term ``qualified foreign government
securities'' is defined to include securities that are direct
obligations of, or fully guaranteed by, central governments of
members of the Organization for Economic Cooperation and
Development (OECD). This language reflects developments in the
repurchase agreement markets, which increasingly use foreign
government securities as the underlying asset. Any risk
presented by this modification is addressed by limiting it to
those obligating or guaranteed by OECD member states.
Subsection (a)(1) specifies that repurchase obligations
under a participation in an commercial mortgage loan do not
make the participation agreement a ``repurchase agreement.''
Such repurchase obligations embedded in participations in
commercial loans (such as recourse obligations) do not
constitute a ``repurchase agreement.'' However, a repurchase
agreement involving the transfer to participations in
commercial mortgage loans with a simultaneous agreement to
repurchase the participation on demand or at a date certain one
year or less after such transfer would constitute a
``repurchase agreement.''
The amendments to the definition of ``repurchase
agreement'' are not intended to affect the interpretation of
the definition of ``securities contract.''
The definition of ``swap agreement,'' in conjunction with
the addition of ``spot foreign exchange transactions'' that was
added to the definition in 1994, will achieve contractual
netting across economically similar over-the-counter products
that can be terminated and closed out on a mark-to-market
basis.
The definition of ``swap agreement'' originally was
intended to provide sufficient flexibility to avoid the need to
amend the definition as the nature and uses of swap
transactions matured. For that reason, the phrase ``or any
other similar agreement'' was included in the definition. To
clarify this, subsection (a)(1) expands the definition of
``swap agreement'' to include ``any agreement or transaction
similar to any other agreement or transaction referred to in
[subsection (a)(1)] that is presently, or in the future
becomes, regularly entered into in the swap market [. . .] and
is a forward, swap, future, or option on one or more rates
currencies, commodities, equity securities or other equity
instruments, debt securities or other debt instruments, or
economic indices or measures of economic risk or value.''
Subsection (a)(1) specifies that this definition of
swapagreement applies only for purposes of the Bankruptcy Code and is
inapplicable to the other statutes, rules and regulations enumerated in
that section.
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement. This ensures that any such agreement, arrangement or
enhancement is itself deemed to be a swap agreement, and
therefore eligible for treatment as such for purposes of
termination, liquidation, acceleration, offset and netting
under the Bankruptcy Code and the FDIA. Similar changes are
made in the definitions of ``forward contract,'' ``commodity
contract'' and ``repurchase agreement.'' An example of a
security arrangement is a right of setoff; examples of other
credit enhancements are letters of credit, guarantees,
reimbursement obligations and other similar agreements.
Subsections (a)(2) and (a)(3) amend the Bankruptcy Code
definitions of ``securities contract'' and ``commodity
contract,'' respectively, to conform them to the definitions in
the FDIA, and also to include any security agreements or
arrangements or other credit enhancements related to one or
more such contracts. Subsection (a)(2), like the amendments to
the FDIA, amends the definition of ``securities contract'' to
encompass options on securities and margin loans. The inclusion
of ``margin loans'' in the definition is intended to encompass
only those loans commonly known in the securities industry as
``margin loans'' and does not include other loans utilizing
securities as collateral, however, documented.
Subsection (a)(2) also specifies that purchase, sale and
repurchase obligations under a participation in a commercial
mortgage loan do not constitute ``securities contracts.'' While
a contract for the purchase or sale or a participation may
constitute a ``securities contract,'' the purchase, sale or
repurchase obligation embedded in a participation agreement
does not make that agreement a ``securities contract.''
Subsection (b) amends the Bankruptcy Code definitions of
``forward contract merchant'' and also adds a new definition of
``financial participant'' to limit the potential impact of
insolvencies upon other major market participants. This
definition will allow such market participants to close-out and
net agreements with insolvent entities under sections
362(b)(6), 546, 548, 555, and 556 even if the creditor could
not qualify as, for example, a commodity broker. Section 116(d)
of the Act amends the definition of financial institution to
conform to the changes made in this subsection. The new
subsection preserves the limitations of the right to close-out
and net such contracts, in most cases, to entities who qualify
under the Bankruptcy Code's counter party limitations. However,
where the counter party has transactions with a total gross
dollar value of at least $1 billion in notional principal
amount outstanding on any day during the previous 15-month
period, or has gross mark-to-market positions of at least $100
million (aggregated across counter parties) in one or more
agreements or transactions on any day during the previous 15-
month period, the new subsection and corresponding amendments
would permit it to exercise netting rights irrespective of its
inability otherwise to satisfy those counter party limitations.
This change will help prevent systemic impacts upon the markets
from a single failure.
Subsection (c) adds to the Bankruptcy Code new definitions
for the terms ``master netting agreement'' and ``master netting
agreement participant.'' The definition of ``master netting
agreement'' is designed to protect the termination and close-
out netting provisions of cross-product master agreements
between parties. Such an agreement may be used (i) to document
a wide variety of securities contracts, commodity contracts,
forward contracts, repurchase agreements and swap agreements or
(ii) as an umbrella agreement for separate master agreements
between the same parties, each of which is used to document a
discrete type of transaction. The definition includes security
agreements or arrangements or other credit enhancements related
to one or more such agreements and clarifies that a master
netting agreement will be treated as such even if it documents
transactions that are not within the enumerated categories of
qualifying transactions (but the provisions of the Bankruptcy
Code relating to master netting agreements and the other
categories of transactions will not apply to such other
transactions).
A ``master netting agreement participant'' is any entity
that is a party to an outstanding master netting agreement with
a debtor before the filing of a bankruptcy petition.
Subsection (d) amends section 362(b) of the Bankruptcy Code
to protect enforcement, free from the automatic stay, of setoff
or netting provisions in swap agreements and in master netting
agreements and security agreements or arrangements related to
one or more swap agreements or master netting agreements. This
provision parallels the over provisions of the Bankruptcy Code
that protect netting provisions of securities contracts,
commodity contracts, forward contracts, and repurchase
agreements. Because the relevant definitions include related
security agreements, the reference to ``setoff'' in this
provision, as well as in section 362(b)(6) and (7) of the
Bankruptcy Code, are intended to refer also to rights to
foreclose on, and to set off against, obligations to return
collateral securing swap agreements, master netting
arrangements, repurchase agreements, securities contracts,
commodity contracts, or forward contracts. Collateral may be
pledged to cover the cost of replacing the defaulted
transactions in the relevant market, as well as other costs and
expenses incurred or estimated to be incurred for the purpose
of hedging or reducing the risks arising out of such
termination. Enforcement of these agreements and arrangements
is consistent with the policy goal of minimizing systemic risk.
Subsection (d) also clarifies that the provisions
protecting setoff and foreclosure in relation to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, and master netting agreements free
from the automatic stay apply to collateral pledged by the
debtor that is under the control of the creditor but that
cannot technically be ``held by'' the creditor, such as
receivables and book-entry securities, and to collateral that
has been repledged by the creditor.
Subsection (e) amends section 546 of the Bankruptcy Code to
provide that transfers made under or in connection with a
master netting agreement may not be avoided by a trustee except
where such transfer is made with actual intent to hinder, delay
or defraud. This section of the Act also clarifies the
limitation on a trustee's power to avoid transfers made under
swap agreements.
Subsection (f) amends section 548(d) of the Bankruptcy Code
to provide that transfers made under or in connection with a
master netting agreement may not be avoided by a trustee except
where such transfer is made with actual intent to hinder, delay
or defraud. This amendment provides the same protections for
transfers made under, or in connection with, master netting
agreements as currently is provided for margin payments and
settlement payments received by commodity brokers, forward
contract merchants, stockbrokers, financial institutions
securities clearing agencies, repo participants, and swap
participants under section 546 and 548(d).
Subsections (g), (h), (i) and (j) clarify that the
provisions of the Bankruptcy Code that protect (i) rights of
liquidation under securities contracts, commodity contracts,
forward contracts and repurchase agreements also protect rights
of termination or acceleration under such contracts, and (ii)
rights to terminate under swap agreements also protect rights
of liquidation and acceleration.
Subsection (k) adds a new section 561 to the Bankruptcy
Code to protect the contractual right of a master netting
agreement participant to enforce any rights of termination,
liquidation, acceleration, offset or netting under a master
netting agreement. Such rights include rights arising (i) from
the rules of a securities exchange or clearing organization,
(ii) under common law, law merchant or (iii) by reason of
normal business practice. This is consistent with the current
treatment of rights under swap agreements under section 560 of
the Bankruptcy Code.
For the purposes of Bankruptcy Code sections 555, 556, 559,
560 and 561, it is intended that the normal business practice
in the event of a default of a party based on bankruptcy or
insolvency is to terminate, liquidate or accelerate securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements and master netting agreements with
the bankrupt or insolvent party.
The protection of netting and offset rights in sections 560
and 561 is in addition to the protections afforded in sections
362(b)(6), (b)(7), (b)(17) and (b)(32). For example, cross-
product netting will be protected from the automatic stay under
section 561 even in the absence of a master netting agreement.
Sections 561(b)(2) and (3) limit the exercise of
contractual rights to net or to offset obligations where one
leg of the obligations sought to be netted relates to commodity
contracts. Under subsection (b)(2), netting or offset is not
permitted if the obligations are not mutual. This means, for
example, that proprietary obligations cannot be netted or
offset against obligations held for, or on behalf of, some
other party. Even if the obligations are mutual, under
subsection (b)(3) netting or offset is not permitted in a
commodity broker bankruptcy if the party seeking to net or to
offset has no positive net equity in the commodity account at
the debtor. Subsections (b)(2) and (b)(3) limit the depletion
of assets available for distribution to customers of commodity
brokers. This is consistent with the principle of Subchapter IV
of Chapter 7 of the Bankruptcy Code, which gives priority to
customer claims in the bankruptcy of a commodity broker.
Under the Act, the termination, liquidation or acceleration
rights of a master netting agreement participant are subject to
limitations contained in other provisions of the Bankruptcy
Code relating to securities contracts and repurchase
agreements. In particular, if a securities contract or
repurchase agreement is documented under a master netting
agreement, a party's termination, liquidation and acceleration
rights would be subject to the provisions of the Bankruptcy
Code relating to orders authorized under the provisions of SIPA
or any statute administered by the SEC. In addition, the
netting rights of a party to a master netting agreement would
be subject to any contractual terms between the parties
limiting or waiving netting or set off rights. Similarly, a
waiver by a bank or a counter party of netting or set off
rights in connection with QFCs would be enforceable under the
FDIA.
Subsection (1) clarifies that, with respect to municipal
bankruptcies, all the provisions of the Bankruptcy Code
relating to securities contracts, commodity contracts, forward
contracts, repurchase agreements, swap agreements and master
netting agreements (which by their terms are intended to apply
in all proceedings under title 11) will apply in a Chapter 9
proceeding for a municipality. Although sections 555, 556, 559
and 560 provide that they apply in any proceeding under the
Bankruptcy Code, this subsection makes a technical amendment in
Chapter 9 to clarify the applicability of these provisions.
Subsection (m) clarifies that the provisions of the
Bankruptcy Code related to securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements and master netting agreements apply in a section 304
proceeding ancillary to a foreign insolvency proceeding.
Subsections (n) and (o) amend those provisions in the
Bankruptcy Code concerning the liquidation of commodity brokers
and stockbrokers. Subchapter III of Chapter 7 of the Bankruptcy
Code details specific rules for the liquidation of
stockbrokers. Subchapter IV of Chapter 7 of the Bankruptcy Code
and regulations of the CFTC detail specific rules for the
liquidation of commodity brokers. These authorities are
designed to protect customers and customer property of an
insolvent stockbroker or commodity broker.
Subsections (n) and (o) clarify the rights of parties to
commodity contracts, securities contracts, forward contracts,
swap agreements, repurchase agreements and master netting
agreements with an insolvent commodity broker or stockbroker.
They ensure that non-customers will not defeat the priority
scheme of Subchapter III or IV priority by gaining access to
assets held in segregated customer accounts. The subsections
also clarify that the exercise of termination and netting
rights will not otherwise affect customer property or
distributions by the trustee of the insolvent commodity broker
or stockbroker after the exercise of such rights.
Subsection (p) amends section 553 of the Bankruptcy Code to
clarify that the acquisition by a creditor of setoff rights in
connection with swap agreements, repurchase agreements,
securities contracts, forward contracts, commodity contracts
and master netting agreements cannot be avoided as a
preference.
This subsection also adds setoff of the kinds described in
sections 555, 556, 559, 560, and 561 of the Bankruptcy Code to
the types of set off excepted from section 553(b).
Section 209. Recordkeeping requirements
Section 209 amends section 11(e)(8) of the Federal deposit
Insurance Act to explicitly authorize the FDIC, in consultation
with appropriate Federal banking agencies, to prescribe
regulations on recordkeeping with respect to QFCs. Adequate
recordkeeping for such transactions is essential to effective
risk management and to the reduction of systemic risk permitted
by the orderly resolution of depository institutions utilizing
QFCs.
Section 210. Exemptions from contemporaneous execution requirement
Section 210 amends FDIA section 13(e)(2) to provide that an
agreement for the collateralization of governmental deposits,
bankruptcy estate funds, Federal Reserve Bank or Federal Home
Loan Bank extensions of credit or one or more QFCs shall not be
deemed invalid solely because such agreement was not entered
into contemporaneously with the acquisition of the collateral
or because of pledges, delivery or substitution of the
collateral made in accordance with such agreement.
The amendment codifies portions of policy statements issued
by the FDIC regarding the application of section 13(e), which
codifies the ``D'Oench Duhme'' doctrine. With respect to QFCs,
this codification recognizes that QFCs often are subject to
collateral and other security arrangements that may require
posting and return of collateral on an ongoing basis based on
the mark-to-market values of the collateralized transactions.
The codification of only portions of the existing FDIC policy
statements on these and related issues should not give rise to
any negative implication regarding the continued validity of
these policy statements.
Section 211. Damage measure
Section 211 adds a new section 562 to the Bankruptcy Code
providing that damages under any swap agreement, securities
contract, forward contract, commodity contract, repurchase
agreement or master netting agreement will be calculated as of
the earlier of (i) the date of rejection of such agreement by a
trustee or (ii) the date of liquidation, termination or
acceleration of such contract or agreement.
New section 562 provides important legal certainty and
makes the Bankruptcy Code consistent with the current
provisions related to the timing of the calculation of damages
under QFCs in the FDIA.
Section 212. SIPC stay
Section 212 amends SIPA to provide that an order or decree
issued pursuant to SIPA shall not operate as a stay of any
right of liquidation, termination, acceleration, offset or
netting under one or more securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements or master netting agreements (as defined in the
Bankruptcy Code and including rights of foreclosure on
collateral), except that such order or decree may stay any
right to foreclose on securities (but not cash) collateral
pledged by the debtor or sold by the debtor under a repurchase
agreement (a corresponding amendment to FDICIA is made by
section 7). A creditor that was stayed in exercising rights
against securities collateral would be entitled to post-
insolvency interest to the extent of the collateral.
Section 213. Asset-backed securitizations
Section 213 amends section 541 of the Bankruptcy Code to
provide that certain assets transferred to an eligible entity
in connection with an asset-backed securitization generally
will not be included within the bankruptcy estate of the
debtor. This provision recognizes that a valid transfer of such
assets to an ``eligible entity'', generally eliminates the
debtor's legal or equitable interests in those assets.
Accordingly, subject to the avoidance powers in section 548(a),
the transfer will be treated as a sale of those assets not
subject to avoidance.
Section 214. Application of amendments
Section 214 provides that the amendments made by the Act
shall not apply with respect to cases commenced, or to
conservator/receiver appointments made, before the date of
enactment.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
COMMODITY EXCHANGE ACT
SEC. 1A. DEFINITIONS.
As used in this Act:
(1) Banking product.--
(A) In general.--The term ``banking product''
means any agreement, contract, or transaction
that is an identified banking product (as
defined in section 206(a) of the Gramm-Leach-
Bliley Act).
(B) Exclusion.--The term ``banking product''
does not include a contract for the sale of a
commodity for future delivery traded on a
contract market designated under section 5 of
this Act or an agreement, contract, or
transaction traded on a derivatives transaction
execution facility registered under section 5a.
[(1)] (2) Board of trade.--The term ``board of
trade'' means any exchange or association, whether
incorporated or unincorporated, of persons who are
engaged in the business of buying or selling any
commodity or receiving the same for sale on
consignment.
[(2)] (3) Commission.--The term ``Commission'' means
the Commodity Futures Trading Commission established
under section 2(a)(2).
[(3)] (4) Commodity.--The term ``commodity'' means
wheat, cotton, rice, corn, oats, barley, rye, flaxseed,
grain sorghums, mill feeds, butter, eggs, Solanum
tuberosum (Irish potatoes), wool, wool tops, fats and
oils (including lard, tallow, cottonseed oil, peanut
oil, soybean oil, and all other fats and oils),
cottonseed meal, cottonseed, peanuts, soybeans, soybean
meal, livestock, livestock products, and frozen
concentrated orange juice, aluminum, copper, gold,
palladium, platinum, silver, and all other goods and
articles, except onions as provided in Public Law 85-
839 (7 U.S.C. 13-1), and all services, rights, and
interests in which contracts for future delivery are
presently or in the future dealt in.
[(4)] (5) Commodity pool operator.--The term
``commodity pool operator'' means any person engaged in
a business that is of the nature of an investment
trust, syndicate, or similar form of enterprise, and
who, in connection therewith, solicits, accepts, or
receives from others, funds, securities, or property,
either directly or through capital contributions, the
sale of stock or other forms of securities, or
otherwise, for the purpose of trading in any commodity
for future delivery on or subject to the rules of any
contract market or derivatives transaction execution
facility, except that the term does not include such
persons not within the intent of the definition of the
term as the Commission may specify by rule, regulation,
or order.
[(5)] (6) Commodity trading advisor.--
(A) In general.--Except as otherwise provided
in this paragraph, the term ``commodity trading
advisor'' means any person who--
(i) for compensation or profit,
engages in the business of advising
others, either directly or through
publications, writings, or electronic
media, as to the value of or the
advisability of trading in--
(I) any contract of sale of a
commodity for future delivery
made or to be made on or
subject to the rules of a
contract market or derivatives
transaction execution facility;
(II) any commodity option
authorized under section 4c; or
(III) any leverage
transaction authorized under
section 19; or
(ii) for compensation or profit, and
as part of a regular business, issues
or promulgates analyses or reports
concerning any of the activities
referred to in clause (i).
(B) Exclusions.--Subject to subparagraph (C),
the term ``commodity trading advisor'' does not
include--
(i) any bank or trust company or any
person acting as an employee thereof;
(ii) any news reporter, news
columnist, or news editor of the print
or electronic media, or any lawyer,
accountant, or teacher;
(iii) any floor broker or futures
commission merchant;
(iv) the publisher or producer of any
print or electronic data of general and
regular dissemination, including its
employees;
(v) the fiduciary of any defined
benefit plan that is subject to the
Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1001 et seq.);
(vi) any contract market or
derivatives transaction execution
facility; and
(vii) such other persons not within
the intent of this paragraph as the
Commission may specify by rule,
regulation, or order.
(C) Incidental services.--Subparagraph (B)
shall apply only if the furnishing of such
services by persons referred to in subparagraph
(B) is solely incidental to the conduct of
their business or profession.
(D) Advisors.--The Commission, by rule or
regulation, may include within the term
``commodity trading advisor'', any person
advising as to the value of commodities or
issuing reports or analyses concerning
commodities if the Commission determines that
the rule or regulation will effectuate the
purposes of this paragraph.
[(6)] (7) Contract of sale.--The term ``contract of
sale'' includes sales, agreements of sale, and
agreements to sell.
[(7)] (8) Cooperative association of producers.--The
term ``cooperative association of producers'' means any
cooperative association, corporate, or otherwise, not
less than 75 percent in good faith owned or controlled,
directly or indirectly, by producers of agricultural
products and otherwise complying with the Act of
February 18, 1922 (42 Stat. 388, chapter 57; 7 U.S.C.
291 and 292), including any organization acting for a
group of such associations and owned or controlled by
such associations, except that business done for or
with the United States, or any agency thereof, shall
not be considered either member or nonmember business
in determining the compliance of any such association
with this Act.
(9) Derivatives clearing organization.--
(A) In general.--The term ``derivatives
clearing organization'' means a clearinghouse,
clearing association, clearing corporation, or
similar entity, facility, system, or
organization that, with respect to a derivative
agreement, contract, or transaction--
(i) enables each party to the
derivative agreement, contract, or
transaction to substitute, through
novation or otherwise, the credit of
the derivatives clearing organization
for the credit of the parties;
(ii) arranges or provides, on a
multilateral basis, for the settlement
or netting of obligations resulting
from such agreements, contracts, or
transactions executed by parties in the
derivatives clearing organization; or
(iii) otherwise provides clearing
services or arrangements that mutualize
or transfer among parties in the
derivatives clearing organization the
credit risk arising from such
agreements, contracts, or transactions
executed by the parties.
(B) Exclusions.--The term ``derivatives
clearing organization'' does not include an
entity, facility, system, or organization
solely because it arranges or provides for--
(i) settlement, netting, or novation
of obligations resulting from
agreements, contracts, or transactions,
on a bilateral basis and without a
centralized counterparty;
(ii) settlement or netting of cash
payments through an interbank payment
system; or
(iii) settlement, netting, or
novation of obligations resulting from
a sale of a commodity in a transaction
in the spot market for the commodity.
(10) Electronic trading facility.--The term
``electronic trading facility'' means a trading
facility that--
(A) operates by means of an electronic
network; and
(B) maintains a real-time audit trail of
bids, offers, and the matching of orders or the
execution of transactions.
(11) Eligible commercial participant.--The term
``eligible commercial participant'' means a party or
entity describedin paragraph (11)(A)(i), (ii), (v), or
(vii) or paragraph (11)(C), who, in connection with its business--
(A) has a demonstrable capacity or ability,
directly or through separate contractual
arrangements, to make or take delivery of the
underlying physical commodity;
(B) incurs risks, in addition to price risk,
related to the commodity; or
(C) is a dealer that regularly provides
hedging, risk management, or market-making
services to the foregoing entities.
(12) Eligible contract participant.--The term
``eligible contract participant'' means--
(A) acting for its own account--
(i) a financial institution;
(ii) an insurance company regulated
by a State (including a subsidiary or
affiliate of such an insurance
company);
(iii) an investment company subject
to regulation under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et
seq.) or a foreign person performing a
similar role or function subject as
such to foreign regulation (regardless
of whether each investor in the
investment company or the foreign
person is itself an eligible contract
participant);
(iv) a commodity pool that--
(I) has total assets
exceeding $5,000,000; and
(II) is formed and operated
by a person subject to
regulation under this Act or a
foreign person performing a
similar role or function
subject as such to foreign
regulation (regardless of
whether each investor in the
commodity pool or the foreign
person is itself an eligible
contract participant);
(v) a corporation, partnership,
proprietorship, organization, trust, or
other entity--
(I) that has total assets
exceeding $10,000,000;
(II) the obligations of which
under an agreement, contract,
or transaction are guaranteed
or otherwise supported by a
letter of credit or keepwell,
support, or other agreement by
an entity described in
subclause (I), in clause (i),
(ii), (iii), (iv), or (vii), or
in subparagraph (C); or
(III) that--
(aa) has a net worth
exceeding $1,000,000;
and
(bb) enters into an
agreement, contract, or
transaction in
connection with the
conduct of the entity's
business or to manage
the risk associated
with an asset or
liability owned or
incurred or reasonably
likely to be owned or
incurred by the entity
in the conduct of the
entity's business;
(vi) an employee benefit plan subject
to the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1001 et
seq.) or a foreign person performing a
similar role or function subject as
such to foreign regulation--
(I) that has total assets
exceeding $5,000,000; or
(II) the investment decisions
of which are made by--
(aa) an investment
advisor or commodity
trading advisor subject
to regulation under the
Investment Advisers Act
of 1940 (15 U.S.C. 80b-
1 et seq.) or this Act;
(bb) a foreign person
performing a similar
role or function
subject as such to
foreign regulation;
(cc) a financial
institution; or
(dd) an insurance
company regulated by a
State (including a
subsidiary or affiliate
of such an insurance
company);
(vii)(I) a governmental entity
(including the United States, a State,
or a foreign government) or political
subdivision of a governmental entity;
(II) a multinational or supranational
government entity; or
(III) an instrumentality, agency, or
department of an entity described in
subclause (I) or (II);
(viii) a broker or dealer subject to
regulation under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.) or a foreign person performing a
similar role or function subject as
such to foreign regulation, except
that, if the broker or dealer or
foreign person is a natural person or
proprietorship, the broker or dealer or
foreign person shall not be considered
to be an eligible contract participant
unless the broker or dealer or foreign
person also meets the requirements of
clause (v) or (xi);
(ix) a futures commission merchant
subject to regulation under this Act or
a foreign person performing a similar
role or function subject as such to
foreign regulation, except that, if the
futures commission merchant or foreign
person is a natural person or
proprietorship, the futures commission
merchant or foreign person shall not be
considered to be an eligible contract
participant unless the futures
commission merchant or foreign person
also meets the requirements of clause
(v) or (xi);
(x) a floor broker or floor trader
subject to regulation under this Act in
connection with any transaction that
takes place on or through the
facilities of a registered entity or an
exempt board of trade, or any affiliate
thereof, on which such person regularly
trades; or
(xi) an individual who has total
assets in an amount in excess of--
(I) $10,000,000; or
(II) $5,000,000 and who
enters into the agreement,
contract, or transaction in
order to manage the risk
associated with an asset owned
or liability incurred, or
reasonably likely to be owned
or incurred, by such individual
with total assets exceeding
$10,000,000;
(B)(i) a person described in any of clauses
(i) through (x) of subparagraph (A) or in
subparagraph (C), acting as broker or
performing an equivalent agency function on
behalf of another person described in
subparagraph (A) or (C);
(ii) an investment adviser subject to
regulation under the Investment Advisors Act of
1940, a commodity trading advisor subject to
regulation under this Act, a foreign person
performing a similar role or function subject
as such to foreign regulation, or a person
described in any of clauses (i) through (x) of
subparagraph (A) or in subparagraph (C), in any
such case acting as investment manager or
fiduciary (but excluding a person acting as
broker or performing an equivalent agency
function) for another person described in
subparagraph (A) or (C) and who is authorized
by such person to commit such person to the
transaction; or
(iii) a commodity trading advisor subject to
regulation under this Act, having assets under
management of not less than $25,000,000 and
acting as investment manager or fiduciary for
another person and authorized by such person to
commit such person to the transaction; or
(C) any other person that the Commission
determines to be eligible in light of the
financial or other qualifications of the
person.
(13) Exclusion-eligible commodity.--
(A) In general.--The term ``exclusion-
eligible commodity'' means--
(i) an interest rate, exchange rate,
currency, security, security index,
credit risk or measure, debt or equity
instrument, index or measure of
inflation, or other macroeconomic index
or measure;
(ii) any other rate, differential,
index, or measure of economic or
commercial risk, return, or value that
is--
(I) not based in substantial
part on the value of a narrow
group of commodities not
described in clause (i); or
(II) based solely on 1 or
more commodities that have no
cash market;
(iii) any economic or commercial
index based on prices, rates, values,
or levels that are not within the
control of any party to the relevant
contract, agreement, or transaction; or
(iv) an occurrence, extent of an
occurrence, or contingency (other than
a change in the price, rate, value, or
level of a commodity not described in
clause (i)) that is--
(I) beyond the control of the
parties to the relevant
contract, agreement, or
transaction; and
(II) associated with a
financial, commercial, or
economic consequence.
(B) Reference to excluded commodity.--Any
reference in this Act to the term ``excluded
commodity'' shall be deemed to be a reference
to ``exclusion-eligible commodity''.
(14) Exempt commodity.--The term ``exempt commodity''
means a commodity that is not an excluded commodity or
an agricultural commodity.
(15) Financial institution.--The term ``financial
institution'' means--
(A) a corporation operating under the fifth
undesignated paragraph of section 25 of the
Federal Reserve Act (12 U.S.C. 603), commonly
known as ``an agreement corporation'';
(B) a corporation organized under section 25A
of the Federal Reserve Act (12 U.S.C. 611 et
seq.), commonly known as an ``Edge Act
corporation'';
(C) an institution that is regulated by the
Farm Credit Administration;
(D) a Federal credit union or State credit
union (as defined in section 101 of the Federal
Credit Union Act (12 U.S.C. 1752));
(E) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813));
(F) a foreign bank or a branch or agency of a
foreign bank (each as defined in section 1(b)
of the International Banking Act of 1978 (12
U.S.C. 3101(b)));
(G) any financial holding company (as defined
in section 2 of the Bank Holding Company Act of
1956);
(H) a trust company; or
(I) a similarly regulated subsidiary or
affiliate of an entity described in any of
subparagraphs (A) through (H).
[(8)] (16) Floor broker.--The term ``floor broker''
means any person who, in or surrounding any pit, ring,
post, or other place provided by a contract market or
derivatives transaction execution facility for the
meeting of persons similarly engaged, shall purchase or
sell for any other person any commodity for future
delivery on or subject to the rules of any contract
market or derivatives transaction execution facility.
[(9)] (17) Floor trader.--The term ``floor trader''
means any person who, in or surrounding any pit, ring,
post, or other place provided by a contract market or
derivatives transaction execution facility for the
meeting of persons similarly engaged, purchases, or
sells solely for such person's own account, any
commodity for future delivery on or subject to the
rules of any contract market or derivatives transaction
execution facility.
[(10)] (18) Foreign futures authority.--The term
``foreign futures authority'' means any foreign
government, or any department, agency, governmental
body, or regulatory organization empowered by a foreign
government to administer or enforce a law, rule, or
regulation as it relates to a futures or options
matter, or any department or agency of a political
subdivision of a foreign government empowered to
administer or enforce a law, rule, or regulation as it
relates to a futures or options matter.
[(11)] (19) Future delivery.--The term ``future
delivery'' does not include any sale of any cash
commodity for deferred shipment or delivery.
[(12)] (20) Futures commission merchant.--The term
``futures commission merchant'' means an individual,
association, partnership, corporation, or trust that--
(A) is engaged in soliciting or in accepting
orders for the purchase or sale of any
commodity for future delivery on or subject to
the rules of any contract market or derivatives
transaction execution facility; and
(B) in or in connection with such
solicitation or acceptance of orders, accepts
any money, securities, or property (or extends
credit in lieu thereof) to margin, guarantee,
or secure any trades or contracts that result
or may result therefrom.
(21) Hybrid instrument.--
(A) In general.--The term ``hybrid
instrument'' means a deposit instrument offered
by a financial institution, or a security,
having 1 or more payments indexed to the value,
level, or rate of 1 or more commodities.
(B) Deposit instrument defined.--The term
``deposit instrument'' means an instrument
representing an interest described in paragraph
(1), (2), (3), (4), or (5) of section 3(l) of
the Federal Deposit Insurance Act, other than
in subparagraph (A), (B), or (C) at the end of
paragraph (5).
[(13)] (22) Interstate commerce.--The term
``interstate commerce'' means commerce--
(A) between any State, territory, or
possession, or the District of Columbia, and
any place outside thereof; or
(B) between points within the same state,
territory, or possession, or the District of
Columbia, but through any place outside
thereof, or within any territory or possession,
or the District of Columbia.
[(14)] (23) Introducing broker.--The term
``introducing broker'' means any person (except an
individual who elects to be and is registered as an
associated person of a futures commission merchant)
engaged in soliciting or in accepting orders for the
purchase or sale of any commodity for future delivery
on or subject to the rules of any contract market or
derivatives transaction execution facility who does not
accept any money, securities, or property (or extend
credit in lieu thereof) to margin, guarantee, or secure
any trades or contracts that result or may result
therefrom.
[(15)] (24) Member of a [contract market] registered
entity.--The term ``member of a [contract market]
registered entity'' means an individual, association,
partnership, corporation, or trust owning or holding
membership in, or admitted to membership representation
on, a [contract market] registered entity or given
members' trading privileges thereon.
(25) Nonexempt security.--The term ``nonexempt
security'' means a security that is not an exempted
security under section 3 of the Securities Act of 1933
or section 3(a)(12) of theSecurities Exchange Act of
1934 (other than any municipal security, as defined in section 3(a)(29)
of the Securities Exchange Act of 1934).
(26) Option.--The term ``option'' means an agreement,
contract, or transaction that is of the character of,
or is commonly known to the trade as, an ``option'',
``privilege'', ``indemnity'', ``bid'', ``offer'',
``put'', ``call'', ``advance guaranty'', or ``decline
guaranty''.
(27) Organized exchange.--The term ``organized
exchange'' means a trading facility that--
(A) permits trading by persons other than--
(i) eligible contract participants
trading on a principal-to-principal
basis; or
(ii) eligible contract participants
described in subclause (I), (II),
(III), (IV), (V) or (VI) of section
2(c)(2)(B), acting as a broker or
performing an equivalent agency
function on behalf of eligible contract
participants; or
(B) has adopted (directly or through another
nongovernmental entity) rules that--
(i) govern the conduct of
participants, other than rules that
govern the submission of orders or
execution of transactions on the
trading facility; or
(ii) include disciplinary sanctions
other than the exclusion of
participants from trading.
[(16)] (28) Person.--The term ``person'' imports the
plural or singular, and includes individuals,
associations, partnerships, corporations, and trusts.
(29) Registered entity.--The term ``registered
entity'' means--
(A) a board of trade designated as a contract
market under section 5;
(B) a derivatives transaction execution
facility registered under section 5a; or
(C) a derivatives clearing organization
registered under section 5b.
(30) Security.--The term ``security'' has the meaning
given the term in section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)) as in effect on
date of the enactment of this paragraph.
(31) Trading facility.--
(A) In general.--The term ``trading
facility'' means a person or group of persons
that constitutes, maintains, or provides a
physical or electronic facility or system in
which multiple participants have the ability to
execute or trade agreements, contracts, or
transactions by accepting bids and offers made
by other participants that are open to multiple
participants in the facility or system.
(B) Exclusions.--The term ``trading
facility'' does not include--
(i) a person or group of persons
solely because the person or group of
persons constitutes, maintains, or
provides an electronic facility or
system that enables participants to
negotiate the terms of and enter into
bilateral transactions as a result of
communications exchanged by the parties
and not from interaction of multiple
orders within a predetermined,
nondiscretionary automated trade
matching algorithm;
(ii) a government securities dealer
or government securities broker, to the
extent that the dealer or broker
executes or trades agreements,
contracts, or transactions in
government securities, or assists
persons in communicating about,
negotiating, entering into, executing,
or trading an agreement, contract, or
transaction in government securities
(as the terms ``government securities
dealer'', ``government securities
broker'', and ``government securities''
are defined in section 3(a) of the
Securities Exchange Act of 1934 (15
U.S.C. 78c(a)));
(iii) facilities on which bids and
offers, and acceptances of bids and
offers effected on the facility, are
not binding; or
(iv) a person or group of persons
solely because the person or group of
persons constitutes, maintains, or
provides an electronic facility or
system that--
(I) enables participants to
enter into bilateral
transactions with other
participants; and
(II) incorporates credit
screens or filters that prevent
any participant from executing
a transaction with another
participant unless both
participants have approved the
extension of credit to the
other.
[Sec. 2. (a)(1)(A)(i) The]
SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF
AGENT; COMMODITY FUTURES TRADING COMMISSION;
TRANSACTION IN INTERSTATE COMMERCE.
(a) Jurisdiction of Commission; Commodity Futures Trading
Commission.--
(1) Jurisdiction of commission.--
(A) In general.--The Commission shall have
exclusive jurisdiction, except to the extent
otherwise provided in [subparagraph (B) of this
paragraph] subsection (c), (d), (e), (f), (g),
or (i), with respect to accounts, agreements
(including any transaction which is of the
character of, or is commonly known to the trade
as, an ``option'', ``privilege'',
``indemnity'', ``bid'', ``offer'', ``put'',
``call'', ``advance guaranty'', or ``decline
guaranty''), and transactions involving
contracts of sale of a commodity for future
delivery, traded or executed on a [contract
market designated pursuant to section 5 of this
Act] contract market designated or derivatives
transaction execution facility registered
pursuant to section 5 or 5a or any other board
of trade, exchange, or market, and transactions
subject to regulation by the Commission
pursuant to section 19 of this Act. Except as
hereinabove provided, nothing contained in this
section shall [(I)] (i) supersede or limit the
jurisdiction at any time conferred on the
Securities and Exchange Commission or other
regulatory authorities under the laws of the
UnitedStates or of any State, or [(II)] (ii)
restrict the Securities and Exchange Commission and such other
authorities from carrying out their duties and responsibilities in
accordance with such laws. Nothing in this section shall supersede or
limit the jurisdiction conferred on courts of the United States or any
State.
[(ii) Nothing in this Act shall be deemed to govern or in any
way be applicable to transactions in foreign currency, security
warrants, security rights, resales of installment loan
contracts, repurchase options, government securities, or
mortgages and mortgage purchase commitments, unless such
transactions involve the sale thereof for future delivery
conducted on a board of trade.
[(iii) The]
(B) Liability of principal for act of
agent.--The act, omission, or failure of any
official, agent, or other person acting for any
individual, association, partnership,
corporation, or trust within the scope of his
employment or office shall be deemed the act,
omission, or failure of such individual,
association, partnership, corporation, or
trust, as well as of such official, agent, or
other person.
[(B) Notwithstanding any other provision of law--
[(i) This Act shall not apply to and the Commission
shall have no jurisdiction to designate a board of
trade as a contract market for any transaction whereby
any party to such transaction acquires any put, call,
or other option on one or more securities (as defined
in section 2(1) of the Securities Act of 1933 or
section 3(a)(10) of the Securities Exchange Act of 1934
on the date of enactment of the Futures Trading Act of
1982), including any group or index of such securities,
or any interest therein or based on the value thereof.
[(ii) This Act shall apply to and the Commission
shall have exclusive jurisdiction with respect to
accounts, agreements (including any transaction which
is of the character of, or is commonly known to the
trade as, an ``option'', ``privilege'', ``indemnity'',
``bid'', ``offer'', ``put'', ``call'', ``advance
guaranty'', or ``decline guaranty'') and transactions
involving, and may designate a board of trade as a
contract market in, contracts of sale (or options on
such contracts) for future delivery of a group or index
of securities (or any interest therein or based upon
the value thereof): Provided, however, That no board of
trade shall be designated as a contract market with
respect to any such contracts of sale (or options on
such contracts) for future delivery unless the board of
trade making such application demonstrates and the
Commission expressly finds that the specific contract
(or option on such contract) with respect to which the
application has been made meets the following minimum
requirements:
[(I) Settlement of or delivery on such
contract (or option on such contract) shall be
effected in cash or by means other than the
transfer or receipt of any security, except an
exempted security under section 3 of the
Securities Act of 1933 or section 3(a)(12) of
the Securities Exchange Act of 1934 as in
effect on the date of enactment of the Futures
Trading Act of 1982 (other than any municipal
security, as defined in section 3(a)(29) of the
Securities Exchange Act of 1934 on the date of
enactment of the Futures Trading Act of 1982);
[(II) Trading in such contract (or option on
such contract) shall not be readily susceptible
to manipulation of the price of such contract
(or option on such contract), nor to causing or
being used in the manipulation of the price of
any underlying security, option on such
security or option on a group or index
including such securities; and
[(III) Such group or index of securities
shall be predominately composed of the
securities of unaffiliated issuers and shall be
a widely published measure of, and shall
reflect, the market for all publicly traded
equity or debt securities or a substantial
segment thereof, or shall be comparable to such
measure.
[(iii) Upon application by a board of trade for
designation as a contract market with respect to any
contract of sale (or option on such contract) for
future delivery involving a group or index of
securities, the Commission shall provide an opportunity
for public comment on whether such contracts (or
options on such contracts) meet the minimum
requirements set forth in clause (ii) of this
subparagraph.
[(iv)(I) The Commission shall consult with the
Securities and Exchange Commission with respect to any
application which is submitted by a board of trade
before December 9, 1982, for designation as a contract
market with respect to any contract of sale (or option
on such contract) for future delivery of a group or
index of securities. If, no later than fifteen days
following the close of the public comment period, the
Securities and Exchange Commission shall object to the
designation of a board of trade as a contract market in
such contract (or option on such contract) on the
ground that any minimum requirement of clause (ii) of
this subparagraph is not met, the Commission shall
afford the Securities and Exchange Commission an
opportunity for an oral hearing, to be transcribed,
before the Commission, and shall give appropriate
weight to the views of the Securities and Exchange
Commission. Such oral hearing shall be held after the
public comment period, prior to Commission action upon
such designation, and not less than thirty nor more
than forty-five days after the close of the public
comment period, unless both the Commission and the
Securities and Exchange Commission otherwise agree. If
such an oral hearing is held, the Securities and
Exchange Commission fails to withdraw its objections,
and the Commission issues an order designating a board
of trade as a contract market with respect to any such
contract (or option on such contract), the Securities
and Exchange Commission shall have the right of
judicial review of such order in accordance with the
standards of section 6(c) of this Act. If, pursuant to
section 6 of this Act, there is a hearing on the record
with respect to such application for designation, the
Securities and Exchange Commission shall have the right
to participate in that hearing as an interested party.
[(II) Effective for any application submitted by a
board of trade on or after December 9, 1982, for
designation as a contract market with respect to any
contract of sale (or option on such contract) for
future delivery of a group or index of securities, the
Commission shall transmit a copy of such application to
the Securities and Exchange Commission for review. The
Commission shall not approve any such application if
the Securities and Exchange Commission determines that
such contract (or option on such contract) fails to
meet the minimum requirements set forth in clause (ii)
of this subparagraph. Such determination shall be made
by order no later than forty-five days after the close
of the public comment period under clause (iii) of this
subparagraph. In the event of such determination, the
board of trade shall be afforded an opportunity for a
hearing on the record before the Securities and
Exchange Commission. If a board of trade requests a
hearing on the record, the hearing shall commence no
later than thirty days following the receipt of the
request, and a final determination shall be made no
later than thirty days after the close of the hearing.
A person aggrieved by any such order of the Securities
and Exchange Commission may obtain judicial review
thereof in the same manner and under such terms and
conditions as are provided in section 6(b) of this Act.
[(v) No person shall offer to enter into, enter into,
or confirm the execution of any contract of sale (or
option on such contract) for future delivery of any
security, or interest therein or based on the value
thereof, except an exempted security under section 3 of
the Securities Act of 1933 or section 3(a)(12) of the
Securities Exchange Act of 1934 as in effect on the
date of enactment of the Futures Trading Act of 1982
(other than any municipal security as defined in
section 3(a)(29) of the Securities Exchange Act of 1934
on the date of enactment of the Futures Trading Act of
1982), or except as provided in clause (ii) of this
subparagraph, any group or index of such securities or
any interest therein or based on the value thereof.
[(vi)(I) Notwithstanding any other provision of this
Act, any contract market in a stock index futures
contract (or option thereon) 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 the stock index futures contract
(or option thereon).
[(II) The Board may at any time request any contract
market to set the margin for any stock index futures
contract (or option thereon) at such levels as the
Board in its judgment determines are appropriate to
preserve the financial integrity of the contract market
or its clearing system or to prevent systemic risk. If
the contract market fails to do so within the time
specified by the Board in its request, the Board may
direct the contract market to alter or supplement the
rules of the contract market 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 under this clause only to the Commission.
[(IV) Nothing in this clause shall supersede or limit
the authority granted to the Commission in section
8a(9) to direct a contract market, on finding an
emergency to exist, to raise temporary emergency margin
levels on any futures contract or option on the
contract covered by this clause.
[(V) Any action taken by the Board, or by the
Commission acting under the delegation of authority
under subclause III, under this clause directing a
contract market to alter or supplement a contract
market rule shall be subject to review only in the
Court of Appeals where the party seeking review resides
or has its principal place of business, or in the
United States Court of Appeals for the District of
Columbia Circuit. The review shall be based on the
examination of all information before the Board or the
Commission, as the case may be, at the time the
determination was made. The court reviewing the action
of the Board or the Commission shall not enter a stay
or order of mandamus unless the court has determined,
after notice and a hearing before a panel of the court,
that the agency action complained of was arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.]
(2)(A) There is hereby established, as an independent
agency of the United States Government, a Commodity
Futures Trading Commission. The Commission shall be
composed of five Commissioners who shall be appointed
by the President, by and with the advice and consent of
the Senate. In nominating persons for appointment, the
President shall--
(i) select persons who shall each have
demonstrated knowledge in futures trading or
its regulation, or the production,
merchandising, processing or distribution of
one or more of the commodities or other goods
and articles, services, rights, and interests
covered by this Act; and
(ii) seek to ensure that the demonstrated
knowledge of the Commissioners is balanced with
respect to such areas.
Not more than three of the members of the Commission
shall be members of the same political party. Each
Commissioner shall hold office for a term of five years
and until his successor is appointed and has qualified,
except that he shall not so continue to serve beyond
the expiration of the next session of Congress
subsequent to the expiration of said fixed term of
office, and except (i) any Commissioner appointed to
fill a vacancy occurring prior to the expiration of the
term for which his predecessor was appointed shall be
appointed for the remainder of such term, and (ii) the
terms of office of the Commissioners first taking
office after the enactment of this paragraph shall
expire as designated by the President at the time of
nomination, one at the end of one year, one at the end
of two years, one at the end of three years, one at the
end of four years, and one at the end of five years.
(B) The President shall appoint, by and with the
advice and consent of the Senate, a member of the
Commission as Chairman, who shall serve as Chairman at
the pleasure of the President. An individual may be
appointed as Chairman at the same time that person is
appointed as a Commissioner. The Chairman shall be the
chief administrative officer of the Commission and
shall preside at hearings before the Commission. At any
time, the President may appoint, by and with the advice
and consent of the Senate, a different Chairman, and
the Commissioner previously appointed as Chairman may
complete that Commissioner's term as a Commissioner.
(3) A vacancy in the Commission shall not impair the
right of the remaining Commissioners to exercise all
the powers of the Commission.
(4) The Commission shall have a General Counsel, who
shall be appointed by the Commission and serve at the
pleasure of the Commission. The General Counsel shall
report directly to the Commission and serve as its
legal advisor. The Commission shall appoint such other
attorneys as may be necessary, in the opinion of the
Commission, to assist the General Counsel, represent
the Commission in all disciplinary proceedings pending
before it, represent the Commission in courts of law
whenever appropriate, assist the Department of Justice
in handling litigation concerning the Commission in
courts of law, and perform such other legal duties and
functions as the Commission may direct.
(5) The Commission shall have an Executive Director,
who shall be appointed by the Commission and serve at
the pleasure of the Commission. The Executive Director
shall report directly to the Commission and perform
such functions and duties as the Commission may
prescribe.
(6)(A) Except as otherwise provided in this paragraph
and in paragraphs (4) and (5) of this subsection, the
executive and administrative functions of the
Commission, including functions of the Commission with
respect to the appointment and supervision of personnel
employed under the Commission, the distribution of
business among such personnel and among administrative
units of the Commission, and the use and expenditure of
funds, according to budget categories, plans, programs,
and priorities established and approved by the
Commission, shall be exercised solely by the Chairman.
(B) In carrying out any of his functions under the
provisions of this paragraph, the Chairman shall be
governed by general policies, plans, priorities, and
budgets approved by the Commission and by such
regulatory decisions, findings, and determinations as
the Commission may by law be authorized to make.
(C) The appointment by the Chairman of the heads of
major administrative units under the Commission shall
be subject to the approval of the Commission.
(D) Personnel employed regularly and full time in the
immediate offices of Commissioners other than the
Chairman shall not be affected by the provisions of
this paragraph.
(E) There are hereby reserved to the Commission its
functions with respect to revising budget estimates and
with respect to determining the distribution of
appropriated funds according to major programs and
purposes.
(F) The Chairman may from time to time make such
provisions as he shall deem appropriate authorizing the
performance by any officer, employee, or administrative
unit under hisjurisdiction of any functions of the
Chairman under this paragraph.
(7) No Commissioner or employee of the Commission
shall accept employment or compensation from any
person, exchange, or clearinghouse subject to
regulation by the Commission under this Act during his
term of office, nor shall he participate, directly or
indirectly, in any [contract market] registered entity
operations or transactions of a character subject to
regulation by the Commission.
(8)(A) The Commission shall, in cooperation with the
Secretary of Agriculture, maintain a liaison between
the Commission and the Department of Agriculture. The
Secretary shall take such steps as may be necessary to
enable the Commission to obtain information and utilize
such services and facilities of the Department of
Agriculture as may be necessary in order to maintain
effectively such liaison. In addition, the Secretary
shall appoint a liaison officer, who shall be an
employee of the Office of the Secretary, for the
purpose of maintaining a liaison between the Department
of Agriculture and the Commission. The Commission shall
furnish such liaison officer appropriate office space
within the offices of the Commission and shall allow
such liaison officer to attend and observe all
deliberations and proceedings of the Commission.
(B)(i) The Commission shall maintain communications
with the Department of the Treasury, the Board of
Governors of the Federal Reserve System, and the
Securities and Exchange Commission for the purpose of
keeping such agencies fully informed of Commission
activities that relate to the responsibilities of those
agencies, for the purpose of seeking the views of those
agencies on such activities, and for considering the
relationships between the volume and nature of
investment and trading in contracts of sale of a
commodity for future delivery and in securities and
financial instruments under the jurisdiction of such
agencies.
(ii) When a board of trade applies for [designation
as a contract market] designation or registration as a
contract market or derivatives transaction execution
facility involving transactions for future delivery of
any security issued or guaranteed by the United States
or any agency thereof, the Commission shall promptly
deliver a copy of such application to the Department of
the Treasury and the Board of Governors of the Federal
Reserve System. The Commission may not [designate a
board of trade as a contract market] designate or
register a board of trade as a contract market or
derivatives transaction execution facility based on
such application until forty-five days after the date
the Commission delivers the application to such
agencies or until the Commission receives comments from
each of such agencies on the application, whichever
period is shorter. Any comments received by the
Commission from such agencies shall be included as part
of the public record of the Commission's designation
proceeding. In [designating, or refusing, suspending,
or revoking the designation of, a board of trade as a
contract market involving transactions for future
delivery referred to in this clause or in considering
possible emergency action under section 8a(9) of this
Act] designating, registering, or refusing, suspending,
or revoking the designation or registration of, a board
of trade as a contract market or derivatives
transaction execution facility involving transactions
for future delivery referred to in this clause or in
considering any possible action under this Act
(including without limitation emergency action under
section 8a(9)) with respect to such transactions, the
Commission shall take into consideration all comments
it receives from the Department of the Treasury and the
Board of Governors of the Federal Reserve System and
shall consider the effect that any such [designation,
suspension, revocation, or emergency action]
designation, registration, suspension, revocation, or
action may have on the debt financing requirements of
the United States Government and the continued
efficiency and integrity of the underlying market for
government securities.
(iii) The provisions of this subparagraph shall not
create any rights, liabilities, or obligations upon
which actions may be brought against the Commission.
(9)(A) Whenever the Commission submits any budget
estimate or request to the President or the Office of
Management and Budget, it shall concurrently transmit
copies of that estimate or request to the House and
Senate Appropriations Committees and the House
Committee on Agriculture and the Senate Committee on
Agriculture, Nutrition, and Forestry.
(B) Whenever the Commission transmits any legislative
recommendations, or testimony, or comments on
legislation to the President or the Office of
Management and Budget, it shall concurrently transmit
copies thereof to the House Committee on Agriculture
and the Senate Committee on Agriculture, Nutrition, and
Forestry. No officer or agency of the United States
shall have any authority to require the Commission to
submit its legislative recommendations, or testimony,
or comments on legislation to any officer or agency of
the United States for approval, comments, or review,
prior to the submission of such recommendations,
testimony, or comments to the Congress. In instances in
which the Commission voluntarily seeks to obtain the
comments or review of any officer or agency of the
United States, the Commission shall include a
description of such actions in its legislative
recommendations, testimony, or comments on legislation
which it transmits to the Congress.
(C) Whenever the Commission issues for official
publication any opinion, release, rule, order,
interpretation, or other determination on a matter, the
Commission shall provide that any dissenting,
concurring, or separate opinion by any Commissioner on
the matter be published in full along with the
Commission opinion, release, rule, order,
interpretation, or determination.
(10) The Commission shall have an official seal,
which shall be judicially noticed.
(11) The Commission is authorized to promulgate such
rules and regulations as it deems necessary to govern
the operating procedures and conduct of the business of
the Commission.
* * * * * * *
(c) Agreements, Contracts, and Transactions in Foreign
Currency, Government Securities, and Certain Other
Commodities.--
(1) In general.--Except as provided in paragraph (2),
nothing in this Act (other than section 5b or
12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in--
(A) foreign currency;
(B) government securities;
(C) security warrants;
(D) security rights;
(E) resales of installment loan contracts;
(F) repurchase transactions in an excluded
commodity; or
(G) mortgages or mortgage purchase
commitments.
(2) Commission jurisdiction.--
(A) Agreements, contracts, and transactions
that are futures 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
thereon), or an option on a commodity
(other than foreign currency or a
security), that is executed or traded
on an organized exchange; or
(ii) an option on foreign currency
and is executed or traded on an
organized exchange that is not a
national securities exchange.
(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 for future
delivery (or an option on such a
contract) or an option; 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-5) 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-5),
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 Actof 1934
(15 U.S.C. 78o-5(b), 78q(h)) or section 4f(c)(2)(B) of this Act;
(IV) an insurance company
that is subject to State
regulation (including a
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).
(d) Excluded Derivative Transactions.--
(1) In general.--Nothing in this Act (other than
section 5b or 12(e)(2)(B)) governs or applies to an
agreement, contract, or transaction in an excluded
commodity if--
(A) the agreement, contract, or transaction
is entered into only between persons that are
eligible contract participants at the time at
which the persons enter into the agreement,
contract, or transaction; and
(B) the agreement, contract, or transaction
is not executed or traded on a trading
facility.
(2) Electronic trading facility exclusion.--Nothing
in this Act (other than section 5a, 5b, or 12(e)(2)(B))
governs or applies to an agreement, contract, or
transaction in an excluded commodity if--
(A) the agreement, contract, or transaction
is--
(i) entered into--
(I) on a principal-to-
principal basis between parties
trading for their own accounts
or as described in section
1a(12)(B)(ii) of this Act; and
(II) only between eligible
contract participants (as
defined in subparagraphs (A),
(B)(ii), and (C) section
1a(12)) at the time at which
the persons enter into the
agreement, contract, or
transaction; or
(ii) entered into only between
eligible contract participants
described in subclause (I), (II),
(III), (IV), (V), or (VI) of section
2(c)(2)(B)(ii) acting as a broker or
performing a similar agency function on
behalf of persons that are eligible
contract participants at the time at
which the persons enter into the
agreement, contract, or transaction;
and
(B) the agreement, contract, or transaction
is executed or traded on an electronic trading
facility.
(e) Excluded Electronic Trading Facilities.--
(1) In general.--Nothing in this Act (other than
section 12(e)(2)(B)) governs or is applicable to an
electronic trading facility that limits transactions
authorized to be conducted on its facilities to those
satisfying the requirements of sections 2(d)(2) and
2(h)(3)(B) of this Act.
(2) Effect on authority to establish and operate.--
Nothing in this Act shall prohibit a board of trade
designated by the Commission as a contract market or
derivatives transaction execution facility, or an
exempt board of trade, from establishing and operating
an electronic trading facility excluded under this Act
pursuant to paragraph (1).
(f) Exclusion for Qualifying Hybrid Instruments.--
(1) In general.--Nothing in this Act (other than
section 12(e)(2)(B)) governs or is applicable to--
(A) a banking product or security sold or
provided by an entity that is listed in any of
subclauses (I) through (VI) of section
2(c)(2)(B)(ii); or
(B) a hybrid instrument that is predominantly
a security or a deposit instrument.
(2) Exception.--Paragraph (1)(A) shall not apply to
any swap agreement (as defined in section 206(b) of the
Gramm-Leach-Bliley Act) with any party who is not an
eligible contract participant unless such swap
agreement is entered into after final regulations have
been prescribed under section 49 of the Federal Deposit
Insurance Act
(3) Predominance.--A hybrid instrument shall be
considered to be predominantly a security or deposit
instrument if--
(A) the issuer of the hybrid instrument
receives payment in full of the purchase price
of the hybrid instrument, substantially
contemporaneously with delivery of the hybrid
instrument;
(B) the purchaser or holder of the hybrid
instrument is not required to make any payment
to the issuer in addition to the purchase price
paid under subparagraph (A), whether as margin,
settlement payment, or otherwise, during the
life of the hybrid instrument or at maturity;
(C) the issuer of the hybrid instrument is
not subject by the terms of the instrument to
mark-to-market margining requirements; and
(D) the hybrid instrument is not marketed as
a contract of sale for future delivery of a
commodity (or option on such a contract)
subject to this Act.
(4) Mark-to-market margining requirements.--For the
purposes of paragraph (3)(C), mark-to-market margining
requirements do not include the obligation of an issuer
of a secured debt instrument to increase the amount of
collateral held in pledge for the benefit of the
purchaser of the secured debt instrument to secure the
repayment obligations of the issuer under the secured
debt instrument.
(g) Notwithstanding any other provision of law:
(1) This Act shall not apply to and the Commission
shall have no jurisdiction to designate a board of
trade as a contract market for any transaction whereby
any party to the transaction acquires a put, call, or
other option on 1 or more securities (as defined in
section 2(a)(1) of the Securities Act of 1933 or
section 3(a)(10) of the Securities Exchange Act of
1934, on the date of enactment of the Futures Trading
Act of 1982), including any group or index of
securities and any interest in or based on the value of
securities.
(2) Nothing in this subsection governs or applies
to--
(A) an agreement, contract, or transaction in
a commodity that is excluded under subsection
(c) or (d);
(B) an electronic trading facility that is
excluded under subsection (e); or
(C) a hybrid instrument that is covered by an
exclusion under subsection (f) or an exemption
granted by the Commission under section 4(c)
(whether or not the hybrid instrument is
otherwise subject to this Act).
(3) Except as provided in paragraph (4) of this
subsection, or unless excluded by paragraph (2) of this
subsection, a person shall not offer to enter into,
enter into, or confirm the execution of any contract of
sale (or option on the contract) for future delivery of
any security or interest in or based on the value of a
nonexempt security.
(4)(A) Except as excluded by paragraph (2) of this
subsection, this Act shall apply to and the Commission
shall have exclusive jurisdiction with respect to
accounts, agreements (including any transaction which
is of the character of, or is commonly known to the
trade as an option, privilege, indemnity, bid, offer,
put, call, advance guaranty, or decline guaranty), and
transactions involving, and may designate a board of
trade as a contract market under section 5 or register
the board of trade as a derivatives transaction
execution facility under section 5a in, contracts of
sale (or options on the contracts) for future delivery
of 1 or more securities (as defined in section 2(a)(1)
of the Securities Act of 1933 or section 3(a)(10) of
the Securities Exchange Act of 1934), including any
group or index of securities and any interest in or
based on the value of securities.
(B) The Commission shall not designate a board of
trade as a contract market under section 5 or register
a board of trade as a derivatives transaction execution
facility under section 5a with respect to any such
contracts of sale (or options on the contracts) for
future delivery unless the board of trade demonstrates
and the Commission expressly finds that the specific
contract (or option on the contract) with respect to
which the application for the designation or
recognition has been made meets the following
requirements:
(i) Settlement of or delivery on the contract
(or option on the contract) shall be effected
in cash or by means other than the transfer or
receipt of a nonexempt security.
(ii) Susceptibility to price manipulation.--
Trading in a contract (or option on such a
contract) described in subparagraph (A) shall
not be readily susceptible to--
(I) manipulation of the price of the
contract (or option on such a
contract); or
(II) causing or being used in the
manipulation of the price of any
underlying security, option on a
security, or option on a group or index
that includes a security.
(iii) If the contract is based on a single
nonexempt security, an option on the security
underlying the contract would meet all
Securities and Exchange Commission requirements
for listing on a national securities exchange.
(iv) If the contract is based on any group or
index of nonexempt securities comprised of
fewer than 5 securities, or on an index in
which a single nonexempt security predominates,
an option on each security comprising the group
or index would meet all requirements for
listing on a national securities exchange.
(v)(I) In general.--The contract will be
traded on a board of trade that establishes the
level of margin for futures contracts (or
options on the contracts) based on a single
nonexempt security, an index of fewer than 5
nonexempt securities, or an index in which a
single nonexempt security predominates, at a
level consistent with the level of margin on
comparable option contracts listed on any
national securities exchange.
(II) Consistency.--For the purposes of
subclause (I), a margin for designated futures
on securities and options on securities shall
be considered to be consistent if the margin
provides a similar level of protection against
defaults by counterparties, taking into account
any differences in--
(aa) the price volatility of the
contracts;
(bb) the frequency with which margin
requirements are made; and
(cc) the period of time within which
margin calls must be met.
(vi) The contract will be traded on a board
of trade that prohibits a person who acts as a
floor broker for any contract of sale (or
options on the contract) for future delivery of
a nonexempt security, an index based on fewer
than 5 nonexempt securities, or an index in
which a single nonexempt security predominates,
from trading that contract for the broker's own
account during the same trading session.
(vii) The contract will be traded on a board
of trade that collects, maintains, and promptly
provides to the Securities and Exchange
Commission such information as the Commission
and the Securities and Exchange Commission
jointly consider necessary to perform the
enforcement responsibilities described in
paragraph (6).
(5) The Commission shall consult with the Securities
and Exchange Commission with respect to any application
submitted by a board of trade for designation as a
contract market or derivatives transaction execution
facility with respect to any contract of sale (or
option on the contract) for future delivery of a
nonexempt security or a group or index of such
securities. If, not later than 15 days after the
consultation, the Securities and Exchange Commission
objects to the designation of a board of trade as a
contract market or derivatives transaction execution
facility in the contract (or option on the contract) on
the ground that any requirement of paragraph (4)(B) is
not met, the Commission shall afford the Securities and
Exchange Commission an opportunity for an oral hearing
to be transcribed before the Commission, and shall give
appropriate weight to the views of the Securities and
Exchange Commission. The oral hearing shall be held
before Commission action upon the application for the
designation, and not less than 30 nor more than 45 days
after the Securities and Exchange Commission has
objected. If such an oral hearing is held, the
Securities and Exchange Commission fails to withdraw
its objections, and the Commission issues an order
designating a board of trade as a contract market or
recognizes the board of trade as a derivatives
transaction execution facility with respect to any such
contract (or option on the contract), the Securities
and Exchange Commission may seek judicial review of the
order in accordance with the procedural requirements
set forth in section 6(c). If, pursuant to section 6,
there is a hearing on the record with respect to an
application for such designation, the Securities and
Exchange Commission may participate in that hearing as
an interested party.
(6) Notwithstanding any other provision of this Act,
the Securities and Exchange Commission may enforce
against a person that purchases or sells any contract
of sale (or option on the contract) for future delivery
of any nonexempt security, any index comprised of fewer
than 5 nonexempt securities, or any index in which a
single nonexempt security predominates to the same
extent as if the person had purchased or sold an option
on the security or index under the following provisions
of the securities laws and regulations with respect to
the following categories of conduct:
(A) Section 10(b) and 21A of the Securities
Exchange Act of 1934 (15 U.S.C. 78j(b), 78u-1)
with respect to insider trading.
(B) Section 16(b) of such Act (15 U.S.C.
78p(b)) with respect to unfair use of
information in short swing trading by a
corporate insider.
(C) Section 9 of such Act (15 U.S.C. 78i)
with respect to manipulation of securities
prices.
(D) Section 10(b) of such Act (15 U.S.C.
78J(b)) and section 204A of the Investment
Adviser's Act of 1940 (15 U.S.C. 80b-4a) with
respect to frontrunning.
(E) Section 14 of the Securities Exchange Act
of 1934 (15 U.S.C. 78n) with respect to the
pricing and integrity of tender offers.
(F) Rule 144 of the rules of the Securities
and Exchange Commission (17 C.F.R. 230.144)
with respect to trading in restricted
securities.
(7)(A) Notwithstanding any other provision of this
Act, any contract market or derivatives transaction
execution facility in a nonexempt security or stock
index futures contract (or option thereon) 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 the nonexempt
security or stock index futures contract (or option on
the contract).
(B) The Board may at any time request any contract
market or derivatives transaction execution facility to
set the level of margin for any nonexempt security or
stock index futures contract (or option on the
contract) 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 marketor
derivatives transaction execution facility to alter or supplement the
rules of the contract market or derivatives transaction execution
facility as specified in the request.
(C) Subject to such conditions as the Board may
determine, the Board may delegate any or all of its
authority under this paragraph to the Commission or an
intermarket margin board as provided in subparagraph
(D).
(D) Intermarket margin board.--
(i) Establishment.--With the concurrence of
the Securities and Exchange Commission and the
Commission, the Board may establish an
intermarket margin board, consisting of
representatives of any or all of the three
agencies.
(ii) Duties.--The intermarket margin board
may set and maintain margin levels and rules
pertaining to margin for futures on a single
nonexempt security, an index of fewer than 5
nonexempt securities, or an index in which a
single nonexempt security predominates, listed
on a contract market or derivatives transaction
execution facility. In discharging these
duties, the intermarket margin board shall
endeavor to make the levels of margin for
futures and options on a single nonexempt
security consistent taking into account any
material differences in such contracts,
including--
(I) the price volatility of the
contracts;
(II) the frequency with which margin
calls are made; and
(III) the period of time within which
margin calls must be met.
(E) This paragraph shall not be construed to
supersede or limit the authority granted to the
Commission in section 8a(9) to direct a contract market
or derivatives transaction execution facility, on
finding an emergency to exist, to raise temporary
emergency margin levels on any futures contract or
option on the contract covered by this paragraph.
(F) Any action taken by the Board under this
paragraph, or by the Commission acting under the
delegation of authority under subparagraph (C),
directing a contract market or derivatives transaction
execution facility to alter or supplement a contract
market or derivatives transaction execution facility
rule shall be subject to review only in the United
States Court of Appeals for the judicial circuit in
which the party seeking review resides or has its
principal place of business, or in the United States
Court of Appeals for the District of Columbia Circuit.
The review shall be based on the examination of all
information before the Board or the Commission, as the
case may be, at the time the determination was made.
The court reviewing the action of the Board or the
Commission shall not enter a stay or order of mandamus
unless the court determines, after notice and a hearing
before a panel of the court, that the agency action
complained of was arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.
(8) This subsection shall not be construed to
prohibit--
(A) an agreement, contract, or transaction
excluded from this Act by paragraph (2); or
(B) any hybrid instrument that is covered by
the terms of any exemption granted by the
Commission under section 4(c) (whether or not
any such hybrid instrument is otherwise subject
to this Act).
(9)(A) No futures commission merchant, commodity
trading advisor, or introducing broker shall recommend
to any customer the purchase or sale of any contract of
sale for future delivery of a single nonexempt
security, an index of fewer than 5 nonexempt
securities, or an index in which a single nonexempt
security predominates, unless the futures commission
merchant, commodity trading advisor, or introducing
broker complies with the rules described in
subparagraph (B) of a registered futures association of
which such merchant, advisor, or broker is a member.
(B) Within 9 months of the date of enactment of the
Commodity Futures Modernization Act of 2000, a
registered futures association shall adopt rules
requiring a futures commission merchant, a commodity
trading advisor, or an introducing broker which
recommends to any customer the purchase or sale of any
contract of sale for future delivery of a single
nonexempt security, an index of fewer than 5 nonexempt
securities, or an index in which a single nonexempt
security predominates to ascertain through reasonable
due diligence that the recommendation is suitable for
that customer in light of the customer's financial
position and trading goals. The registered futures
association shall consult with the Commission and the
Securities and Exchange Commission prior to the
adoption of any such rule, and shall submit any such
rule to the Commission for approval in the manner and
according to the procedures described in section 17(j)
of this Act, provided, that in such case the rule shall
become effective if the Commission fails to disapprove
such rule within 90 days of submission.
(10)(A) Nothing in this Act shall be construed to
require or authorize the Commission to review or
approve, directly or indirectly, any contract, rule,
regulation, or action adopted by a foreign board of
trade, exchange, or market, or a clearinghouse for such
a board of trade, exchange, or market, relating to any
transaction involving a contract of sale for future
delivery (or option on such a contract) in or involving
any security, including any foreign government debt
security, or group or index of such securities, if--
(i)(I) in the case of a contract of sale for
future delivery (or option on such a contract)
in or involving a single equity security, the
United States is not the primary trading market
for the underlying security; or
(II) in the case of a contract of sale for
future delivery (or option on such a contract)
in or involving a group or index of equity
securities, less than 25 percent of the
weighting of the group or index is derived from
securities for which the United States is the
primary trading market for the securities
underlying the contract for future delivery (or
option on the contract); and
(ii) settlement of or delivery on the
contract for future delivery (or option on such
a contract) is to be effected incash or by
means other than the transfer or receipt of a security in the United
States other than an exempted security.
(B) Within 90 days after the date of the enactment of
this paragraph, the Commission shall adopt such
procedures as it deems appropriate pursuant to which,
consistent with this Act, the Commission shall
authorize the offer and sale in the United States of
any contract of sale for future delivery (or option on
such a contract) of a security, other than a security
of the type described in subparagraph (A)(i)(I) or a
group or index of securities of the type described in
subparagraph (A)(i)(II), traded on or subject to the
rules of a foreign board of trade, exchange, or market,
or a clearinghouse for such a board of trade, exchange,
or market, except that such procedures shall not
require a foreign board of trade, exchange, or market,
or a clearinghouse for such a board of trade, exchange,
or market to apply for designation as a contract market
under this Act with respect to such a contract for
future delivery (or option on such a contract).
(h) Legal Certainty for Certain Transactions in Exempt
Commodities.--
(1) Except as provided in paragraph (2) of this
subsection, nothing in this Act shall apply to a
contract, agreement or transaction in an exempt
commodity which--
(A) is entered into solely between persons
that are eligible contract participants at the
time they enter into the agreement, contract,
or transaction; and
(B) is not entered into on a trading
facility.
(2) An agreement, contract, or transaction described
in paragraph (1) of this subsection shall be subject
to--
(A) sections 5b and 12(e)(2)(B) of this Act;
(B) sections 4b and 4n of this Act and the
regulations of the Commission pursuant to
section 4c(b) of this Act proscribing fraud in
connection with commodity option transactions,
to the extent such agreement, contract, or
transaction is not between eligible commercial
participants and would otherwise be subject to
those provisions; and
(C) sections 6(c) and 9(a)(2) of this Act to
the extent they prohibit manipulation of the
market price of any commodity in interstate
commerce, to the extent such agreement,
contract, or transaction would otherwise be
subject to those provisions.
(3) Except as provided in paragraph (4) of this
subsection, nothing in this Act shall apply to an
agreement, contract, or transaction in an exempt
commodity (other than a metal commodity enumerated in
section 1a(3) of this Act) which--
(A) is entered into solely between persons
that are eligible contract participants at the
time at which the persons enter into the
agreement, contract, or transaction; and
(B) is executed or traded on an electronic
trading facility.
(4) An agreement, contract, or transaction described
in paragraph (3) shall be subject to--
(A) sections 5b and 12(e)(2)(B) of this Act;
(B) sections 4b and 4n of this Act and the
regulations of the Commission pursuant to
section 4c(b) of this Act proscribing fraud in
connection with commodity option transactions
and section 6(c) and 9(a)(2) of this Act, to
the extent these provisions prohibit
manipulation of the market price of any
commodity in interstate commerce, to the extent
such agreement, contract, or transaction would
otherwise be subject to those provisions; and
(C) such rules and regulations as the
Commission may prescribe if necessary to ensure
timely dissemination by the electronic trading
facility of price, trading volume, and other
trading data to the extent appropriate, if the
Commission determines that the electronic
trading facility performs a significant price
discovery function for transactions related to
the commodity executed or traded on the
electronic trading facility.
(i) Excluded Swap Transactions.--
(1) In general.--No provision of this Act (other than
section 5b or 12(e)(2)(B)) shall apply to or govern any
agreement, contract, or transaction in a commodity
other than an agricultural commodity enumerated in
section 1a(3) if--
(A) the agreement, contract, or transaction
is entered into only between persons that are
eligible contract participants at the time they
enter into the agreement, contract, or
transaction; and
(B) the material economic terms of the
agreement, contract, or transaction are subject
to individual negotiation and are not specified
by the rules terms or conditions of a trading
facility.
(2) Exclusion.--Paragraph (1) shall not apply to--
(A) a contract for the sale of a commodity
for future delivery traded on a contract market
designated under section 5; or
(B) any agreement, contract, or transaction
traded on a derivatives transaction execution
facility registered under section 5a.
(j) Application of the Act.--No provision of this Act shall
be construed as--
(1) implying or creating any presumption that--
(A) any agreement, contract, or transaction
that is eligible for an exclusion or exemption
from regulation under this Act; or
(B) any agreement, contract, or transaction
that is not eligible for an exclusion or
exemption from regulation under this Act,
is or would otherwise be subject to this Act; or
(2) conferring jurisdiction on the Commission with
respect to any such agreement, contract, or
transaction, except as expressly provided in section
5b.
[Sec. 3. Transactions in commodities involving the sale
thereof for future delivery as commonly conducted on boards of
trade and known as ``futures'' are affected with a national
public interest. Such futures transactions are carried on in
large volume by the public generally and by persons engaged in
the business of buying and selling commodities and the products
and byproducts thereof in interstate commerce. The prices
involved in such transactions are generally quoted and
disseminated throughout the United States and in foreign
countries as a basis for determining the prices to the producer
and the consumer of commodities and the products and byproducts
thereof and to facilitate the movements thereof in interstate
commerce. Such transactions are utilized by shippers, dealers,
millers, and others engaged in handling commodities and the
products and byproducts thereof in interstate commerce as a
means of hedging themselves against possible loss through
fluctuations in price. The transactions and prices of
commodities on such boards of trade are susceptible to
excessive speculation and can be manipulated, controlled,
cornered or squeezed, to the detriment of the producer or the
consumer and the persons handling commodities and the products
and byproducts thereof in interstate commerce, rendering
regulation imperative for the protection of such commerce and
the national public interest therein. Furthermore, transactions
which are of the character of, or are commonly known to the
trade as, ``options'' are or may be utilized by commercial and
other entities for risk shifting and other purposes. Options
transactions are in interstate commerce or affect such commerce
and the national economy, rendering regulation of such
transactions imperative for the protection of such commerce and
the national public interest.]
SEC. 3. FINDINGS AND PURPOSE.
(a) Findings.--The futures contracts and options contracts
that are subject to this Act are entered into regularly in
interstate and international commerce and are affected with a
national public interest by providing a means for managing and
assuming price risks, discovering prices, and disseminating
pricing information through trading in liquid, fair and
financially secure trading facilities.
(b) Purpose.--It is the purpose of this Act to serve the
public interests described in subsection (a) through a system
of effective self-regulation of trading facilities, clearing
systems, market participants and market professionals under the
oversight of the Commission. To foster these public interests,
it is further the purpose of this Act to deter and prevent
price manipulation or any other disruptions to market
integrity; to ensure the financial integrity of all
transactions subject to this Act and the avoidance of systemic
risk; to protect all market participants from fraudulent or
other abusive sales practices and misuses of customer assets;
and to promote responsible innovation and fair competition
among boards of trade, other markets and market participants.
Sec. 4. (a) Unless exempted by the Commission pursuant to
subsection (c), it shall be unlawful for any person to offer to
enter into, to enter into, to execute, to confirm the execution
of, or to conduct any office or business anywhere in the United
States, its territories or possessions, for the purpose of
soliciting, or accepting any order for, or otherwise dealing
in, any transaction in, or in connection with, a contract for
the purchase or sale of a commodity for future delivery (other
than a contract which is made on or subject to the rules of a
board of trade, exchange, or market located outside the United
States, its territories or possessions) unless--
(1) such transaction is conducted on or subject to
the rules of a board of trade which has been
[designated by the Commission as a ``contract market''
for] designated or registered by theCommission as a
contract market or derivatives transaction execution facility for such
commodity;
(2) such contract is executed or consummated by or
through a [member of such] contract market; and
(3) such contract is evidenced by a record in writing
which shows the date, the parties to such contract and
their addresses, the property covered and its price,
and the terms of delivery: Provided, That each contract
market or derivatives transaction execution facility
member shall keep such record for a period of three
years from the date thereof, or for a longer period if
the Commission shall so direct, which record shall at
all times be open to the inspection of any
representative of the Commission or the Department of
Justice.
* * * * * * *
(c)(1) In order to promote responsible economic or financial
innovation and fair competition, the Commission by rule,
regulation, or order, after notice and opportunity for hearing,
may (on its own initiative or on application of any person,
including any board of trade [designated as a contract market]
designated or registered as a contract market or derivatives
transaction execution facility for transactions for future
delivery in any commodity under section 5 of this Act) exempt
any agreement, contract, or transaction (or class thereof) that
is otherwise subject to subsection (a) (including any person or
class of persons offering, entering into, rendering advice or
rendering other services with respect to, the agreement,
contract, or transaction), either unconditionally or on stated
terms or conditions or for stated periods and either
retroactively or prospectively, or both, from any of the
requirements of subsection (a), or from any other provision of
this Act (except section [2(a)(1)(B)] 2(g)), if the Commission
determines that the exemption would be consistent with the
public interest.
(2) The Commission shall not grant any exemption under
paragraph (1) from any of the requirements of subsection (a)
unless the Commission determines that--
(A) the requirement should not be applied to the
agreement, contract, or transaction for which the
exemption is sought and that the exemption would be
consistent with the public interest and the purposes of
this Act; and
(B) the agreement, contract, or transaction--
(i) will be entered into solely between
appropriate persons; and
(ii) will not have a material adverse effect
on the ability of the Commission or any
contract market or derivatives transaction
execution facility to discharge its regulatory
or self-regulatory duties under this Act.
* * * * * * *
Sec. 4a. (a) Excessive speculation in any commodity under
contracts of sale of such commodity for future delivery made on
or subject to the rules of contract markets or derivatives
transaction execution facilities causing sudden or unreasonable
fluctuations or unwarranted changes in the price of such
commodity, is an undue and unnecessary burden on interstate
commerce in such commodity. For the purpose of diminishing,
eliminating, or preventing such burden, the Commission shall,
from time to time, after due notice and opportunity for
hearing, by rule, regulation, or order, proclaim and fix such
limits on the amounts of trading which may be done or positions
which may be held by any person under contracts of sale of such
commodity for future delivery on or subject to the rules of any
contract market or derivatives transaction execution facility
as the Commission finds are necessary to diminish, eliminate,
or prevent such burden. In determining whether any person has
exceeded such limits, the positions held and trading done by
any persons directly or indirectly controlled by such person
shall be included with the positions held and trading done by
such person; and further, such limits upon positions and
trading shall apply to positions held by, and trading done by,
two or more persons acting pursuant to an expressed or implied
agreement or understanding, the same as if the positions were
held by, or the trading were done by, a single person. Nothing
in this section shall be construed to prohibit the Commission
from fixing different trading or position limits for different
commodities, markets, futures, or delivery months, or for
different number of days remaining until the last day of
trading in a contract, or different trading limits for buying
and selling operations, or different limits for the purposes of
paragraphs (1) and (2) of subsection (b) of this section, or
from exempting transactions normally known to the trade as
``spreads'' or ``straddles'' or ``arbitrage'' or from fixing
limits applying to such transactions or positions different
from limits fixed for other transactions or positions. The word
``arbitrage'' in domestic markets shall be defined to mean the
same as a ``spread'' or ``straddle''. The Commission is
authorized to define the term ``international arbitrage''.
(b) The Commission shall, in such rule, regulation, or
order, fix a reasonable time (not to exceed ten days) after the
promulgation of the rule, regulation, or order; after which,
and until such rule, regulation, or order is suspended,
modified, or revoked, it shall be unlawful for any person--
(1) directly or indirectly to buy or sell, or agree
to buy or sell, under contracts of sale of such
commodity for future delivery on or subject to the
rules of the contract market or markets, or derivatives
transaction execution facility or facilities, to which
the rule, regulation, or order applies, any amount of
such commodity during any one business day in excess of
any trading limit fixed for one business day by the
Commission in such rule, regulation, or order for or
with respect to such commodity; or
(2) directly or indirectly to hold or control a net
long or a net short position in any commodity for
future delivery on or subject to the rules of any
contract market or derivatives transaction execution
facility in excess of any position limit fixed by the
Commission for or with respect to such commodity:
Provided, That such position limit shall not apply to a
position acquired in good faith prior to the effective
date of such rule, regulation, or order.
* * * * * * *
(e) Nothing in this section shall prohibit or impair the
adoption by any [contract market or] contract market,
derivatives transaction execution facility, or by any other
board of trade [licensed or designated] licensed, designated,
or registered by the Commission of any bylaw, rule, regulation,
or resolution fixing limits on the amount of trading which may
be done or positions which may be held by any person under
contracts of sale of any commodity for future delivery traded
on or subject to the rules of such [contract market, or]
contract market or derivatives transaction execution facility,
or under options on such contracts or commodities traded on or
subject to the rules of such [contract market or] contract
market, derivatives transaction execution facility, or such
board of trade: Provided, That if the Commission shall have
fixed limits under this section for any contract or under
section 4c of this Act for any commodity option, then the
limits fixed by the bylaws, rules, regulations, and resolutions
adopted by such [contract market or] contract market,
derivatives transaction execution facility, or such board of
trade shall not be higher than the limits fixed by the
Commission. It shall be a violation of this Act for any person
to violate any bylaw, rule, regulation, or resolution of any
[contract market or] contract market, derivatives transaction
execution facility, or other board of trade [licensed or
designated] licensed, designated, or registered by the
Commission fixing limits on the amount of trading which may be
done or positions which may be held by any person under
contracts of sale of any commodity for future delivery or under
options on such contracts or commodities, if such bylaw, rule,
regulation, or resolution has been approved by the Commission:
Provided, That the provisions of section 9(c) of this Act shall
apply only to those who knowingly violate such limits.
Sec. 4b. (a) It shall be unlawful (1) for any member of a
[contract market] 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 [contract market] 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) * * *
* * * * * * *
[Sec. 4c. (a) It shall be unlawful for any person to offer
to enter into, enter into, or confirm the execution of, any
transaction involving any commodity, which is or may be used
for (1) hedging any transaction in interstate commerce in such
commodity or the products or byproducts thereof, or (2)
determining the price basis of any such transaction in
interstate commerce in such commodity, or (3) delivering any
such commodity sold, shipped, or received in interstate
commerce for the fulfillment thereof--
[(A) if such transaction is, is of the character of,
or is commonly known to the trade as, a ``wash sale'',
``cross trade'', or ``accommodation trade'', or is a
fictitious sale; or
[(B) if such transaction is used to cause any price
to be reported, registered, or recorded which is not a
true and bona fide price.
Nothing in this section shall be construed to prevent the
exchange of futures in connection with cash commodity
transactions or of futures for cash commodities, or of transfer
trades or office trades if made in accordance with board of
trade rules applying to such transactions and such rules shall
have been approved by the Commission.]
SEC. 4C. PROHIBITED TRANSACTIONS.
(a) In General.--
(1) Prohibition.--It shall be unlawful for any person
to offer to enter into, enter into, or confirm the
execution of a transaction described in paragraph (2)
involving any commodity if the transaction is used or
may be used to--
(A) hedge any transaction in interstate
commerce in the commodity or the product or
byproduct of the commodity;
(B) determine the price basis of any such
transaction in interstate commerce in the
commodity; or
(C) deliver any such commodity sold, shipped,
or received in interstate commerce for the
execution of the transaction.
(2) Transaction.--A transaction referred to in
paragraph (1) is a transaction that--
(A)(i) is, is of the character of, or is
commonly known to the trade as, a ``wash sale''
or ``accommodation trade''; or
(ii) is a fictitious sale; or
(B) is used to cause any price to be
reported, registered, or recorded that is not a
true and bona fide price.
* * * * * * *
(g) The Commission shall adopt rules requiring that a
contemporaneous written record be made, as practicable, of all
orders for execution on the floor or subject to the rules of
each contract market or derivatives transaction execution
facility placed by a member of the contract market who is
present on the floor at the time such order is placed.
Sec. 4d. It shall be unlawful for any person to engage as
futures commission merchant or introducing broker in soliciting
orders or accepting orders for the purchase or sale of any
commodity for future delivery, or involving any contracts of
sale of any commodity for future delivery, on or subject to the
rules of any contract market or derivatives transaction
execution facility unless--
(1) such person shall have registered, under this
Act, with the Commission as such futures commission
merchant or introducing broker and such registration
shall not have expired nor been suspended nor revoked;
and
(2) such person shall, if a futures commission
merchant, whether a member or nonmember of a contract
market or derivatives transaction execution facility,
treat and deal with all money, securities, and property
received by such person to margin, guarantee, or secure
the trades or contracts of any customer of such person,
or accruing to such customer as the result of such
trades or contracts, as belonging to such customer.
Such money, securities, and property shall be
separately accounted for and shall not be commingled
with the funds of such commission merchant or be used
to margin or guarantee the trades or contracts, or to
secure or extend the credit, of any customer or person
other than the one for whom the same are held:
Provided, however, That such money, securities, and
property of the customers of such futures commission
merchant may, for convenience, be commingled and
deposited in the same account or accounts with any bank
or trust company or with the clearing house
organization of such contract market or derivatives
transaction execution facility, and that such share
thereof as in the normal course of business shall be
necessary to margin, guarantee, secure, transfer,
adjust, or settle the contracts or trades of such
customers, or resulting market positions, with the
clearing-house organization of such contract market or
derivatives transaction execution facility or with any
member of such contract market or derivatives
transaction execution facility, may be withdrawn and
applied to such purposes, including the payment of
commissions, brokerage, interest, taxes, storage, and
other charges, lawfully accruing in connection with
such contracts and trades: Provided further, That in
accordance with such terms and conditions as the
Commission may prescribe by rule, regulation, or order,
such money, securities, and property of the customers
of such futures commission merchant may be commingled
and deposited as provided in this section with any
other money, securities, and property received by such
futures commission merchant and required by the
Commission to be separately accounted for and treated
and dealt with as belonging to the customers of such
futures commission merchant: Provided further, That
such money may be invested in obligations of the United
States, in general obligations of any State or of any
political subdivision thereof, and in obligations fully
guaranteed as to principal and interest by the United
States, such investments to be made in accordance with
such rules and regulations and subject to such
conditions as the Commission may prescribe.
It shall be unlawful for any person, including but not
limited to any clearing agency of a contract market or
derivatives transaction execution facility and any depository,
that has received any money, securities, or property for
deposit in a separate account as provided in paragraph (2) of
this section, to hold, dispose of, or use any such money,
securities, or property as belonging to the depositing futures
commission merchant or any person other than the customers of
such futures commission merchant.
Sec. 4e. It shall be unlawful for any person to act as
floor trader in executing purchases and sales, or as floor
broker in executing any orders for the purchase or sale, of any
commodity for future delivery, or involving any contracts of
sale of any commodity for future delivery, on or subject to the
rules of any contract market or derivatives transaction
execution facility unless such person shall have registered,
under this Act, with the Commission as such floor trader or
floor broker and such registration shall not have expired nor
been suspended nor revoked.
Sec. 4f. (a) * * *
(b) Notwithstanding any other provisions of this Act, no
person desiring to register as futures commission merchant or
as introducing broker shall be so registered unless he meets
such minimum financial requirements as the Commission may by
regulation prescribe as necessary to insure his meeting his
obligations as a registrant, and each person so registered
shall at all times continue to meet such prescribed minimum
financial requirements: Provided, That such minimum financial
requirements will be considered met if the applicant for
registration or registrant is a member of a contract market or
derivatives transaction execution facility and conforms to
minimum financial standards and related reporting requirements
set by such contract market in its bylaws, rules, regulations,
or resolutions and approved by the Commission as adequate to
effectuate the purposes of this subsection.
(c)(1) As used in this subsection:
(i) * * *
* * * * * * *
(3)(A) * * *
(B) The Commission, in requiring reports pursuant to this
paragraph, shall specify the information required, the period
for which it is required, the time and date on which the
information must be furnished, and whether the information is
to be furnished directly to the Commission or to a contract
market or derivatives transaction execution facility or other
self-regulatory organization with primary responsibility for
examining the registered futures commission merchant's
financial and operational condition.
* * * * * * *
Sec. 4g. (a) * * *
(b) Every [clearinghouse and contract market] registered
entity shall maintain daily trading records. The daily trading
records shall include such information as the Commission shall
prescribe by rule.
* * * * * * *
(f) Nothing contained in this section shall be construed to
prohibit the Commission from making separate determinations for
different [clearinghouses, contract markets, and exchanges]
registered entities when such determinations are warranted in
the judgment of the Commission.
Sec. 4h. It shall be unlawful for any person falsely to
represent such person to be a member of a [contract market]
registered entity or the representative or agent of such
member, or to be a registrant under this Act or the
representative or agent of any registrant, in soliciting or
handling any order or contract for the purchase or sale of any
commodity in interstate commerce or for future delivery, or
falsely to represent in connection with the handling of any
such order or contract that the same is to be or has been
executed on, or by or through a member of, any [contract
market] registered entity.
Sec. 4i. It shall be unlawful for any person to make any
contract for the purchase or sale of any commodity for future
delivery on or subject to the rules of any contract market or
derivatives transaction execution facility--
(1) * * *
* * * * * * *
[Sec. 4j. (a)(1) The Commission shall issue regulations to
prohibit the privilege of dual trading on each contract market
which has not been exempted from such regulations under
paragraph (3). The regulations issued by the Commission under
this paragraph--
[(A) shall provide that the prohibition of dual
trading thereunder shall take effect not less than
thirty days after the issuance of the regulations;
[(B) shall provide for exceptions, as the Commission
determines necessary and appropriate, to ensure
fairness and orderly trading in affected contract
markets, including--
[(i) transition measures and a reasonable
phase-in period,
[(ii) exceptions for spread transactions and
the correction of trading errors,
[(iii) allowance for a customer to designate
in writing not less than once annually a named
floor broker to execute orders for such
customer, notwithstanding the regulations to
prohibit the privilege of dual trading required
under this paragraph, and
[(iv) other measures reasonably designed to
accommodate unique or special characteristics
of individual boards of trade or contract
markets, to address emergency or unusual market
conditions, or otherwise to further the public
interest;
[(C) shall establish procedures for the application
for and issuance of exemptions under paragraph (3)
which, among other things, shall specify the relevant
data required to be submitted by the board of trade
with each application;
[(D) shall specify the methodology by which it shall
determine the average daily trading volume on a
contract market for purposes of paragraph (4) based on
a moving daily average of either six or twelve months;
and
[(E) shall establish an expeditious procedure to
revoke an exemption granted under paragraph (3)
providing sufficient notice, opportunity for hearing,
and findings to assure fundamental fairness.
[(2) As used in this section, the term ``dual trading'' means
the execution of customer orders by a floor broker during any
trading session in which the floor broker executes any trade in
the same contract market for--
[(A) the account of such floor broker;
[(B) an account for which such floor broker has
trading discretion; or
[(C) an account controlled by a person with whom such
floor broker is subject to trading restrictions under
section 4j(d).
[(3) The Commission shall exempt a contract market from the
regulations issued under paragraph (1), either unconditionally
or on stated conditions (including stated periods of time)
relevant to the attainment or maintenance of compliance with
the standards in subparagraphs (A) and (B), upon finding that--
[(A) the trade monitoring system in place at the
contract market satisfies the requirements of section
5a(b) with regard to violations attributable to dual
trading at such contract market; or
[(B)(i) there is a substantial likelihood that a dual
trading suspension would harm the public interest in
hedging or price basing at such contract market, and
[(ii) other corrective actions, such as those
described in section 8e, are sufficient and appropriate
to bring the contract market into compliance with the
standard in subparagraph (A).
[(4)(A) The regulations issued by the Commission under
paragraph (1) shall not apply to any contract market in which
the Commission determines that the average daily trading volume
is less than the threshold trading level established for the
contract market under this paragraph.
[(B) The threshold trading level shall be set initially at
eight thousand contracts.
[(C) The Commission may, by rule or order--
[(i) increase, or
[(ii) at any time following the date three years
after the date of enactment of this paragraph,
decrease,
the threshold trading level for specific contract markets after
taking into consideration the actual or potential effects of a
dual trading ban on the public interest in hedging or price
basing at the affected contract market.
[(D) The Commission shall provide the affected contract
market with adequate notice of any such increase or decrease.
[(5) Before the Commission denies an application for an
exemption under paragraph (3) or exempts a contract market
subject to conditions, it shall--
[(A) provide the affected board of trade with notice
of the reason or reasons that the application was not
approved as submitted, including--
[(i) any reason the Commission has to believe
that the trade monitoring system in place at
the contract market does not satisfy the
requirements of paragraph (3)(A) and the basis
for such reason;
[(ii) any corrective action or actions, such
as those described in section 8e, that the
Commission believes the affected contract
market must take to satisfy the requirements of
paragraph (3)(A), and an acceptable timetable
for such corrective action; and
[(iii) any conditions or limitations that the
Commission proposes to attach to the exemption
under paragraph (3);
[(B) provide the affected board of trade with an
opportunity for a hearing through submission of written
data, views, or arguments and, under terms set by the
Commission at the request of the board of trade,
through an oral presentation of views and comments to
the Commission, in order to make thedemonstration
required under paragraph (3) or otherwise to petition the Commission
with respect to its application; and
[(C) make findings, based on the information, views,
and arguments placed before it in connection with the
application, as to whether--
[(i) the standard in either paragraph (3)(A)
or (3)(B) applies, and
[(ii) any conditions or limitations which the
Commission proposes to attach under paragraph
(3) are appropriate in light of the purposes of
this subsection.
The Commission shall publish in the Federal Register notice of
any exemptive petitions filed under paragraph (3) and any
proposed or final actions the Commission may take on such
petitions. Unless the Commission determines that more immediate
action is appropriate in the public interest, any Commission
order denying an application or exempting a contract market
conditionally shall not take effect for at least twenty days
following the issuance of the order.
[(6) Violation of an order issued under this subsection shall
be considered a violation of an order of the Commission for
purposes of--
[(i) establishing liability and assessing penalties
against a contract market or any director, officer,
agent, or employee thereof under section 6b or 6c; or
[(ii) initiating proceedings under section 5b or
6(a).
[(7) Any board of trade which has applied to the Commission
to exempt a contract market from the regulations issued under
paragraph (1) may obtain judicial review of any final action of
the Commission to deny such application, to issue an exemption
subject to conditions, or to revoke an exemption, only in the
United States Court of Appeals for the circuit in which the
party seeking review resides or has its principal place of
business, or in the United States Court of Appeals for the
District of Columbia Circuit, under the standards applicable to
rulemaking proceedings under section 553 of title 5, United
States Code.
[(8)(A) The Commission shall issue the regulations required
under paragraph (1) not later than two hundred and seventy days
after the enactment of this section. If, prior to the effective
date of the prohibition on dual trading under such regulations,
a board of trade submits to the Commission an application for
an exemption for a contract market under paragraph (3), the
Commission shall not apply the prohibition against dual trading
under paragraph (1) to the contract market until the Commission
has approved or denied the application.
[(B) The Commission shall approve or deny any application for
an exemption under paragraph (3) within seventy-five days after
receipt of the application, or as soon as practicable.
[(b) If, in addition to the regulations issued pursuant to
subsection (a), the Commission has reason to believe that dual
trading-related or facilitated abuses are not being or cannot
be effectively addressed by subsection (a), the Commission
shall make a determination, after notice and opportunity for
hearing, whether or not a floor broker may trade for his own
account or any account in which such broker has trading
discretion, and also execute a customer's order for future
delivery and, if the Commission determines that such trades and
such executions shall be permitted, the Commission shall
further determine the terms, conditions, and circumstances
under which such trades and such executions shall be conducted:
Provided, That any such determination shall, at a minimum, take
into account the effect upon the liquidity of trading of each
market: And provided further, That nothing herein shall be
construed to prohibit the Commission from making separate
determinations for different contract markets when such are
warranted in the judgment of the Commission, or to prohibit
contract markets from setting terms and conditions more
restrictive than those set by the Commission.
[(c) The Commission shall within nine months after the
effective date of the Commodity Futures Trading Commission Act
of 1974, and subsequently when it determines that changes are
required, make a determination, after notice and opportunity
for hearing, whether or not a futures commission merchant may
trade for its own account or any proprietary account, as
defined by the Commission, and if the Commission determines
that such trades shall be permitted, the Commission shall
further determine the terms, conditions, and circumstances
under which such trades shall be conducted: Provided, That any
such determination, at a minimum, shall take into account the
effect upon the liquidity of trading of each market: And
provided further, That nothing herein shall be construed to
prohibit the Commission from making separate determinations for
different contract markets when such are warranted in the
judgment of the Commission, or to prohibit contract markets
from setting terms and conditions more restrictive than those
set by the Commission.
[(d)(1) Except as provided in paragraph (2), a floor broker
may not execute an order of a customer if such floor broker
knows the opposite party to the transaction to be a floor
broker or floor trader with whom such trader or broker has a
relationship involving trading on such contract market as--
[(A) a partner in a partnership;
[(B) an employer or employee; or
[(C) Such other affiliation as the Commission may
specify by rule.
[(2) Paragraph (1) shall not apply--
[(A) if the Commission has adopted rules that the
Commission certifies to Congress require procedures and
standards designed to prevent violations of this Act
attributable to the trading described in paragraph (1);
or
[(B) to any contract market that has implemented
rules designed to prevent violations of this Act
attributable to the trading described in paragraph (1),
except that, if the Commission determines, by rule or
order, that such rules are not adequate to prevent such
violations, paragraph (1) shall become effective with
respect to such contract market after a reasonable
period determined by the Commission.]
Sec. [4k.] 4j. (1) It shall be unlawful for any person to
be associated with a futures commission merchant as a partner,
officer, or employee, or to be associated with an introducing
broker as a partner, officer, employee, or agent (or any person
occupying a similar status or performing similar functions), in
any capacity that involves (i) the solicitation or acceptance
of customers' orders (other than in a clerical capacity) or
(ii) the supervision of any person or persons so engaged,
unless such person is registered with the Commission under this
Act as an associated person of such futures commission merchant
or of such introducing broker and such registration shall not
have expired, been suspended (and the period of suspension has
not expired), or been revoked. It shall be unlawful for a
futures commission merchant or introducing broker to permit
such a person to become or remain associated with the futures
commission merchant or introducing broker in any such capacity
if such futures commission merchant or introducing broker knew
or should have known that such person was not so registered or
that such registration had expired, been suspended (and the
period of suspension has not expired), or been revoked. Any
individual who is registered as a floor broker, futures
commission merchant, or introducing broker (and such
registration is not suspended or revoked) need not also
register under this subsection.
(2) It shall be unlawful for any person to be associated
with a commodity pool operator as a partner, officer, employee,
consultant, or agent (or any person occupying a similar status
or performing similar functions), in any capacity that involves
(i) the solicitation of funds, securities, or property for a
participation in a commodity pool or (ii) the supervision of
any person or persons so engaged, unless such person is
registered with the Commission under this Act as an associated
person of such commodity pool operator and such registration
shall not have expired, been suspended (and the period of
suspension has not expired), or been revoked. It shall be
unlawful for a commodity pool operator to permit such a person
to become or remain associated with the commodity pool operator
in any such capacity if the commodity pool operator knew or
should have known that such person was not so registered or
that such registration had expired, been suspended (and the
period of suspension has not expired), or been revoked. Any
individual who is registered as a floor broker, futures
commission merchant, introducing broker, commodity pool
operator, or as an associated person of another category of
registrant under this section (and such registration is not
suspended or revoked) need not also register under this
subsection. The Commission may exempt any person or class of
persons from having to register under this subsection by rule,
regulation, or order.
(3) It shall be unlawful for any person to be associated
with a commodity trading advisor as a partner, officer,
employee, consultant, or agent (or any person occupying a
similar status or performing similar functions), in any
capacity which involves (i) the solicitation of a client's or
prospective client's discretionary account or (ii) the
supervision of any person or persons so engaged, unless such
person is registered with the Commission under this Act as an
associated person of such commodity trading advisor and such
registration shall not have expired, been suspended (and the
period of suspension has not expired), or been revoked. It
shall be unlawful for a commodity trading advisor to permit
such a person to become or remain associated with the commodity
trading advisor in any such capacity if the commodity trading
advisor knew or shouldhave known that such person was not so
registered or that such registration had expired, been suspended (and
the period of suspension has not expired), or been revoked. Any
individual who is registered as a floor broker, futures commission
merchant, introducing broker, commodity trading advisor, or as an
associated person of another category of registrant under this section
(and such registration is not suspended or revoked) need not also
register under this subsection. The Commission may exempt any person or
class of persons from having to register under this subsection by rule,
regulation, or order.
(4) Any person desiring to be registered as an associated
person of a futures commission merchant, of an introducing
broker, of a commodity pool operator, or of a commodity trading
advisor shall make application to the Commission in the form
and manner prescribed by the Commission, giving such
information and facts as the Commission may deem necessary
concerning the applicant. Such person, when registered
hereunder, shall likewise continue to report and furnish to the
Commission such information as the Commission may require. Such
registration shall expire at such time as the Commission may by
rule, regulation, or order prescribe.
(5) It shall be unlawful for any registrant to permit a
person to become or remain an associated person of such
registrant, if the registrant knew or should have known of
facts regarding such associated person that are set forth as
statutory disqualifications in section 8a(2) of this Act,
unless such registrant has notified the Commission of such
facts and the Commission has determined that such person should
be registered or temporarily licensed.
Sec. [4l.] 4k. It is hereby found that the activities of
commodity trading advisors and commodity pool operators are
affected with a national public interest in that, among other
things--
(1) their advice, counsel, publications, writings,
analyses, and reports are furnished and distributed,
and their contracts, solicitations, subscriptions,
agreements, and other arrangements with clients take
place and are negotiated and performed by the use of
the mails and other means and instrumentalities of
interstate commerce;
(2) their advice, counsel, publications, writings,
analyses, and reports customarily relate to and their
operations are directed toward and cause the purchase
and sale of commodities for future delivery on or
subject to the rules of contract markets or derivatives
transaction execution facilities; and
(3) the foregoing transactions occur in such volume
as to affect substantially transactions on contract
markets or derivatives transaction execution
facilities.
Sec. [4m.] 4l. (1) It shall be unlawful for any commodity
trading advisor or commodity pool operator, unless registered
under this Act, to make use of the mails or any means or
instrumentality of interstate commerce in connection with his
business as such commodity trading advisor or commodity pool
operator: Provided, That the provisions of this section shall
not apply to any commodity trading advisor who, during the
course of the preceding twelve months, has not furnished
commodity trading advice to more than fifteen persons and who
does not hold himself out generally to the public as a
commodity trading advisor. The provisions of this section shall
not apply to any commodity trading advisor who is a (1) dealer,
processor, broker, or seller in cash market transactions of any
commodity specifically set forth in section 2(a) of this Act
prior to the enactment of the Commodity Futures Trading
Commission Act of 1974 (or products thereof) or (2) nonprofit,
voluntary membership, general farm organization, who provides
advice on the sale or purchase of any commodity specifically
set forth in section 2(a) of this Act prior to the enactment of
the Commodity Futures Trading Commission Act of 1974; if the
advice by the person described in clause (1) or (2) of this
sentence as a commodity trading advisor is solely incidental to
the conduct of that person's business: Provided, That such
person shall be subject to proceedings under section 14 of this
Act.
(2) Nothing in this Act shall relieve any person of any
obligation or duty, or affect the availability of any right or
remedy available to the Securities and Exchange Commission or
any private party arising under the Securities Act of 1933 or
the Securities Exchange Act of 1934 governing the issuance,
offer, purchase, or sale of securities of a commodity pool, or
of persons engaged in transactions with respect to such
securities, or reporting by a commodity pool.
Sec. [4n.] 4m. (1) Any commodity trading advisor or
commodity pool operator, or any person who contemplates
becoming a commodity trading advisor or commodity pool
operator, may register under this Act by filing an application
with the Commission. Such application shall contain such
information, in such form and detail, as the Commission may, by
rules and regulations, prescribe as necessary or appropriate in
the public interest, including the following:
(A) the name and form of organization, including
capital structure, under which the applicant engages or
intends to engage in business; the name of the State
under the laws of which he is organized; the location
of his principal business office and branch offices, if
any; the names and addresses of all partners, officers,
directors, and persons performing similar functions or,
if the applicant be an individual, of such individual;
and the number of employees;
(B) the education, the business affiliations for the
past ten years, and the present business affiliations
of the applicant and of his partners, officers,
directors, and persons performing similar functions and
of any controlling person thereof;
(C) the nature of the business of the applicant,
including the manner of giving advice and rendering of
analyses or reports;
(D) the nature and scope of the authority of the
applicant with respect to clients' funds and accounts;
(E) the basis upon which the applicant is or will be
compensated; and
(F) such other information as the Commission may
require to determine whether the applicant is qualified
for registration.
(2) Each registration under this section shall expire on
the 30th day of June of each year, or at such other time, not
less than one year from the effective date thereof, as the
Commission may by rule, regulation or order prescribe, and
shall be renewed upon application therefor subject to the same
requirements as in the case of an original application.
(3)(A) Every commodity trading advisor and commodity pool
operator registered under this Act shall maintain books and
records and file such reports in such form and manner as may be
prescribed by the Commission. All such books and records shall
be kept for a period of at least three years, or longer if the
Commission so directs, and shall be open to inspection by any
representative of the Commission or the Department of Justice.
Upon the request of the Commission, a registered commodity
trading advisor or commodity pool operator shall furnish the
name and address of each client, subscriber, or participant,
and submit samples or copies of all reports, letters,
circulars, memorandums, publications, writings, or other
literature or advice distributed to clients, subscribers, or
participants, or prospective clients, subscribers, or
participants.
(B) Unless otherwise authorized by the Commission by rule
or regulation, all commodity trading advisors and commodity
pool operators shall make a full and complete disclosure to
their subscribers, clients, or participants of all futures
market positions taken or held by the individual principals of
their organization.
(4) Every commodity pool operator shall regularly furnish
statements of account to each participant in his operations.
Such statements shall be in such form and manner as may be
prescribed by the Commission and shall include complete
information as to the current status of all trading accounts in
which such participant has an interest.
Sec. [4o.] 4n. (1) It shall be unlawful for a commodity
trading advisor, associated person of a commodity trading
advisor, commodity pool operator, or associated person of a
commodity pool operator by use of the mails or any means or
instrumentality of interstate commerce, directly or
indirectly--
(A) to employ any device, scheme, or artifice to
defraud any client or participant or prospective client
or participant; or
(B) to engage in any transaction, practice, or course
of business which operates as a fraud or deceit upon
any client or participant or prospective client or
participant.
(2) It shall be unlawful for any commodity trading advisor,
associated person of a commodity trading advisor, commodity
pool operator, or associated person of a commodity pool
operator registered under this Act to represent or imply in any
manner whatsoever that such person has been sponsored,
recommended, or approved, or that such person's abilities or
qualifications have in any respect been passed upon, by the
United States or any agency or officer thereof. This section
shall not be construed to prohibit a statement that a person is
registered under this Act as a commodity trading advisor,
associated person of a commodity trading advisor, commodity
pool operator, or associated person of a commodity pool
operator, if such statement is true in fact and if the effect
of such registration is not misrepresented.
Sec. [4p.] 4o. (a) The Commission may specify by rules and
regulations appropriate standards with respect to training,
experience, and such other qualifications as the Commission
finds necessary or desirable to insure the fitness of persons
required to beregistered with the Commission. In connection
therewith, the Commission may prescribe by rules and regulations the
adoption of written proficiency examinations to be given to applicants
for registration and the establishment of reasonable fees to be charged
to such applicants to cover the administration of such examinations.
The Commission may further prescribe by rules and regulations that, in
lieu of examinations administered by the Commission, futures
associations registered under section 17 of this [Act or contract
markets] Act, contract markets, or derivatives transaction execution
facilities may adopt written proficiency examinations to be given to
applicants for registration and charge reasonable fees to such
applicants to cover the administration of such examinations.
Notwithstanding any other provision of this section, the Commission may
specify by rules and regulations such terms and conditions as it deems
appropriate to protect the public interest wherein exception to any
written proficiency examination shall be made with respect to
individuals who have demonstrated, through training and experience, the
degree of proficiency and skill necessary to protect the interests of
customers, clients, pool participants, or other members of the public
with whom such individuals deal.
(b) The Commission shall issue regulations to require new
registrants, within six months after receiving such
registration, to attend a training session, and all other
registrants to attend periodic training sessions, to ensure
that registrants understand their responsibilities to the
public under this Act, including responsibilities to observe
just and equitable principles of trade, any rule or regulation
of the Commission, any rule of any appropriate contract market,
derivatives transaction execution facility, registered futures
association, or other self-regulatory organization, or any
other applicable Federal or state law, rule or regulation.
SEC. 4P. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE
HEDGING BY AGRICULTURAL PRODUCERS.
(a) Authority.--The Commission shall consider issuing rules
or orders which--
(1) prescribe procedures under which each contract
market is to provide for orderly delivery, including
temporary storage costs, of any agricultural commodity
enumerated in section 1a(3) which is the subject of a
contract for purchase or sale for future delivery;
(2) increase the ease with which domestic
agricultural producers may participate in contract
markets, including by addressing cost and margin
requirements, so as to better enable such producers to
hedge price risk associated with their production;
(3) provide flexibility in the minimum quantities of
such agricultural commodities that may be the subject
of a contract for purchase or sale for future delivery
that is traded on a contract market, to better allow
domestic agricultural producers to hedge such price
risk; and
(4) encourage exchanges to provide information and
otherwise facilitate the participation of domestic
agricultural producers in contract markets.
(b) Report.--Within 1 year after the date of enactment of
this section, the 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
on the steps it has taken to implement this section and on the
activities of contract markets pursuant to this section.
[Sec. 5. The Commission is hereby authorized and directed
to designate any board of trade as a ``contract market'' when,
and only when, such board of trade complies with and carries
out the following conditions and requirements:
[(1) When located at a terminal market where any cash
commodity of the kind specified in the contracts of
sale of commodities for future delivery to be executed
on such board is sold in sufficient volumes and under
such conditions as fairly to reflect the general value
of the commodity and the differences in value between
the various grades of such commodity, and where there
is available to such board of trade official inspection
service approved by the Secretary of Agriculture or the
Commission for the purpose: Provided, That any board of
trade not so located shall be designated as a
``contract market'' if such board of trade provides for
the delivery of commodities on such contracts at a
delivery point or points and upon terms and conditions
approved by the Commission.
[(2) When the governing board thereof provides for
the making and filing by the board or any member
thereof, as the Commission may direct, of reports in
accordance with the rules and regulations, and in such
manner and form and at such times as may be prescribed
by the Commission, showing the details and terms of all
transactions entered into by the board, or the members
thereof, either in cash transactions or transactions
for future delivery consummated on or subject to the
rules of a board of trade, and when such governing
board provides, in accordance with such rules and
regulations, for the keeping of a record by the board
or the members of the board of trade, as the Commission
may direct, showing the details and terms of all cash
and future transactions entered into by them,
consummated on or subject to the rules of a board of
trade, such record to be in permanent form, showing the
parties to all such transactions, including the persons
for whom made, any assignments or transfers thereof,
with the parties thereto, and the manner in which said
transactions are fulfilled, discharged, or terminated.
Such record shall be required to be kept for a period
of three years from the date thereof, or for a longer
period if the Commission shall so direct, and shall at
all times be open to the inspection of any
representative of the Commission or United States
Department of Justice.
[(3) When the governing board thereof provides for
the prevention of dissemination by the board or any
member thereof, of false or misleading or knowingly
inaccurate reports concerning crop or market
information or conditions that affect or tend to affect
the price of any commodity in interstate commerce.
[(4) When the governing board thereof provides for
the prevention of manipulation of prices and the
cornering of any commodity by the dealers or operators
upon such board.
[(5) When the governing board thereof does not
exclude from membership in, and all privileges on, such
board of trade, any duly authorized representative of
any lawfully formed and conducted cooperative
association of producers having adequate financial
responsibility which is engaged in any cash commodity
business, if such association has complied, and agrees
to comply, with such terms and conditions as are or may
be imposed lawfully on other members of such board:
Provided, That no rule of a contract market shall
forbid or be construed to forbid the return on a
patronage basis by such cooperative association to its
bona fide members of moneys collected in excess of the
expense of conducting the business of such association.
[(6) When the governing board provides for making
effective the final orders or decisions entered
pursuant to the provisions of section 6(c), and the
orders issued pursuant to the provisions of section 5a
of this Act, and for compliance in all other respects
with the requirements applicable to such board of trade
under this Act.
[(7) When such board of trade demonstrates that
transactions for future delivery in the commodity for
which designation as a contract market is sought will
not be contrary to the public interest.
[(8) When such board of trade demonstrates that every
contract market for which such board of trade is
designated complies with the requirements of section
5a(b).
[Sec. 5a. (a) Each contract market shall--
[(1) promptly furnish the Commission copies of all
bylaws, rules, regulations, and resolutions made or
issued by it or by the governing board thereof or any
committee, and of all changes and proposed changes
therein;
[(2) keep all books, records, minutes, and journals
of proceedings of such contract market, and its
governing board, committees, subsidiaries, and
affiliates in a manner that will clearly describe all
matters discussed by such contract market, governing
board, committees, subsidiaries and affiliates and
reveal any action taken in such matters, and allow
inspection at all times by any authorized
representative of the Commission or United States
Department of Justice of all such books, records,
minutes, and journals of proceedings. Such books,
records, minutes, and journals of proceedings shall be
kept for a period of three years from the date thereof,
or for a longer period if the Commission shall so
direct;
[(3) require the operators of warehouses in which or
out of which any commodity is deliverable on any
contract for future delivery made on or subject to the
rules of such contract market, to make such reports,
keep such records, and permit such warehouse visitation
as the Commission may prescribe. Such books and records
shall be required to be kept for a period of three
years from the date thereof, or for a longer period if
the Commission shall so direct, and such books,
records, and warehouses shall be open at all times to
inspection by any representative of the Commission or
United States Department of Justice;
[(4) when so directed by order of the Commission,
provide for a period, after trading in contracts of
sale of any commodity for future delivery in a delivery
month has ceased, during which contracts of sale of
such commodity for future delivery in such month may be
satisfied by the delivery of the actual cash commodity.
Whenever, after due notice and opportunity for hearing,
the Commission finds that provision for such a period
of delivery for any one or more commodities or markets
would prevent or tend to prevent ``squeezes'' and
market congestion endangering price stability, it
shall, by order, require such period of delivery (which
shall be not less than three nor more than ten business
days) applicable to such commodities and markets as it
finds will prevent or tend to prevent such ``squeezes''
and market congestion: Provided, however, That such
order shall not apply to then existing contracts;
[(5) require the party making delivery of any
commodity on any contract of sale of such commodity for
future delivery to furnish the party obligated under
the contract to accept delivery, written notice of the
date of delivery at least one business day prior to
such date of delivery. Whenever, after due notice and
opportunity for hearing, the Commission finds that the
giving of longer notice of delivery is necessary to
prevent or diminish unfair practices in trading in any
one or more commodities or markets, it shall by order
require such longer notice of delivery (which shall be
not more than ten business days) applicable to such
commodities and markets as it finds will prevent or
diminish such unfair practices: Provided, however, That
such order shall not apply to then existing contracts;
[(6) require that all contracts of sale of any
commodity for future delivery on such contract market
shall provide for the delivery thereunder of
commodities of grades conforming to United States
standards, if such standards shall have been officially
promulgated and adopted by the Commission;
[(7) require that receipts issued under the United
States Warehouse Act (U.S.C., 1934 ed., title 7, secs.
241-273) shall be accepted in satisfaction of any
futures contract, made on or subject to the rules of
such contract market, without discrimination and
notwithstanding that the warehouseman issuing such
receipts is not also licensed as a warehouseman under
the laws of any State or enjoys other or different
privileges than under State law: Provided, however,
That such receipts shall be for the kind, quality, and
quantity of commodity specified in such contract and
that the warehouse in which the commodity is stored
meets such reasonable requirements as may be imposed by
such contract market on other warehouses as to
location, accessibility, and suitability for
warehousing and delivery purposes: And provided
further, That this subsection shall apply only to
futures contracts for those commodities which may be
delivered from a warehouse subject to the United States
Warehouse Act;
[(8) enforce all bylaws, rules, regulations, and
resolutions, made or issued by it or by the governing
board thereof or any committee, that (i) have been
approved by the Commission pursuant to paragraph (12)
of this section, (ii) have become effective under such
paragraph, or (iii) must be enforced pursuant to any
Commission rule, regulation, or order; and revoke and
not enforce any bylaw, rule, regulation, or resolution,
made, issued, or proposed by it or by the governing
board thereof or any committee, that has been
disapproved by the Commission;
[(9) enforce all bylaws, rules, regulations, and
resolutions made or issued by it or by the governing
board thereof or by any committee, which provide
minimum financial standards and related reporting
requirements for futures commission merchants who are
members of such contract market, and which have been
approved by the Commission;
[(10) permit the delivery of any commodity, on
contracts of sale thereof for future delivery, of such
grade or grades, at such point or points and at such
quality and locational price differentials as will tend
to prevent or diminish price manipulation, market
congestion, or the abnormal movement of such commodity
in interstate commerce. If the Commission after
investigation finds that the rules and regulations
adopted by a contract market permitting delivery of any
commodity on contracts of sale thereof for future
delivery, do not accomplish the objectives of this
subsection, then the Commission shall notify the
contract market of its finding and afford the contract
market an opportunity to make appropriate changes in
such rules and regulations. If the contract market
within seventy-five days of such notification fails to
make the changes which in the opinion of the Commission
are necessary to accomplish the objectives of this
subsection, then the Commission after granting the
contract market an opportunity to be heard, may change
or supplement such rules and regulations of the
contract market to achieve the above objectives:
Provided, That any order issued under this paragraph
shall not apply to contracts of sale for future
delivery in any months in which contracts are currently
outstanding and open: And provided further, That no
requirement for an additional delivery point or points
shall be promulgated following hearings until the
contract market affected has had notice and opportunity
to file exceptions to the proposed order determining
the location and number of such delivery point or
points;
[(11) provide a fair and equitable procedure through
arbitration or otherwise (such as by delegation to a
registered futures association having rules providing
for such procedures) for the settlement of customers'
claims and grievances against any member or employee
thereof: Provided, That (A) the use of such procedure
by a customer shall be voluntary, (B) the term
``customer'' as used in this paragraph shall not
include another member of the contract market, and (C)
in the case of a claim arising from a violation in the
execution of an order on the floor of a contract
market, such procedure shall provide, to the extent
appropriate--
[(i) for payment of actual damages
proximately caused by such violation. If an
award of actual damages is made against a floor
broker in connection with the execution of a
customer order, and the futures commission
merchantwhich selected the floor broker for the
execution of the customer order is held to be responsible under section
2(a)(1) for the floor broker's violation, such futures commission
merchant may be required to satisfy such award; and
[(ii) where the violation is willful and
intentional, for payment to the customer of
punitive or exemplary damages, in addition to
losses proximately caused by the violation, in
an amount equal to no more than two times the
amount of such losses. If punitive or exemplary
damages are awarded against a floor broker in
connection with the execution of a customer
order, and the futures commission merchant
which selected the floor broker for the
execution of such order is held to be
responsible under section 2(a)(1) for the floor
broker's violation, such futures commission
merchant may be required to satisfy the award
of punitive or exemplary damages if the floor
broker fails to do so, except that such
requirement shall apply to the futures
commission merchant only if it willfully and
intentionally selected the floor broker with
the intent to assist or facilitate the floor
broker's violation;
[(12)(A) except as otherwise provided in this
paragraph, submit to the Commission for its prior
approval all bylaws, rules, regulations, and
resolutions (``rules'') made or issued by such contract
market, or by the governing board thereof or any
committee thereof, that relate to terms and conditions
in contracts of sale to be executed on or subject to
the rules of such contract market, as such terms and
conditions are defined by the Commission by rule or
regulation, except those rules relating to the setting
of levels of margin. Each contract market shall submit
to the Commission all other rules (except those
relating to the setting of levels of margin and except
those that the Commission may specify by regulation)
and may make such rules effective ten days after
receipt of such submission by the Commission unless,
within the ten-day period, the contract market requests
review and approval thereof by the Commission or the
Commission notifies such contract market in writing of
its determination to review such rules for approval.
The determination to review such rules for approval
shall not be delegable to any employee of the
Commission. At least thirty days before approving any
rules of major economic significance, as determined by
the Commission, the Commission shall publish a notice
of such rules in the Federal Register. The Commission
shall give interested persons an opportunity to
participate in the approval process through the
submission of written data, views, or arguments. The
determination by the Commission whether any such rules
are of major economic significance shall be final and
not subject to judicial review. The Commission shall
approve such rules if such rules are determined by the
Commission not to be in violation of this Act or the
regulations of the Commission and the Commission shall
disapprove, after appropriate notice and opportunity
for hearing, any such rule which the Commission
determines at any time to be in violation of the
provisions of this Act or the regulations of the
Commission. If the Commission institutes proceedings to
determine whether a rule should be disapproved pursuant
to this paragraph, it shall provide the contract market
with written notice of the proposed grounds for
disapproval, including the specific sections of this
Act or the Commission's regulations which would be
violated. At the conclusion of such proceedings, the
Commission shall approve or disapprove such rule. Any
disapproval shall specify the sections of this Act or
the Commission's regulations which the Commission
determines such rule has violated or, if effective,
would violate. If the Commission does not approve or
institute disapproval proceedings with respect to any
rule within one hundred and eighty days after receipt
or within such longer period as the contract market may
agree to, or if the Commission does not conclude a
disapproval proceeding with respect to any rule within
one year after receipt or within such longer period as
the contract market may agree to, such rule may be made
effective by the contract market until such time as the
Commission disapproves such rule in accordance with
this paragraph.
[(B)(i) The Commission shall issue regulations to
specify the terms and conditions under which, in an
emergency as defined by the Commission, a contract
market may, by a two-thirds vote of its governing
board, make a rule (hereinafter referred to as an
``emergency rule'') effective on a temporary basis
without prior Commission approval, or without
compliance with the ten-day notice requirement under
subparagraph (A), or during any period of review by the
Commission, if the contract market makes every effort
practicable to notify the Commission of such emergency
rule, along with a complete explanation of the
emergency involved, prior to making the emergency rule
effective. If the contract market does not provide the
Commission with such notification and explanation
before making the emergency rule effective, the
contract market shall provide the Commission with such
notification and explanation at the earliest possible
date. The Commission may delegate the power to receive
such notification and explanation to such individuals
as the Commission determines necessary and appropriate.
[(ii) Within ten days of the receipt from a contract
market of notification of such an emergency rule and an
explanation of the emergency involved, or as soon as
practicable, the Commission shall determine whether it
is appropriate either--
[(I) to permit such rule to remain in effect
during the pendency of the emergency, or
[(II) to suspend the effect of such rule
pending review either under the procedures of
subparagraph (A) or otherwise.
The Commission shall submit a report on its
determination and the basis thereof with respect to
such emergency rule to the affected contract market, to
the Committee on Agriculture of the House of
Representatives and the Committee on Agriculture,
Nutrition, and Forestry of the Senate. If the report is
submitted more than ten days after the Commission's
receipt of notification of such an emergency rule from
a contract market, the report shall explain why
submission within such ten-day period was not
practicable. A determination by the Commission to
suspend the effect of a rule under this subparagraph
shall be subject to judicial review on the same basis
as an emergency determination under section 8a(9).
Nothing in this paragraph shall be construed to limit
the authority of the Commission under section 8a(9);
[(13) provide for disclosure to the contract market
and the Commission of any trade, business, or financial
partnership, cost-, profit-, or capital-sharing
agreements or other formal arrangement among or between
floor brokers and traders on such contract market where
such partnership agreement or arrangement is material
and known to the floor broker or floor trader;
[(14)(A) provide for meaningful representation on the
governing board of the contract market's board of trade
of a diversity of interests, including--
[(i) futures commission merchants;
[(ii) producers of, and consumers,
processors, distributors, or merchandisers of,
principal commodities traded on the board of
trade;
[(iii) floor brokers and traders; and
[(iv) participants in a variety of pits or
principal groups of commodities traded on the
exchange.
[(B) provide that no less than 20 percent of the
regular voting members of such board be comprised of
nonmembers of such contract market's board of trade
with--
[(i) expertise in futures trading, or the
regulation thereof, or in commodities traded
through contracts on the board of trade; or
[(ii) other eminent qualifications making
such person capable of participating in and
contributing to board deliberations.
[(C) provide that no less than 10 percent of the
regular voting members of such board be comprised where
applicable of farmers, producers, merchants, or
exporters of principal commodities traded on the
exchange;
[(15)(A) provide on all major disciplinary committees
for a diversity of membership sufficient to ensure
fairness and to prevent special treatment or preference
for any person in the conduct of disciplinary
proceedings and the assessment of penalties.
[(B) Consistent with Commission rules, a major
disciplinary committee hearing a disciplinary matter
shall include--
[(i) a majority of qualified persons
representing a trading status other than that
of the subject of the proceeding; and
[(ii) where appropriate to carry out the
purposes of this Act, qualified persons who are
not members of the exchange.
[(C) For purposes of this paragraph, a trading status
on a contract market may include, consistent with
Commission rules, such categories as--
[(i) floor brokers and traders;
[(ii) producers, consumers, processors,
distributors, or merchandisers of commodities;
[(iii) futures commission merchants; and
[(iv) members of the aforementioned
categories who participate in particular
contract markets or principal groups of
commodities on the board of trade.
[(D) If a contract market takes final disciplinary
action against a member for a violation that involves
the execution of a customer transaction and results in
financial harm to such customer, the contract market
shall promptly inform the futures commission merchant
identified on the records of such contract market as
having cleared such transaction, and such futures
commission merchant shall promptly inform the person
identified on its records as the owner of the account
for which such transaction was executed, of the
disciplinary action and the principal facts thereof;
[(16) provide that no member found by the Commission,
a contract market, a registered futures association, or
a court of competent jurisdiction to have committed any
violation of this Act or any other provision of law
that would reflect on the fitness of the member may
serve on any contract market oversight or disciplinary
panel for an appropriate period (as defined by
Commission rule); and
[(17)(A) provide for the avoidance of conflict of
interest in deliberations by the governing board and
any disciplinary and oversight committees. In order to
comply with this subparagraph, each contract market
shall adopt rules and procedures to require, at a
minimum, that
[(i) any member of a governing board or a
disciplinary or other oversight committee must
abstain from confidential deliberations and
voting on any matter where the named party in
interest is the member, the member's employer,
the member's employee, or any other person that
has a business, employment, or family
relationship with the member that warrants
abstention by the member;
[(ii) any member of a governing board or a
disciplinary or other oversight committee must
abstain from voting on any significant action
that would not be submitted to the Commission
for its prior approval, if, as determined in
accordance with regulations promulgated by the
Commission, the member knowingly has a direct
and substantial financial interest in the
result of the vote, based either on positions
held personally or at an affiliated firm;
[(iii) prior to the deliberations of the
governing board, disciplinary board, or other
oversight committee, acting directly or
indirectly through an authorized member or
contract market official, the positions of the
members of such board or committee, and
positions of the firm or firms with which such
members are affiliated, are reviewed: Provided,
however, That no contract market or official,
employee, member, other than the member whose
position or positions are being reviewed, or
agent thereof shall be subject to liability,
except for liability in an action initiated by
the Commission, for having conducted this
review and for having taken or not taken
further action; and
[(iv) the board or committee shall clearly
reflect, in the minutes of such meeting, that
the review required in clause (iii) occurred
and any decisions by a member to abstain or by
the board or committee whether to direct a
member or members to abstain from deliberations
or voting on the matter before the board or
committee.
Any member prohibited from voting on a rule pursuant to
this paragraph shall not be included in determining
whether there has been a two-thirds vote of members of
the governing board or committee as required by
subparagraph (12).
[(B) For the purposes of this paragraph, the term
``significant action that would not be submitted to the
Commission for its prior approval'' includes--
[(i) any nonphysical emergency rule; or
[(ii) any changes in margin levels designed
to respond to extraordinary market conditions
that are likely to have a substantial affect on
prices in any contract traded on such contract
market, but does not include any rule not
submitted for prior Commission approval because
such rule is unrelated to terms and conditions
of any contract traded on such contract market.
[(C) Notwithstanding the provisions of subparagraph
(A)(ii), the Commission shall issue rules establishing
the conditions under which a member of a board or
committee who is required to abstain from voting on a
significant action, as provided in subparagraph
(A)(ii), may participate in deliberations on that
action prior to such vote, where the member's
participation is consistent with the public interest.
[(b)(1) Each contract market shall maintain and utilize a
system to monitor trading to detect and deter violations of the
contract market's rules and regulations committed in the making
of trades and the execution of customer orders on the floor or
subject to the rules of such contract market. The system shall
include--
[(A) physical observation of trading areas;
[(B) audit trail and recordkeeping systems able to
capture essential data on the terms, participants, and
sequence of transactions (including relevant data on
unmatched trades and out-trades);
[(C) systems capable of reviewing, and used to
review, data on trades effectively on a regular basis
to detect violations committed in making trades and
executing customer orders on the floor or subject to
the rules of such contract market, including--
[(i) all types of violations attributable to
dual trading; and
[(ii) to the full extent feasible, as
determined by the Commission, all other types
of violations involving the making of trades
and the execution of customer orders;
[(D) the use of information gathered through such
system on a consistent basis to bring appropriate
disciplinary actions against violators;
[(E) the commitment of resources to such system
necessary for such system to be effective in detecting
and deterring such violations, including adequate staff
to develop and prosecute disciplinary actions; and
[(F) the assessment of meaningful penalties against
violators and the referral of appropriate cases to the
Commission.
[(2) The audit trail system of the contract market shall,
consistent with Commission regulations, accurately record--
[(A) the times of trades in increments of no more
than one minute in length; and
[(B) the sequence of trades for each floor trader and
broker.
[(3) Beginning three years after the date of enactment of
this subsection, the audit trail system of each contract
market, except as provided in paragraph (5) and except to the
extent the Commission determines that circumstances beyond the
control of the contract market prevent compliance despite the
contract market's affirmative good faith efforts to comply,
shall--
[(A) for all trades, record accurately and promptly
the essential data on terms, participants, and times as
required by the Commission by rule, including the time
of execution of such trade, through a means that--
[(i) records such data in a form which cannot
be altered except in a manner that will leave a
complete and independent record of such
alteration;
[(iii) identifies such time, to the extent
practicable as determined by the Commission--
[(ii) continually provides such data to the
contract market;
[(I) independently of the person
making the trade;
[(II) through a mechanism that
records the time automatically when
entered by the person making the trade;
or
[(III) through such other means that
will capture a similarly reliable time;
and
[(iv) is adequately precise to determine, to
the extent practicable as determined by the
Commission by rule or order--
[(I) the sequence of all trades by
each floor trader; and
[(II) the sequence of all trades by
each floor broker; and
[(B) to the extent practicable as determined by the
Commission by rule or order, for customer trades,
record the time that each order is received on the
floor of the board of trade, is received by the floor
broker for execution (or when such order is transmitted
in an extremely rapid manner to the broker), and is
reported from the floor of the board of trade as
executed, through a means that--
[(i) records such times in a form which
cannot be altered except in a manner that will
leave a complete and independent record of such
alteration;
[(ii) continually provides such data to the
contract market;
[(iii) identifies such time--
[(I) independently of the person
making the trade or processing the
order;
[(II) through a mechanism that
records the time automatically when
entered by the person making the trade
or processing such order, as
appropriate; or
[(III) through such other means as
will capture a similarly reliable time;
and
[(iv) is adequately precise to determine--
[(I) the sequence in which, for each
futures commission merchant, floor
broker, or member firm, as applicable,
all orders are received on and reported
from the floor of the contract market;
and
[(II) the sequence in which orders
are received by each floor broker for
execution.
[(4) The Commission may, by rule, establish standards under
which the audit trail systems required under paragraph (3)
shall record, to the extent practicable--
[(A) the sequence of all trades made by all floor
traders and floor brokers; and
[(B) the interval between the time of receipt and the
time of execution of each order by the floor broker
executing the order.
[(5)(A) The Commission shall, by rule or order, make
exemptions from the requirements of paragraph (3)--
[(i) for an exchange with respect to which the
Commission finds that--
[(I) the volume of trading on such exchange
is relatively small and the exchange has
demonstrated substantial compliance with the
objectives of such paragraph; and
[(II) the trade monitoring system at such
exchange otherwise maintains a high level of
compliance with this subsection; and
[(ii) to the extent determined appropriate by the
Commission, for categories of customer orders with
respect to which the Commission finds that such orders
are transmitted to and reported from the trading pit in
an extremely rapid manner such that substantial
compliance with the objectives of paragraph (3) can be
otherwise achieved.
[(B) For purposes of subparagraph (A)(i)(I) the Commission
shall find that the volume of trading at an exchange is
relatively small if, among other things, the Commission
determines that the average daily trading volume for each
contract market for which the board of trade is designated is
less than the threshold trading level established for the
contract market under section 4j(a)(4).
[(6) Any rule or order adopted by the Commission under
paragraphs (4) and (5) shall become effective thirty
legislative days or ninety calendar days, whichever is later,
after submission of such rule or order to the Committee on
Agriculture of the House of Representatives and the Committee
on Agriculture, Nutrition, and Forestry of the Senate. For
purposes of this paragraph, the term ``legislative day'' means
any day on which either House of Congress is in session.
[Sec. 5b. The failure or refusal of any board of trade to
comply with any of the provisions of this Act, or any of the
rules, regulations, or orders of the Commission or the
commission thereunder, shall be cause for suspending for a
period not to exceed six months or revoking the designation of
such board of trade as a ``contract market'' in accordance with
the procedure and subject to the judicial review provided in
section 6(b) of this Act.]
SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
(a) Applications.--A board of trade applying to the
Commission for designation as a contract market shall submit an
application to the Commission that includes any relevant
materials and records the Commission may require consistent
with this Act.
(b) Criteria for Designation.--
(1) In general.--To be designated as a contract
market, the board of trade shall demonstrate to the
Commission that the board of trade meets the criteria
specified in this subsection.
(2) Prevention of market manipulation.--The board of
trade shall have the capacity to prevent market
manipulation through market surveillance, compliance,
and enforcement practices and procedures, including
methods for conducting real-time monitoring of trading
and comprehensive and accurate trade reconstructions.
(3) Fair and equitable trading.--The board of trade
shall establish and enforce trading rules to ensure
fair and equitable trading through the facilities of
the contract market, and the capacity to detect,
investigate, and discipline any person that violates
the rules. Such rules may authorize--
(A) an exchange of--
(i) futures in connection with a cash
commodity transaction;
(ii) futures for cash commodities;
(iii) transfer trades or office
trades; or
(iv) futures for swaps; and
(B) a futures commission merchant, acting as
principal or agent, to enter into or confirm
the execution of a contract for the purchase or
sale of a commodity for future delivery if the
contract is reported, recorded, or cleared in
accordance with the rules of the contract
market or a derivatives clearing organization.
(4) Trade execution facility.--The board of trade
shall--
(A) establish and enforce rules defining, or
specifications detailing, the manner of
operation of the trade execution facility
maintained by the board of trade, including
rules or specifications describing the
operation of any electronic matching platform;
and
(B) demonstrate that the trading facility
operates in accordance with the rules or
specifications.
(5) Financial integrity of transactions.--The board
of trade shall establish and enforce rules and
procedures for ensuring the financial integrity of
transactions entered into by or through the facilities
of the contract market.
(6) Disciplinary procedures.--The board of trade
shall establish and enforce disciplinary procedures
that authorize the board of trade to discipline,
suspend, or expel members or market participants that
violate the rules of the board of trade, or similar
methods for performing the same functions, including
delegation of the functions to third parties.
(7) Public access.--The board of trade shall provide
the public with access to the rules, regulations, and
contract specifications of the board of trade.
(8) Ability to obtain information.--The board of
trade shall establish and enforce rules that will allow
the board of trade to obtain any necessary information
to perform any of the functions described in this
subsection, including the capacity to carry out such
international information-sharing agreements as the
Commission may require.
(c) Existing Contract Markets.--A board of trade that is
designated as a contract market on the effective date of the
Commodity Futures Modernization Act of 2000 shall be considered
to be a designated contract market under this section.
(d) Core Principles for Contract Markets.--
(1) In general.--To maintain the designation of a
board of trade as a contract market, a board of trade
shall comply with the core principles specified in this
subsection.
(2) Compliance with rules.--The board of trade shall
monitor and enforce compliance with the rules of the
contract market, including the terms and conditions of
any contracts to be traded and any limitations on
access to the contract market.
(3) Contracts not readily subject to manipulation.--
The board of trade shall list on the contract market
only contracts that are not readily susceptible to
manipulation.
(4) Monitoring of trading.--The board of trade shall
monitor trading to prevent manipulation, price
distortion, and disruptions of the delivery or cash-
settlement process.
(5) Position limitations or accountability.--To
reduce the potential threat of market manipulation or
congestion, especially during trading in the delivery
month, the board of trade shall adopt position
limitations or position accountability for speculators,
where necessary and appropriate.
(6) Emergency authority.--The board of trade shall
adopt rules to provide for the exercise of emergency
authority, in consultation or cooperation with the
Commission, where necessary and appropriate, including
the authority to--
(A) liquidate or transfer open positions in
any contract;
(B) suspend or curtail trading in any
contract; and
(C) require market participants in any
contract to meet special margin requirements.
(7) Availability of general information.--The board
of trade shall make available to market authorities,
market participants, and the public information
concerning--
(A) the terms and conditions of the contracts
of the contract market; and
(B) the mechanisms for executing transactions
on or through the facilities of the contract
market.
(8) Daily publication of trading information.--The
board of trade shall make public daily information on
settlement prices, volume, open interest, and opening
and closing ranges for actively traded contracts on the
contract market.
(9) Execution of transactions.--The board of trade
shall provide a competitive, open, and efficient market
and mechanism for executing transactions.
(10) Trade information.--The board of trade shall
maintain rules and procedures to provide for the
recording and safe storage of all identifying trade
information in a manner that enables the contract
market to use the information for purposes of assisting
in the prevention of customer and market abuses and
providing evidence of any violations of the rules of
the contract market.
(11) Financial integrity of contracts.--The board of
trade shall establish and enforce rules providing for
the financial integrity of any contracts traded on the
contract market, including rules to ensure the
financial integrity of any futures commission merchants
and introducing brokers and the protection of customer
funds.
(12) Protection of market participants.--The board of
trade shall establish and enforce rules to protect
market participants from abusive practices committed by
any party acting as an agent for the participants.
(13) Dispute resolution.--The board of trade shall
establish and enforce rules regarding and provide
facilities for alternative dispute resolution as
appropriate for market participants and any market
intermediaries.
(14) Governance fitness standards.--The board of
trade shall establish and enforce appropriate fitness
standards for directors, members of any disciplinary
committee, members of the contract market, and any
other persons with direct access to the facility
(including any parties affiliated with any of the
persons described in this paragraph).
(15) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of
interest in the decisionmaking process of the contract
market and establish a process for resolving such
conflicts of interest.
(16) Composition of boards of mutually owned contract
markets.--In the case of a mutually owned contract
market, the board of trade shall ensure that the
composition of the governing board reflects market
participants.
(17) Recordkeeping.--The board of trade shall--
(A) maintain full records of all activities
related to the business of the contract market
in a form and manner acceptable to the
Commission for a period of at least 5 years;
(B) make the records readily available during
at least the first 2 years of the 5-year period
and provide the records to the Commission at
the expense of the person required to maintain
the records; and
(C) keep the records open to inspection by
any representative of the Commission or the
Department of Justice.
(18) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the
board of trade shall endeavor to avoid--
(A) adopting any rules or taking any actions
that result in any unreasonable restraints of
trade; or
(B) imposing any material anticompetitive
burden on trading on the contract market.
(e) Current Agricultural and Metal Commodities.--
(1) Subject to paragraph (2), a contract for purchase
or sale for future delivery of an agricultural or metal
commodity enumerated in section 1a(3) that is available
for trade on a contract market, as of the date of the
enactment of this subsection, may be traded only on a
contract market designated under this section.
(2) In order to promote responsible economic or
financial innovation and fair competition, the
Commission, on application by any person, after notice
and public comment and opportunity for hearing, may
prescribe rules and regulations to provide for the
offer and sale of contracts for future delivery or
options thereon to be conducted on a derivatives
transaction execution facility.
SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.
(a) In General.--In lieu of compliance with the contract
market designation requirements of section 5, a board of trade
may elect to operate as a registered derivatives transaction
execution facility if the facility is--
(1) designated as a contract market and meets the
requirements of this section; or
(2) registered as a derivatives transaction execution
facility under subsection (c).
(b) Requirements for Trading Futures Contracts or Other
Derivatives Transactions.--
(1) In general.--A registered derivatives transaction
execution facility under subsection (a) may trade any
futures contract (or option on such a contract) on or
through the facility only by satisfying the
requirements of this section.
(2) Requirements for underlying commodities.--A
registered derivatives transaction execution facility
may trade any futures contract only if--
(A) the underlying commodity has a nearly
inexhaustible deliverable supply;
(B) the underlying commodity has a
deliverable supply that is sufficiently large
that the contract is highly unlikely to be
susceptible to the threat of manipulation;
(C) the underlying commodity has no cash
market; or
(D) the Commission determines, based on the
market characteristics, surveillance history,
self-regulatory record, and capacity of the
facility that trading in the futures contract
is highly unlikely to be susceptible to the
threat of manipulation.
(3) Eligible traders.--To trade on a registered
derivatives transaction execution facility, a person
shall--
(A) be authorized by the board of trade to
trade on the facility; and
(B)(i) be an eligible contract participant;
or
(ii) be a person trading through a futures
commission merchant that--
(I) is registered with the
Commission;
(II) is a member of a futures self-
regulatory organization;
(III) is a clearing member of a
derivatives clearing organization; and
(IV) has net capital of at least
$20,000,000.
(4) Trading by contract markets.--A board of trade
that is designated as a contract market shall, to the
extent that the contract market also operates a
registered derivatives transaction execution facility--
(A) provide a physical location for the
contract market trading of the board of trade
that is separate from trading on the
derivatives transaction execution facility of
the board of trade; or
(B) if the board of trade uses the same
electronic trading system for trading on the
contract market and derivatives transaction
execution facility of the board of trade,
identify whether the electronic trading is
taking place on the contract market or the
derivatives transaction execution facility.
(c) Criteria for Registration.--
(1) In general.--To be registered as a registered
derivatives transaction execution facility, the board
of trade shall demonstrate to the Commission that the
board of trade meets the criteria specified in this
paragraph.
(2) Deterrence of abuses.--The board of trade shall
establish and enforce trading rules that will deter
abuses and has the capacity to detect, investigate, and
enforce those rules, including means to--
(A) obtain information necessary to perform
the functions required under this section; or
(B) use technological means to--
(i) provide market participants with
impartial access to the market; and
(ii) capture information that may be
used in establishing whether rule
violations have occurred.
(3) Trading procedures.--The board of trade shall
establish and enforce rules or terms and conditions
defining, or specifications detailing, trading
procedures to be used in entering and executing orders
traded on the facilities of the board of trade. Such
rules may authorize--
(A) an exchange of--
(i) futures in connection with a cash
commodity transaction;
(ii) futures for cash commodities;
(iii) transfer trades or office
trades; or
(iv) futures for swaps; and
(B) a futures commission merchant, acting as
principal or agent, to enter into or confirm
the execution of a contract for the purchase or
sale of a commodity for future delivery if the
contract is reported, recorded, or cleared in
accordance with the rules of the registered
derivatives transaction execution facility or a
derivatives clearing organization.
(4) Financial integrity of transactions.--The board
of trade shall establish and enforce rules or terms and
conditions providing for the financial integrity of
transactions entered on or through the facilities of
the board of trade, including rules or terms and
conditions to ensure the financial integrity of any
futures commission merchants and introducing brokers
and the protection of customer funds.
(d) Core Principles for Registered Derivatives Transaction
Execution Facilities.--
(1) In general.--To maintain the registration of a
board of trade as a derivatives transaction execution
facility, a board of trade shall comply with the core
principles specified in this subsection.
(2) Compliance with rules.--The board of trade shall
monitor and enforce the rules of the facility,
including any terms and conditions of any contracts
traded on or through the facility and any limitations
on access to the facility.
(3) Monitoring of trading.--The board of trade shall
monitor trading in the contracts of the facility to
ensure orderly trading in the contract and to maintain
an orderly market while providing any necessary trading
information to the Commission to allow the Commission
to discharge the responsibilities of the Commission
under the Act.
(4) Disclosure of general information.--The board of
trade shall disclose publicly and to the Commission
information concerning--
(A) contract terms and conditions;
(B) trading conventions, mechanisms, and
practices;
(C) financial integrity protections; and
(D) other information relevant to
participation in trading on the facility.
(5) Daily publication of trading information.--The
board of trade shall make public daily information on
settlement prices, volume, open interest, and opening
and closing ranges for actively traded contracts on the
facility.
(6) Fitness standards.--The board of trade shall
establish and enforce appropriate fitness standards for
directors, members of any disciplinary committee,
members, and any other persons with direct access to
the facility, including any parties affiliated with any
of the persons described in this paragraph.
(7) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of
interest in the decisionmaking process of the
derivatives transaction execution facility and
establish a process for resolving such conflicts of
interest.
(8) Recordkeeping.--The board of trade shall--
(A) maintain full records of all activities
related to the business of the derivatives
transaction execution facility in a form and
manner acceptable to the Commission for a
period of at least 5 years;
(B) make the records readily available during
at least the first 2 years of the 5-year period
and provide the records to the Commission at
the expense of the person required to maintain
the records; and
(C) keep the records open to inspection by
any representatives of the Commission or the
Department of Justice.
(9) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the
board of trade shall endeavor to avoid--
(A) adopting any rules or taking any actions
that result in any unreasonable restraint of
trade; or
(B) imposing any material anticompetitive
burden on trading on the derivatives
transaction execution facility.
(e) Use of Broker-Dealers, Depository Institutions, and Farm
Credit System Institutions as Intermediaries.--
(1) In general.--A registered derivatives transaction
execution facility may by rule allow a broker-dealer,
depository institution, or institution of the Farm
Credit System that meets the requirements of paragraph
(2) to--
(A) act as an intermediary in transactions
executed on the facility on behalf of customers
of the broker-dealer, depository institution,
or institution of the Farm Credit System; and
(B) receive funds of customers to serve as
margin or security for such transactions.
(2) Requirements.--The requirements referred to in
paragraph (1) are that--
(A) the broker-dealer be in good standing
with the Securities and Exchange Commission, or
the depository institution or institution of
the Farm Credit System be in good standing with
Federal bank regulatory agencies (including the
Farm Credit Administration), as applicable; and
(B) if the broker-dealer, depository
institution, or institution of the Farm Credit
System carries or holds customer accounts or
funds for transactions on the derivatives
transaction execution facility for more than 1
business day, the broker-dealer, depository
institution, or institution of the Farm Credit
System is registered as a futures commission
merchant and is a member of a registered
futures association.
(3) Implementation.--The Commission shall cooperate
and coordinate with the Securities and Exchange
Commission, the Secretary of the Treasury, and Federal
banking regulatory agencies (including the Farm Credit
Administration) in adopting rules and taking any other
appropriate action to facilitate the implementation of
this subsection.
(f) Segregation of Customer Funds.--Not later than 180 days
after the effective date of the Commodity Futures Modernization
Act of 2000, consistent with regulations adopted by the
Commission, a registered derivatives transaction execution
facility may authorize a futures commission merchant to offer
any customer of the futures commission merchant that is an
eligible contract participant the right to not segregate the
customer funds of the futures commission merchant for purposes
of trading on or through the facilities of the registered
derivatives transaction execution facility.
(g) Election To Trade Excluded Commodities.--
(1) In general.--A board of trade that is a
registered derivatives transaction execution facility
may trade on the facility any agreements, contracts, or
transactions involving excluded commodities that are
otherwise excluded from this Act under section 2(c),
2(d), or 2(h).
(2) Exclusive jurisdiction of the commission.--The
Commission shall have exclusive jurisdiction over
agreements, contracts, or transactions described in
paragraph (1) to the extent that the agreements,
contracts, or transactions are traded on a derivatives
transaction execution facility.
SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.
(a) Registration Requirement.--Except as provided in
subsection (b), it shall be unlawful for a derivatives clearing
organization, unless registered with the Commission, directly
or indirectly to make use of the mails or any means or
instrumentality of interstate commerce to perform the functions
of a derivatives clearing organization described in section
1a(8) with respect to a contract of sale of a commodity for
future delivery, option on a contract of sale of a commodity
for future delivery, or option on a commodity that is not an
exclusion-eligible commodity (unless the contract or option is
described in subsection (c), (d), (f), (h), or (i) of section 2
or exempted under section 4(c)).
(b) Voluntary Registration.--A derivatives clearing
organization that clears agreements, contracts, or transactions
described in subsection (c), (d), (f), (h), or (i) of section 2
or exempted under section 4(c) may register with the Commission
as a derivatives clearing organization.
(c) Registration of Derivatives Clearing Organizations.--
(1) Application.--A person desiring to register as a
derivatives clearing organization shall submit to the
Commission an application in such form and containing
such information as the Commission may require for the
purpose of making the determinations required for
approval under paragraph (2).
(2) Core principles.--
(A) In general.--To be registered and to
maintain registration as a derivatives clearing
organization, an applicant shall demonstrate to
the Commission that the applicant complies with
the core principles specified in this
paragraph.
(B) Financial resources.--The applicant shall
demonstrate that the applicant has adequate
financial, operational, and managerial
resources to discharge the responsibilities of
a derivatives clearing organization without
interruption in various market conditions.
(C) Participant and product eligibility.--The
applicant shall establish--
(i) appropriate admission and
continuing eligibility standards
(including appropriate minimum
financial requirements) for members of
and participants in the organization;
and
(ii) appropriate standards for
determining eligibility of agreements,
contracts, or transactions submitted to
the applicant.
(D) Risk management.--The applicant shall
have the ability to manage the risks associated
with discharging the responsibilities of a
derivatives clearing organization through the
use of appropriate tools and procedures.
(E) Settlement procedures.--The applicant
shall have the ability to--
(i) complete settlements on a timely
basis under varying circumstances;
(ii) maintain an adequate record of
the flow of funds associated with each
transaction that the applicant clears;
and
(iii) comply with the terms and
conditions of any permitted netting or
offset arrangements with other clearing
organizations.
(F) Treatment of funds.--The applicant shall
have standards and procedures designed to
protect and ensure the safety of member and
participant funds.
(G) Default rules and procedures.--The
applicant shall have rules and procedures
designed to allow for efficient, fair, and safe
management of events when members or
participants become insolvent or otherwise
default on their obligations to the derivatives
clearing organization.
(H) Rule enforcement.--The applicant shall--
(i) maintain adequate arrangements
and resources for the effective
monitoring and enforcement of
compliance with rules of the applicant
and for resolution of disputes; and
(ii) have the authority and ability
to discipline, limit, suspend, or
terminate a member's or participant's
activities for violations of rules of
the applicant.
(I) System safeguards.--The applicant shall
demonstrate that the applicant--
(i) has established and will maintain
a program of oversight and risk
analysis to ensure that the automated
systems of the applicant function
properly and have adequate capacity and
security; and
(ii) has established and will
maintain emergency procedures and a
plan for disaster recovery, and will
periodically test backup facilities
sufficient to ensure daily processing,
clearing, and settlement of
transactions.
(J) Reporting.--The applicant shall provide
to the Commission all information necessary for
the Commission to conduct the oversight
function of the applicant with respect to the
activities of the derivatives clearing
organization.
(K) Recordkeeping.--The applicant shall--
(i) maintain full records of all
activities related to the business of
the applicant as a derivatives clearing
organization in a form and manner
acceptable to the Commission for a
period of at least 5 years;
(ii) make the records readily
available during at least the first 2
years of the 5-year period and provide
the records to the Commission at the
expense of the person required to
maintain the records; and
(iii) keep the records open to
inspection by any representative of the
Commission or the Department of
Justice.
(L) Public information.--The applicant shall
make information concerning the rules and
operating procedures governing the clearing and
settlement systems (including default
procedures) available to market participants.
(M) Information sharing.--The applicant
shall--
(i) enter into and abide by the terms
of all appropriate and applicable
domestic and international information-
sharing agreements; and
(ii) use relevant information
obtained from the agreements in
carrying out the clearing
organization's risk management program.
(N) Antitrust considerations.--Unless
appropriate to achieve the purposes of this
Act, the derivatives clearing organization
shall avoid--
(i) adopting any rule or taking any
action that results in any unreasonable
restraint of trade; or
(ii) imposing any material
anticompetitive burden on trading on
the contract market.
(3) Orders concerning competition.--A derivatives
clearing organization may request the Commission to
issue an order concerning whether a rule or practice of
the applicant is the least anticompetitive means of
achieving the objectives, purposes, and policies of
this Act.
(d) Existing Derivatives Clearing Organizations.--A
derivatives clearing organization shall be deemed to be
registered under this section to the extent that--
(1) the derivatives clearing organization clears
agreements, contracts, or transactions for a board of
trade that has been designated by the Commission as a
contract market for such agreements, contracts, or
transactions before the date of enactment of this
section; and
(2) the Commission has reviewed and approved the
rules of the derivatives clearing organization before
that date.
(e) Appointment of Trustee.--
(1) In general.--If a proceeding under section 5e
results in the suspension or revocation of the
registration of a derivatives clearing organization, or
if a derivatives clearing organization withdraws from
registration, the Commission, on notice to the
derivatives clearing organization, may apply to the
appropriate United States district court where the
derivatives clearing organization is located for the
appointment of a trustee.
(2) Assumption of jurisdiction.--If the Commission
applies for appointment of a trustee under paragraph
(1)--
(A) the court may take exclusive jurisdiction
over the derivatives clearing organization and
the records and assets of the derivatives
clearing organization, wherever located; and
(B) if the court takes jurisdiction under
subparagraph (A), the court shall appoint the
Commission, or a person designated by the
Commission, as trustee with power to take
possession and continue to operate or terminate
the operations of the derivatives clearing
organization in an orderly manner for the
protection of participants, subject to such
terms and conditions as the court may
prescribe.
(f) Linking of Regulated Clearing Facilities.--
(1) In general.--The Commission shall facilitate the
linking or coordination of derivatives clearing
organizations registered under this Act with other
regulated clearance facilities for the coordinated
settlement of cleared transactions.
(2) Coordination.--In carrying out paragraph (1), the
Commission shall coordinate with the Federal banking
agencies and the Securities and Exchange Commission.
SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.
(a) Acceptable Business Practices Under Core Principles.--
(1) In general.--Consistent with the purposes of this
Act, the Commission may issue interpretations, or
approve interpretations submitted to the Commission, of
sections 5(d), 5a(d), and 5b(d)(2) to describe what
would constitute an acceptable business practice under
such sections.
(2) Effect of interpretation.--An interpretation
issued under paragraph (1) shall not provide the
exclusive means for complying with such sections.
(b) Delegation of Functions Under Core Principles.--
(1) In general.--A contract market or derivatives
transaction execution facility may comply with any
applicable core principle through delegation of any
relevant function to a registered futures association
or another registered entity.
(2) Responsibility.--A contract market or derivatives
transaction execution facility that delegates a
function under paragraph (1) shall remain responsible
for carrying out the function.
(c) New Contracts, New Rules, and Rule Amendments.--
(1) In general.--Subject to paragraph (2), a
registered entity may elect to list for trading any new
contract or other instrument, or may elect to approve
and implement any new rule or rule amendment, by
providing to the Commission (and the Secretary of the
Treasury, in the case of a contract of sale for future
delivery of a government security (or option thereon)
or a rule or rule amendment specifically related to
such a contract) a written certification that the new
contract, new rule, or rule amendment complies with
this Act (including regulations under this Act).
(2) Prior approval.--
(A) In general.--A registered entity may
request that the Commission grant prior
approval to any new contract or other
instrument, new rule, or rule amendment.
(B) Prior approval required.--Notwithstanding
any other provision of this section, a
designated contract market shall submit to the
Commission for prior approval each rule
amendment that materially changes the terms and
conditions, as determined by the Commission, in
any contract of sale for future delivery of a
commodity specifically enumerated in section
1a(3) of this Act (or any option thereon)
traded through its facilities if such rule
amendment applies to contracts and delivery
months which have already been listed for
trading and have open interest.
(C) Deadline.--If prior approval is requested
under subparagraph (A), the Commission shall
take final action on the request not later than
90 days after submission of the request, unless
the person submitting the request agrees to an
extension of the time limitation established
under this subparagraph.
(3) Approval.--The Commission shall approve any such
new contract or instrument, new rule, or rule amendment
unless the Commission finds that the new contract or
instrument, new rule, or rule amendment would violate
this Act.
(d) Violation of Core Principles.--
(1) In general.--If the Commission has reason to
believe that a registered entity is violating any
applicable provision specified in section 5(d), 5a(d),
or 5b(d)(2), the Commission shall notify the registered
entity in writing of the reasons for the preliminary
determination by the Commission of a violation,
including any data, materials, and facts the Commission
relied on in making the preliminary determination.
(2) Injunctive or administrative action.--The
Commission may initiate an action for an injunction
under section 6c or an administrative proceeding, to
demonstrate, by the preponderance of the evidence,
that--
(A) the registered entity is violating any
applicable provision specified in section 5(d),
5a(d), or 5b(d)(2); and
(B) the Commission has recommended an
appropriate remedial action to remove the
deficiency based on an analysis of the costs
and benefits in the public interest of the
Commission recommendation.
(3) Burden of proof.--In making a determination that
a registered entity is violating any applicable
provision specified in section 5(d), 5a(d), or
5b(d)(2), the Commission shall have the burden of
proving that the registered entity is violating the
applicable core principle.
(e) Reservation of Emergency Authority.--Nothing in this
section shall limit or in any way affect the emergency powers
of the Commission provided in section 8a(9) of this Act.
SEC. 5D. EXEMPT BOARDS OF TRADE.
(a) In General.--Except as otherwise provided in this
section, a contract of sale (or option on such a contract) of a
commodity for future delivery traded on or through the
facilities of an exempt board of trade shall be exempt from all
provisions of this Act, other than section 2(g).
(b) Criteria for Exemption.--To qualify for an exemption
under subsection (a), a board of trade shall limit trading on
or through the facilities of the board of trade to contracts of
sale of a commodity for future delivery (or options on such
contracts)--
(1) that have--
(A) a nearly inexhaustible deliverable
supply;
(B) a deliverable supply that is sufficiently
large, and a cash market sufficiently liquid,
to render any contract traded on the commodity
highly unlikely to be susceptible to the threat
of manipulation; or
(C) no cash market;
(2) that are entered into only between persons that
are eligible contract participants at the time at which
the persons enter into the contract; and
(3) that are not contracts of sale (or options on the
contract) for future delivery of any security,
including any group or index of securities or any
interest in, or interest that is based on the value of,
any security.
(c) Antimanipulation Requirements.--A party to a futures
contract or related option that is traded on an exempt board of
trade shall be subject to sections 4b, 4n, 6(c), and 9(a)(2),
and the Commission shall enforce those provisions with respect
to any such trading.
(d) Price Discovery.--If the Commission finds that an exempt
board of trade is a significant source of price discovery for
any underlying commodity in any transaction traded on or
through the facilities of the board of trade, the board of
trade shall disseminate publicly on a daily basis trading
volume, opening and closing price ranges, open interest, and
other trading data as appropriate to the market.
(e) Jurisdiction.--The Commission shall have exclusive
jurisdiction over any account, agreement, or transaction
involving a contract of sale of a commodity for future
delivery, or related option, to the extent that such account,
agreement, or transaction is traded on an exempt board of
trade.
(f) Subsidiaries.--A board of trade that is designated as a
contract market or registered as a derivatives transaction
execution facility may operate an exempt board of trade by
establishing a separate subsidiary or other legal entity and
otherwise satisfying the requirements of this section.
SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS REGISTERED ENTITY.
The failure of a registered entity to comply with any
provision of this Act, or any regulation or order of the
Commission under this Act, shall be cause for the suspension of
the registered entity for a period not to exceed 180 days, or
revocation of designation as a registered entity in accordance
with the procedures and subject to the judicial review provided
in section 6(b).
Sec. 6. (a) Any [board of trade desiring to be designated a
``contract market'' shall make application to the Commission
for such designation] person desiring to be designated or
registered as a contract market or derivatives transaction
execution facility shall make application to the Commission for
such designation or registration and accompany the same with a
showing that it complies with the [above conditions] conditions
set forth in this Act, and with a sufficient assurance that it
will continue to comply with the [above requirements] the
requirements of this Act. The Commission shall approve or deny
an application for [designation as a contract market within one
year] designation or registration as a contract market or
derivatives transaction execution facility within 180 days of
the filing of the application. If the Commission notifies the
[board of trade] person that its application is materially
incomplete and specifies the deficiencies in the application,
the running of the [one-year period] 180-day period shall be
stayed from the time of such notification until the application
is resubmitted in completed form: Provided, That the Commission
shall have not less than sixty days to approve or deny the
application from the time the application is resubmitted in
completed form. If the Commission denies an application, it
shall specify the grounds for the denial. In the event of a
refusal to [designate as a ``contract market'' any board of
trade that has made application therefor, such board of trade]
designate or register as a contract market or derivatives
transaction execution facility any person that has made
application therefor, such person shall be afforded an
opportunity for a hearing on the record before the Commission,
with the right to appeal an adverse decision after such hearing
to the court of appeals as provided for in other cases in
subsection (b) of this section.
(b) The Commission is authorized to suspend for a period
not to exceed six months or to revoke the [designation of any
board of trade as a ``contract market'' upon] designation or
registration of any contract market or derivatives transaction
execution facility on a showing that such [board of trade]
contract market or derivatives transaction execution facility
is not enforcing or has not enforced its rules of government
made a condition of its [designation as set forth in section 5
of this Act] designation or registration as set forth in
sections 5 through 5b or that such [board of trade] 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. Such suspension or revocation shall
only be after a notice to the officers of the [board of trade]
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 [board of trade] 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 [board of trade] person will pay the costs of the
proceedings if the court so directs. The clerk of the court in
which such a petition is filed shall immediately cause a copy
thereof to be delivered to the Commission and file in the court
the record in such proceedings, as provided in section 2112 of
title 28, United States Code. The testimony and evidence taken
or submitted before the Commission, duly filed as aforesaid as
a part of the record, shall be considered by the court of
appeals as the evidence in the case. Such a court may affirm or
set aside the order of the Commission or may direct it to
modify its order. No such order of the Commission shall be
modified or set aside by the court of appeals unless it is
shown by the [board of trade] person that the order is
unsupported by theweight of the evidence or was issued without
due notice and a reasonable opportunity having been afforded to such
[board of trade] person for a hearing, or infringes the Constitution of
the United States, or is beyond the jurisdiction of the Commission.
(c) If the Commission has reason to believe that any person
(other than a [contract market] registered entity) is
manipulating or attempting to manipulate or has manipulated or
attempted to manipulate the market price of any commodity, in
interstate commerce, or for future delivery on or subject to
the rules of any [contract market] registered entity, or has
willfully made any false or misleading statement of a material
fact in any registration application or any report filed with
the Commission under this Act, or willfully omitted to state in
any such application or report any material fact which is
required to be stated therein, or otherwise is violating or has
violated any of the provisions of this Act or of the rules,
regulations, or orders of the Commission or the Commission
thereunder, it may serve upon such person a complaint stating
its charges in that respect, which complaint shall have
attached or shall contain therein a notice of hearing,
specifying a day and place not less than three days after the
service thereof, requiring such person to show cause why an
order should not be made prohibiting him from trading on or
subject to the rules of any [contract market] registered
entity, and directing that all [contract markets] registered
entities refuse all [trading] privileges to such person, until
further notice of the Commission and to show cause why the
registration of such person, if registered with the Commission
in any capacity, should not be suspended or revoked. Said
hearing may be held in Washington, District of Columbia, or
elsewhere, before the Commission or before an Administrative
Law Judge designated by the Commission, which Administrative
Law Judge shall cause all evidence to be reduced to writing and
forthwith transmit the same to the Commission. For the purpose
of securing effective enforcement of the provisions of this
Act, for the purpose of any investigation or proceeding under
this Act, and for the purpose of any action taken under section
12(f), any member of the Commission or any Administrative Law
Judge or other officer designated by the Commission (except as
provided in the fifth sentence of this subsection) may
administer oaths and affirmations, subpoena witnesses, compel
their attendance, take evidence, and require the production of
any books, papers, correspondence, memoranda, or other records
that the Commission deems relevant or material to the inquiry.
The attendance of witnesses and the production of any such
records may be required from any place in the United States,
any State or any foreign country or jurisdiction at any
designated place of hearing. A subpoena issued under this
section may be served upon any person who is not to be found
within the territorial jurisdiction of any court of the United
States in such manner as the Federal Rules of Civil Procedure
prescribe for service of process in a foreign country, except
that a subpoena to be served on a person who is not to be found
within the territorial jurisdiction of any court of the United
States may be issued only on the prior approval of the
Commission. In case of contumacy by, or refusal to obey a
subpoena issued to, any person, the Commission may invoke the
aid of any court of the United States within the jurisdiction
in which the investigation or proceeding is conducted, or where
such person resides or transacts business, in requiring the
attendance and testimony of witnesses and the production of
books, papers, correspondence, memoranda, and other records.
Such court may issue an order requiring such person to appear
before the Commission or member or Administrative Law Judge or
other officer designated by the Commission, there to produce
records, if so ordered, or to give testimony touching the
matter under investigation or in question. Any failure to obey
such order of the court may be punished by the court as a
contempt thereof. All process in any such case may be served in
the judicial district wherein such person is an inhabitant or
transacts business or wherever such person may be found. Upon
evidence received, the Commission may (1) prohibit such person
from trading on or subject to the rules of any [contract
market] registered entity and require all [contract markets]
registered entities to refuse such person all [trading]
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 civil penalty of not more than the higher of $100,000
or triple the monetary gain to such person for each such
violation and (4) require restitution to customers of damages
proximately caused by violations of such persons. Notice of
such order shall be sent forthwith by registered mail or by
certified mail or delivered to the offending person and to the
governing boards of said [contract markets] registered
entities. After the issuance of the order by the Commission, as
aforesaid, the person against whom it is issued may obtain a
review of such order or such other equitable relief as to the
court may seem just by filing in the United States court of
appeals of the circuit in which the petitioner is doing
business, or in the case of an order denying registration, the
circuit in which the petitioner's principal place of business
listed on petitioner's application for registration is located,
a written petition, within fifteen days after the notice of
such order is given to the offending person praying that the
order of the Commission be set aside. A copy of such petition
shall be forthwith transmitted by the clerk of the court to the
Commission and thereupon the Commission shall file in the court
the record theretofore made, as provided in section 2112 of
title 28, United States Code. Upon the filing of the petition
the court shall have jurisdiction to affirm, to set aside, or
modify the order of the Commission, and the findings of the
Commission as to the facts, if supported by the weight of
evidence, shall in like manner be conclusive.
(d) If any person (other than a [contract market]
registered entity) is manipulating or attempting to manipulate
or has manipulated or attempted to manipulate the market price
of any commodity, in interstate commerce, or for future
delivery on or subject to the rules of any [contract market]
registered entity, or otherwise is violating or has violated
any of the provisions of this Act or of the rules, regulations,
or orders of the Commission or the commission thereunder, the
Commission may, upon notice and hearing, and subject to appeal
as in other cases provided for in subsection (c), make and
enter an order directing that such person shall cease and
desist therefrom and, if such person thereafter and after the
lapse of the period allowed for appeal of such order or after
the affirmance of such order, shall fail or refuse to obey or
comply with such order, such person shall be guilty of a
misdemeanor and, upon conviction thereof, shall be fined not
more than the higher of $100,000 or triple the monetary gain to
such person, or imprisoned for not less than six months nor
more than one year, or both, except that if such failure or
refusal to obey or comply with such order involves any offense
within paragraph (a) or (b) of section 9 of this Act, such
person shall be guilty of a felony and, upon conviction
thereof, shall be subject to the penalties of said paragraph
9(a) or 9(b): Provided, That any such cease and desist order
against any respondent in any case of manipulation of, or
attempt to manipulate, the price of any commodity shall be
issued only in conjunction with an order issued against such
respondent under subsection (c). Each day during which such
failure or refusal to obey or comply with such order continues
shall be deemed a separate offense.
(e)(1) In determining the amount of the money penalty
assessed under subsection (c), the Commission shall consider
the appropriateness of such penalty to the gravity of the
violation.
(2) Unless the person against whom a money penalty is
assessed under subsection (c) shows to the satisfaction of the
Commission within fifteen days from the expiration of the
period allowed for payment of such penalty that either an
appeal as authorized by subsection (c) has been taken or
payment of the full amount of the penalty then due has been
made, at the end of such fifteen-day period and until such
person shows to the satisfaction of the Commission that payment
of such amount with interest thereon to date of payment has
been made--
(A) such person shall be prohibited automatically
from [trading on all contract markets] the privileges
of all registered entities; and
(B) if such person is registered with the Commission,
such registration shall be suspended automatically.
(3) If a person against whom a money penalty is assessed
under subsection (c) takes an appeal and if the Commission
prevails or the appeal is dismissed, unless such person shows
to the satisfaction of the Commission that payment of the full
amount of the penalty then due has been made by the end of
thirty days from the date of entry of judgment on the appeal--
(A) such person shall be prohibited automatically
from [trading on all contract markets] the privileges
of all registered entities; and
* * * * * * *
Sec. 6a. (a) No board of trade which has been [designated
as a ``contract market'' shall] designated or registered as a
contract market or a derivatives transaction execution facility
exclude from membership in, and all privileges on, such board
of trade, any association or corporation engaged in cash
commodity business having adequate financial responsibility
which is organized under the cooperative laws of any State, or
which has been recognized as a cooperative association of
producers by the United States Government or by any agency
thereof, if such association or corporation complies and agrees
to comply with such terms and conditions asare or may be
imposed lawfully upon other members of such board, and as are or may be
imposed lawfully upon a cooperative association of producers engaged in
cash commodity business, unless such board of trade is authorized by
the Commission to exclude such association or corporation from
membership and privileges after hearing held upon at least three days'
notice subsequent to the filing of complaint by the board of trade:
Provided, however, That if any such association or corporation shall
fail to meet its obligations with any established clearing house or
clearing agency of any contract market, such association or corporation
shall be ipso facto debarred from further trading on such contract
market, except such trading as may be necessary to close open trades
and to discharge existing contracts in accordance with the rules of
such contract market applicable in such cases. Such Commission may
prescribe that such association or corporation shall have and retain
membership and privileges, with or without imposing conditions, or it
may permit such board of trade immediately to bar such association or
corporation from membership and privileges. Any order of said
Commission entered hereunder shall be reviewable by the court of
appeals for the circuit in which such association or corporation, or
such board of trade, has its principal place of business, on written
petition either of such association or corporation, or of such board of
trade, under the procedure provided in section 6(b) of this Act, but
such order shall not be stayed by the court pending review.
(b) No rule of any board of trade [designated as a contract
market] designated or registered as a contract market or a
derivatives transaction execution facility shall forbid or be
construed to forbid the payment of compensation on a commodity-
unit basis, or otherwise, by any federated cooperative
association to its regional member-associations for services
rendered or to be rendered in connection with any organization
work, educational activity, or procurement of patronage,
provided no part of any such compensation is returned to
patrons (whether members or nonmembers) of such cooperative
association, or of its regional or local member-associations,
otherwise than as a dividend on capital stock or as a patronage
dividend out of the net earnings or surplus of such federated
cooperative association.
Sec. 6b. If any [contract market] registered entity is not
enforcing or has not enforced its rules of government made a
condition of its [designation as set forth in section 5 of this
Act] designation or registration as set forth in sections 5
through 5c, or if any [contract market] registered entity, or
any director, officer, agent, or employee of any [contract
market] registered entity otherwise is violating or has
violated any of the provisions of this Act or any of the rules,
regulations, or orders of the Commission thereunder, the
Commission may, upon notice and hearing on the record and
subject to appeal as in other cases provided for in section
6(b) of this Act, make and enter an order directing that such
[contract market] registered entity, director, officer, agent,
or employee shall cease and desist from such violation, and
assess a civil penalty of not more than $500,000 for each such
violation. If such [contract market] registered entity,
director, officer, agent, or employee, after the entry of such
a cease and desist order and the lapse of the period allowed
for appeal of such order or after the affirmance of such order,
shall fail or refuse to obey or comply with such order, such
[contract market] registered entity, director, officer, agent,
or employee shall be guilty of a misdemeanor and, upon
conviction thereof, shall be fined not more than $500,000 or
imprisoned for not less than six months nor more than one year,
or both. Each day during which such failure or refusal to obey
such cease and desist order continues shall be deemed a
separate offense. If the offending [contract market] registered
entity or other person upon whom such penalty is imposed, after
the lapse of the period allowed for appeal or after the
affirmance of such penalty, shall fail to pay such penalty, the
Commission shall refer the matter to the Attorney General who
shall recover such penalty by action in the appropriate United
States district court. In determining the amount of the money
penalty assessed under this section, the Commission shall
consider the gravity of the offense, and in the case of a
[contract market] registered entity shall further consider
whether the amount of the penalty will materially impair [the
contract market's ability] the ability of the registered entity
to carry on its operations and duties.
Sec. 6c. (a) Whenever it shall appear to the Commission
that any [contract market] registered entity or other person
has engaged, is engaging, or is about to engage in any act or
practice constituting a violation of any provision of this Act
or any rule, regulation, or order thereunder, or is restraining
trading in any commodity for future delivery, the Commission
may bring an action in the proper district court of the United
States or the proper United States court of any territory or
other place subject to the jurisdiction of the United States,
to enjoin such act or practice, or to enforce compliance with
this Act, or any rule, regulation or order thereunder, and said
courts shall have jurisdiction to entertain such actions:
Provided, That no restraining order (other than a restraining
order which prohibits any person from destroying, altering or
disposing of, or refusing to permit authorized representatives
of the Commission to inspect, when and as requested, any books
and records or other documents or which prohibits any person
from withdrawing, transferring, removing, dissipating, or
disposing of any funds, assets, or other property, and other
than an order appointing a temporary receiver to administer
such restraining order and to perform such other duties as the
court may consider appropriate) or injunction for violation of
the provisions of this Act shall be issued ex parte by said
court.
* * * * * * *
Sec. 6d. (1) Whenever it shall appear to the attorney
general of any State, the administrator of the securities laws
of any State, or such other official as a State may designate,
that the interests of the residents of that State have been,
are being, or may be threatened or adversely affected because
any person (other than a contract market, derivatives
transaction execution facility, clearinghouse, floor broker, or
floor trader) has engaged in, is engaging or is about to engage
in, any act or practice constituting a violation of any
provision of this Act or any rule, regulation, or order of the
Commission thereunder, the State may bring a suit in equity or
an action at law on behalf of its residents to enjoin such act
or practice, to enforce compliance with this Act, or any rule,
regulation, or order of the Commission thereunder, to obtain
damages on behalf of their residents, or to obtain such further
and other relief as the court may deem appropriate.
* * * * * * *
Sec. 7. Any [board of trade] person that has been
designated or registered a [contract market] registered entity
in the manner herein provided may have such designation or
registration vacated and set aside by giving notice in writing
to the Commission requesting that its designation or
registration as a [contract market] registered entity be
vacated, which notice shall be served at least ninety days
prior to the date named therein as the date when the vacation
of designation or registration shall take effect. Upon receipt
of such notice the Commission shall forthwith order the
vacation of the [designation of such board of trade as a
contract market] designation or registration of the registered
entity, effective upon the day named in the notice, and shall
forthwith send a copy of the notice and its order to all other
[contract markets] registered entities. From and after the date
upon which the vacation became effective the said [board of
trade] person can thereafter be [designated again a contract
market] designated or registered again a registered entity by
making application to the Commission in the manner herein
provided for an original application.
Sec. 8. (a) * * *
* * * * * * *
(c) The Commission may make or issue such reports as it
deems necessary, or such opinions or orders as may be required
under other provisions of law, relative to the conduct of any
[board of trade] registered entity or to the transactions of
any person found guilty of violating the provisions of this Act
or the rules, regulations, or orders of the Commission
thereunder in proceedings brought under section 6 of this Act.
In any such report or opinion, the Commission may set forth the
facts as to any actual transaction or any information referred
to in subsection (b) of this section, if such facts or
information have previously been disclosed publicly in
connection with a congressional proceeding, or in an
administrative or judicial proceeding brought under this Act.
* * * * * * *
Sec. 8a. The Commission is authorized--
(1) * * *
(2) upon notice, but without a hearing and pursuant
to such rules, regulations, or orders as the Commission
may adopt, to refuse to register, to register
conditionally, or to suspend or place restrictions upon
the registration of, any person and with such a hearing
as may be appropriate to revoke the registration of any
person--
(A) * * *
* * * * * * *
(F) if such person is subject to an
outstanding order of the Commission denying
[trading] privileges on any [contract market]
registered entity to such person, denying,
suspending, or revoking such person's
membership in any [contract market] registered
entity or registered futuresassociation, or
barring or suspending such person from being associated with a
registrant under this Act or with a member of a [contract market]
registered entity or with a member of a registered futures association;
* * * * * * *
(3) to refuse to register or to register
conditionally any person, if it is found, after
opportunity for hearing, that--
(A) * * *
* * * * * * *
(J) such person is subject to an outstanding
order denying, suspending, or expelling such
person from membership in a [contract market]
registered entity, a registered futures
association, any other self-regulatory
organization, or any foreign regulatory body
that the Commission recognizes as having a
comparable regulatory program or barring or
suspending such person from being associated
with any member or members of such [contract
market] registered entity, association, self-
regulatory organization, or foreign regulatory
body;
* * * * * * *
(4) in accordance with the procedure provided for in
section 6(c) of this Act, to suspend, revoke, or place
restrictions upon the registration of any person
registered under this Act if cause exists under
paragraph (3) of this section which would warrant a
refusal of registration of such person, and to suspend
or revoke the registration of any futures commission
merchant or introducing broker who shall knowingly
accept any order for the purchase or sale of any
commodity for future delivery on or subject to the
rules of any [contract market] registered entity from
any person if such person has been denied trading
privileges on any [contract market] registered entity
by order of the Commission under section 6(c) of this
Act and the period of denial specified in such order
shall not have expired: Provided, That such person may
appeal from a decision to suspend, revoke, or place
restrictions upon registration made pursuant to this
paragraph in the manner provided in section 6(c) of
this Act;
* * * * * * *
(6) to communicate to the proper committee or officer
of any [contract market] registered entity, registered
futures association, or self-regulatory organization as
defined in section 3(a)(26) of the Securities Exchange
Act of 1934, notwithstanding the provisions of section
8 of this Act, the full facts concerning any
transaction or market operation, including the names of
parties thereto, which in the judgment of the
Commission disrupts or tends to disrupt any market or
is otherwise harmful or against the best interests of
producers, consumers, or investors, or which is
necessary or appropriate to effectuate the purposes of
this Act: Provided, That any information furnished by
the Commission under this paragraph shall not be
disclosed by such [contract market] registered entity,
registered futures association, or self-regulatory
organization except in any self-regulatory action or
proceeding;
(7) to alter or supplement the rules of a [contract
market] registered entity insofar as necessary or
appropriate by rule or regulation or by order, if after
making the appropriate request in writing to a
[contract market] registered entity that such [contract
market] registered entity effect on its own behalf
specified changes in its rules and practices, and after
appropriate notice and opportunity for hearing, the
Commission determines that such [contract market]
registered entity has not made the changes so required,
and that such changes are necessary or appropriate for
the protection of persons producing, handling,
processing, or consuming any commodity traded for
future delivery on such [contract market] registered
entity, or the product or byproduct thereof, or for the
protection of traders or to insure fair dealing in
commodities traded for future delivery on such
[contract market] registered entity. Such rules,
regulations, or orders may specify changes with respect
to such matters as--
(A) terms or conditions in contracts of sale
to be executed on or subject to the rules of
such [contract market] registered entity;
* * * * * * *
(8) to make and promulgate such rules and regulations
with respect to those persons registered under this
Act, who are not members of a [contract market]
registered entity, as in the judgment of the Commission
are reasonably necessary to protect the public interest
and promote just and equitable principles of trade,
including but not limited to the manner, method, and
place of soliciting business, including the content of
such solicitation;
(9) to direct the [contract market] registered
entity, whenever it has reason to believe that an
emergency exists, to take such action as in the
Commission's judgment is necessary to maintain or
restore orderly trading in or liquidation of any
futures contract, including, but not limited to, the
setting of temporary emergency margin levels on any
futures contract, and the fixing of limits that may
apply to a market position acquired in good faith prior
to the effective date of the Commission's action. The
term ``emergency'' as used herein shall mean, in
addition to threatened or actual market manipulations
and corners, any act of the United States or a foreign
government affecting a commodity or any other major
market disturbance which prevents the market from
accurately reflecting the forces of supply and demand
for such commodity. Any action taken by the Commission
under this paragraph shall be subject to review only in
the United States Court of Appeals for the circuit in
which the party seeking review resides or has its
principal place of business, or in the United States
Court of Appeals for the District of Columbia Circuit.
Such review shall be based upon an examination of all
the information before the Commission at the time the
determination was made. The court reviewing the
Commission's action shall not enter a stay or order of
mandamus unless it has determined, after notice and
hearing before a panel of the court, that the agency
action complained of was arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance
with law. Nothing herein shall be deemed to limit the
meaning or interpretation given by a [contract market]
registered entity to the terms ``market emergency'',
``emergency'', or equivalent language in its own
bylaws, rules, regulations, or resolutions;
* * * * * * *
Sec. 8b. It shall be unlawful for any person, against whom
there is outstanding any order of the Commission prohibiting
him from trading on or subject to the rules of any [contract
market] registered entity, to make or cause to be made in
contravention of such order, any contract for future delivery
of any commodity, on or subject to the rules of any [contract
market] registered entity.
Sec. 8c. (a)
* * * * * * *
(e)(1) The Commission shall issue regulations requiring each
contract market to establish and make available to the public a
schedule of major violations of any rule within the
disciplinary jurisdiction of such [contract market] registered
entity.
* * * * * * *
SEC. 8E. COMMISSION OVERSIGHT; DEFICIENCY ORDERS.
(a) Assessments.--At least once every two years, to the
extent practicable, the Commission shall assess whether the
trade monitoring system of each [contract market] registered
entity satisfies [section 5a(b)] sections 5 through 5c.
(b) Deficiency Orders.--
(1) Causes.--The Commission may issue a proposed
deficiency order in accordance with paragraph (2), or
take such other administrative or enforcement action as
the Commission determines is appropriate, if, based on
its assessment or on other information, the Commission
at any time has reason to believe that [a contract
market's trade monitoring system implemented pursuant
to section 5a(b)] the trade monitoring system of a
registered entity implemented pursuant to sections 5
through 5c does not satisfy one or more of the
requirements of such section.
* * * * * * *
(2) Contents.--A proposed deficiency order issued
under this subsection shall specify--
(A) the deficiencies the Commission has
reason to believe exist in the trade monitoring
system of the [contract market] registered
entity and a statement of reasons supporting
the Commission's belief that those deficiencies
exist;
(B) the corrective action that the Commission
believes that the [contract market] registered
entity must take and an acceptable timetable
for such corrective action; and
(C) a date, not less than twenty days from
the date of issuance of the proposed deficiency
order, when such deficiency order will become
final, subject to subsection (d).
[(3) Remedies.--On becoming final, the Commission
deficiency order may--
[(A) require the contract market to--
[(i) institute appropriate
improvements in its trade monitoring
system necessary to correct the
deficiencies noted therein;
[(ii) satisfy stated objective
performance criteria to correct such
deficiencies;
[(iii) upgrade or reconfigure
existing systems for collecting or
processing relevant data on trading and
trader or broker activity, including,
where appropriate, the commitment of
additional resources; or
[(B) revoke any exemption of the contract
market from the regulations prohibiting the
privilege of dual trading under section 4j(a),
if the deficiency noted in such deficiency
order relates to--
[(i) the audit trail system the
contract market is required to maintain
under paragraph (2), (3), or (4) of
section 5a(b); or
[(ii) the prevention, detection, or
disciplining of violations attributable
to such trading at such, subject to the
standards, exceptions, and duration
provisions of section 4j(a); or
[(C) take any combination of the actions
described in subparagraphs (A) and (B).]
(3) Remedies.--On becoming final, the Commission
deficiency order may require the registered entity to--
(A) institute appropriate improvements in its
trade monitoring system necessary to correct
the deficiencies in the order;
(B) satisfy stated objective performance
criteria to correct the deficiencies;
(C) upgrade or reconfigure existing systems
for collecting or processing relevant data on
trading and trader or broker activity,
including, where appropriate, the commitment of
additional resources.
(4) Removal.--If the Commission finds, after notice
and opportunity for a hearing on the record prior to
such deficiency order becoming final, that a named
officer, director, committee member, or employee of
such [contract market] registered entity has
willfully--
(A) violated this Act, the rules or
regulations of the Commission thereunder, or
the rules of such [contract market] registered
entity;
(B) abused the authority of such person; or
(C) without reasonable justification or
excuse, failed to enforce compliance with any
provision of the rules of such [contract
market] registered entity by any member or
person associated with a member thereof,
the Commission may issue a deficiency order under this
section to remove such officer, director, committee
member, or employee.
(5) [Designation as contract market] Designation or
registration as registered entity.--Notwithstanding
section 6, during the period that a proposed or final
deficiency order under this section is in effect, the
Commission may refrain from approving any application
for designation or registration as a [contract market]
registered entity made by the [board of trade] person
whose [contract market] registered entity is the
subject of such deficiency order.
(6) Delegation.--The Commission shall not delegate
the authority to issue deficiency orders under this
subsection.
(c) Rescission, Modification, or Delay of Deficiency
Orders.--Before any proposed deficiency order issued by the
Commission under subsection (b) may become final, the
Commission shall--
(1) provide the affected [contract market] registered
entity with an opportunity for a hearing through
submission of written data, views, or arguments and,
under terms set by the Commission at the request of the
[contract market] registered entity, through an oral
presentation of views and comments to the Commission,
in order to petition the Commission to rescind, modify,
or delay such deficiency order; and
(2) rule on such petition, not less than twenty days
before the deficiency order takes effect, making
findings, as appropriate, as to whether--
(A) the deficiencies cited by the Commission
have been corrected or are being corrected
under an expeditious timetable acceptable to
the Commission;
(B) the trade monitoring system of the
[contract market] registered entity is
deficient as noted in the deficiency order; or
(C) the timetable for corrective action by
the [contract market] registered entity in the
proposed deficiency order, and the particular
corrective action proposed, is appropriate in
light of the deficiencies noted and the
purposes of this Act.
(d) Penalties.--Violation of a final deficiency order issued
under subsection (c) shall be considered a violation of an
order of the Commission for purposes of--
(1) establishing liability and assessing penalties
against a [contract market] registered entity or any
director, officer, agent, or employee thereof under
section 6b or 6c; or
(2) initiating proceedings under section [5b] 5e or
6(a).
(e) Judicial Review.--
(1) Persons.--Any person, other than a [contract
market] registered entity, aggrieved by a deficiency
order issued under subsection (b)(4), may obtain review
of such deficiency order when issued by the Commission
under the terms and conditions in section 6(b).
(2) [Contract markets] Registered entities.--Any
[contract market] registered entity that has petitioned
the Commission to rescind, modify, or delay any
proposed deficiency order issued under subsection (b)
may obtain judicial review of any final such deficiency
order only in the United States Court of Appeals for
the circuit in which the party seeking review resides
or has its principal place of business, or in the
United States Court of Appeals for the District of
Columbia Circuit, under the standards applicable to
rulemaking proceedings under section 553 of title 5,
United States Code.
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, or both, together with the costs of prosecution, for:
(1) * * *
(2) Any person to manipulate or attempt to manipulate
the price of any commodity in interstate commerce, or
for future delivery on or subject to the rules of any
[contract market] registered entity, or to corner or
attempt to corner any such commodity or knowingly to
deliver or cause to be delivered for transmission
through the mails or interstate commerce by telegraph,
telephone, wireless, or other means of communication
false or misleading or knowingly inaccurate reports
concerning crop or market information or conditions
that affect or tend to affect the price of any
commodity in interstate commerce, or knowingly to
violate the provisions of section 4, section 4b,
subsections (a) through (e) of subsection 4c, section
4h, section [4o(1)] 4n(1), or section 19.
(3) Any person knowingly to make, or cause to be
made, any statement in any application, report, or
document required to be filed under this Act or any
rule or regulation thereunder or any undertaking
contained in a registration statement required under
this Act, or by any [contract market] registered entity
or registered futures association in connection with an
application for membership or participation therein or
to become associated with a member thereof, which
statement was false or misleading with respect to any
material fact, or knowingly to omit any material fact
required to be stated therein or necessary to make the
statements therein not misleading.
(4) Any person willfully to falsify, conceal, or
cover up by any trick, scheme, or artifice a material
fact, make any false, fictitious, or fraudulent
statements or representations, or make or use any false
writing or document knowing the same to contain any
false, fictitious, or fraudulent statement or entry to
a [contract market] registered entity, board of trade,
or futures association designated or registered under
this Act acting in furtherance of its official duties
under this Act.
* * * * * * *
(f) 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,
[contract market] 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.
(2) willfully and knowingly to trade for such
person's own account, or for or on behalf of any other
account, in contractsfor future delivery or options
thereon on the basis of any material nonpublic information that such
person knows was obtained in violation of paragraph (1) from an
employee, member of the governing board, or member of any committee of
a board of trade, [contract market] registered entity, or registered
futures association.
Such felony shall be punishable by a fine of not more than
$500,000, plus the amount of any profits realized from such
trading or disclosure made in violation of this subsection, or
imprisonment for not more than five years, or both, together
with the costs of prosecution.
* * * * * * *
Sec. 12. (a) * * *
* * * * * * *
(d) There are authorized to be appropriated such sums as are
necessary to carry out this Act for each of fiscal years 1995
through [2000] 2005.
(e) Nothing in this Act shall supersede or preempt--
(1) criminal prosecution under any Federal criminal
statute;
[(2) the application of any Federal or State statute,
including any rule or regulation thereunder, to any
transaction in or involving any commodity, product,
right, service, or interest (A) that is not conducted
on or subject to the rules of a contract market, or, in
the case of any State or local law that prohibits or
regulates gaming or the operation of ``bucket shops''
(other than antifraud provisions of general
applicability), that is not a transaction or class of
transactions that has received or is covered by the
terms of any exemption previously granted by the
Commission under subsection (c) of section 4 of this
Act, or (B) (except as otherwise specified by the
Commission by rule or regulation) that is not conducted
on or subject to the rules of any board of trade,
exchange, or market located outside the United States,
its territories or possessions, or (C) that is not
subject to regulation by the Commission under section
4c or 19 of this Act; or]
(2) the application of any Federal or State law
(including any regulation) to an agreement, contract,
or transaction in or involving any commodity, product,
right, service, or interest, except that this Act shall
supersede and preempt--
(A) in the case of any such agreement,
contract, or transaction--
(i) that is conducted on or subject
to the rules of a registered entity or
exempt board of trade;
(ii) that is conducted on or subject
to the rules of any board of trade,
exchange, or market located outside the
United States, or any territory or
possession of the United States (in
accordance with any terms or conditions
specified by the Commission by
regulation); and
(iii) that is subject to regulation
by the Commission under section 4c or
19; and
(B) any State or local law that prohibits or
regulates gaming or the operation of bucket
shops (other than antifraud provisions of
general applicability) in the case of--
(i) an electronic trading facility
under section 2(e); or
(ii) an agreement, contract, or
transaction that is excluded or exempt
under section 2(c), 2(d), 2(f), or 2(h)
or is covered by the terms of an
exemption granted by the Commission
under section 4(c) (regardless of
whether any such agreement, contract,
or transaction is otherwise subject to
this Act); or
* * * * * * *
Sec. 14. (a)(1) Any person complaining of any violation of
any provision of this Act, or any rule, regulation, or order
issued pursuant to this Act, by any person who is registered
under this Act may, at any time within two years after the
cause of action accrues, apply to the Commission for an order
awarding--
(A) * * *
(B) in the case of any action arising from a willful
and intentional violation in the execution of an order
on the floor of a [contract market] registered entity,
punitive or exemplary damages equal to no more than two
times the amount of such actual damages. If an award of
punitive or exemplary damages is made against a floor
broker in connection with the execution of a customer
order, and the futures commission merchant which
selected the floor broker for the execution of the
customer order is held to be responsible under section
2(a)(1) for the floor broker's violation, such futures
commission merchant may be required to satisfy such
award if the floor broker fails to do so, except that
such requirement shall apply to the futures commission
merchant only if it willfully and intentionally
selected the floor broker with the intent to assist or
facilitate the floor broker's violation.
* * * * * * *
(f) Unless the party against whom a reparation order has
been issued shows to the satisfaction of the Commission within
fifteen days from the expiration of the period allowed for
compliance with such order that either an appeal as herein
authorized has been taken or payment of the full amount of the
order (or any agreed settlement thereof) has been made, such
party shall be prohibited automatically from trading on all
[contract markets] registered entities and, if the party is
registered with the Commission, such registration shall be
suspended automatically at the expiration of such fifteen-day
period until such party shows to the satisfaction of the
Commission that payment of such amount with interest thereon to
date of payment has been made: Provided, That if on appeal the
appellee prevails or if the appeal is dismissed, the automatic
prohibition against trading and suspension of registration
shall become effective at the expiration of thirty days from
the date of judgment on the appeal, but if the judgment is
stayed by a court of competent jurisdiction, the suspension
shall become effective ten days after the expiration of such
stay, unless prior thereto the judgment of the court has been
satisfied.
[(g) The provisions of this section shall not become
effective until fifteen months after the date of its enactment:
Provided, That claims which arise within one year immediately
prior to the effective date of this section may be heard by the
Commission after such 15-month period.]
(g) Predispute Resolution Agreements for Institutional
Customers.--Nothing in this section prohibits a registered
futures commission merchant from requiring a customer that is
an eligible contract participant, as a condition to the
commission merchant's conducting a transaction for the
customer, to enter into an agreement waiving the right to file
a claim under this section.
[Sec. 15. The Commission]
SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.
(a) Costs and Benefits.--
(1) In general.--Before promulgating a regulation
under this Act or issuing an order (except as provided
in paragraph (3)), the Commission shall consider the
costs and benefits of the action of the Commission.
(2) Considerations.--The costs and benefits of the
proposed Commission action shall be evaluated in light
of--
(A) considerations of protection of market
participants and the public;
(B) considerations of the efficiency,
competitiveness, and financial integrity of
futures markets;
(C) considerations of price discovery;
(D) considerations of sound risk management
practices; and
(E) other public interest considerations.
(3) Applicability.--This subsection does not apply to
the following actions of the Commission:
(A) An order that initiates, is part of, or
is the result of an adjudicatory or
investigative process of the Commission.
(B) An emergency action.
(C) A finding of fact regarding compliance
with a requirement of the Commission.
(b) Antitrust Laws.--The Commission shall take into
consideration the public interest to be protected by the
antitrust laws and endeavor to take the least anticompetitive
means of achieving the objectives of this Act, as well as the
policies and purposes of this Act, in issuing any order or
adopting any Commission rule or regulation (including any
exemption under section 4(c) or 4c(b)), or in requiring or
approving any bylaw, rule, or regulation of a contract market
or registered futures association established pursuant to
section 17 of this Act.
* * * * * * *
Sec. 17. (a) * * *
(b) An applicant association shall not be registered as a
futures association unless the Commission finds, under
standards established by the Commission, that--
(1) * * *
(2) the rules of the association provide that any
person registered under this Act, [contract market]
registered entity, or any other person designated
pursuant to the rules of the Commission as eligible for
membership may become a member of such association,
except such as are excluded pursuant to paragraph (3)
or (4) of this subsection, or a rule of the association
permitted under this paragraph. The rules of the
association may restrict membership in such association
on such specified basis relating to the type of
business done by its members, or on such other
specified and appropriate basis, as appears to the
Commission to be necessary or appropriate in the public
interest and to carry out the purpose of this section.
Rules adopted by the association may provide that the
association may, unless the Commission directs
otherwise in cases in which the Commission finds it
appropriate in the public interest so to direct, deny
admission to, or refuse to continue in such association
any person if (i) such person, whether prior of
subsequent to becoming registered as such, or (ii) any
person associated within the meaning of ``associated
person'' as set forth in section 4k of this Act,
whether prior or subsequent to becoming so associated,
has been and is suspended or expelled from a [contract
market] registered entity or has been and is barred or
suspended from being associated with all members of
such [contract market] registered entity, for violation
of any rule of such [contract market] registered
entity;
(3) the rules of the association provide that, except
with the approval or at the direction of the Commission
in cases in which the Commission finds it appropriate
in the public interest so to approve or direct, no
person shall be admitted to or continued in membership
in such association, if such person--
(A) has been and is suspended or expelled
from a registered futures association or from a
[contract market] registered entity or has been
and is barred or suspended from being
associated with all members of such association
or from being associated with all members of
such [contract market] registered entity, for
violation of any rule of such association or
[contract market] registered entity which
prohibits any act or transaction constituting
conduct inconsistent with just and equitable
principles of trade, or requires any act the
omission of which constitutes conduct
inconsistent with just and equitable principles
of trade;
(B) is subject to an order of the Commission
denying, suspending, or revoking his
registration pursuant to section 6(c) of this
Act, or expelling or suspending him from
membership in a registered futures association
or a [contract market] registered entity, or
barring or suspending him from being associated
with a futures commission merchant;
(C) whether prior or subsequent to becoming a
member, by his conduct while associated with a
member, was a cause of any suspension,
expulsion, or order of the character described
in clause (A) or (B) which is in effect with
respect to such member, and in entering such a
suspension, expulsion, or order, the Commission
or any such [contract market] registered entity
or association shall have jurisdiction to
determine whether or not any person was a cause
thereof; or
* * * * * * *
(10) the rules of the association provide a fair,
equitable, and expeditious procedure through
arbitration or otherwise for the settlement of
customers' claims and grievances against any member or
employee thereof: Provided, That (A) the use of such
procedure by a customer shall be voluntary, (B) the
term ``customer'' as used in this paragraph shall not
include another member of the association, and (C) in
the case of a claim arising from a violation in the
execution of an order on the floor of a [contract
market] registered entity, such procedure shall
provide, to the extent appropriate--
(i) * * *
* * * * * * *
(o)(1) The Commission may require any futures association
registered pursuant to this section to perform any portion of
the registration functions under this Act with respect to each
member of the association other than a [contract market]
registered entity and with respect to each associated person of
such member, in accordance with rules, notwithstanding any
other provision of law, adopted by such futures association and
submitted to the Commission pursuant to section 17(j) of this
Act, and subject to the provisions of this Act applicable to
registrations granted by the Commission.
* * * * * * *
(q)(1) The Commission shall issue regulations requiring each
registered futures association to establish and make available
to the public a schedule of major violations of any rule within
the disciplinary jurisdiction of such registered futures
association.
(2) The regulations issued by the Commission pursuant to this
subsection shall prohibit, for a period of time to be
determined by the Commission, any member of a registered
futures association who is found to have committed any major
violation from service on the governing board of any registered
futures association or [contract market] registered entity, or
on any disciplinary committee thereof.
* * * * * * *
Sec. 22. (a)(1) Any person (other than a [contract market,
clearing organization of a contract market, licensed board of
trade,] registered entity or registered futures association)
who violates this Act or who willfully aids, abets, counsels,
induces, or procures the commission of a violation of this Act
shall be liable for actual damages resulting from one or more
of the transactions referred to in subparagraphs (A) through
(D) of this paragraph and caused by such violation to any other
person--
(A) * * *
* * * * * * *
(C) who purchased from or sold to such person or
placed through such person an order for the purchase or
sale of--
(i) an option subject to section 4c of this
Act (other than an option purchased or sold on
a [contract market] registered entity or other
board of trade);
* * * * * * *
(2) Except as provided in subsection (b), the rights of
action authorized by this subsection and by sections [5a(11),]
5(d)(13), 5b(b)(1)(E), 14, and 17(b)(10) of this Act shall be
the exclusive remedies under this Act available to any person
who sustains loss as a result of any alleged violation of this
Act. Nothing in this subsection shall limit or abridge the
rights of the parties to agree in advance of a dispute upon any
forum for resolving claims under this section, including
arbitration.
(3) In any action arising from a violation in the execution
of an order on the floor of a [contract market] registered
entity, the person referred to in paragraph (1) shall be liable
for--
(A) * * *
(4) Contract enforcement between eligible counterparties.--
(A) In general.--No agreement, contract, or
transaction involving a party described in subclauses
(I) through (VI) of section 2(c)(2)(B)(ii) or between
eligible contract participants shall be void, voidable,
or unenforceable, and no such counterparty or eligible
contract participant shall be entitled to rescind, or
recover any payment made with respect to, such an
agreement, contract, or transaction, under this section
or any other provision of Federal or State law based
solely on the failure of the agreement, contract, or
transaction to comply with the terms or conditions of
an exemption or exclusion from any provision of this
Act or regulations of the Commission.
(B) Exception.--This paragraph shall not apply to any
swap agreement (as defined in section 206(b) of the
Gramm-Leach-Bliley Act) with any party who is not an
eligible contract participant unless such swap
agreement is entered into after final regulations have
been prescribed under section 49 of the Federal Deposit
Insurance Act.
(b)(1)(A) A [contract market or clearing organization of a
contract market] registered entity that fails to enforce any
bylaw, rule, regulation, or resolution that it is required to
enforce by [section 5a(8) and section 5a(9) of this Act]
sections 5 through 5c, (B) a licensed board of trade that fails
to enforce any bylaw, rule, regulation, or resolution that it
is required to enforce by the Commission, or (C) any [contract
market, clearing organization of a contract market, or licensed
board of trade] registered entity that in enforcing any such
bylaw, rule, regulation, or resolution violates this Act or any
Commission rule, regulation, or order, shall be liable for
actual damages sustained by a person who engaged in any
transaction on or subject to the rules of such [contract market
or licensed board of trade] registered entity to the extent of
such person's actual losses that resulted from such transaction
and were caused by such failure to enforce or enforcement of
such bylaws, rules, regulations, or resolutions.
* * * * * * *
(3) Any individual who, in the capacity as an officer,
director, governor, committee member, or employee of [a
contract market, clearing organization, licensed board of
trade,] registered entity or a registered futures association
willfully aids, abets, counsels, induces, or procures any
failure by any such entity to enforce (or any violation of the
Act in enforcing) any bylaw, rule, regulation, or resolution
referred to in paragraph (1) or (2) of this subsection, shall
be liable for actual damages sustained by a person who engaged
in any transaction specified in subsection (a) of this section
on, or subject to the rules of, such [contract market, licensed
board of trade] registered entity or, in the case of an
officer, director, governor, committee member, or employee of a
registered futures association, any transaction specified in
subsection (a) of this section, in either case to the extent of
such person's actual losses that resulted from such transaction
and were caused by such failure or violation.
(4) A person seeking to enforce liability under this
section must establish that the [contract market, licensed
board of trade, clearing organization] registered entity,
registered futures association, officer, director, governor,
committee member, or employee acted in bad faith in failing to
take action or in taking such action as was taken, and that
such failure or action caused the loss.
(5) The rights of action authorized by this subsection
shall be the exclusive remedy under this Act available to any
person who sustains a loss as a result of (A) the alleged
failure by a [contract market, licensed board of trade,
clearing organization,] registered entity or registered futures
association or by any officer, director, governor, committee
member, or employee to enforce any bylaw, rule, regulation, or
resolution referred to in paragraph (1) or (2) of this
subsection, or (B) the taking of action in enforcing any bylaw,
rule, regulation, or resolution referred to in this subsection
that is alleged to have violated this Act, or any Commission
rule, regulation, or order.
* * * * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
* * * * * * *
TITLE IV--MISCELLANEOUS PROVISIONS
Subtitle A--Payment System Risk Reduction
CHAPTER 1--BILATERAL AND CLEARING ORGANIZATION NETTING
* * * * * * *
SEC. 402. DEFINITIONS.
For purposes of this [subtitle] chapter--
(1) * * *
* * * * * * *
(2) Clearing organization.--The term ``clearing
organization'' means a clearinghouse, clearing
association, clearing corporation, or similar
organization--
(A) that provides clearing, netting, or
settlement services for its members and--
(i) in which all members other than
the clearing organization itself are
financial institutions or other
clearing organizations; or
(ii) which is registered as a
clearing agency under the Securities
Exchange Act of 1934 or exempt from
such registration pursuant to an order
of the Securities and Exchange
Commission; or
[(B) that performs clearing functions for a
contract market designated pursuant to the
Commodity Exchange Act.]
(B) that is registered as a derivatives
clearing organization under section 5b of the
Commodity Exchange Act or that has been granted
an exemption pursuant to section 4(c)(1) of
such Act.
* * * * * * *
(6) Depository institution.--The term ``depository
institution'' means--
(A) a depository institution as defined in
section 19(b)(1)(A) of the Federal Reserve Act
(other than clause (vii));
[(B) a branch or agency as defined in section
1(b) of the International Banking Act of 1978;]
(B) an uninsured national bank or an
uninsured State bank that is a member of the
Federal Reserve System if the national bank or
State member bank is not eligible to make
application to become an insured bank under
section 5 of the Federal Deposit Insurance Act;
(C) a branch or agency of a foreign bank, a
foreign bank and any branch or agency of the
foreign bank, or the foreign bank that
established the branch or agency, as those
terms are defined in section 1(b) of the
International Banking Act of 1978;
[(C)] (D) a corporation chartered under
section 25(a) of the Federal Reserve Act; or
[(D)] (E) a corporation having an agreement
or undertaking with the Board of Governors of
the Federal Reserve System under section 25 of
the Federal Reserve Act.
* * * * * * *
(11) Member.--The term ``member'' means a member of
or participant in a clearing organization, and includes
the clearing organization and any other clearing
organization with which such clearing organization has
a netting contract.
* * * * * * *
(14) Netting contract.--
(A) In general.--The term ``netting
contract''--
[(i) means a contract or agreement
between 2 or more financial
institutions or members, that--
[(I) is governed by the laws
of the United States, any
State, or any political
subdivision of any State, and
[(II) provides for netting
present or future payment
obligations or payment
entitlements (including
liquidation or close-out values
relating to the obligations or
entitlements) among the parties
to the agreement; and]
(i) means a contract or agreement
between two or more financial
institutions, clearing organizations,
or members that provides for netting
present or future payment obligations
or payment entitlements (including
liquidation or closeout values relating
to such obligations or entitlements)
among the parties to the agreement; and
* * * * * * *
(15) Payment.--The term ``payment'' means a payment
of United States dollars, another currency, or a
composite currency, and a noncash delivery, including a
payment or delivery to liquidate an unmatured
obligation.
* * * * * * *
SEC. 403. BILATERAL NETTING.
[(a) General Rule.--Notwithstanding any other provision of
law, the covered contractual payment obligations and the
covered contractual payment entitlements between any 2
financial institutions shall be netted in accordance with, and
subject to the conditions of, the terms of any applicable
netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act
or any order authorized under section 5(b)(2) of the Securities
Investor Protection Act of 1970), the covered contractual
payment obligations and the covered contractual payment
entitlements between any two financial institutions shall be
netted in accordance with, and subject to the conditions of,
the terms of any applicable netting contract (except as
provided in section 561(b)(2) of title 11, United States Code).
* * * * * * *
(f) Enforceability of Security Agreements.--The provisions of
any security agreement or arrangement or other credit
enhancement related to 1 or more netting contracts between any
two financial institutions shall be enforceable in accordance
with their terms (except as provided in section 561(b)(2) of
title 11, United States Code) and shall not be stayed, avoided,
or otherwise limited by any State or Federal law (other than
paragraphs (8)(E), (8)(F), and (10)(B) of section 11(e) of the
Federal Deposit Insurance Act and section 5(b)(2) of the
Securities Investor Protection Act of 1970).
SEC. 404. CLEARING ORGANIZATION NETTING.
[(a) General Netting Rule.--Notwithstanding any other
provision of law, the covered contractual payment obligations
and covered contractual payment entitlements of a member of a
clearing organization to and from all other members of a
clearing organization shall be netted in accordance with and
subject to the conditions of any applicable netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act
and any order authorized under section 5(b)(2) of the
Securities Investor Protection Act of 1970), the covered
contractual payment obligations and the covered contractual
payment entitlements of a member of a clearing organization to
and from all other members of a clearing organization shall be
netted in accordance with and subject to the conditions of any
applicable netting contract (except as provided in section
561(b)(2) of title 11, United States Code).
* * * * * * *
(h) Enforceability of Security Agreements.--The provisions of
any security agreement or arrangement or other credit
enhancement related to 1 or more netting contracts between any
two members of a clearing organization shall be enforceable in
accordance with their terms (except as provided in section
561(b)(2) of title 11, United States Code) and shall not be
stayed, avoided, or otherwise limited by any State or Federal
law (other than paragraphs (8)(E), (8)(F), and (10)(B) of
section 11(e) of the Federal Deposit Insurance Act and section
5(b)(2) of the Securities Investor Protection Act of 1970).
* * * * * * *
SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS AND
UNINSURED FEDERAL BRANCHES AND AGENCIES.
(a) In General.--Notwithstanding any other provision of law,
paragraphs (8), (9), (10), and (11) of section 11(e) of the
Federal Deposit Insurance Act shall apply to an uninsured
national bank or uninsured Federal branch or Federal agency
except--
(1) any reference to the ``Corporation as receiver''
or ``the receiver or the Corporation'' shall refer to
the receiver of an uninsured national bank or uninsured
Federal branch or Federal agency appointed by the
Comptroller of the Currency;
(2) any reference to the ``Corporation'' (other than
in section 11(e)(8)(D) of such Act), the ``Corporation,
whether acting as such or as conservator or receiver'',
a ``receiver'', or a ``conservator'' shall refer to the
receiver or conservator of an uninsured national bank
or uninsured Federal branch or Federal agency appointed
by the Comptroller of the Currency; and
(3) any reference to an ``insured depository
institution'' or ``depository institution'' shall refer
to an uninsured national bank or an uninsured Federal
branch or Federal agency.
(b) Liability.--The liability of a receiver or conservator of
an uninsured national bank or uninsured Federal branch or
agency shall be determined in the same manner and subject to
the same limitations that apply to receivers and conservators
of insured depository institutions under section 11(e) of the
Federal Deposit Insurance Act.
(c) Regulatory Authority.--
(1) In general.--The Comptroller of the Currency, in
consultation with the Federal Deposit Insurance
Corporation, may promulgate regulations to implement
this section.
(2) Specific requirement.--In promulgating
regulations to implement this section, the Comptroller
of the Currency shall ensure that the regulations
generally are consistent with the regulations and
policies of the Federal Deposit Insurance Corporation
adopted pursuant to the Federal Deposit Insurance Act.
(d) Definitions.--For purposes of this section, the terms
``Federal branch'', ``Federal agency'', and ``foreign bank''
have the same meaning as in section 1(b) of the International
Banking Act.
SEC. [407.] 407A. NATIONAL EMERGENCIES.
The provisions of this subtitle may not be construed to limit
the authority of the President under the Trading With the Enemy
Act (50 U.S.C. App. 1 et seq.) or the International Emergency
Economic Powers Act (50 U.S.C. 1701 et seq.).
* * * * * * *
CHAPTER 2--MULTILATERAL CLEARING ORGANIZATIONS
SEC. 408. DEFINITIONS.
For purposes of this chapter, the following definitions shall
apply:
(1) Multilateral clearing organization.--The term
``multilateral clearing organization'' means a system
utilized by more than 2 participants in which the
bilateral credit exposures of participants arising from
the transactions cleared are effectively eliminated and
replaced by a system of guarantees, insurance, or
mutualized risk of loss.
(2) Over-the-counter derivative instrument.--The term
``over-the-counter derivative instrument'' means--
(A) any agreement, contract, or transaction,
including the terms and conditions incorporated
by reference in any such agreement, contract,
or transaction, which is an interest rate swap,
option, or forward agreement, including a rate
floor, rate cap, rate collar, cross-currency
rate swap, basis swap, and forward rate
agreement; a spot, same day-tomorrow, tomorrow-
next, forward, or other foreign exchange or
precious metals agreement; a currency swap,
option, or forward agreement; an equity index
or equity swap, option, or forward agreement; a
debt index or debt swap, option, or forward
agreement; a credit spread or credit swap,
option, or forward agreement; a commodity index
or commodity swap, option, or forward
agreement; and a weather swap, weather
derivative, or weather option;
(B) any agreement, contract or transaction
similar to any other agreement, contract, or
transaction referred to in this clause that is
presently, or in the future becomes, regularly
entered into by parties that participate in
swap transactions (including terms and
conditions incorporated by reference in such
agreement) and that is a forward, swap, or
option on 1 or more occurrences of any event,
rates, currencies, commodities, equity
securities or other equity instruments, debt
securities or other debt instruments, economic
or other indices or measures of economic or
other risk or value;
(C) any contract of sale of a commodity for
future delivery or commodity option described
in subsection (c), (d), (f), (h), or (i) of
section 2 of the Commodity Exchange Act or
exempted under section 4(c) of such Act; and
(D) any option to enter into any, or any
combination of, agreements, contracts or
transactions referred to in this subparagraph.
(3) Other definitions.--The terms ``State member
bank'' and ``affiliate'' have the meanings given the
terms in section 3 of the Federal Deposit Insurance
Act.
SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.
(a) In General.--Except with respect to clearing
organizations described in subsection (b), no person may
operate a multilateral clearing organization for over-the-
counter derivative instruments, or otherwise engage in
activities that constitute such a multilateral clearing
organization unless the person is a national bank, State member
bank, an affiliate of a national bank or a State member bank,
or a corporation chartered under section 25A of the Federal
Reserve Act.
(b) Clearing Organizations.--Subsection (a) shall not apply
to any clearing organization that--
(1) is registered as a clearing agency under the
Securities Exchange Act of 1934;
(2) performs clearing functions for a contract market
designated pursuant to the Commodity Exchange Act; or
(3) is supervised by a foreign financial regulator
that an appropriate Federal financial regulatory agency
has determined satisfies appropriate standards.
* * * * * * *
----------
FEDERAL RESERVE ACT
* * * * * * *
state banks as members.
Sec. 9. Any bank incorporated by special law of any State, or
organized under the general laws of any State or of the United
States, including Morris Plan banks and other incorporated
banking institutions engaged in similar business, desiring to
become a member of the Federal Reserve System, may make
application to the Board of Governors of the Federal Reserve
System, under such rules and regulations as it may prescribe,
for the right to subscribe to the stock of the Federal reserve
bank organized within the district in which the applying bank
is located. Such application shall be for the same amount of
stock that the applying bank would be required to subscribe to
as a national bank. For the purposes of membership of any such
bank the terms ``capital'' and ``capital stock'' shall include
the amount of outstanding capital notes and debentures legally
issued by the applying bank and purchased by the Reconstruction
Finance Corporation. The Board of Governors of the Federal
Reserve System, subject to the provisions of this Act and to
such conditions as it may prescribe pursuant thereto may permit
the applying bank to become a stockholder of such Federal
reserve bank.
* * * * * * *
(24) Enforcement authority.--Section 3(u),
subsections (j) and (k) of section 7, subsections (b)
through (n), (s), (u), and (v) of section 8, and
section 19 of the Federal Deposit Insurance Act shall
apply to a State member bank which is not an insured
depository institution (as defined in section 3 of the
Federal Deposit Insurance Act) in the same manner and
to the same extent as such provisions apply to State
member insured banks, and any reference in such
sections to an insured depository institution shall be
deemed to include a reference to any such noninsured
State member bank.
* * * * * * *
SEC. 9B. RESOLUTION OF CLEARING BANKS.
(a) Conservatorship or Receivership.--
(1) Appointment.--The Board may appoint a conservator
or receiver to take possession and control of any
uninsured State member bank which operates, or operates
as, a multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 to the same extent
and in the same manner as the Comptroller of the
Currency may appoint a conservator or receiver for a
national bank.
(2) Powers.--The conservator or receiver for an
uninsured State member bank referred to in paragraph
(1) shall exercise the same powers, functions, and
duties, subject to the same limitations, as a
conservator or receiver for a national bank.
(b) Board Authority.--The Board shall have the same authority
with respect to any conservator or receiver appointed under
subsection (a), and the uninsured State member bank for which
the conservator or receiver has been appointed, as the
Comptroller of the Currency has with respect to a conservator
or receiver for a national bank and the national bank for which
the conservator or receiver has been appointed.
(c) Bankruptcy Proceedings.--The Board (in the case of an
uninsured State member bank which operates, or operates as,
such a multilateral clearing organization) may direct a
conservator or receiver appointed for such bank to file a
petition pursuant to title 11, United States Code, in which
case, title 11, United States Code, shall apply to such bank in
lieu of otherwise applicable Federal or State insolvency law.
* * * * * * *
banking corporations authorized to do foreign banking business
Sec. 25A. Corporations to be organized for the purpose of
engaging in international or foreign banking or other
international orforeign financial operations, or in banking or
other financial operations in a dependency or insular possession of the
United States, either directly or through the agency, ownership, or
control of local institutions in foreign countries, or in such
dependencies or insular possessions as provided by this section, and to
act when required by the Secretary of the Treasury as fiscal agents of
the United States, may be formed by any number of natural persons, not
less in any case than five: Provided, That nothing in this section
shall be construed to deny the right of the Secretary of the Treasury
to use any corporation organized under this section as depositaries in
Panama and the Panama Canal Zone, or in the Philippine Islands and
other insular possessions and dependencies of the United States.
* * * * * * *
[Whenever the Board of Governors of the Federal Reserve
System shall become satisfied of the insolvency of any such
corporation, it may appoint a receiver who shall take
possession of all of the property and assets of the corporation
and exercise the same rights, privileges, powers, and authority
with respect thereto as are now exercised by receivers of
national banks appointed by the Comptroller of the Currency of
the United States: Provided, however, That the assets of the
corporation subject to the laws of other countries or
jurisdictions shall be dealt with in accordance with the terms
of such laws.]
(16) Appointment of receiver or conservator.--
(A) In general.--The Board may appoint a
conservator or receiver for a corporation
organized under the provisions of this section
to the same extent and in the same manner as
the Comptroller of the Currency may appoint a
conservator or receiver for a national bank,
and the conservator or receiver for such
corporation shall exercise the same powers,
functions, and duties, subject to the same
limitations, as a conservator or receiver for a
national bank.
(B) Equivalent authority.--The Board shall
have the same authority with respect to any
conservator or receiver appointed for a
corporation organized under the provisions of
this section under this paragraph and any such
corporation as the Comptroller of the Currency
has with respect to a conservator or receiver
of a national bank and the national bank for
which a conservator or receiver has been
appointed.
(C) Title 11 petitions.--The Board may direct
the conservator or receiver of a corporation
organized under the provisions of this section
to file a petition pursuant to title 11, United
States Code, in which case, title 11, United
States Code, shall apply to the corporation in
lieu of otherwise applicable Federal or State
insolvency law.
* * * * * * *
----------
TITLE 11, UNITED STATES CODE
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
* * * * * * *
Sec. 101. Definitions
In this title--
(1) * * *
* * * * * * *
[(22) ``financial institution'' means a person that
is a commercial or savings bank, industrial savings
bank, savings and loan association, or trust company
and, when any such person is acting as agent or
custodian for a customer in connection with a
securities contract, as defined in section 741 of this
title, such customer;]
(22) the term ``financial institution''--
(A) means a Federal reserve bank or an entity
(domestic or foreign) that is a commercial or
savings bank, industrial savings bank, savings
and loan association, trust company, a bank or
a corporation organized under section 25A of
the Federal Reserve Act and, when any such bank
or entity is acting as agent or custodian for a
customer in connection with a securities
contract, as defined in section 741, such
customer; and
(B) includes any person described in
subparagraph (A) which operates, or operates
as, a multilateral clearing organization
pursuant to section 409 of the Federal Deposit
Insurance Corporation Improvement Act of 1991;
(22A) ``financial participant'' means an entity that,
at the time it enters into a securities contract,
commodity contract or forward contract, or at the time
of the filing of the petition, has 1 or more agreements
or transactions described in paragraph (1), (2), (3),
(4), (5), or (6) of section 561(a) with the debtor or
any other entity (other than an affiliate) of a total
gross dollar value of at least $1,000,000,000 in
notional or actual principal amount outstanding on any
day during the previous 15-month period, or has gross
mark-to-market positions of at least $100,000,000
(aggregated across counterparties) in 1 or more such
agreement or transaction with the debtor or any other
entity (other than an affiliate) on any day during the
previous 15-month period;
* * * * * * *
(25) ``forward contract'' [means a contract] means--
(A) a contract (other than a commodity
contract) for the purchase, sale, or transfer
of a commodity, as defined in section 761(8) of
this title, or any similar good, article,
service, right, or interest which is presently
or in the future becomes the subject of dealing
in the forward contract trade, or product or
byproduct thereof, with a maturity date more
than two days after the date the contract is
entered into, including, but not limited to, a
repurchase transaction, reverse repurchase
transaction, consignment, lease, swap, hedge
transaction, deposit, loan, option, allocated
transaction, unallocated transaction[, or any
combination thereof or option thereon;], or any
other similar agreement;
(B) any combination of agreements or
transactions referred to in subparagraphs (A)
and (C);
(C) any option to enter into an agreement or
transaction referred to in subparagraph (A) or
(B);
(D) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), or (C), together with
all supplements to any such master agreement,
without regard to whether such master agreement
provides for an agreement or transaction that
is not a forward contract under this paragraph,
except that such master agreement shall be
considered to be a forward contract under this
paragraph only with respect to each agreement
or transaction under such master agreement that
is referred to in subparagraph (A), (B) or (C);
or
(E) any security agreement or arrangement, or
other credit enhancement related to any
agreement or transaction referred to in
subparagraph (A), (B), (C), or (D), but not to
exceed the actual value of such contract on the
date of the filing of the petition;
[(26) ``forward contract merchant'' means a person
whose business consists in whole or in part of entering
into forward contracts as or with merchants in a
commodity, as defined in section 761(8) of this title,
or any similar good, article, service, right, or
interest which is presently or in the future becomes
the subject of dealing in the forward contract trade;]
(26) ``forward contract merchant'' means a Federal
reserve bank, or an entity whose business consists in
whole or in part of entering into forward contracts as
or with merchants or in a commodity, as defined or in
section 761, or any similar good, article, service,
right, or interest which is presently or in the future
becomes the subject of dealing or in the forward
contract trade;
* * * * * * *
(38A) ``master netting agreement'' means an agreement
providing for the exercise of rights, including rights
of netting, setoff, liquidation, termination,
acceleration, or closeout, under or in connection with
1 or more contracts that are described in any 1 or more
of paragraphs (1) through (5) of section 561(a), or any
security agreement or arrangement or other credit
enhancement related to 1 or more of the foregoing. If a
master netting agreement contains provisions relating
to agreements or transactions that are not contracts
described in paragraphs (1) through (5) of section
561(a), the master netting agreement shall be deemed to
be a master netting agreement only with respect to
those agreements or transactions that are described in
any 1 or more of the paragraphs (1) through (5) of
section 561(a);
(38B) ``master netting agreement participant'' means
an entity that, at any time before the filing of the
petition, is a party to an outstanding master netting
agreement with the debtor;
* * * * * * *
(46) ``repo participant'' means an entity that, [on
any day during the period beginning 90 days before the
date of] at any time before the filing of the petition,
has an outstanding repurchase agreement with the
debtor;
[(47) ``repurchase agreement'' (which definition also
applies to a reverse repurchase agreement) means an
agreement, including related terms, which provides for
the transfer of certificates of deposit, eligible
bankers' acceptances, or securities that are direct
obligations of, or that are fully guaranteed as to
principal and interest by, the United States or any
agency of the United States against the transfer of
funds by the transferee of such certificates of
deposit, eligible bankers' acceptances, or securities
with a simultaneous agreement by such transferee to
transfer to the transferor thereof certificates of
deposit, eligible bankers' acceptances, or securities
as described above, at a date certain not later than
one year after such transfers or on demand, against the
transfer of funds;]
(47) ``repurchase agreement'' (which definition also
applies to a ``reverse repurchase agreement'')--
(A) means--
(i) an agreement, including related
terms, which provides for the transfer
of 1 or more certificates of deposit,
mortgage-related securities (as defined
in the Securities Exchange Act of
1934), mortgage loans, interests in
mortgage-related securities or mortgage
loans, eligible bankers' acceptances,
qualified foreign government
securities, or securities that are
direct obligations of, or that are
fully guaranteed by, the United States
or any agency of the United States
against the transfer of funds by the
transferee of such certificates of
deposit, eligible bankers' acceptances,
securities, loans, or interests, with a
simultaneous agreement by such
transferee to transfer to the
transferor thereof certificates of
deposit, eligible bankers' acceptance,
securities, loans, or interests of the
kind described above, at a date certain
not later than 1 year after such
transfer or on demand, against the
transfer of funds;
(ii) any combination of agreements or
transactions referred to in clauses (i)
and (iii);
(iii) an option to enter into an
agreement or transaction referred to in
clause (i) or (ii);
(iv) a master agreement that provides
for an agreement or transaction
referred to in clause (i), (ii), or
(iii), together with all supplements to
any such master agreement, without
regard to whether such master agreement
provides for an agreement or
transaction that is not a repurchase
agreement under this paragraph, except
that such master agreement shall be
considered to be a repurchase agreement
under this paragraph only with respect
to each agreement or transaction under
the master agreement that is referred
to in clause (i), (ii), or (iii); or
(v) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in clause (i), (ii), (iii),
or (iv), but not to exceed the actual
value of such contract on the date of
the filing of the petition; and
(B) does not include a repurchase obligation
under a participation in a commercial mortgage
loan,
and, for purposes of this paragraph, the term
``qualified foreign government security'' means a
security that is a direct obligation of, or that is
fully guaranteed by, the central government of a member
of the Organization for Economic Cooperation and
Development;
(48) ``securities clearing agency'' means person that
is registered as a clearing agency under section 17A of
the Securities Exchange Act of 1934 or exempt from such
registration under such section pursuant to an order of
the Securities and Exchange Commission or whose
business is confined to the performance of functions of
a clearing agency with respect to exempted securities,
as defined in section 3(a)(12) of such Act for the
purposes of such section 17A;
* * * * * * *
[(53B) ``swap agreement'' means--
[(A) an agreement (including terms and
conditions incorporated by reference therein)
which is a rate swap agreement, basis swap,
forward rate agreement, commodity swap,
interest rate option, forward foreign exchange
agreement, spot foreign exchange agreement,
rate cap agreement, rate floor agreement, rate
collar agreement, currency swap agreement,
cross-currency rate swap agreement, currency
option, any other similar agreement (including
any option to enter into any of the foregoing);
[(B) any combination of the foregoing; or
[(C) a master agreement for any of the
foregoing together with all supplements;]
(53B) ``swap agreement''--
(A) means--
(i) any agreement, including the
terms and conditions incorporated by
reference in such agreement, which is
an interest rate swap, option, future,
or forward agreement, including a rate
floor, rate cap, rate collar, cross-
currency rate swap, and basis swap; a
spot, same day-tomorrow, tomorrow-next,
forward, or other foreign exchange or
precious metals agreement; a currency
swap, option, future, or forward
agreement; an equity index or an equity
swap, option, future, or forward
agreement; a debt index or a debt swap,
option, future, or forward agreement; a
credit spread or a credit swap, option,
future, or forward agreement; a
commodity index or a commodity swap,
option, future, or forward agreement;
or a weather swap, weather derivative,
or weather option;
(ii) any agreement or transaction
similar to any other agreement or
transaction referred to in this
paragraph that--
(I) is presently, or in the
future becomes, regularly
entered into in the swap market
(including terms and conditions
incorporated by reference
therein); and
(II) is a forward, swap,
future, or option on 1 or more
rates, currencies, commodities,
equity securities, or other
equity instruments, debt
securities or other debt
instruments, or economic
indices or measures of economic
risk or value;
(iii) any combination of agreements
or transactions referred to in this
paragraph;
(iv) any option to enter into an
agreement or transaction referred to in
this paragraph;
(v) a master agreement that provides
for an agreement or transaction
referred to in clause (i), (ii), (iii),
or (iv), together with all supplements
to any such master agreement, and
without regard to whether the master
agreement contains an agreement or
transaction that is not a swap
agreement under this paragraph, except
that the master agreement shall be
considered to be a swap agreement under
this paragraph only with respect to
each agreement or transaction under the
master agreement that is referred to in
clause (i), (ii), (iii), or (iv); or
(B) any security agreement or arrangement or
other credit enhancement related to any
agreements or transactions referred to in
subparagraph (A), but not to exceed the actual
value of such contract on the date of the
filing of the petition; and
(C) is applicable for purposes of this title
only and shall not be construed or applied so
as to challenge or affect the characterization,
definition, or treatment of any swap agreement
under any other statute, regulation, or rule,
including the Securities Act of 1933, the
Securities Exchange Act of 1934, the Public
Utility Holding Company Act of 1935, the Trust
Indenture Act of 1939, the Investment Company
Act of 1940, the Investment Advisers Act of
1940, the Securities Investor Protection Act of
1970, the Commodity Exchange Act, and the
regulations prescribed by the Securities and
Exchange Commission or the Commodity Futures
Trading Commission.
* * * * * * *
(54A) the term ``uninsured State member bank'' means a State
member bank (as defined in section 3 of the Federal Deposit
Insurance Act) the deposits of which are not insured by the
Federal Deposit Insurance Corporation; and
* * * * * * *
Sec. 103. Applicability of chapters
(a) * * *
* * * * * * *
(e) Scope of Application.--Subchapter V of chapter 7 of this
title shall apply only in a case under such chapter concerning
the liquidation of an uninsured State member bank, or a
corporationorganized under section 25A of the Federal Reserve
Act, which operates, or operates as, a multilateral clearing
organization pursuant to section 409 of the Federal Deposit Insurance
Corporation Improvement Act of 1991.
[(e)] (f) Except as provided in section 901 of this title,
only chapters 1 and 9 of this title apply in a case under such
chapter 9.
[(f)] (g) Except as provided in section 901 of this title,
subchapters I, II, and III of chapter 11 of this title apply
only in a case under such chapter.
[(g)] (h) Subchapter IV of chapter 11 of this title applies
only in a case under such chapter concerning a railroad.
[(h)] (i) Chapter 13 of this title applies only in a case
under such chapter.
[(i)] (j) Chapter 12 of this title applies only in a case
under such chapter.
* * * * * * *
Sec. 109. Who may be a debtor
(a) * * *
(b) A person may be a debtor under chapter 7 of this title
only if such person is not--
(1) a railroad;
(2) a domestic insurance company, bank, savings bank,
cooperative bank, savings and loan association,
building and loan association, homestead association, a
small business investment company licensed by the Small
Business Administration under subsection (c) or (d) of
section 301 of the Small Business Investment Act of
1958, credit union, or industrial bank or similar
institution which is an insured bank as defined in
section 3(h) of the Federal Deposit Insurance Act[;
or], except that an uninsured State member bank, or a
corporation organized under section 25A of the Federal
Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to section
409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991 may be a debtor if a petition
is filed at the direction of the Board of Governors of
the Federal Reserve System; or
* * * * * * *
[(d) Only a person that may be a debtor under chapter 7 of
this title, except a stockbroker or a commodity broker, and a
railroad may be a debtor under chapter 11 of this title.]
(d) Only a railroad, a person that may be a debtor under
chapter 7 of this title (except a stockbroker or a commodity
broker), and an uninsured State member bank, or a corporation
organized under section 25A of the Federal Reserve Act, which
operates, or operates as, a multilateral clearing organization
pursuant to section 409 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 may be a debtor under
chapter 11 of this title.
* * * * * * *
CHAPTER 3--CASE ADMINISTRATION
* * * * * * *
SUBCHAPTER I--COMMENCEMENT OF A CASE
* * * * * * *
Sec. 304. Cases ancillary to foreign proceedings
(a) * * *
* * * * * * *
(d) Any provisions of this title relating to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, or master netting agreements shall
apply in a case ancillary to a foreign proceeding under this
section or any other section of this title so that enforcement
of contractual provisions of such contracts and agreements in
accordance with their terms will not be stayed or otherwise
limited by operation of any provision of this title or by order
of a court in any proceeding under this title, and to limit
avoidance powers to the same extent as in a proceeding under
chapter 7 or 11 (such enforcement not to be limited based on
the presence or absence of assets of the debtor in the United
States).
SUBCHAPTER IV--ADMINISTRATIVE POWERS
* * * * * * *
Sec. 362. Automatic stay
(a) * * *
* * * * * * *
(b) The filing of a petition under section 301, 302, or 303
of this title, or of an application under section 5(a)(3) of
the Securities Investor Protection Act of 1970, does not
operate as a stay--
(1) * * *
* * * * * * *
(6) under subsection (a) of this section, of the
setoff by a commodity broker, forward contract
merchant, stockbroker, [financial institutions,]
financial institution, financial participant or
securities clearing agency of any mutual debt and claim
under or in connection with commodity contracts, as
defined in section 761 of this title, forward
contracts, or securities contracts, as defined in
section 741 of this title, that constitutes the setoff
of a claim against the debtor for a margin payment, as
defined in section 101, 741, or 761 of this title, or
settlement payment, as defined in section 101 or 741 of
this title, arising out of commodity contracts, forward
contracts, or securities contracts against cash,
securities, or other property held by, pledged to and
under the control of, or due from such commodity
broker, forward contract merchant, stockbroker,
[financial institutions,] financial institution,
financial participant or securities clearing agency to
margin, guarantee, secure, or settle commodity
contracts, forward contracts, or securities contracts;
(7) under subsection (a) of this section, of the
setoff by a repo participant, of any mutual debt and
claim under or in connection with repurchase agreements
that constitutes the setoff of a claim against the
debtor for a margin payment, as defined in section 741
or 761 of this title, or settlement payment, as defined
in section 741 of this title, arising out of repurchase
agreements against cash, securities, or other property
held by, pledged to and under the control of, or due
from such repo participant to margin, guarantee, secure
or settle repurchase agreements;
* * * * * * *
[(17) under subsection (a) of this section, of the
setoff by a swap participant, of any mutual debt and
claim under or in connection with any swap agreement
that constitutes the setoff of a claim against the
debtor for any payment due from the debtor under or in
connection with any swap agreement against any payment
due to the debtor from the swap participant under or in
connection with any swap agreement or against cash,
securities, or other property of the debtor held by or
due from such swap participant to guarantee, secure or
settle any swap agreement; or]
(17) under subsection (a), of the setoff by a swap
participant of a mutual debt and claim under or in
connection with 1 or more swap agreements that
constitutes the setoff of a claim against the debtor
for any payment or other transfer of property due from
the debtor under or in connection with any swap
agreement against any payment due to the debtor from
the swap participant under or in connection with any
swap agreement or against cash, securities, or other
property held by, pledged to and under the control of,
or due from such swap participant to margin, guarantee,
secure, or settle any swap agreement;
(18) under subsection (a) of the creation or
perfection of a statutory lien for an ad valorem
property tax imposed by the District of Columbia, or a
political subdivision of a State, if such tax comes due
after the filing of the petition[.]; or
(19) under subsection (a), of the setoff by a master
netting agreement participant of a mutual debt and
claim under or in connection with 1 or more master
netting agreements or any contract or agreement subject
to such agreements that constitutes the setoff of a
claim against the debtor for any payment or other
transfer of property due from the debtor under or in
connection with such agreements or any contract or
agreement subject to such agreements against any
payment due to the debtor from such master netting
agreement participant under or in connection with such
agreements or any contract or agreement subject to such
agreements or against cash, securities, or other
property held by, pledged to and under the control of,
or due from such master netting agreement participant
to margin, guarantee, secure, or settle such agreements
or any contract or agreement subject to such
agreements, to the extent such participant is eligible
to exercise such offset rights under paragraph(6), (7),
or (17) for each individual contract covered by the master netting
agreement in issue.
* * * * * * *
(i) Limitation.--The exercise of rights not subject to the
stay arising under subsection (a) pursuant to paragraph (6),
(7), or (17), or (32) of subsection (b) shall not be stayed by
any order of a court or administrative agency in any proceeding
under this title.
* * * * * * *
CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE
* * * * * * *
SUBCHAPTER III--THE ESTATE
541. Property of the estate.
* * * * * * *
[555. Contractual right to liquidate a securities contract.
[556. Contractual right to liquidate a commodity contract or forward
contract.]
555. Contractual right to liquidate, terminate, or accelerate a
securities contract.
556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract.
* * * * * * *
[559. Contractual right to liquidate a repurchase agreement.
[560. Contractual right to terminate a swap agreement.]
559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement.
560. Contractual right to liquidate, terminate, or accelerate a swap
agreement.
561. Contractual right to terminate, liquidate, accelerate, or offset
under a master netting agreement and across contracts.
562. Damage measure in connection with swap agreements, securities
contracts, forward contracts, commodity contracts, repurchase
agreements, or master netting agreements.
* * * * * * *
SUBCHAPTER I--CREDITORS AND CLAIMS
* * * * * * *
Sec. 502. Allowance of claims or interests
(a) * * *
* * * * * * *
(g)(1) A claim arising from the rejection, under section 365
of this title or under a plan under chapter 9, 11, 12, or 13 of
this title, of an executory contract or unexpired lease of the
debtor that has not been assumed shall be determined, and shall
be allowed under subsection (a), (b), or (c) of this section or
disallowed under subsection (d) or (e) of this section, the
same as if such claim had arisen before the date of the filing
of the petition.
(2) A claim for damages calculated in accordance with section
562 shall be allowed under subsection (a), (b), or (c), or
disallowed under subsection (d) or (e), as if such claim had
arisen before the date of the filing of the petition.
* * * * * * *
SUBCHAPTER III--THE ESTATE
Sec. 541. Property of the estate
(a) * * *
* * * * * * *
(b) Property of the estate does not include--
(1) * * *
* * * * * * *
(4) any interest of the debtor in liquid or gaseous
hydrocarbons to the extent that--
(A) * * *
* * * * * * *
(B)(i) * * *
(ii) but for the operation of this paragraph,
the estate could include the interest referred
to in clause (i) only by virtue of section 542
of this title; [or]
(5) any eligible asset (or proceeds thereof), to the
extent that such eligible asset was transferred by the
debtor before the date of commencement of the case, to
an eligible entity in connection with an asset-backed
securitization, except to the extent such asset (or
proceeds or value thereof) may be recovered by the
trustee under section 550 by virtue of avoidance under
section 548(a)(1); or
[(5)] (6) any interest in cash or cash equivalents
that constitute proceeds of a sale by the debtor of a
money order that is made--
(A) * * *
* * * * * * *
(e) For purposes of this section, the following definitions
shall apply:
(1) the term ``asset-backed securitization'' means a
transaction in which eligible assets transferred to an
eligible entity are used as the source of payment on
securities, including all securities issued by
governmental units, at least 1 class or tranche of
which is rated investment grade by 1 or more nationally
recognized securities rating organizations, when the
securities are initially issued by an issuer;
(2) the term ``eligible asset'' means--
(A) financial assets (including interests
therein and proceeds thereof), either fixed or
revolving, whether or not such assets are in
existence as of the date of the transfer,
including residential and commercial mortgage
loans, consumer receivables, trade receivables,
assets of governmental units (including payment
obligations relating to taxes, receipts, fines,
tickets, and other sources of revenue), and
lease receivables, that, by their terms,
convert into cash within a finite time period,
plus any residual interest in property subject
to receivables included in such financial
assets plus any rights or other assets designed
to assure the servicing or timely distribution
of proceeds to security holders;
(B) cash; and
(C) securities, including all securities
issued by governmental units.
(3) the term ``eligible entity'' means--
(A) an issuer; or
(B) a trust, corporation, partnership,
governmental unit, limited liability company
(including a single member limited liability
company), or other entity engaged exclusively
in the business of acquiring and transferring
eligible assets directly or indirectly to an
issuer and taking actions ancillary thereto;
(4) the term ``issuer'' means a trust, corporation,
partnership, governmental unit, limited liability
company (including a single member limited liability
company), or other entity engaged exclusively in the
business of acquiring and holding eligible assets,
issuing securities backed by eligible assets, and
taking actions ancillary thereto; and
(5) the term ``transferred'' means the debtor,
pursuant to a written agreement, represented and
warranted that eligible assets were sold, contributed,
or otherwise conveyed with the intention of removing
them from the estate of the debtor pursuant to
subsection (b)(5) (whether or not reference is made to
this title or any section of this title), irrespective,
without limitation, of--
(A) whether the debtor directly or indirectly
obtained or held an interest in the issuer or
in any securities issued by the issuer;
(B) whether the debtor had an obligation to
repurchase or to service or supervise the
servicing of all or any portion of such
eligible assets; or
(C) the characterization of such sale,
contribution, or other conveyance for tax,
accounting, regulatory reporting, or other
purposes.
* * * * * * *
Sec. 546. Limitations on avoiding powers
(a) * * *
* * * * * * *
(e) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) of this title, the trustee may not avoid a transfer that
is a margin payment, as defined in section 101, 741, or 761 of
this title, or settlement payment, as defined in section 101 or
741 of this title, made by or to a commodity broker, forward
contract merchant, stockbroker, financial institution,
financial participant, or securities clearing agency, that is
made before the commencement of the case, except under section
548(a)(1)(A) of this title.
* * * * * * *
(g) Notwithstanding sections 544, 545, 547, 548(a)(1)(B) and
548(b) of this title, the trustee may not avoid a transfer
[under a swap agreement], made by or to a swap participant, [in
connection with a swap agreement] under or in connection with
any swapagreement and that is made before the commencement of
the case, except under section 548(a)(1)(A) of this title.
* * * * * * *
(j) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b), the trustee may not avoid a transfer made by or to a
master netting agreement participant under or in connection
with any master netting agreement or any individual contract
covered thereby that is made before the commencement of the
case, except under section 548(a)(1)(A), and except to the
extent the trustee could otherwise avoid such a transfer made
under an individual contract covered by such master netting
agreement.
* * * * * * *
Sec. 548. Fraudulent transfers and obligations
(a) * * *
* * * * * * *
(d)(1) * * *
(2) In this section--
(A) * * *
(B) a commodity broker, forward contract merchant,
stockbroker, financial institution, financial
participant, or securities clearing agency that
receives a margin payment, as defined in section 101,
741, or 761 of this title, or settlement payment, as
defined in section 101 or 741 of this title, takes for
value to the extent of such payment;
(C) a repo participant that receives a margin
payment, as defined in section 741 or 761 of this
title, or settlement payment, as defined in section 741
of this title, in connection with a repurchase
agreement, takes for value to the extent of such
payment; [and]
(D) a swap participant that receives a transfer in
connection with a swap agreement takes for value to the
extent of such transfer[.]; and
(E) a master netting agreement participant that
receives a transfer in connection with a master netting
agreement or any individual contract covered thereby
takes for value to the extent of such transfer, except,
with respect to a transfer under any individual
contract covered thereby, to the extent such master
netting agreement participant otherwise did not take
(or is otherwise not deemed to have taken) such
transfer for value.
* * * * * * *
Sec. 553. Setoff
(a) Except as otherwise provided in this section and in
sections 362 and 363 of this title, this title does not affect
any right of a creditor to offset a mutual debt owing by such
creditor to the debtor that arose before the commencement of
the case under this title against a claim of such creditor
against the debtor that arose before the commencement of the
case, except to the extent that--
(1) * * *
* * * * * * *
(3) the debt owed to the debtor by such creditor was
incurred by such creditor--
(A) * * *
* * * * * * *
(C) for the purpose of obtaining a right of
setoff against the debtor (except for a setoff
of a kind described in section 362(b)(6),
362(b)(7), 362(b)(17), 362(b)(32), 555, 556,
559, 560 or 561).
(b)(1) Except with respect to a setoff of a kind described in
section 362(b)(6), 362(b)(7), [362(b)(14)] 362(b)(17),
362(b)(32), 555, 556, 559, 560, 561, 365(h), 546(h), or
365(i)(2) of this title, if a creditor offsets a mutual debt
owing to the debtor against a claim against the debtor on or
within 90 days before the date of the filing of the petition,
then the trustee may recover from such creditor the amount so
offset to the extent that any insufficiency on the date of such
setoff is less than the insufficiency on the later of--
(A) * * *
* * * * * * *
[Sec. 555. Contractual right to liquidate a securities contract]
Sec. 555. Contractual right to liquidate, terminate, or accelerate a
securities contract
The exercise of a contractual right of a stockbroker,
financial institution, financial participant, or securities
clearing agency to cause the [liquidation] liquidation,
termination, or acceleration of a securities contract, as
defined in section 741 of this title, because of a condition of
the kind specified in section 365(e)(1) of this title shall not
be stayed, avoided, or otherwise limited by operation of any
provision of this title or by order of a court or
administrative agency in any proceeding under this title unless
such order is authorized under the provisions of the Securities
Investor Protection Act of 1970 or any statute administered by
the Securities and Exchange Commission. As used in this
section, the term ``contractual right'' includes a right set
forth in a rule or bylaw of a national securities exchange, a
national securities association, or a securities clearing
agency, a right set forth in a bylaw of a clearing organization
or contract market or in a resolution of the governing board
thereof, and a right, whether or not in writing, arising under
common law, under law merchant, or by reason of normal business
practice.
[Sec. 556. Contractual right to liquidate a commodities contract or
forward contract]
Sec. 556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract
The contractual right of a commodity broker, financial
participant or forward contract merchant to cause the
[liquidation] liquidation, termination, or acceleration of a
commodity contract, as defined in section 761 of this title, or
forward contract because of a condition of the kind specified
in section 365(e)(1) of this title, and the right to a
variation or maintenance margin payment received from a trustee
with respect to open commodity contracts orforward contracts,
shall not be stayed, avoided, or otherwise limited by operation of any
provision of this title or by the order of a court in any proceeding
under this title. As used in this section, the term ``contractual
right'' includes a right set forth in a rule or bylaw of a clearing
organization or contract market or in a resolution of the governing
board thereof and a right, whether or not evidenced in writing, arising
under common law, under law merchant or by reason of normal business
practice.
* * * * * * *
[Sec. 559. Contractual right to liquidate a repurchase agreement]
Sec. 559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement
The exercise of a contractual right of a repo participant to
cause the [liquidation] liquidation, termination, or
acceleration of a repurchase agreement because of a condition
of the kind specified in section 365(e)(1) of this title shall
not be stayed, avoided, or otherwise limited by operation of
any provision of this title or by order of a court or
administrative agency in any proceeding under this title,
unless, where the debtor is a stockbroker or securities
clearing agency, such order is authorized under the provisions
of the Securities Investor Protection Act of 1970 or any
statute administered by the Securities and Exchange Commission.
In the event that a repo participant liquidates one or more
repurchase agreements with a debtor and under the terms of one
or more such agreements has agreed to deliver assets subject to
repurchase agreements to the debtor, any excess of the market
prices received on liquidation of such assets (or if any such
assets are not disposed of on the date of liquidation of such
repurchase agreements, at the prices available at the time of
liquidation of such repurchase agreements from a generally
recognized source or the most recent closing bid quotation from
such a source) over the sum of the stated repurchase prices and
all expenses in connection with the liquidation of such
repurchase agreements shall be deemed property of the estate,
subject to the available rights of setoff. As used in this
section, the term ``contractual right'' includes a right set
forth in a rule or bylaw, applicable to each party to the
repurchase agreement, of a national securities exchange, a
national securities association, or a securities clearing
agency, and a right, whether or not evidenced in writing,
arising under common law, under law merchant or by reason of
normal business practice.
[Sec. 560. Contractual right to terminate a swap agreement]
Sec. 560. Contractual right to liquidate, terminate, or accelerate a
swap agreement
The exercise of any contractual right of any swap participant
to cause the [termination of a swap agreement] liquidation,
termination, or acceleration of 1 or more swap agreements
because of a condition of the kind specified in section
365(e)(1) of this title or to offset or net out any termination
values or payment amounts arising under or [in connection with
any swap agreement] in connection with the termination,
liquidation, or acceleration of 1 or more swap agreements shall
not be stayed, avoided, or otherwise limited by operation of
any provision of this title or by order of a court or
administrative agency in any proceeding under this title. As
used in this section, the term ``contractual right'' includes a
right, whether or not evidenced in writing, arising under
common law, under law merchant, or by reason of normal business
practice.
Sec. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across
contracts
(a) In General.--Subject to subsection (b), the exercise of
any contractual right, because of a condition of the kind
specified in section 365(e)(1), to cause the termination,
liquidation, or acceleration of or to offset or net termination
values, payment amounts or other transfer obligations arising
under or in connection with 1 or more (or the termination,
liquidation, or acceleration of 1 or more)--
(1) securities contracts, as defined in section
741(7);
(2) commodity contracts, as defined in section
761(4);
(3) forward contracts;
(4) repurchase agreements;
(5) swap agreements; or
(6) master netting agreements,
shall not be stayed, avoided, or otherwise limited by operation
of any provision of this title or by any order of a court or
administrative agency in any proceeding under this title.
(b) Exception.--
(1) A party may exercise a contractual right
described in subsection (a) to terminate, liquidate, or
accelerate only to the extent that such party could
exercise such a right under section 555, 556, 559, or
560 for each individual contract covered by the master
netting agreement in issue.
(2) If a debtor is a commodity broker subject to
subchapter IV of chapter 7--
(A) a party may not net or offset an
obligation to the debtor arising under, or in
connection with, a commodity contract against
any claim arising under, or in connection with,
other instruments, contracts, or agreements
listed in subsection (a), except to the extent
the party has positive net equity in the
commodity accounts at the debtor, as calculated
under such subchapter; and
(B) another commodity broker may not net or
offset an obligation to the debtor arising
under, or in connection with, a commodity
contract entered into or held on behalf of a
customer of the debtor against any claim
arising under, or in connection with, other
instruments, contracts, or agreements listed in
subsection (a).
(c) Rule of Application.--Subparagraphs (A) and (B) of
subsection (b)(2) shall not be construed as prohibiting the
offset of claims and obligations arising pursuant to--
(1) a cross-margining arrangement that has been
approved by the Commodity Futures Trading Commission or
that has been submitted to such Commission pursuant to
section5a(a)(12) of the Commodity Exchange Act and has
been permitted to go into effect; or
(2) another netting arrangement, between a clearing
organization (as defined in section 761) and another
entity, that has been approved by the Commodity Futures
Trading Commission.
(d) Definition.--As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a national securities exchange, a national securities
association, or a securities clearing agency, a right set forth
in a bylaw of a clearing organization or contract market or in
a resolution of the governing board thereof, and a right,
whether or not evidenced in writing, arising under common law,
under law merchant, or by reason of normal business practice.
Sec. 562. Damage measure in connection with swap agreements, securities
contracts, forward contracts, commodity contracts,
repurchase agreements, or master netting agreements
If the trustee rejects a swap agreement, securities contract
as defined in section 741, forward contract, commodity contract
(as defined in section 761) repurchase agreement, or master
netting agreement pursuant to section 365(a), or if a forward
contract merchant, stockbroker, financial institution,
securities clearing agency, repo participant, financial
participant, master netting agreement participant, or swap
participant liquidates, terminates, or accelerates such
contract or agreement, damages shall be measured as of the
earlier of--
(1) the date of such rejection; or
(2) the date of such liquidation, termination, or
acceleration.
* * * * * * *
CHAPTER 7--LIQUIDATION
* * * * * * *
SUBCHAPTER III--STOCKBROKER LIQUIDATION
741. Definitions for this subchapter.
* * * * * * *
753. Stockbroker liquidation and forward contract merchants, commodity
brokers, stockbrokers, financial institutions, financial
participants, securities clearing agencies, swap participants,
repo participants, and master netting agreement participants.
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
* * * * * * *
767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial institutions,
financial participants, securities clearing agencies, swap
participants, repo participants, and master netting agreement
participants.
SUBCHAPTER V--CLEARING BANK LIQUIDATION
Sec.
781. Definitions.
782. Selection of trustee.
783. Additional powers of trustee.
784. Right to be heard.
* * * * * * *
SUBCHAPTER III--STOCKBROKER LIQUIDATION
Sec. 741. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
[(7) ``securities contract'' means contract for the
purchase, sale, or loan of a security, including an
option for the purchase or sale of a security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value
thereof), or any option entered into on a national
securities exchange relating to foreign currencies, or
the guarantee of any settlement of cash or securities
by or to a securities clearing agency;]
(7) ``securities contract''--
(A) means--
(i) a contract for the purchase,
sale, or loan of a security, a
certificate of deposit, a mortgage loan
or any interest in a mortgage loan, a
group or index of securities,
certificates of deposit or mortgage
loans or interests therein (including
an interest therein or based on the
value thereof), or option on any of the
foregoing, including an option to
purchase or sell any such security,
certificate of deposit, loan, interest,
group or index, or option;
(ii) any option entered into on a
national securities exchange relating
to foreign currencies;
(iii) the guarantee by or to any
securities clearing agency of a
settlement of cash, securities,
certificates of deposit, mortgage loans
or interests therein, group or index of
securities, or mortgage loans or
interests therein (including any
interest therein or based on the value
thereof), or option on any of the
foregoing, including an option to
purchase or sell any such security,
certificate of deposit, loan, interest,
group or index, or option;
(iv) any margin loan;
(v) any other agreement or
transaction that is similar to an
agreement or transaction referred to in
this paragraph;
(vi) any combination of the
agreements or transactions referred to
in this paragraph;
(vii) any option to enter into any
agreement or transaction referred to in
this paragraph;
(viii) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii),
together with all supplements to any
such master agreement, without regard
to whether the master agreement
provides for an agreement or
transaction that is not a securities
contract under this paragraph, except
that such master agreement shall be
considered to be a securities contract
under this paragraph only with respect
to each agreement or transaction under
such master agreement that is referred
to in clause (i), (ii), (iii), (iv),
(v), (vi), or (vii); or
(ix) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this paragraph, but not
to exceed the actual value of such
contract on the date of the filing of
the petition; and
(B) does not include any purchase, sale, or
repurchase obligation under a participation in
a commercial mortgage loan.
* * * * * * *
Sec. 753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, financial participants, securities
clearing agencies, swap participants, repo
participants, and master netting agreement
participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, securities clearing
agency, swap participant, repo participant, financial
participant, or master netting agreement participant under this
title shall not affect the priority of any unsecured claim it
may have after the exercise of such rights.
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
Sec. 761. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
(4) ``commodity contract'' means--
(A) * * *
* * * * * * *
(D) with respect to a clearing organization,
contract for the purchase or sale of a
commodity for future delivery on, or subject to
the rules of, a contract market or board of
trade that is cleared by such clearing
organization, or commodity option traded on, or
subject to the rules of, a contract market or
board of trade that is cleared by such clearing
organization; [or]
* * * * * * *
(F) any other agreement or transaction that
is similar to an agreement or transaction
referred to in this paragraph;
(G) any combination of the agreements or
transactions referred to in this paragraph;
(H) any option to enter into an agreement or
transaction referred to in this paragraph;
(I) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G),
or (H), together with all supplements to such
master agreement, without regard to whether the
master agreement provides for an agreement or
transaction that is not a commodity contract
under this paragraph, except that the master
agreement shall be considered to be a commodity
contract under this paragraph only with respect
to each agreement or transaction under the
master agreement that is referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G),
or (H); or
(J) any security agreement or arrangement or
other credit enhancement related to any
agreement or transaction referred to in this
paragraph, but not to exceed the actual value
of such contract on the date of the filing of
the petition;
* * * * * * *
Sec. 767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, financial participants, securities
clearing agencies, swap participants, repo
participants, and master netting agreement
participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, financial
participant, securities clearing agency, swap participant, repo
participant, or master netting agreement participant under this
title shall not affect the priority of any unsecured claim it
may have after the exercise of such rights.
SUBCHAPTER V--CLEARING BANK LIQUIDATION
Sec. 781. Definitions
For purposes of this subchapter, the following definitions
shall apply:
(1) Board.--The term ``Board'' means the Board of
Governors of the Federal Reserve System.
(2) Depository institution.--The term ``depository
institution'' has the same meaning as in section 3 of
the Federal Deposit Insurance Act, and includes any
wholesale bank.
(3) Clearing bank.--The term ``clearing bank'' means
an uninsured State member bank, or a corporation
organized under section 25A of the Federal Reserve Act,
which operates, or operates as, a multilateral clearing
organization pursuant to section 409 of the Federal
Deposit Insurance Corporation Improvement Act of 1991.
Sec. 782. Selection of trustee
(a) In General.--
(1) Appointment.--Notwithstanding any other provision
of this title, the conservator or receiver who files
the petition shall be the trustee under this chapter,
unless the Board designates an alternative trustee.
(2) Successor.--The Board may designate a successor
trustee if required.
(b) Authority of Trustee.--Whenever the Board appoints or
designates a trustee, chapter 3 and sections 704 and 705 of
this title shall apply to the Board in the same way and to the
same extent that they apply to a United States trustee.
Sec. 783. Additional powers of trustee
(a) Distribution of Property Not of the Estate.--The trustee
under this subchapter has power to distribute property not of
the estate, including distributions to customers that are
mandated by subchapters III and IV of this chapter.
(b) Disposition of Institution.--The trustee under this
subchapter may, after notice and a hearing--
(1) sell the clearing bank to a depository
institution or consortium of depository
institutions(which consortium may agree on the allocation of the
clearing bank among the consortium);
(2) merge the clearing bank with a depository
institution;
(3) transfer contracts to the same extent as could a
receiver for a depository institution under paragraphs
(9) and (10) of section 11(e) of the Federal Deposit
Insurance Act;
(4) transfer assets or liabilities to a depository
institution;
(5) transfer assets and liabilities to a bridge bank
as provided in paragraphs (1), (3)(A), (5), (6), of
section 11(n) of the Federal Deposit Insurance Act,
paragraphs (9) through (13) of such section, and
subparagraphs (A) through (H) and subparagraph (K) of
paragraph (4) of such section 11(n), except that--
(A) the bridge bank to which such assets or
liabilities are transferred shall be treated as
a clearing bank for the purpose of this
subsection; and
(B) any references in any such provision of
law to the Federal Deposit Insurance
Corporation shall be construed to be references
to the appointing agency and that references to
deposit insurance shall be omitted.
(c) Certain Transfers Included.--Any reference in this
section to transfers of liabilities includes a ratable transfer
of liabilities within a priority class.
Sec. 784. Right to be heard
The Board or a Federal reserve bank (in the case of a
clearing bank that is a member of that bank) may raise and may
appear and be heard on any issue in a case under this
subchapter.
* * * * * * *
CHAPTER 9--ADJUSTMENT OF DEBTS OF A MUNICIPALITY
* * * * * * *
Sec. 901. Applicability of other sections of this title
(a) Sections 301, 344, 347(b), 349, 350(b), 361, 362, 364(c),
364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504, 506,
507(a)(1), 509, 510, 524(a)(1), 524(a)(2), 544, 545, 546, 547,
548, 549(a), 549(c), 549(d), 550, 551, 552, 553, 555, 556, 557,
559, 560, 561, 562, 1102, 1103, 1109, 1111(b), 1122,
1123(a)(1), 1123(a)(2), 1123(a)(3), 1123(a)(4), 1123(a)(5),
1123(b), 1124, 1125, 1126(a), 1126(b), 1126(c), 1126(e),
1126(f), 1126(g), 1127(d), 1128, 1129(a)(2), 1129(a)(3),
1129(a)(6), 1129(a)(8), 1129(a)(10), 1129(b)(1), 1129(b)(2)(A),
1129(b)(2)(B), 1142(b), 1143, 1144, and 1145 of this title
apply in a case under this chapter.
* * * * * * *
----------
FEDERAL DEPOSIT INSURANCE ACT
* * * * * * *
Sec. 11. (a) * * *
* * * * * * *
(e) Provisions Relating to Contracts Entered Into Before
Appointment of Conservator or Receiver.--
(1) * * *
* * * * * * *
(8) Certain qualified financial contracts.--
(A) Rights of parties to contracts.--Subject
to [paragraph (10)] paragraphs (9) and (10) of
this subsection and notwithstanding any other
provision of this Act (other than subsection
(d)(9) of this section and section 13(e)), any
other Federal law, or the law of any State, no
person shall be stayed or prohibited from
exercising--
(i) any right [to cause the
termination or liquidation] such person
has to cause the termination,
liquidation, or acceleration of any
qualified financial contract with an
insured depository institution which
arises upon the appointment of the
Corporation as receiver for such
institution at any time after such
appointment;
[(ii) any right under any security
arrangement relating to any contract or
agreement described in clause (i); or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to 1 or more
qualified financial contracts described
in clause (i);
* * * * * * *
(C) Certain transfers not avoidable.--
(i) In general.--Notwithstanding
paragraph [(11)] (12), section 5242 of
the Revised Statutes of the United
States (12 U.S.C. 91) or any other
Federal or State law relating to the
avoidance of preferential or fraudulent
transfers, the Corporation, whether
acting as such or as conservator or
receiver of an insured depository
institution, may not avoid any transfer
of money or other property in
connection with any qualified financial
contract with an insured depository
institution.
* * * * * * *
(D) Certain contracts and agreements
defined.--For purposes of this subsection--
(i) Qualified financial contract.--
The term ``qualified financial
contract'' means any securities
contract, commodity contract, forward
contract, repurchase agreement, swap
agreement, and any similar agreement
that the Corporation determines by
regulation, resolution or order to be a
qualified financial contract for
purposes of this paragraph.
[(ii) Securities contract.--The term
``securities contract''--
[(I) has the meaning given to
such term in section 741 of
title 11, United States Code,
except that the term
``security'' (as used in such
section) shall be deemed to
include any mortgage loan, any
mortgage-related security (as
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), and any interest in any
mortgage loan or mortgage-
related security; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(iii) Commodity contract.--The term
``commodity contract'' has the meaning
given to such term in section 761 of
title 11, United States Code.
[(iv) Forward contract.--The term
``forward contract'' has the meaning
given to such term in section 101 of
title 11, United States Code.
[(v) Repurchase agreement.--The term
``repurchase agreement''--
[(I) has the meaning given to
such term in section 101 of
title 11, the United States
Code, except that the items (as
described in such section)
which may be subject to any
such agreement shall be deemed
to include mortgage-related
securities (as such term is
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), any mortgage loan, and
any interest in any mortgage
loan; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(vi) Swap agreement.--The term
``swap agreement''--
[(I) means any agreement,
including the terms and
conditions incorporated by
reference in any such
agreement, which is a rate swap
agreement, basis swap,
commodity swap, forward rate
agreement, interest rate
future, interest rate option
purchased, forward foreign
exchange agreement, rate cap
agreement, rate floor
agreement, rate collar
agreement, currency swap
agreement, cross-currency rate
swap agreement, currency
future, or currency option
purchased or any other similar
agreement, and
[(II) includes any
combination of such agreements
and any option to enter into
any such agreement.
[(vii) Treatment of master agreement
as 1 swap agreement.--Any master
agreement for any agreements described
in clause (vi)(I) together with all
supplements to such master agreement
shall be treated as 1 swap agreement.
[(viii) Transfer.--The term
``transfer'' has the meaning given to
such term in section 101 of title 11,
United States Code.]
(ii) Securities contract.--The term
``securities contract''--
(I) means a contract for the
purchase, sale, or loan of a
security, a certificate of
deposit, a mortgage loan, or
any interest in a mortgage
loan, a group or index of
securities, certificates of
deposit, or mortgage loans or
interests therein (including
any interest therein or based
on the value thereof) or any
option on any of the foregoing,
including any option to
purchase or sell any such
security, certificate of
deposit, loan, interest, group
or index, or option;
(II) does not include any
purchase, sale, or repurchase
obligation under a
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
agreement within the meaning of
such term;
(III) means any option
entered into on a national
securities exchange relating to
foreign currencies;
(IV) means the guarantee by
or to any securities clearing
agency of any settlement of
cash, securities, certificates
of deposit, mortgage loans or
interests therein, group or
index of securities,
certificates of deposit, or
mortgage loans or interests
therein (including any interest
therein or based on the value
thereof) or option on any of
the foregoing, including any
option to purchase or sell any
such security, certificate of
deposit, loan, interest, group
or index, or option;
(V) means any margin loan;
(VI) means any other
agreement or transaction that
is similar to any agreement or
transaction referred to in this
clause;
(VII) means any combination
of the agreements or
transactions referred to in
this clause;
(VIII) means any option to
enter into any agreement or
transaction referred to in this
clause;
(IX) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (III), (IV),
(V), (VI), (VII), or (VIII),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a securities
contract under this clause,
except that the master
agreement shall be considered
to be a securities contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (III), (IV),
(V), (VI), (VII), or (VIII);
and
(X) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in this
clause.
(iii) Commodity contract.--The term
``commodity contract'' means--
(I) with respect to a futures
commission merchant, a contract
for the purchase or sale of a
commodity for future delivery
on, or subject to the rules of,
a contract market or board of
trade;
(II) with respect to a
foreign futures commission
merchant, a foreign future;
(III) with respect to a
leverage transaction merchant,
a leverage transaction;
(IV) with respect to a
clearing organization, a
contract for the purchase or
sale of a commodity for future
delivery on, or subject to the
rules of, a contract market or
board of trade that is cleared
by such clearing organization,
or commodity option traded on,
or subject to the rules of, a
contract market or board of
trade that is cleared by such
clearing organization;
(V) with respect to a
commodity options dealer, a
commodity option;
(VI) any other agreement or
transaction that is similar to
any agreement or transaction
referred to in this clause;
(VII) any combination of the
agreements or transactions
referred to in this clause;
(VIII) any option to enter
into any agreement or
transaction referred to in this
clause;
(IX) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
provides for an agreement or
transaction that is not a
commodity contract under this
clause, except that the master
agreement shall be considered
to be a commodity contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII); or
(X) any security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in this clause.
(iv) Forward contract.--The term
``forward contract'' means--
(I) a contract (other than a
commodity contract) for the
purchase, sale, or transfer of
a commodity or any similar
good, article, service, right,
or interest which is presently
or in the future becomes the
subject of dealing in the
forward contract trade, or
product or byproduct thereof,
with a maturity date more than
2 days after the date the
contract is entered into,
including a repurchase
transaction, reverse repurchase
transaction, consignment,
lease, swap, hedge transaction,
deposit, loan, option,
allocated transaction,
unallocated transaction, or any
other similar agreement;
(II) any combination of
agreements or transactions
referred to in subclauses (I)
and (III);
(III) any option to enter
into any agreement or
transaction referred to in
subclause (I) or (II);
(IV) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), or (III),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a forward contract
under this clause, except that
the master agreement shall be
considered to be a forward
contract under this clause only
with respect to each agreement
or transaction under the master
agreement that is referred to
in subclause (I), (II), or
(III); or
(V) any security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in subclause (I),
(II), (III), or (IV).
(v) Repurchase agreement.--The term
``repurchase agreement'' (which
definition also applies to the term
``reverse repurchase agreement'')--
(I) means an agreement,
including related terms, which
provides for the transfer of 1
or more certificates of
deposit, mortgage-related
securities (as such term is
defined in the Securities
Exchange Act of 1934), mortgage
loans, interests in mortgage-
related securities or mortgage
loans, eligible bankers'
acceptances, qualified foreign
government securities or
securities that are direct
obligations of, or that are
fully guaranteed by, the United
States or any agency of the
United States against the
transfer of funds by the
transferee of such certificates
of deposit, eligible bankers'
acceptances, securities, loans,
or interests with a
simultaneous agreement by such
transferee to transfer to the
transferor thereof certificates
of deposit, eligible bankers'
acceptances, securities, loans,
or interests as described
above, at a date certain not
later than 1 year after such
transfers or on demand, against
the transfer of funds, or any
other similar agreement;
(II) does not include any
repurchase obligation under a
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term;
(III) means any combination
of agreements or transactions
referred to in subclauses (I)
and (IV);
(IV) means any option to
enter into any agreement or
transaction referred to in
subclause (I) or (III);
(V) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (III), or (IV),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a repurchase
agreement under this clause,
except that the master
agreement shall be considered
to be a repurchase agreement
under this subclause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (III), or
(IV); and
(VI) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in
subclause (I), (III), (IV), or
(V).
For purposes of this clause, the term
``qualified foreign government
security'' means a security that is a
direct obligation of, or that is fully
guaranteed by, the central government
of a member of the Organization for
Economic Cooperation and Development
(as determined by regulation or order
adopted by the appropriate Federal
banking authority).
(vi) Swap agreement.--The term ``swap
agreement'' means--
(I) any agreement, including
the terms and conditions
incorporated by reference in
any such agreement, which is an
interest rate swap, option,
future, or forward agreement,
including a rate floor, rate
cap, rate collar, cross-
currency rate swap, and basis
swap; a spot, same day-
tomorrow, tomorrow-next,
forward, or other foreign
exchange or precious metals
agreement; a currency swap,
option, future, or forward
agreement; an equity index or
equity swap, option, future, or
forward agreement; a debt index
or debt swap, option, future,
orforward agreement; a credit
spread or credit swap, option, future, or forward agreement; a
commodity index or commodity swap, option, future, or forward
agreement; or a weather swap, weather derivative, or a weather option;
(II) any agreement or
transaction similar to any
other agreement or transaction
referred to in this clause that
is presently, or in the future
becomes, regularly entered into
in the swap market (including
terms and conditions
incorporated by reference in
such agreement) and that is a
forward, swap, future, or
option on 1 or more rates,
currencies, commodities, equity
securities or other equity
instruments, debt securities or
other debt instruments, or
economic indices or measures of
economic risk or value;
(III) any combination of
agreements or transactions
referred to in this clause;
(IV) any option to enter into
any agreement or transaction
referred to in this clause;
(V) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III), or
(IV), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
contains an agreement or
transaction that is not a swap
agreement under this clause,
except that the master
agreement shall be considered
to be a swap agreement under
this clause only with respect
to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
or (IV); and
(VI) any security agreement
or arrangement or other credit
enhancement related to any
agreements or transactions
referred to in subparagraph
(I), (II), (III), (IV), or (V).
Such term is applicable for purposes of
this title only and shall not be
construed or applied so as to challenge
or affect the characterization,
definition, or treatment of any swap
agreement under any other statute,
regulation, or rule, including the
Securities Act of 1933, the Securities
Exchange Act of 1934, the Public
Utility Holding Company Act of 1935,
the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the
Investment Advisers Act of 1940, the
Securities Investor Protection Act of
1970, the Commodity Exchange Act, and
the regulations promulgated by the
Securities and Exchange Commission or
the Commodity Futures Trading
Commission.
(vii) Treatment of master agreement
as 1 agreement.--Any master agreement
for any contract or agreement described
in any preceding clause of this
subparagraph (or any master agreement
for such master agreement or
agreements), together with all
supplements to such master agreement,
shall be treated as a single agreement
and a single qualified financial
contract. If a master agreement
contains provisions relating to
agreements or transactions that are not
themselves qualified financial
contracts, the master agreement shall
be deemed to be a qualified financial
contract only with respect to those
transactions that are themselves
qualified financial contracts.
(viii) Transfer.--The term
``transfer'' means every mode, direct
or indirect, absolute or conditional,
voluntary or involuntary, of disposing
of or parting with property or with an
interest in property, including
retention of title as a security
interest and foreclosure of the
depository institutions's equity of
redemption.
(E) Certain protections in event of
appointment of conservator.--Notwithstanding
any other provision of this Act ([other than
paragraph (12) of this subsection, subsection
(d)(9)] other than subsections (d)(9) and
(e)(10) of this section, and section 13(e) of
this Act), any other Federal law, or the law of
any State, no person shall be stayed or
prohibited from exercising--
(i) any right such person has to
cause the termination, liquidation, or
acceleration of any qualified financial
contract with a depository institution
in a conservatorship based upon a
default under such financial contract
which is enforceable under applicable
noninsolvency law;
[(ii) any right under any security
arrangement relating to such qualified
financial contracts; or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to 1 or more
qualified financial contracts described
in clause (i);
* * * * * * *
(F) Clarification.--No provision of law shall
be construed as limiting the right or power of
the Corporation, or authorizing any court or
agency to limit or delay, in any manner, the
right or power of the Corporation to transfer
any qualified financial contract in accordance
with paragraphs (9) and (10) of this subsection
or to disaffirm or repudiate any such contract
in accordance with paragraph (1).
(G) Walkaway clauses not effective.--
(i) In general.--Notwithstanding the
provisions of subparagraphs (A) and
(E), and sections 403 and 404 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991, no walkaway
clause shall be enforceable in a
qualified financial contract of an
insured depository institution in
default.
(ii) Walkaway clause defined.--For
purposes of this subparagraph, the term
``walkaway clause'' means a provision
in a qualified financial contract that,
after calculation of a value of a
party's position or an amount due to or
from 1 of the parties in accordance
with its terms upon termination,
liquidation, or acceleration of the
qualified financial contract, either
does not create a payment obligation of
a party or extinguishes a payment
obligation of a party in whole or in
part solely because of such party's
status as a nondefaulting party.
(H) Recordkeeping requirements.--The
Corporation, in consultation with the
appropriate Federal banking agencies, may
prescribe regulations requiring more detailed
recordkeeping with respect to qualified
financial contracts (including market
valuations) by insured depository institutions.
[(9) Transfer of qualified financial contracts.--In
making any transfer of assets or liabilities of a
depository institution in default which includes any
qualified financial contract, the conservator or
receiver for such depository institution shall either--
[(A) transfer to 1 depository institution
(other than a depository institution in
default)--
[(i) all qualified financial
contracts between--
[(I) any person or any
affiliate of such person; and
[(II) the depository
institution in default;
[(ii) all claims of such person or
any affiliate of such person against
such depository institution under any
such contract (other than any claim
which, under the terms of any such
contract, is subordinated to the claims
of general unsecured creditors of such
institution);
[(iii) all claims of such depository
institution against such person or any
affiliate of such person under any such
contract; and
[(iv) all property securing any claim
described in clause (ii) or (iii) under
any such contract; or
[(B) transfer none of the financial
contracts, claims, or property referred to in
subparagraph (A) (with respect to such person
and any affiliate of such person).]
(9) Transfer of qualified financial contracts.--
(A) In general.--In making any transfer of
assets or liabilities of a depository
institution in default which includes any
qualified financial contract, the conservator
or receiver for such depository institution
shall either--
(i) transfer to 1 financial
institution, other than a financial
institution for which a conservator,
receiver, trustee in bankruptcy, or
other legal custodian has been
appointed or which is otherwise the
subject of a bankruptcy or insolvency
proceeding--
(I) all qualified financial
contracts between any person or
any affiliate of such person
and the depository institution
in default;
(II) all claims of such
person or any affiliate of such
person against such depository
institution under any such
contract (other than any claim
which, under the terms of any
such contract, issubordinated
to the claims of general unsecured creditors of such institution);
(III) all claims of such
depository institution against
such person or any affiliate of
such person under any such
contract; and
(IV) all property securing or
any other credit enhancement
for any contract described in
subclause (I) or any claim
described in subclause (II) or
(III) under any such contract;
or
(ii) transfer none of the qualified
financial contracts, claims, property
or other credit enhancement referred to
in clause (i) (with respect to such
person and any affiliate of such
person).
(B) Transfer to foreign bank, foreign
financial institution, or branch or agency of a
foreign bank or financial institution.--In
transferring any qualified financial contracts
and related claims and property pursuant to
subparagraph (A)(i), the conservator or
receiver for such depository institution shall
not make such transfer to a foreign bank,
financial institution organized under the laws
of a foreign country, or a branch or agency of
a foreign bank or financial institution unless,
under the law applicable to such bank,
financial institution, branch or agency, to the
qualified financial contracts, and to any
netting contract, any security agreement or
arrangement or other credit enhancement related
to 1 or more qualified financial contracts, the
contractual rights of the parties to such
qualified financial contracts, netting
contracts, security agreements or arrangements,
or other credit enhancements are enforceable
substantially to the same extent as permitted
under this section.
(C) Transfer of contracts subject to the
rules of a clearing organization.--In the event
that a conservator or receiver transfers any
qualified financial contract and related
claims, property and credit enhancements
pursuant to subparagraph (A)(i) and such
contract is subject to the rules of a clearing
organization, the clearing organization shall
not be required to accept the transferee as a
member by virtue of the transfer.
(D) Definition.--For purposes of this
section, the term ``financial institution''
means a broker or dealer, a depository
institution, a futures commission merchant, or
any other institution as determined by the
Corporation by regulation to be a financial
institution.
(10) Notification of transfer.--
(A) In general.--If--
(i) the conservator or receiver for
an insured depository institution in
default makes any transfer of the
assets and liabilities of such
institution; and
(ii) the transfer includes any
qualified financial contract,
[the conservator or receiver shall use such
conservator's or receiver's best efforts to
notify any person who is a party to any such
contract of such transfer by 12:00, noon (local
time) on the business day following such
transfer] the conservator or receiver shall
notify any person who is a party to any such
contract of such transfer by 5:00 p.m. (eastern
time) on the business day following the date of
the appointment of the receiver, in the case of
a receivership, or the business day following
such transfer, in the case of a
conservatorship.
(B) Certain rights not enforceable.--
(i) Receivership.--A person who is a
party to a qualified financial contract
with an insured depository institution
may not exercise any right such person
has to terminate, liquidate, or net
such contract under paragraph (8)(A) or
section 403 or 404 of the Federal
Deposit Insurance Corporation
Improvement Act of 1991 solely by
reason of or incidental to the
appointment of a receiver for the
depository institution (or the
insolvency or financial condition of
the depository institution for which
the receiver has been appointed)--
(I) until 5:00 p.m. (eastern
time) on the business day
following the date of the
appointment of the receiver; or
(II) after the person has
received notice that the
contract has been transferred
pursuant to paragraph (9)(A).
(ii) Conservatorship.--A person who
is a party to a qualified financial
contract with an insured depository
institution may not exercise any right
such person has to terminate,
liquidate, or net such contract under
paragraph (8)(E) or section 403 or 404
of the Federal Deposit Insurance
Corporation Improvement Act of 1991,
solely by reason of or incidental to
the appointment of a conservator for
the depository institution (or the
insolvency or financial condition of
the depository institution for which
the conservator has been appointed).
(iii) Notice.--For purposes of this
subsection, the Corporation as receiver
or conservator of an insured depository
institution shall be deemed to have
notified a person who is a party to a
qualified financial contract with such
depository institution if the
Corporation has taken steps reasonably
calculated to provide notice to such
person by the time specified in
subparagraph (A) of this subsection.
(C) Treatment of bridge banks.--The following
institutions shall not be considered a
financial institution for which a conservator,
receiver, trustee in bankruptcy, or other legal
custodian has been appointed or which is
otherwise the subject of a bankruptcy or
insolvency proceeding for purposes of paragraph
(9)--
(i) a bridge bank; or
(ii) a depository institution
organized by the Corporation, for which
a conservator is appointed either--
(I) immediately upon the
organization of the
institution; or
(II) at the time of a
purchase and assumption
transaction between such
institution and the Corporation
as receiver for a depository
institution in default.
[(B)] (D) Business day defined.--For purposes
of this paragraph, the term ``business day''
means any day other than any Saturday, Sunday,
or any day on which either the New York Stock
Exchange or the Federal Reserve Bank of New
York is closed.
(11) Disaffirmance or repudiation of qualified
financial contracts.--In exercising the rights of
disaffirmance or repudiation of a conservator or
receiver with respect to any qualified financial
contract to which an insured depository institution is
a party, the conservator or receiver for such
institution shall either--
(A) disaffirm or repudiate all qualified
financial contracts between--
(i) any person or any affiliate of
such person; and
(ii) the depository institution in
default; or
(B) disaffirm or repudiate none of the
qualified financial contracts referred to in
subparagraph (A) (with respect to such person
or any affiliate of such person).
[(11)] (12) Certain security interests not
avoidable.--No provision of this subsection shall be
construed as permitting the avoidance of any legally
enforceable or perfected security interest in any of
the assets of any depository institution except where
such an interest is taken in contemplation of the
institution's insolvency or with the intent to hinder,
delay, or defraud the institution or the creditors of
such institution.
[(12)] (13) Authority to enforce contracts.--
(A) In general.--The conservator or receiver
may enforce any contract, other than a
director's or officer's liability insurance
contract or a depository institution bond,
entered into by the depository institution
notwithstanding any provision of the contract
providing for termination, default,
acceleration, or exercise of rights upon, or
solely by reason of, insolvency or the
appointment or the exercise of rights or powers
of a conservator or receiver.
* * * * * * *
[(13)] (14) Exception for federal reserve and federal
home loan banks.--No provision of this subsection shall
apply with respect to--
(A) any extension of credit from any Federal
home loan bank or Federal Reserve bank to any
insured depository institution; or
* * * * * * *
[(14)] (15) Selling credit card accounts
receivable.--
(A) Notification required.--An
undercapitalized insured depository institution
(as defined in section 38) shall notify the
Corporation in writing before entering into an
agreement to sell credit card accounts
receivable.
* * * * * * *
[(15)] (16) Certain credit card customer lists
protected.--
(A) In general.--If any insured depository
institution sells credit card accounts
receivable under an agreement negotiated at
arm's length that provides for the sale of the
institution's credit card customer list, the
Corporation shall prohibit any party to a
transaction with respect to the institution
under this section or section 13 from using the
list, except as permitted under the agreement.
* * * * * * *
Sec. 13. (a) * * *
* * * * * * *
(e) Agreements Against Interests of Corporation.--
(1) * * *
* * * * * * *
[(2) Public deposits.--An agreement to provide for
the lawful collateralization of deposits of a Federal,
State, or local governmental entity or of any depositor
referred to in section 11(a)(2) shall not be deemed to
be invalid pursuant to paragraph (1)(B) solely because
such agreement was not executed contemporaneously with
the acquisition of the collateral or with any changes
in the collateral made in accordance with such
agreement.]
(2) Exemptions from contemporaneous execution
requirement.--An agreement to provide for the lawful
collateralization of--
(A) deposits of, or other credit extension
by, a Federal, State, or local governmental
entity, or of any depositor referred to in
section 11(a)(2), including an agreement to
provide collateral in lieu of a surety bond;
(B) bankruptcy estate funds pursuant to
section 345(b)(2) of title 11, United States
Code;
(C) extensions of credit, including any
overdraft, from a Federal reserve bank or
Federal home loan bank; or
(D) 1 or more qualified financial contracts,
as defined in section 11(e)(8)(D),
shall not be deemed invalid pursuant to paragraph
(1)(B) solely because such agreement was not executed
contemporaneously with the acquisition of the
collateral or because of pledges, delivery, or
substitution of the collateral made in accordance with
such agreement.
* * * * * * *
SEC. 49. RETAIL SWAP CUSTOMER PROTECTIONS.
(a) Regulations Authorized.--The Board of Governors of the
Federal Reserve System and the Secretary of the Treasury may,
in consultation with appropriate Federal banking agencies, the
Securities and Exchange Commission, and the Commodity Futures
Trading Commission, jointly prescribe customer protection
regulations that apply to sales practices relating to swap
agreements (as defined in section 206(b) of the Gramm-Leach-
Bliley Act) between financial institutions and retail
customers.
(b) Sales Practice Regulations.--The regulations prescribed
under subsection (a) may address--
(1) the information that financial institutions shall
obtain from retail customers in order to determine
whether swap agreements recommended by the financial
institution to retail customers are appropriate in
light of the retail customer's net worth, ability and
willingness to incur losses, risk management needs,
financial goals, investment experience and history, and
other indicia of appropriateness;
(2) information that financial institutions shall
provide to retail customers to help the retail
customers understand the economic characteristics and
risks of swap agreements recommended by financial
institutions;
(3) measures to protect retail customers against
fraudulent, deceptive, and manipulative acts and
practices;
(4) the extent to which access of retail customers to
particular classes of swap agreements should be
restricted; and
(5) such other matters as the Secretary of the
Treasury and the Board of Governors of the Federal
Reserve System determine are necessary or appropriate
for the protection of retail customers of swap
agreements.
(c) Definitions.--
(1) Financial institution.--The term ``financial
institution'' means a person described in subclause
(I), (II), (III), (IV), (V), or (VI) of section
2(c)(2)(B)(ii) of the Commodity Exchange Act.
(2) Retail customer.--The term ``retail customer''
means a person other than an eligible contract
participant (as defined in section 1a(11) of the
Commodity Exchange Act).
(d) Enforcement.--The regulations prescribed under subsection
(a) shall be enforced as follows:
(1) Subject to section 45 of the Federal Deposit
Insurance Act, under section 8 of the Federal Deposit
Insurance Act, in the case of--
(A) any national bank, Federal branch or
Federal agency of a foreign bank, or any
subsidiary of a national bank (other than any
broker, dealer, investment company or
investment adviser) by the Comptroller of the
Currency;
(B) any member bank (other than a national
bank), branch or agency of a foreign bank
(other than a Federal branch, Federal agency,
or insured State branch of a foreign bank),
commercial lending company owned or controlled
by a foreign bank, organization operating under
section 25 or 25A of the Federal Reserve Act,
any subsidiary of any such entity (other than
any broker, dealer, investment company or
investment adviser) and any bank holding
company and any nonbank affiliate of any such
company (other than any broker, dealer,
investment company or investment adviser) by
the Board of Governors of the Federal Reserve
System;
(C) any insured State nonmember bank, insured
State branch of a foreign bank, or any
subsidiary of any such entity (other than any
broker, dealer, investment company,
orinvestment adviser) by the Board of Directors of the Federal Deposit
Insurance Corporation; and
(D) any savings association the deposits of
which are insured by the Corporation, any
savings and loan holding company, or any
subsidiary of any such savings association or
holding company (other than any broker, dealer,
investment company or investment adviser) by
the Director of the Office of Thrift
Supervision.
(2) Under the Federal Credit Union Act, by the
National Credit Union Administration Board with respect
to any federally insured credit union, and any
subsidiaries of such an entity.
(3) Under the Securities Exchange Act of 1934, by the
Securities and Exchange Commission with respect to any
registered broker or dealer, or any associated person
thereof that is not otherwise regulated.
(4) Under the Commodity Exchange Act, by the
Commodity Futures Trading Commission, with respect to
any registered futures commission merchant, or any
affiliated person of any such futures commission
merchant that is not otherwise regulated.
(5) Under State insurance law, in the case of any
person engaged in providing insurance, or any affiliate
of any such person that is not otherwise regulated, by
the applicable State insurance authority of the State
in which the person is domiciled.
* * * * * * *
----------
SECTION 5 OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970
SEC. 5. PROTECTION OF CUSTOMERS.
(a) * * *
* * * * * * *
(b) Court Action.--
(1) * * *
* * * * * * *
(2) Jurisdiction and powers of court.--
(A) * * *
* * * * * * *
(C) Exception from stay.--
(i) Notwithstanding section 362 of
title 11, United States Code, neither
the filing of an application under
subsection (a)(3) nor any order or
decree obtained by the Securities
Investor Protection Corporation from
the court shall operate as a stay of
any contractual rights of a creditor to
liquidate, terminate, or accelerate a
securities contract, commodity
contract, forward contract, repurchase
agreement, swap agreement, or master
netting agreement, each as defined in
title 11, United States Code, to offset
or net termination values, payment
amounts, or other transfer obligations
arising under or in connection with 1
or more of such contracts or
agreements, or to foreclose on any cash
collateral pledged by the debtor
whether or not with respect to 1 or
more of such contracts or agreements.
(ii) Notwithstanding clause (i), such
application, order, or decree may
operate as a stay of the foreclosure on
or disposition of securities collateral
pledged by the debtor, whether or not
with respect to 1 or more of such
contracts or agreements, securities
sold by the debtor under a repurchase
agreement or securities lent under a
securities lending agreement.
(iii) As used in this section, the
term ``contractual right'' includes a
right set forth in a rule or bylaw of a
national securities exchange, a
national securities association, or a
securities clearing agency, a right set
forth in a bylaw of a clearing
organization or contract market or in a
resolution of the governing board
thereof, and a right, whether or not in
writing, arising under common law,
under law merchant, or by reason of
normal business practice.
* * * * * * *
ADDITIONAL VIEWS
When combined, Sections 107 and 133 of H.R. 4541, as
reported by the Committee on Banking and Financial Services,
have the effect of preventing parties who are not otherwise
``eligible contract participants'' from engaging in swaps
agreements unless and until the Department of the Treasury and
the Federal Reserve Board jointly promulgate rules to protect
such now ineligible parties in such participation. This means
most retail customers, including many small businesses, will be
ineligible absent such rules. No mandates, time constraints, or
other limitations have been placed upon the Treasury or the
Federal Reserve in formulating such rules, including rules of
classification of such customers and rules of participatory
exclusion. Although the Department of the Treasury and the
Federal Reserve are required to report to the Congress if they
have not completed such rules within one year of enactment of
H.R. 4541, this reporting requirement does not limit the
discretion of these two entities in any manner.
The rationale for the treatment in Sections 107 and 133 is
that swaps can be complex instruments requiring a variety of
protections for financially unsophisticated consumers, such as
plain disclosures; ``know your customer'' benchmarks for
permitted purchases and sales; and warnings as to potential
liability. Moreover, swaps come in a great variety of tailored
obligations, some of which might, indeed, be so complex as to
be inappropriate for all but the most seasoned of investors. It
is this very variety which has suggested the delegation of
authority to the Department of the Treasury and the Federal
Reserve Board to design protections for consumer and small
business swaps, since all possible combinations of terms to
comprise a swap cannot be addressed by the innately more
general capacities of legislation.
In voting for this broad grant to the Department of the
Treasury and the Federal Reserve Board, this Member realizes
that the swaps market can be a valuable development for the
evolving financial world, but cautions that without meaningful
consumer protections, this market could fall into disrepute and
be the subject of concerted criticism, possibly resulting in
crippling legislation. There is already a history involving
large corporations in which litigation and regulatory fines
were imposed even though the investors were highly experienced.
Every effort should be made to assure that any consumer
protection rules to be promulgated would prevent repeated
incidents for consumers, especially since it is likely the
alleged wrongs would be for widely marketed consumer products
which are open to class actions.
John J. LaFalce.