[House Report 106-711]
[From the U.S. Government Publishing Office]
106th Congress Rept. 106-711
HOUSE OF REPRESENTATIVES
2d Session Part 3
======================================================================
COMMODITY FUTURES MODERNIZATION ACT OF 2000
_______
September 6, 2000.--Ordered to be printed
_______
Mr. Bliley, from the Committee on Commerce, submitted the following
R E P O R T
[To accompany H.R. 4541]
[Including cost estimate of the Congressional Budget Office]
The Committee on Commerce, 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 an amendment and recommend
that the bill as amended do pass.
CONTENTS
Page
Amendment........................................................ 1
Purpose and Summary.............................................. 45
Background and Need for Legislation.............................. 45
Hearings......................................................... 49
Committtee Consideration......................................... 49
Committee Votes.................................................. 49
Committee on Government Reform Oversight Findings................ 49
New Budget Authority, Entitlement Authority, and Tax Expenditures 49
Committee Cost Estimate.......................................... 50
Congressional Budget Office Estimate............................. 50
Federal Mandates Statement....................................... 52
Advisory Committee Statement..................................... 53
Constitutional Authority Statement............................... 53
Applicability to Legislative Branch.............................. 53
Section-by-Section Analysis of the Legislation................... 53
Changes in Existing Law Made by the Bill, as Reported............ 67
Amendment
The amendment is 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 Act of 2000''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Purposes.
TITLE I--COMMODITY EXCHANGE ACT AMENDMENTS
Sec. 101. Definitions.
Sec. 102. Agreements, contracts, and transactions in foreign currency,
government securities, and certain other commodities.
Sec. 103. Legal certainty for excluded derivative transactions.
Sec. 104. Excluded electronic trading facilities.
Sec. 105. Hybrid instruments.
Sec. 106. Futures on securities.
Sec. 107. Transactions in exempt commodities and swap transactions.
Sec. 108. Protection of the public interest.
Sec. 109. Prohibited transactions.
Sec. 110. Designation of boards of trade as contract markets.
Sec. 111. Derivatives transaction execution facilities.
Sec. 112. Derivatives clearing organizations.
Sec. 113. Common provisions applicable to registered entities.
Sec. 114. Exempt boards of trade.
Sec. 115. Suspension or revocation of designation as contract market.
Sec. 116. Authorization of appropriations.
Sec. 117. Preemption.
Sec. 118. Consideration of costs and benefits and antitrust laws.
Sec. 119. Contract enforcement between eligible counterparties.
Sec. 120. Special procedures to encourage and facilitate bona fide
hedging by agricultural producers.
Sec. 121. Rule of construction.
Sec. 122. Technical and conforming amendments.
Sec. 123. Privacy.
Sec. 124. Report to Congress.
Sec. 125. Effective date.
Sec. 126. International activities of the Commodity Futures Trading
Commission.
TITLE II--SECURITIES ACTS AMENDMENTS
Subtitle A--Amendments
Sec. 201. Definitions under the Securities Exchange Act of 1934.
Sec. 202. Regulatory relief for markets trading security future
products.
Sec. 203. Regulatory relief for intermediaries trading security future
products.
Sec. 204. Special provisions for interagency cooperation.
Sec. 205. Maintenance of market integrity for security future products.
Sec. 206. Special provisions for the trading of security future
products.
Sec. 207. Clearance and settlement.
Sec. 208. Amendments relating to registration and disclosure issues
under the Securities Act of 1933 and the Securities Exchange Act of
1934.
Sec. 209. Amendments to the Investment Company Act of 1940 and the
Investment Advisers Act of 1940.
Sec. 210. Preemption of state gaming and bucket shop laws.
Subtitle B--Conforming Amendments to the Commodity Exchange Act
Sec. 221. Jurisdiction of Securities and Exchange Commission; other
provisions.
Sec. 222. Application of the Commodity Exchange Act to national
securities exchanges and national securities associations that trade
security futures.
Sec. 223. Notification of investigations and enforcement actions.
Subtitle C--Effective Date
Sec. 231. Effective date.
SEC. 2. PURPOSES.
The purposes of this Act 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 individual securities and
narrow-based securities indexes in a manner equivalent with the
treatment of other similar 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.
TITLE I--COMMODITY EXCHANGE ACT AMENDMENTS
SEC. 101. DEFINITIONS.
Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended--
(1) by redesignating paragraphs (1) through (7), (8) through
(12), (13), (14), (15), and (16) as paragraphs (2) through (8),
(16) through (20), (22), (23), (25), and (29), respectively;
(2) by inserting before paragraph (2) (as redesignated by
paragraph (1)) the following:
``(1) Alternative trading system.--The term `alternative
trading system' means an organization, association, or group of
persons that is registered as a broker or dealer pursuant to
section 15(b) of the Securities Exchange Act of 1934 (except
paragraph (11) thereof) and that performs the functions
commonly performed by an exchange (as defined in section
3(a)(1) of such Act) but that is exempt from the definition of
the term `exchange' under such section 3(a)(1) by rule or
regulation of the Securities and Exchange Commission on terms
that require compliance with regulations of the trading
functions of such organization, association, or group of
persons.'';
(3) by inserting after paragraph (8) (as redesignated by
paragraph (1)) the following:
``(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 (viii) 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 or a foreign government (including a
regulated 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 or a
foreign government (including a
regulated 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)(I) 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);
``(II) an associated person of a registered
broker or dealer 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));
``(III) an investment bank holding company
(as defined in section 17(i) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q(i)));
``(ix)(I) 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); or
``(II) an affiliate of a registered futures
commission merchant concerning the financial
activities of which the registered person makes
and keeps records under section 4f(c)(2)(B) of
this Act;
``(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) a natural person with total assets
exceeding $10,000,000;
``(B)(i) a person described in clause (i), (ii),
(viii), (ix), or (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); or
``(ii) an investment adviser subject to regulation
under the Investment Advisers 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 clause (i), (ii), (viii), (ix), or (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
``(C) any other person that the Commission determines
to be eligible in light of the financial or other
qualifications of the person;
except that entities that are eligible contract participants
under clause (v), (vi), (vii)(I) or (III), or (xi) of
subparagraph (A) or subparagraph (C) and own and invest on a
discretionary basis less than $50,000,000 in investments, shall
only be considered eligible contract participants if the
agreement, contract, or transaction is offered by, and entered
into with, an entity that is listed in any of subclauses (I)
through (VI) of section 2(c)(2)(B)(ii) of this Act.
``(13) Excluded commodity.--The term `excluded commodity'
means--
``(A) an interest rate, exchange rate, currency,
security, security index, credit risk or measure, debt
or equity instrument, or index or measure of inflation;
``(B) any other rate, differential, index, or measure
of economic or commercial risk, return, or value that--
``(i) is not within the control of any party
to the relevant contract, agreement, or
transaction; and
``(ii) is not based in substantial part on
the value of a limited number of commodities
not described in subparagraph (A) that have a
finite supply; or
``(C) an occurrence, extent of an occurrence, or
contingency associated with commercial or economic
consequences beyond the control of the parties to the
relevant contract, agreement, or transaction.
``(14) Exempt commodity.--The term `exempt commodity' means a
commodity that is not an excluded commodity and is not 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) a financial holding company (as defined in
section 2 of the Bank Holding Company Act of 1956 (12
U.S.C. 1841));
``(H) a trust company; or
``(I) a similarly regulated subsidiary or affiliate
of an entity described in any of subparagraphs (A)
through (H).'';
(4) by inserting after paragraph (20) (as redesignated by
paragraph (1)) the following:
``(21) Hybrid instrument.--The term `hybrid instrument' means
a deposit (as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813)) 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.'';
(5) by inserting after paragraph (23) (as redesignated by
paragraph (1)) the following:
``(24)(A) Margin.--The term `margin', when used with respect
to a security future product, means the amount, type, and form
of collateral required to secure any extension or maintenance
of credit, or the amount, type, and form of collateral required
as a performance bond related to the purchase, sale, or
carrying of a security future product, and all other uses of
collateral related to the purchasing, selling, or carrying of a
security future product.
``(B) The terms `margin level' and `level of margin', when
used with respect to a security future product, mean the amount
of margin required to secure any extension or maintenance of
credit, or the amount of margin required as a performance bond
related to the purchase, sale, or carrying of a security future
product.
``(C) The terms `higher margin level' and `higher level of
margin', when used with respect to a security future product,
mean a margin level established by a contract market that is
higher than the minimum amount established by the Securities
and Exchange Commission pursuant to section 7(c)(2)(B) of the
Securities Exchange Act of 1934.'';
(6) by inserting after paragraph (25) (as redesignated by
paragraph (1)) the following:
``(26) Narrow-based security index.--The term `narrow-based
security index' means an index of securities on which contracts
for future delivery are not permitted under section 2(a)(1)(C)
of this Act, including any interest therein or based on the
value thereof.
``(27) 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'.
``(28) Organized exchange.--The term `organized exchange'
means a trading facility that--
``(A) permits trading--
``(i) by or on behalf of a person that is not
an eligible contract participant; or
``(ii) by persons other than on a principal-
to-principal basis; 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
(7) by adding at the end the following:
``(30) 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;
``(C) a derivatives clearing organization registered
under section 5b; or
``(D) a board of trade designated as a contract
market under section 5f.
``(31) Security.--The term `security' means a security as
defined in section 2(a)(1) of the Securities Act of 1933 (15
U.S.C. 77b(a)(1)) or section 3(a)(10) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(10)).
``(32) Security future.--The term `security future' means a
contract of sale for future delivery of a single security or of
a narrow-based security index, including any interest therein
or based on the value thereof, except an exempted security
under 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 as in
effect on the date of enactment of the Futures Trading Act of
1982).
``(33) Security future product.--The term `security future
product' means a security future or any put, call, straddle,
option, or privilege on any security future.
``(34) 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--
``(I) 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; or
``(II) is a derivatives clearing
organization;
``(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))); or
``(iii) facilities on which bids and offers,
and acceptances of bids and offers effected on
the facility, are not binding.''.
SEC. 102. 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 agreements 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 or group or index of
securities), 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
registered pursuant to section 6(a) of the
Securities Exchange Act of 1934.
``(B) Agreements, contracts, and transactions in
retail foreign currency.--This Act applies to, and the
Commission shall have jurisdiction over, an agreement,
contract, or transaction in foreign currency that--
``(i) is a contract of sale 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. 103. 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 102) 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
entered into 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;
``(B) the agreement, contract, or transaction is
entered into only between persons that are eligible
contract participants (as defined in sections
1a(12)(A), (B)(ii), and (C)) at the time at which the
persons enter into the agreement, contract, or
transaction; and
``(C) the agreement, contract, or transaction is
executed or traded on an electronic trading
facility.''.
SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
(as amended by section 103) 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) 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 excluded electronic trading
facility excluded under this Act pursuant to paragraph (1).''.
SEC. 105. HYBRID INSTRUMENTS.
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:
``(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 hybrid instrument
that is predominantly a security or depository instrument.
``(2) Predominance.--A hybrid instrument shall be considered
to be predominantly a security or depository 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.
``(3) Mark-to-market margining requirements.--For the
purposes of paragraph (2)(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
debtinstrument to secure the repayment obligations of the
issuer under the secured debt instrument.''.
SEC. 106. FUTURES ON SECURITIES.
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:
``(g) Nothing in subsection (a)(1)(C) or (a)(1)(D) governs or applies
to--
``(1) an agreement, contract, or transaction that is excluded
under subsection (c) or (d) (whether or not the agreement,
contract, or transaction is otherwise subject to this Act);
``(2) an electronic trading facility that is excluded under
subsection (e); or
``(3) 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).''.
SEC. 107. TRANSACTIONS IN EXEMPT COMMODITIES AND SWAP TRANSACTIONS.
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:
``(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 4o 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 which--
``(A) is entered into on a principal-to-principal
basis solely between persons that are eligible contract
participants at the time at which the persons enter
into the agreement, contract, or transaction;
``(B) entered into only between persons that are
eligible contract participants (as defined in sections
1a(12)(A), (B)(ii), (B)(iii), and (C) at the time at
which the persons enter into the agreement, contract,
or transaction; and
``(C) 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 5a (to the extent so provided in
section 5a(g)), 5b, and 12(e)(2)(B) of this Act;
``(B) sections 4b and 4o 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 would otherwise be
subject to those provisions;
``(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 and to the
extent such agreement, contract, or transaction would
otherwise be subject to those provisions; and
``(D) 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 in the cash
market for the commodity underlying any agreement,
contract, or transaction executed or traded on the
electronic trading facility.
``(i) Application of the Act.--Nothing in this Act shall be construed
(1) as implying or creating any presumption that (A) any agreement,
contract, or transactionthat 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) as conferring jurisdiction on the Commission with respect to any
such agreement, contract, or transaction, except as expressly provided
in section 5a (to the extent so provided in section 5a(g)) and 5b.''.
SEC. 108. 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. 109. 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. 110. 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 not--
``(A) adopt any rules or taking any actions that
result in any unreasonable restraints of trade; or
``(B) impose 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(4) 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. 111. 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 110(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
not readily susceptible to manipulation;
``(C) the underlying commodity has no cash market; or
``(D) the Commission determines, based on the market
characteristics, surveillance history, self-regulatory
record, or capacity of the facility that trading in the
futures contract is not readily susceptible to
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.
``(5) Impermissible products.--It shall be unlawful for any
person to execute or trade a security future product or other
future involving a security, except an exempt security as
defined in 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, on a designated 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 subsection.
``(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 not--
``(A) adopt any rules or take any actions that result
in any unreasonable restraint of trade; or
``(B) impose 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 other than securities, except exempt
securities under 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, that are otherwise excluded or
exempt from this Act under section 2(c), 2(d), or 2(h).
Notwithstanding section 5a(b)(2), a board of trade on which
agreements, contracts, or transactions excluded or exempt from
this Act under section 2(c), 2(d), or 2(h) are traded may
elect, but shall not be required, to register as a derivatives
transaction execution facility with respect to such agreements,
contracts, or transactions, other than any agreement, contract,
or transaction in a security other than such an exempt
security.
``(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. 112. 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 111) the following:
``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(9).
``(b) Exclusion of Derivatives Clearing Organizations Subject to
Other Regulatory Authorities.--A derivatives clearing organization
shall not be required to register with the Commission, and the
Commission shall have no jurisdiction with respect to the derivatives
clearing organization, if the derivatives clearing organization--
``(1)(A) is registered as a clearing agency under the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);
``(B) is subject to the supervisory jurisdiction of a Federal
banking agency (as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813)) or the National Credit Union
Administration; or
``(C) is subject to the supervisory jurisdiction of a foreign
regulatory authority that is recognized by the Securities and
Exchange Commission, the Board of Governors of the Federal
Reserve System, the Comptroller of the Currency, or the
Commission as overseeing a system of consolidated supervision
comparable to that provided under applicable United States law;
and
``(2) does not clear--
``(A) a contract of sale for future delivery other
than a security future product;
``(B) an option on a contract of sale for future
delivery other than a security future product; or
``(C) an option on a commodity other than a security.
``(c) Voluntary Registration.--A derivatives clearing organization
that is not exempt from registration under subsection (b) may register
with the Commission as a derivatives clearing organization.
``(d) 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 necessary or
appropriate to achieve the purposes of this Act, the
derivatives clearing organization shall not--
``(i) adopt any rule or take any action that
results in any unreasonable restraint of trade;
or
``(ii) impose 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.
``(e) 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.
``(f) 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.
``(g) 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. 113. 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 112) 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.--Except as provided in sections 2(a)(1)(C)
and 2(a)(1)(D), and 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(4)
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) 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. 114. 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 113) 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, 4o, 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, 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. 115. SUSPENSION OR REVOCATION OF DESIGNATION AS CONTRACT MARKET.
Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) (as
redesignated by section 110(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. 116. 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. 117. 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 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) any Federal or State law, other than antifraud
provisions of general applicability and the securities
laws (as defined in section 3(a)(47) of the Securities
Exchange Act of 1934), as such Federal or State law
applies to 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); or
``(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. 118. 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. 119. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE COUNTERPARTIES.
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.--No
agreement, contract, or transaction a party to which is reasonably
believed by another party to which to be an eligible contract
participant shall be void, voidable, or unenforceable, and no such
reasonably believed 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 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.''.
SEC. 120. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE
HEDGING BY AGRICULTURAL PRODUCERS.
The Commodity Exchange Act is amended by inserting after section 4p
the following:
``SEC. 4Q. 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(4) 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. 121. 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 this title
supersedes, affects, or otherwise limits or expands the scope and
applicability of laws governing the Securities and Exchange Commission.
SEC. 122. 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 paragraphs (5), (6), (16), (17), (20), and
(23) (as redesignated by section 101), by inserting
``or derivatives transaction execution facility'' after
``contract market'' each place it appears; and
(B) in paragraph (25) (as redesignated by section
101)--
(i) in the paragraph heading, by striking
``contract market'' and inserting ``registered
entity'';
(ii) by striking ``contract market'' each
place it appears and inserting ``registered
entity''; and
(iii) by inserting at the end the following:
``A participant in an alternative trading system that is
designated as a contract market pursuant to section 5f shall be
deemed a member of such contract market for purposes of
transactions in security future products through such contract
market.''.
(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'';
(B) in subsection (a)(1)(A) (as amended by
subparagraph (A) of this paragraph)--
(i) by striking ``subparagraph (B) of this
paragraph'' and inserting ``subparagraphs (C)
and (D) of this paragraph and subsections (c),
(d), (e), (f), (g), and (h) of this section'';
(ii) 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'';
(iii) by striking clause (ii); and
(iv) in clause (iii), by striking ``(iii)
The'' and inserting the following:
``(B) Liability of principal for act of agent.--
The''; and
(C) in subsection (a)(1)(B)--
(i) by striking ``(B)'' and inserting
``(C)'';
(ii) in clause (ii)(I), by striking ``section
3 of the Securities Act of 1933 or'';
(iii) in clause (iv), by striking ``(I)'' and
all that follows through ``(II)'';
(iv) in clause (v)--
(I) by striking ``section 3 of the
Securities Act of 1933 or''; and
(II) by inserting ``or subparagraph
(D)'' after ``subparagraph''; and
(v) by moving clauses (i) through (v) 4 ems
to the right;
(D) in subsection (a)(7), by striking ``contract
market'' and inserting ``registered entity'';
(E) in subsection (a)(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
(F) in subsection (a), by moving paragraphs (2)
through (9) 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 ``sections
2(a)(1)(C) and 2(a)(1)(D)''; 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(a) of the Commodity Exchange Act (7 U.S.C.
6j(a)) is amended--
(A) in paragraph (1), by inserting ``for security
future products'' after ``contract market'';
(B) in paragraph (3)--
(i) in the matter preceding subparagraph (A),
by inserting ``, other than a designated
contract market in a security future product,''
after ``exempt a contract market''; and
(ii) in subparagraph (A), by striking
``section 5a(b)'' and inserting ``section 5'';
and
(C) in paragraph (6)(ii), by striking ``section 5b''
and inserting ``section 5e''.
(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)
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) 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 section 5,
5a, 5b, or 5f'';
(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''.
(14) 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''.
(15) 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''.
(16) Section 6c(a) of the Commodity Exchange Act (7 U.S.C.
13a-1(a)) by striking ``contract market'' and inserting
``registered entity''.
(17) 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,''.
(18) 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''.
(19) 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''.
(20) 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''.
(21) 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''.
(22) 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 ``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''.
(23) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is
amended by striking ``contract market'' each place it appears
and inserting ``registered entity''.
(24) 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''.
(25) 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''.
(26) 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 or a
derivatives clearing organization
exempt from registration pursuant to
section 5b(b)''; 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 ``a 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. 123. PRIVACY.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5f (as added by section 222) the following:
``SEC. 5G. PRIVACY.
``(a) Treatment as Financial Institutions.--Notwithstanding section
509(3)(B) of the Gramm-Leach-Bliley Act, any person or entity that is
subject to the jurisdiction of the Commission under this Act with
respect to any financial activity shall be treated as a financial
institution for purposes of title V of such Act with respect to such
financial activity.
``(b) Treatment of CFTC as Federal Functional Regulator.--For
purposes of title V of such Act, the Commodity Futures Trading
Commission shall be treated as a Federal functional regulator within
the meaning of section 509(2) of such Act and shall prescribe
regulations under such title within 6 months after the date of
enactment of this section.''.
SEC. 124. 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. 125. EFFECTIVE DATE.
This title takes effect on the date of enactment of this Act.
SEC. 126. 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 Organization
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.
TITLE II--SECURITIES ACTS AMENDMENTS
Subtitle A--Amendments
SEC. 201. DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF 1934.
Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)) is amended--
(1) in paragraph (10), by inserting ``security future,''
after ``treasury stock,'';
(2) by striking paragraph (11) and inserting the following:
``(11) The term `equity security' means any stock or similar
security; or any security future; or any security convertible,
with or without consideration, into such a security, or
carrying any warrant or right to subscribe to or purchase such
a security; or any such warrant or right; or any put, call,
straddle, option, or privilege on any such security; or any
other security which the Commission shall deem to be of similar
nature and consider necessary or appropriate, by such rules and
regulations as it may prescribe in the public interest or for
the protection of investors, to treat as an equity security.'';
(3) in paragraph (13), by adding at the end the following:
``For security future products, such term includes any
contract, agreement, or transaction for future delivery.'';
(4) in paragraph (14), by adding at the end the following:
``For security future products, such term includes any
contract, agreement, or transaction for future delivery.''; and
(5) by adding at the end the following:
``(55)(A) The term `security future' means a contract of sale
for future delivery of a single security or of a narrow-based
security index, including any interest therein or based on the
value thereof, except an exempted security under 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) as
in effect on the date of enactment of the Futures Trading Act
of 1982). The term `security future' does not include any
agreement, contract, or transaction excluded under subsection
(c), (d), or (f) of section 2 of the Commodity Exchange Act as
in effect on the date of enactment of the Commodity Futures
Modernization Act of 2000.
``(B) The term `narrow-based security index' means an index
of securities on which contracts for future delivery are not
permitted under section 2(a)(1)(C) of the Commodity Exchange
Act, including any interest therein or based on the value
thereof.
``(C) The term `security future product' means a security
future or any put, call, straddle, option, or privilege on any
security future.
``(56)(A) The term `margin', when used with respect to a
security future product, means the amount, type, and form of
collateral required to secure any extension or maintenance of
credit, or the amount, type, and form of collateral required as
a performance bond related to the purchase, sale, or carrying
of a security future product, and all other uses of collateral
related to the purchasing, selling, or carrying of a security
future product.
``(B) The terms `margin level' and `level of margin', when
used with respect to a security future product, mean the amount
of margin required to secure any extension or maintenance of
credit, or the amount of margin required as a performance bond
related to the purchase, sale, or carrying of a security future
product.
``(C) The terms `higher margin level' and `higher level of
margin', when used with respect to a security future product,
mean a margin level established by a national securities
exchange registered pursuant to section 6(g) that is higher
than the minimum amount established by the Commission pursuant
to section 7(c)(2)(B).''.
SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING SECURITY FUTURE
PRODUCTS.
(a) Expedited Registration and Exemption.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at
the end the following:
``(g) Notice Registration of Security Future Product Exchanges.--
``(1) Registration required.--An exchange that lists or
trades security future products may be registered as a national
securities exchange solely for the purposes of trading security
future products if--
``(A) the exchange is a board of trade, as that term
is defined by the Commodity Exchange Act (7 U.S.C.
1a(2)), that has been designated a contract market by
the Commodity Futures Trading Commission and such
designation is not suspended by order by the Commodity
Futures Trading Commission; and
``(B) such exchange does not serve as a market place
for transactions in securities other than--
``(i) security future products; or
``(ii) futures on exempted securities or
groups or indexes of securities or options
thereon that have been authorized under section
2(a)(1)(C) of the Commodity Exchange Act by
Commodity Futures Trading Commission order.
``(2) Registration by notice filing.--
``(A) Form and content.--An exchange required to
register only because such exchange lists or trades
security future products may register for purposes of
this section by filing with the Commission a written
notice in such form, and containing the rules of the
exchange and such other information and documents
concerning such exchange as the Commission, by rule,
may prescribe as necessary or appropriate in the public
interest or for the protection of investors.
``(B) Immediate effectiveness.--Such registration
shall be effective immediately upon filing of the
written notice with the Commission, except that such
registration shall not be effective if such
registration would be subject to suspension or
revocation.
``(C) Termination.--Such registration shall be
terminated immediately if any of the conditions for
registration set forth in this subsection are no longer
satisfied.
``(3) Public availability.--The Commission shall make
available to the public all notices it receives under this
subsection.
``(4) Exemption of exchanges from specified provisions.--
``(A) Transaction exemptions.--An exchange that is
registered under paragraph (1) of this subsection shall
be exempt from, and shall not be required to enforce
compliance by its members with, and its members shall
not, solely with respect to those transactions effected
on such exchange in security future products, be
required to comply with, the following provisions of
this title and the rules thereunder:
``(i) Subsections (b)(2), (b)(3), (b)(4),
(b)(7), (b)(9), (c), (d), and (e) of this
section.
``(ii) Subsection (a) of section 10.
``(iii) Section 11.
``(iv) Subsections (d), (f), and (k) of
section 17.
``(v) Subsections (a), (f), and (h) of
section 19.
``(B) Rule change exemptions.--An exchange that is
subject to the registration requirement of paragraph
(1) of this subsection shall also be exempt from
submitting proposed rule changes pursuant to section
19(b) of this title, except that--
``(i) such exchange shall file proposed rule
changes related to higher margin levels, fraud
or manipulation, recordkeeping, reporting,
listing standards, or decimal pricing for
security future products, sales practices for
security future products for persons who effect
transactions in security future products or
rules effectuating such exchange's obligation
to enforce the securities laws pursuant to
section 19(b)(7);
``(ii) such exchange shall file pursuant to
sections 19(b)(1) and 19(b)(2) proposed rule
changes related to margin, except for changes
resulting in higher margin levels; and
``(iii) such exchange shall file pursuant to
section 19(b)(1) proposed rule changes that
have been abrogated by the Commission pursuant
to section 19(b)(7)(C).
``(5) Association compliance with requirements.--No exchange
that is registered under paragraph (1) of this subsection shall
trade any security future product until a futures association
registered under section 17 of the Commodity Exchange Act has
met the requirements set forth in section 15A(k)(2) of this
title.
``(6) Trading in security future products.--It shall be
unlawful for any person to execute or trade a security future
product until the later of--
``(A) one year after the date of enactment of the
Commodity Futures Modernization Act of 2000; or
``(B) such date as the Federal income tax treatment
applicable to the security future products permitted
under this title are equivalent to the Federal income
tax treatment of equity options traded on a national
securities exchange.''.
(b) Commission Review of Proposed Rule Changes.--
(1) Expedited review.--Section 19(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by adding at
the end the following:
``(7) Security future product rule changes.--
``(A) Filing required.--A self-regulatory
organization that is an exchange registered with the
Commission pursuant to section 6(g) of this title or
that is a national securities association registered
pursuant to section 15A(k) of this title shall file
with the Commission, in accordance with such rules as
the Commission may prescribe, copies of any proposed
rule change or any proposed change in, addition to, or
deletion from the rules of such self-regulatory
organization (hereinafter in this paragraph
collectively referred to as a `proposed rule change')
that relates to higher margin levels, fraud or
manipulation, recordkeeping, reporting, listing
standards, or decimal pricing for security future
products, sales practices for security future products
for persons who effect transactions in security future
products or rules effectuating such self-regulatory
organization's obligation to enforce the securities
laws. Such proposed rule change shall be accompanied by
a concise general statement of the basis and purpose of
such proposed rule change. The Commission shall, upon
the filing of any proposed rule change, publish notice
thereof together with the terms of substance of the
proposed rule change or a description of the subjects
and issues involved. The Commission shall give
interested persons an opportunity to submit written
data, views, and arguments concerning such proposed
rule change.
``(B) Filing with cftc.--A proposed rule change filed
with the Commission pursuant to subparagraph (A) shall
be filed concurrently with the Commodity Futures
Trading Commission. Such proposed rule change may take
effect upon filing of a written certification with the
Commodity Futures Trading Commission, upon a
determination by the Commodity Futures Trading
Commission that review of the proposed rule change is
not necessary or upon approval of the proposed rule
change by the Commodity Futures Trading Commission.
``(C) Abrogation of rule changes.--Any proposed rule
change of a self-regulatory organization that has taken
effect pursuant to subparagraph (B) may be enforced by
such self-regulatory organization to the extent such
rule is not inconsistent with the provisions of this
title, the rules and regulations thereunder, and
applicable Federal law. At any time within 60 days of
the date of the filing of a written certification with
the Commodity Futures Trading Commission, the date the
Commodity Futures Trading Commission determines that
review of such proposed rule change is not necessary,
or the date the Commodity Futures Trading Commission
approves such proposed rule change, the Commission,
after consultation with the Commodity Futures Trading
Commission, summarily may abrogate the proposed rule
change and require that the proposed rule change be
refiled in accordance with the provisions of paragraph
(1), if it appears to the Commission that such proposed
rule change unduly burdens competition, conflicts with
the securities laws, does not promote efficiency, or is
inconsistent with the public interest and the
protection of investors. Commission action pursuant to
the preceding sentence shall not affect the validity or
force of the rule change during the period it was in
effect and shall not be reviewable under section 25 nor
deemed to be a final agency action for purposes of
section 704 of title 5, United States Code.
``(D) Review of resubmitted abrogated rules.--
``(i) Proceedings.--Within 35 days of the
date of publication of notice of the filing of
a proposed rule change that is abrogated in
accordance with subparagraph (C) and refiled in
accordance with paragraph (1), or within such
longer period as the Commission may designate
up to 90 days after such date if the Commission
finds such longer period to be appropriate and
publishes its reasons for so finding or as to
which the self-regulatory organization
consents, the Commission shall--
``(I) by order approve such proposed
rule change; or
``(II) after consultation with the
Commodity Futures Trading Commission,
institute proceedings to determine
whether the proposed rule change should
be disapproved.
Proceedings under subclause (II) shall include
notice of the grounds for disapproval under
consideration and opportunity for hearing and
be concluded within 180 days after the date of
publication of notice of the filing of the
proposed rule change. At the conclusion of such
proceedings, the Commission, by order, shall
approve or disapprove such proposed rule
change. The Commission may extend the time for
conclusion of such proceedings for up to 60
days if it finds good cause for such extension
and publishes its reasons for so finding or for
such longer period as to which the self-
regulatory organization consents.
``(ii) Grounds for approval.--The Commission
shall approve a proposed rule change of a self-
regulatory organization under this subparagraph
if it finds that such proposed rule change
promotes efficiency, does not unduly burden
competition, does not conflict with the
securities laws, and is not inconsistent with
the public interest or the protection of
investors. The Commission shall disapprove such
a proposed rule change of a self-regulatory
organization if it does not make such finding.
The Commission shall not approve any proposed
rule change prior to the 30th day after the
date of publication of notice of the filing
thereof, unless the Commission finds good cause
for so doing and publishes its reasons for so
finding.''.
(2) Decimal pricing provisions.--Section 19(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended
by inserting after paragraph (7), as added by paragraph (1),
the following:
``(8) Decimal pricing.--Not later than 9 months after the
later of the dates specified in section 6(g)(5), all self-
regulatory organizations listing or trading security future
products shall file proposed rule changes necessary to
implement decimal pricing of security future products. The
Commission may not require such rules to contain equal minimum
increments in such decimal pricing.''.
(3) Consultation provisions.--Section 19(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by inserting
after paragraph (8), as added by paragraph (2), the following:
``(9) Consultation with cftc.--
``(A) Consultation required.--The Commission shall
consult with and consider the views of the Commodity
Futures Trading Commission prior to approving a
proposed rule change filed by a national securities
association registered pursuant to section 15A(a) or a
national securities exchange subject to the provisions
of subsection (a) that primarily concerns conduct
related to transactions in security futures products,
except where the Commission determines that an
emergency exists requiring expeditious or summary
action and publishes its reasons therefor.
``(B) Responses to cftc comments and findings.--If
the Commodity Futures Trading Commission comments in
writing to the Commission on a proposed rule that has
been published for comment, the Commission shall
respond in writing to such written comment before
approving the proposed rule. If the Commodity Futures
Trading Commission determines, and notifies the
Commission, that such rule, if implemented or as
applied, would--
``(i) adversely affect the liquidity or
efficiency of the market for security future
products; or
``(ii) impose any burden on competition not
necessary or appropriate in furtherance of the
purposes of this section,
the Commission shall, prior to approving the proposed
rule, find that such rule is necessary and appropriate
in furtherance of the purposes of this section
notwithstanding the Commodity Futures Trading
Commission's determination.
``(C) Considerations of existing regulation.--In
approving rules described in subparagraph (A), the
Commission shall consider the sufficiency and
appropriateness of then existing laws and rules
applicable to security futures products.''.
(c) Review of Disciplinary Proceedings.--Section 19(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(d)) is amended by adding
at the end the following:
``(3) The provisions of this subsection shall apply to an exchange
registered pursuant to section 6(g) of this title or a national
securities association registered pursuant to section 15A(k) of this
title only to the extent that such exchange or association imposes any
final disciplinary sanction for--
``(A) a violation of the federal securities laws or the rules
and regulations thereunder; or
``(B) a violation of a rule of such exchange or association,
as to which a proposed change would be required to be filed
under section 19 of this title, except that, to the extent that
the exchange or association rule violation relates to any
account, agreement, or transaction, this subsection shall apply
only to the extent such violation involves a security future
product.''.
SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES TRADING SECURITY FUTURE
PRODUCTS.
(a) Expedited Registration and Exemptions.--
(1) Amendment.--Section 15(b) of the Securities Exchange Act
of 1934 (15 U.S.C. 78o(b)) is amended by adding at the end the
following:
``(11) Broker/dealer registration with respect to
transactions in security future products.--
``(A) Notice registration.--
``(i) Contents of notice.--Notwithstanding
paragraphs (1) and (2), a broker or dealer
required to register only because it effects
transactions in security future products on an
exchange registered pursuant to section 6(g)
may register for purposes of this section by
filing with the Commission a written notice in
such form and containing such information
concerning such broker or dealer and any
persons associated with such broker or dealer
as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest
or for the protection of investors. A broker or
dealer may not register under this paragraph
unless that broker or dealer is a member of a
national securities association registered
under section 15A(k).
``(ii) Immediate effectiveness.--Such
registration shall be effective immediately
upon filing of the written notice with the
Commission, except that such registration shall
not be effective if the registration would be
subject to suspension or revocation under
paragraph (4).
``(iii) Suspension.--Such registration shall
be suspended immediately if a national
securities association registered pursuant to
section 15A(k) of this title suspends the
membership of that broker or dealer.
``(iv) Termination.--Such registration shall
be terminated immediately if any of the above
stated conditions for registration set forth in
this paragraph are no longer satisfied.
``(B) Exemptions for registered brokers and
dealers.--A broker or dealer registered pursuant to the
requirements of subparagraph (A) shall be exempt from
the following provisions of this title and the rules
thereunder with respect to transactions in security
future products:
``(i) Section 8.
``(ii)Subsection (a) of section 10.
``(iii) Section 11.
``(iv) Subsections (c)(3) and (c)(5) of this
section.
``(v) Section 15B.
``(vi) Section 15C.
``(vii) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.''.
(2) Conforming amendment.--Section 28(e) of the Securities
Exchange Act of 1934 (15 U.S.C. 78bb(e)) is amended by adding
at the end the following:
``(4) The provisions of this subsection shall not apply with regard
to securities that are security future products.''.
(b) Floor Brokers and Floor Traders.--Section 15(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended by inserting after
paragraph (11), as added by subsection (a), the following:
``(12) Exemption for security future product exchange
members.--
``(A) Registration exemption.--A natural person shall
be exempt from the registration requirements of this
section if such person--
``(i) is a member of a designated contract
market registered with the Commission as an
exchange pursuant to section 6(g);
``(ii) effects transactions only in
securities on the exchange of which such person
is a member; and
``(iii) has no direct contact with public
customers.
``(B) Other exemptions.--A natural person exempt from
registration pursuant to subparagraph (A) shall also be
exempt from the following provisions of this title and
the rules thereunder:
``(i) Section 8.
``(ii) Subsection (a) of section 10.
``(iii) Section 11.
``(iv) Subsections (c)(3), (c)(5), and (e) of
this section.
``(v) Section 15B.
``(vi) Section 15C.
``(vii) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.''.
(c) Limited Purpose National Securities Association.--Section 15A of
the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by
adding at the end the following:
``(k) Limited Purpose National Securities Association.--
``(1) Regulation of members with respect to security future
products.--A futures association registered under section 17 of
the Commodity Exchange Act shall be a registered national
securities association for the limited purpose of regulating
the activities of members who are registered as brokers or
dealers in security future products pursuant to section
15(b)(11).
``(2) Requirements for registration.--Such a securities
association shall--
``(A) be so organized and have the capacity to carry
out the purposes of the securities laws applicable to
security future products and to comply, and (subject to
any rule or order of the Commission pursuant to section
19(g)(2)) to enforce compliance by its members and
persons associated with its members, with the
provisions of the securities laws applicable to
security future products, the rules and regulations
thereunder, and its rules;
``(B) have rules that--
``(i) are designed to prevent fraudulent and
manipulative acts and practices, to promote
just and equitable principles of trade, and, in
general, to protect investors and the public
interest, including rules governing sales
practices and the advertising of security
future products comparable to those of other
national securities associations registered
pursuant to subsection (a); and
``(ii) are not designed to regulate by virtue
of any authority conferred by this title
matters not related to the purposes of this
title or the administration of the association;
``(C) have rules that provide that (subject to any
rule or order of the Commission pursuant to section
19(g)(2)) its members and persons associated with its
members shall be appropriately disciplined for
violation of any provision of the securities laws
applicable to security future products, the rules or
regulations thereunder, or the rules of the
association, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure,
being suspended or barred from being associated with a
member, or any other fitting sanction; and
``(D) have rules that ensure that members and natural
persons associated with members meet such standards of
training, experience, and competence necessary to
effect transactions in security future products and are
tested for their knowledge of securities and security
future products.
``(3) Exemption from rule change submission.--Such a
securities association shall be exempt from submitting proposed
rule changes pursuant to section 19(b) of this title, except
that--
``(A) the association shall file proposed rule
changes related to higher margin levels, fraud or
manipulation, recordkeeping, reporting, listing
standards, or decimal pricing for security future
products, sales practices, advertising of security
future products, or standards of training, experience,
competence, or other qualifications for security future
products for persons who effect transactions in
security future products or rules effectuating the
association's obligation to enforce the securities laws
pursuant to section 19(b)(7);
``(B) the association shall file pursuant to sections
19(b)(1) and 19(b)(2) proposed rule changes related to
margin, except for changes resulting in higher margin
levels; and
``(C) the association shall file pursuant to section
19(b)(1) proposed rule changes that have been abrogated
by the Commission pursuant to section 19(b)(7)(C).
``(4) Other exemptions.--Such a securities association shall
be exempt from and shall not be required to enforce compliance
by its members, and its members shall not, solely with respect
to their transactions effected in security future products, be
required to comply, with the following provisions of this title
and the rules thereunder:
``(A) Subsections (b)(1), (b)(3), (b)(4), (b)(5),
(b)(8), (b)(10), (b)(11), (b)(12), (b)(13), (c), (d),
(e), (f), (g), (h), and (i) of this section.
``(B) Subsections (d), (f), and (k) of section 17.
``(C) Subsections (a), (f), and (h) of section 19.''.
(d) Exemption Under the Securities Investor Protection Act of 1970.--
(1) Section 16(14) of the Securities Investor Protection Act
of 1970 (15 U.S.C. 78lll(14)) is amended by inserting ``or any
security future as that term is defined in section 3(a)(55)(A)
of the Securities Exchange Act of 1934,'' after ``certificate
of deposit for a security,''.
(2) Section 3(a)(2)(A) of the Securities Investor Protection
Act of 1970 (15 U.S.C. 78ccc(a)(2)(A)) is amended--
(A) in clause (i), by striking ``and'' after the
semicolon;
(B) in clause (ii), by striking the period and
inserting ``; and'';
(C) by adding at the end the following:
``(iii) persons who are registered as a
broker or dealer pursuant to section
15(b)(11)(A) of the Securities Exchange Act of
1934.''.
(e) Other Provision.--Section 15(i)(6)(A) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(i)(6)(A)) is amended--
(1) in clause (ii), by striking ``and'' after the semicolon;
(2) in clause (iii), by striking the period and inserting ``;
and''; and
(3) by adding at the end the following:
``(iv) is not a security future product.''.
SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY COOPERATION.
Section 17 of the Securities Exchange Act of 1934 (15 U.S.C. 78q) is
amended by striking subsection (b) and inserting the following:
``(b) Records Subject to Examination.--
``(1) Procedures for cooperation with other agencies.--All
records of persons described in subsection (a) are subject at
any time, or from time to time, to such reasonable periodic,
special, or other examinations by representatives of the
Commission and the appropriate regulatory agency for such
persons as the Commission or the appropriate regulatory agency
for such persons deems necessary or appropriate in the public
interest, for the protection of investors, or otherwise in
furtherance of the purposes of this title if the Commission,
prior to conducting any such examination of a--
``(A) registered clearing agency, registered transfer
agent, or registered municipal securities dealer for
which it is not the appropriate regulatory agency,
gives notice to the appropriate regulatory agency for
such clearing agency, transfer agent, or municipal
securities dealer, of such proposed examination and
consults with the appropriate regulatory agency
concerning the feasibility and desirability of
coordinating such examinations conducted by the
appropriate regulatory agency with a view to avoiding
unnecessary regulatory duplication or undue regulatory
burdens for such clearing agency, transfer agent, or
municipal securities dealer; or
``(B) broker or dealer registered pursuant to section
15(b)(11), exchange registered pursuant to section
6(g), or national securities association registered
pursuant to section 15A(k) gives notice to the
Commodity Futures Trading Commission of such proposed
examination and consults with the Commodity Futures
Trading Commission concerning the feasibility and
desirability of coordinating such examination with
examinations conducted by the Commodity Futures Trading
Commission with a view to avoiding unnecessary
regulatory duplication or undue regulatory burdens for
such broker or dealer or exchange.
``(2) Furnishing data and reports to cftc.--The Commission
shall notify the Commodity Futures Trading Commission of any
examination conducted of any broker or dealer registered
pursuant to section 15(b)(11), exchange registered pursuant to
section 6(g), or national securities association registered
pursuant to section 15A(k) and, upon request, furnish to the
Commodity Futures Trading Commission any examination report and
data supplied to the Commission in connection with such
examination.
``(3) Use of cftc reports.--The Commission shall, to the
fullest extent possible, use the reports of examinations of any
broker or dealer registered pursuant to section 15(b)(11) or
exchange registered pursuant to section 6(g) made by the
Commodity Futures Trading Commission, a national securities
association registered pursuant to section 15A(k), or an
exchange registered pursuant to section 6(g).
``(4) Large trader reporting.--The Commission and the
Commodity Futures Trading Commission shall jointly prescribe
rules to require large trader reporting with respect to
security future products. Such rules shall specify a reporting
level for each security future product, a format for reporting,
and the procedures for filing such reports with the Commission
and the Commodity Futures Trading Commission.
``(5) Rule of construction.--Nothing in this subsection shall
be construed to impair or limit (other than by the requirement
of prior consultation) the power of the Commission under this
subsection to examine any clearing agency, transfer agent, or
municipal securities dealer, broker or dealer registered
pursuant to section 15(b)(11), exchange registered pursuant to
section 6(g), or national securities association registered
pursuant to section 15A(k), or to affect in any way the power
of the Commission under any other provision of this title or
otherwise to inspect, examine, or investigate any clearing
agency, transfer agent, or municipal securities dealer, broker
or dealer registered pursuant to section 15(b)(11), exchange
registered pursuant to section 6(g), or national securities
association registered pursuant to section 15A(k).''.
SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SECURITY FUTURE PRODUCTS.
(a) Addition of Security Future Products to Option-Specific
Enforcement Provisions.--
(1) Prohibition against manipulation.--Section 9(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78i(b)) is amended--
(A) in paragraph (1)--
(i) by inserting ``(A)'' after ``acquires'';
and
(ii) by striking ``; or'' and inserting ``,
or (B) any security future product on the
security; or'';
(B) in paragraph (2)--
(i) by inserting ``(A)'' after ``interest in
any''; and
(ii) by striking ``; or'' and inserting ``,
or (B) such security future product delivery;
or''; and
(C) in paragraph (3)--
(i) by inserting ``(A)'' after ``interest in
any''; and
(ii) by inserting ``, or (B) such security
future product'' after ``privilege''.
(2) Manipulation in options and other derivative products.--
Section 9(g) of the Securities Exchange Act of 1934 (15 U.S.C.
78i(g)) is amended--
(A) by inserting ``(1)'' after ``(g)'';
(B) by inserting ``other than a security future
product'' after ``future delivery''; and
(C) by adding at the end following:
``(2) Notwithstanding the Commodity Exchange Act, the Commission
shall have the authority to regulate the trading of any security future
product to the extent provided in the securities laws.''.
(3) Liability of controlling persons and persons who aid and
abet violations.--Section 20(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78t(d)) is amended by striking ``or
privilege'' and inserting ``privilege, or security future
product''.
(4) Liability to contemporaneous traders for insider
trading.--Section 21A(a)(1) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-1(a)(1)) is amended by striking
``standardized options, the Commission--'' and inserting
``standardized options or security future products, the
Commission--''.
(5) Enforcement consultation.--Section 21 of the Securities
Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at
the end the following:
``(i) Information to CFTC.--The Commission shall provide the
Commodity Futures Trading Commission with notice of the commencement of
any proceeding and a copy of any order entered by the Commission
against any broker or dealer registered pursuant to section 15(b)(11)
or any exchange registered pursuant to section 6(g).''.
SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SECURITY FUTURE
PRODUCTS.
(a) Listing Standards and Conditions for Trading.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by inserting
after subsection (g), as added by section 202, the following:
``(h) Trading in Security Future Products.--
``(1) Trading on exchange or association required.--It shall
be unlawful for any person to effect transactions in security
future products that are not listed on a national securities
exchange or a national securities association registered
pursuant to section 15A(a).
``(2) Listing standards and conditions for trading
required.--A national securities exchange or a national
securities association registered pursuant to section 15A(a)
may trade only security future products that (A) conform with
listing standards and conditions for trading that such exchange
or association files with the Commission under section 19(b),
and (B) meet the criteria specified in section 2(a)(1)(D)(i) of
the Commodity Exchange Act.
``(3) Requirements for listing standards and conditions for
trading.--Such listing standards and conditions for trading
shall--
``(A) except as otherwise provided in a rule,
regulation, or order issued pursuant to paragraph (4),
require that any security underlying the security
future, including each component security of a narrow-
based security index, be registered pursuant to section
12 of this title;
``(B) except as otherwise provided in a rule,
regulation, or order issued pursuant to paragraph (4),
require that the security future product be cash
settled;
``(C) be no less restrictive than comparable listing
standards for options traded on a national securities
exchange or a national securities association
registered pursuant to section 15A(a) of this title;
``(D) except as otherwise provided in a rule,
regulation, or order issued pursuant to paragraph (4),
require that the security future be based upon common
stock and such other equity securities as the
Commission and the Commodity Futures Trading Commission
jointly determine appropriate;
``(E) require that the security future product is
cleared by a clearing agency that has in place
provisions for linked and coordinated clearing with
other clearing agencies that clear security future
products, which permits the security future product to
be purchased on one market and offset on any other
market on which the security future product is traded;
``(F) require that only a broker or dealer subject to
suitability rules comparable to those of a national
securities association registered pursuant to section
15A(a) effect transactions in the security future
product;
``(G) require that the security future product be
subject to the prohibition against dual trading in
section 4j of the Commodity Exchange Act (7 U.S.C. 6j)
and the rules and regulations thereunder or the
provisions of section 11(a) of this title and the rules
and regulations thereunder, except to the extent
otherwise permitted under this title and the rules and
regulations thereunder;
``(H) require that trading in the security future
product not be readily susceptible to manipulation of
the price of such security future product, 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;
``(I) require that procedures be in place for
coordinated surveillance among the market on which the
security future product is traded, any market on which
any security underlying the security future product is
traded,and other markets on which any related security
is traded to detect manipulation and insider trading;
``(J) require that the market on which the security
future product is traded has in place audit trails
necessary or appropriate to facilitate the coordinated
surveillance required in subparagraph (I);
``(K) require that the market on which the security
future product is traded has in place procedures to
coordinate trading halts between such market and any
market on which any security underlying the security
future product is traded and other markets on which any
related security is traded; and
``(L) require that the margin requirements for a
security future product be consistent with the margin
requirements for comparable option contracts traded on
an exchange registered pursuant to section 6(a) of this
title and that initial and maintenance margin levels
for a security future product not be lower than the
levels of margin required for comparable option
contracts traded on an exchange registered pursuant to
section 6(a) of this title, except that nothing in this
subparagraph shall be construed to prevent a national
securities exchange or national securities association
from requiring higher margin levels for a security
future product when it deems such action to be
necessary or appropriate.
``(4) Authority to modify certain listing standard
requirements.--The Commission and the Commodity Futures Trading
Commission, by rule, regulation, or order, may jointly modify
the listing standard requirements specified in subparagraph
(A), (B), or (D) of paragraph (3) to the extent such
modification fosters the development of fair and orderly
markets in security future products, is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
``(5) Requirements for other persons trading security future
products.--It shall be unlawful for any person (other than a
national securities exchange or a national securities
association registered pursuant to section 15A(a)) to
constitute, maintain, or provide a marketplace or facilities
for bringing together purchasers and sellers of security future
products or to otherwise perform with respect to security
future products the functions commonly performed by a stock
exchange as that term is generally understood, unless a
national securities association registered pursuant to section
15A(a)--
``(A) has in place procedures for coordinated
surveillance among such person, the market trading the
securities underlying the security future products, and
other markets trading related securities to detect
manipulation and insider trading;
``(B) has rules to require audit trails necessary or
appropriate to facilitate the coordinated surveillance
required in subparagraph (A); and
``(C) has rules to require such person to coordinate
trading halts with markets trading the securities
underlying the security future products and other
markets trading related securities.
``(6) Deferral of options on security futures trading.--No
person shall offer to enter into, enter into, or confirm the
execution of any put, call, straddle, option, or privilege on a
security future, except that, after 3 years after the date of
enactment of this subsection, the Commission and the Commodity
Futures Trading Commission may by order jointly determine to
permit trading of puts, calls, straddles, options, or
privileges on any security future authorized to be traded under
the provisions of this Act and the Commodity Exchange Act.
Before any such determination, the Commission and the Commodity
Futures Trading Commission shall conduct a study of the effect
of the trading of security futures on the markets for futures
contracts, securities, and options and the adequacy of
protections for investors and other market participants.''.
(b) Margin.--Section 7 of the Securities Exchange Act of 1934 (15
U.S.C. 78g) is amended--
(1) in subsection (a), by inserting ``or a security future
product'' after ``exempted security'';
(2) in subsection (c)(1)(A), by inserting ``except as
provided in paragraph (2),'' after ``security),'';
(3) by redesignating paragraph (2) of subsection (c) as
paragraph (3) of such subsection; and
(4) by inserting after paragraph (1) of such subsection the
following:
``(2) Margin regulations.--
``(A) Compliance with margin rules required.--It
shall be unlawful for any broker, dealer, or member of
a national securities exchange to, directly or
indirectly, extend or maintain credit to or for, or
collect margin from any customer on, any security
future product unless such activities comply with the
rules and regulations which the Commission, after
consultation with the Commodity Futures Trading
Commission shall prescribe pursuant to subparagraph
(B).
``(B) Criteria for issuance of rules.--The Commission
shall issue such regulations to establish margin
requirements, including the establishment of levels of
margin (initial and maintenance) and use of collateral
for security future products under such terms, and at
such levels, as the Commission deems appropriate--
``(i) to preserve the financial integrity of
markets trading security future products;
``(ii) to prevent systemic risk;
``(iii) to make consistent the margin levels
(initial and maintenance) and other margin
requirements between security future products
and comparable options contracts traded on a
national securities exchange; and
``(iv) to ensure that the margin requirements
(other than levels of margin), including the
type, form, and use of collateral for security
future products, are and remain consistent with
the requirements established by the Federal
Reserve Board, pursuant to subparagraphs (A)
and (B) of paragraph (1).''.
(c) Incorporation of Security Future Products Into the National
Market System.--Section 11A of the Securities Exchange Act of 1934 (15
U.S.C. 78k-1) is amended by adding at the end the following:
``(e) National Markets System for Security Future Products.--
``(1) Consultation and cooperation required.--With respect to
security future products, the Commission and the Commodity
Futures Trading Commission shall consult and cooperate so that,
to the maximum extent practicable, their respective regulatory
responsibilities may be fulfilled and the rules and regulations
applicable to security future products may foster a national
market system for security future products if the Commission
and the Commodity Futures Trading Commission jointly determine
that such a system would be consistent with the congressional
findings in subsection (a)(1). In accordance with this
objective, the Commission shall, at least 15 days prior to the
issuance for public comment of any proposed rule or regulation
under this section concerning security future products, consult
and request the views of the Commodity Futures Trading
Commission.
``(2) Application of rules by order of cftc.--No rule adopted
pursuant to this section shall be applied to any person with
respect to the trading of security future products on an
exchange that is registered under section 6(g) unless the
Commodity Futures Trading Commission has issued an order
directing that such rule is applicable to such persons.''.
(d) Incorporation of Security Future Products Into the National
System for Clearance and Settlement.--Section 17A(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q-1(b)) is amended by adding at the
end the following:
``(7) A clearing agency that is regulated directly or indirectly by
the Commodity Futures Trading Commission through its association with a
designated contract market for security future products, and that
performs the functions of a clearing agency only with respect to
security future products and transactions in securities effected
pursuant to the rules of the designated contract market with which such
agency is associated, is exempted from the provisions of this section
and the rules and regulations thereunder, except that any clearing
agency that performs the functions of a clearing agency with respect to
security future products must coordinate with and develop fair and
reasonable links with any and all other clearing agencies that perform
the functions of a clearing agency with respect to security future
products, in order to permit security future products to be purchased
on a national securities exchange or national securities association
registered pursuant to section 15A(a) and offset on another national
securities exchange or national securities association registered
pursuant to section 15A(a).''.
(e) Market Emergency Powers and Circuit Breakers.--Section 12(k) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l(k)) is amended--
(1) in paragraph (1), by adding at the end the following:
``If the actions described in subparagraph (A) or (B) involve a
security future product,the Commission shall consult with and
consider the views of the Commodity Futures Trading Commission.''; and
(2) in paragraph (2)(B), by inserting after the first
sentence the following: ``If the actions described in
subparagraph (A) involve a security future product, the
Commission shall consult with and consider the views of the
Commodity Futures Trading Commission.''.
(f) Obligation To Put in Place Procedures and Adopt Rules.--Section
15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended
by inserting after subsection (k), as added by section 203, the
following new subsection:
``(l) Procedures and Rules for Security Future Products.--A national
securities association registered pursuant to subsection (a) shall, not
later than one year after the date of enactment of the Commodity
Futures Modernization Act of 2000, implement the procedures specified
in section 6(h)(5)(A) of this title and adopt the rules specified in
subparagraphs (B) and (C) of section 6(h)(5) of this title.''.
SEC. 207. CLEARANCE AND SETTLEMENT.
Section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1)
is amended--
(1) in subsection (a)--
(A) in paragraph (1), by inserting after subparagraph
(D) the following:
``(E) The clearance and settlement of transactions in over-
the-counter derivatives through clearing agencies registered
with the Commission will reduce systemic risk and provide
stability to financial markets during times of market
disorder.''; and
(B) in paragraph (2)(A)(ii), by striking ``and
commodity options'' and inserting ``commodity options,
and over-the-counter derivatives''; and
(2) in subsection (b)--
(A) in paragraph (3)(A), by inserting ``and
derivative agreements, contracts, and transactions''
after ``prompt and accurate clearance and settlement of
securities transactions'';
(B) in paragraph (3)(F), by inserting ``and, to the
extent applicable, derivative agreements, contracts,
and transactions'' after ``designed to promote the
prompt and accurate clearance and settlement of
securities transactions''; and
(C) by inserting after paragraph (7), as added by
section 206(d), the following:
``(8) A registered clearing agency shall be permitted to provide
facilities for the clearance and settlement of any derivative
agreements, contracts, or transactions that are excluded from the
Commodity Exchange Act, subject to the requirements of this section and
to such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of this
title.''.
SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE ISSUES
UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES
EXCHANGE ACT OF 1934.
(a) Amendments to the Securities Act of 1933.--
(1) Treatment of security future products.--Section 2(a) of
the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended--
(A) in paragraph (1), by inserting ``security
future,'' after ``treasury stock,'';
(B) in paragraph (3), by adding at the end the
following: ``Any offer or sale of a security future
product by or on behalf of the issuer of the securities
underlying the security future product, an affiliate of
the issuer, or an underwriter, shall constitute a
contract for sale of, sale of, offer for sale, or offer
to sell the underlying securities.''; and
(C) by adding at the end the following:
``(16) The terms `security future', `narrow-based security
index', and `security future product' have the same meanings as
provided in section 3(a)(55) of the Securities Exchange Act of
1934.''.
(2) Exemption from registration.--Section 3(a) of the
Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by adding
at the end the following:
``(14) Any security future product that is--
``(A) cleared by a clearing agency registered under
section 17A of the Securities Exchange Act of 1934 or
exempt from registration under subsection (b)(7) of
such section 17A; and
``(B) listed on a national securities exchange or a
national securities association registered pursuant to
section 15A(a) of the Securities Exchange Act of
1934.''.
(3) Conforming amendment.--Section 12(a)(2) of the Securities
Act of 1933 (15 U.S.C. 77l(a)(2)) is amended by striking
``paragraph (2)'' and inserting ``paragraphs (2) and (14)''.
(b) Amendments to the Securities Exchange Act of 1934.--
(1) Exemption from registration.--Section 12(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78l(a)) is amended
by adding at the end the following: ``The provisions of this
subsection shall not apply in respect of a security future
product listed on a national securities exchange.''.
(2) Exemptions from reporting requirement.--Section 12(g)(5)
of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(5)) is
amended by adding at the end the following: ``For purposes of
this subsection, a security future product shall not be
considered a class of equity security of the issuer of the
securities underlying the security future product.''.
(3) Transactions by corporate insiders.--Section 16 of the
Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by
adding at the end the following:
``(f) Treatment of Transactions in Security Future Products.--The
provisions of this section shall apply to ownership of and transactions
in security future products as if they were ownership of and
transactions in the underlying equity security. The Commission may
adopt such rules and regulations as it deems necessary or appropriate
in the public interest to carry out the purposes of this section.''.
SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940 AND THE
INVESTMENT ADVISERS ACT OF 1940.
(a) Definitions Under the Investment Company Act of 1940 and the
Investment Advisers Act of 1940.--
(1) Section 2(a)(36) of the Investment Company Act of 1940
(15 U.S.C. 80a-2(a)(36)) is amended by inserting ``security
future,'' after ``treasury stock,''.
(2) Section 202(a)(18) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-2(a)(18)) is amended by inserting ``security
future,'' after ``treasury stock,''.
(3) Section 2(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)) is amended by adding at the end the following:
``(52) The terms `security future' and `narrow-based security
index' have the same meanings as provided in section 3(a)(55)
of the Securities Exchange Act of 1934.''.
(4) Section 202(a) of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2(a)) is amended by adding at the end the following:
``(27) The terms `security future' and `narrow-based security
index' have the same meanings as provided in section 3(a)(55)
of the Securities Exchange Act of 1934.''.
(b) Other Provision.--Section 203(b) of the Investment Advisers Act
of 1940 (15 U.S.C. 80b-3(b)) is amended--
(1) by striking ``or'' at the end of paragraph (4);
(2) by striking the period at the end of paragraph (5) and
inserting ``; or''; and
(3) by adding at the end the following:
``(6) any investment adviser that is registered with the
Commodity Futures Trading Commission as a commodity trading
advisor whose business does not consist primarily of acting as
an investment adviser, as defined in section 202(a)(11) of this
title, and that does not act as an investment adviser to (A) an
investment company registered under title I of this Act, or (B)
a company which has elected to be a business development
company pursuant to section 54 of title I of this Act and has
not withdrawn its election.''.
SEC. 210. PREEMPTION OF STATE GAMING AND BUCKET SHOP LAWS.
The last sentence of section 28(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78bb(a)) is amended--
(1) by inserting ``subject to this title'' after ``privilege,
or other security''; and
(2) by striking ``any such instrument, if such instrument is
traded pursuant to rules and regulations of a self-regulatory
organization that are filed with the Commission pursuant to
section 19(b) of this Act'' and inserting ``any such
security''.
Subtitle B--Conforming Amendments to the Commodity Exchange Act
SEC. 221. JURISDICTION OF SECURITIES AND EXCHANGE COMMISSION; OTHER
PROVISIONS.
(a) Jurisdiction of Securities and Exchange Commission.--Section
2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2, 2a, 4) is amended by
adding at the end the following:
``(D)(i) Notwithstanding any other provision of this
Act, the Securities and Exchange Commission shall have
jurisdiction and authority over security futures as
defined in section 3(a)(55) of the Securities Exchange
Act of 1934, section 2(a)(16) of the Securities Act of
1933, section 2(a)(52) of the Investment Company Act of
1940, and section 202(a)(27) of the Investment Advisers
Act of 1940, options on security futures, and persons
effecting transactions in security futures and options
thereon, and this Act shall apply to and the Commission
shall have 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, a
security future product as defined in section 1a(33) of
this Act: Provided, however, That, except as provided
in clause (v) of this subparagraph, no board of trade
shall be designated as a contract market with respect
to any such contracts of sale for future delivery
unless the board of trade making such application
demonstrates and the Commission expressly finds that
the specific contract with respect to which the
application has been made, or the board of trade, meets
the following criteria:
``(I) Except as otherwise provided in a rule,
regulation, or order issued pursuant to clause
(vi) of this subparagraph, any security
underlying the security future, including each
component security of a contract of sale for
future delivery on a narrow-based security
index, is registered pursuant to section 12 of
the Securities Exchange Act of 1934.
``(II) Except as otherwise provided in a
rule, regulation, or order issued pursuant to
clause (vi) of this subparagraph, the security
future product is cash settled.
``(III) The security future product is not
traded on an exempt board of trade or a
designated transaction execution facility.
``(IV) Except as otherwise provided in a
rule, regulation, or order issued pursuant to
clause (vi) of this subparagraph, the security
future is based upon common stock and such
other equity securities as the Commission and
the Securities and Exchange Commission jointly
determine appropriate.
``(V) The security future product is cleared
by a clearing agency that has in place
provisions for linked and coordinated clearing
with other clearing agencies that clear
security future products, which permits the
security future product to be purchased on a
designated contract market, national securities
exchange registered under section 6(a) of the
Securities Exchange Act of 1934, or national
securities association registered pursuant to
section 15A(a) of the Securities Exchange Act
of 1934 and offset on any other designated
contract market, national securities exchange
registered under section 6(a) of the Securities
Exchange Act of 1934, or national securities
association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934
on which the security future product is traded.
``(VI) Only futures commission merchants,
introducing brokers, commodity trading
advisers, commodity pool operators or
associated persons subject to suitability rules
comparable to those of a national securities
association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934
solicit, accept any order for, or otherwise
deal in any transaction in or in connection
with a security future product.
``(VII) The security future product is
subject to a prohibition against dual trading
in section 4j of this Act and the rules and
regulations thereunder or the provisions of
section 11(a) of the Securities Exchange Act of
1934 and the rules and regulations thereunder,
except to the extent otherwise permitted under
the Securities Exchange Act of 1934 and the
rules and regulations thereunder.
``(VIII) Trading in the security future
product is not readily susceptible to
manipulation of the price of such security
future product, 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.
``(IX) The board of trade on which the
security future product is traded has
procedures in place for coordinated
surveillance among such board of trade, any
market on which any security underlying the
security future product is traded, and other
markets on which any related security is traded
to detect manipulation and insider trading,
except that, if the board of trade is an
alternative trading system, a national
securities association registered pursuant to
section 15A(a) of the Securities Exchange Act
of 1934 of which such alternative trading
system is a member has in place such
procedures.
``(X) The board of trade on which the
security future product is traded has in place
audit trails necessary or appropriate to
facilitate the coordinated surveillance
required in subclause (IX), except that, if the
board of trade is an alternative trading
system, a national securities association
registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 of which such
alternative trading system is a member has
rules to require such audit trails.
``(XI) The board of trade on which the
security future product is traded has in place
procedures to coordinate trading halts between
such board of trade and any market on which any
security underlying the security future product
is traded and other markets on which any
related security is traded, except that, if the
board of trade is an alternative trading
system, a national securities association
registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 of which such
alternative trading system is a member has
rules to require such coordinated trading
halts.
``(XII) The margin requirements for a
security future product are consistent with the
margin requirements for comparable option
contracts traded on an exchange registered
pursuant to section 6(a) of the Securities
Exchange Act of 1934 and initial and
maintenance margin levels for a security future
product are not lower than the levels of margin
required for comparable option contracts traded
on an exchange registered pursuant to section
6(a) of the Securities Exchange Act of 1934,
except that nothing in this subclause shall be
construed to prevent a board of trade from
requiring higher margin levels for a security
future product when it deems such action to be
necessary or appropriate.
``(ii) It shall be unlawful for any person to offer,
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 security future product unless--
``(I) 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 in such security future
product;
``(II) such security future product is
executed or consummated by, through, or with a
member of such contract market; and
``(III) such security future product is
evidenced by a record in writing which shows
the date, the parties to such security future
product and their addresses, the property
covered and its price: Provided, That each
contract market member shall keep such record
for a period of 3 years from the date thereof,
or for a longer period if the Commission so
directs, which record shall at all times be
open to the inspection of any representative of
the Commission, the Securities and Exchange
Commission, or the Department of Justice.
``(iii)(I) Except as provided in subclause (II) but
notwithstanding any other provision of this Act, no
person shall offer to enter into, enter into, or
confirm the execution of any option on a security
future.
``(II) After 3 years after the date of enactment of
the Commodity Futures Modernization Act of 2000, the
Commission and the Securities and Exchange Commission
may by order jointly determine to permit trading of
options on any security future authorized to be traded
under the provisions of this Act and the Securities
Exchange Act of 1934. Before any such determination,
the Commission and the Securities and Exchange
Commission shall conduct a study of the effect of the
trading of security futures on the markets for futures
contracts, securities, and options and the adequacy of
protections for investors and other market
participants.
``(iv)(I) All records of a futures commission
merchant or introducing broker registered pursuant to
section 4f(a)(2), a floor broker or floor trader exempt
from registration pursuant to section 4f(a)(3), an
associated person exempt from registration pursuant to
section 4k(6), or a board of trade designated as a
contract market in a security future product pursuant
tosection 5f shall be subject at any time, or from time
to time, to such reasonable periodic, special, or other examinations by
representatives of the Commission as the Commission deems necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title: Provided, That
the Commission, prior to conducting any such examination, gives notice
to the Securities and Exchange Commission of such proposed examination
and consults with the Securities and Exchange Commission concerning the
feasibility and desirability of coordinating such examination with
examinations conducted by the Securities and Exchange Commission with a
view to avoiding unnecessary regulatory duplication or undue regulatory
burdens for such registrant or board of trade.
``(II) The Commission shall notify the Securities and
Exchange Commission of any examination conducted of any
futures commission merchant or introducing broker
registered pursuant to section 4f(a)(2), floor broker
or floor trader exempt from registration pursuant to
section 4f(a)(3), associated person exempt from
registration pursuant to section 4k(6), or board of
trade designated as a contract market in a security
future product pursuant to section 5f, and, upon
request, furnish to the Securities and Exchange
Commission any examination report and data supplied to
the Commission in connection with such examination.
``(III) The Commission shall, to the fullest extent
possible, use the reports of examinations of any
futures commission merchant or introducing broker
registered pursuant to section 4f(a)(2), floor broker
or floor trader exempt from registration pursuant to
section 4f(a)(3), associated person exempt from
registration pursuant to section 4k(6), or board of
trade designated as a contract market in a security
future product pursuant to section 5f, made by the
Securities and Exchange Commission, a national
securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3), or a national securities exchange
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78f(g)).
``(IV) Nothing in this subsection shall be construed
to impair or limit (other than by the requirement of
prior consultation) the power of the Commission under
this subsection to examine any futures commission
merchant or introducing broker registered pursuant to
section 4f(a)(2), floor broker or floor trader exempt
from registration pursuant to section 4f(a)(3),
associated person exempt from registration pursuant to
section 4k(6), or board of trade designated as a
contract market in a security future product pursuant
to section 5f, or to affect in any way the power of the
Commission under any other provision of this Act.
``(v) A board of trade designated as a contract
market pursuant to section 5f shall be designated as a
contract market with respect to a security future
product by providing to the Commission a written
certification that the specific contract with respect
to which the application has been made, or the board of
trade, meets the criteria specified in subclauses (I)
through (XII) of clause (i).
``(vi) The Commission and the Securities and Exchange
Commission, by rule, regulation, or order, may jointly
modify the criteria specified in subclause (I), (II),
or (IV) of clause (i) of this subparagraph to the
extent such modification fosters the development of
fair and orderly markets in security future products,
is necessary or appropriate in the public interest, and
is consistent with the protection of investors.''.
(b) Margin on Security Futures.--Section 2(a)(1)(C)(vi) of the
Commodity Exchange Act (7 U.S.C. 2a(vi)) (as redesignated by section
122) is amended--
(1) by redesignating subclause (V) as subclause (VI); and
(2) by striking ``(vi)(I)'' and all that follows through
subclause (IV) and inserting the following:
``(vi)(I) Notwithstanding any other
provision of this Act, any contract
market in a stock index futures
contract (or option thereon), other
than a security future product, shall
file with the Board of Governors of the
Federal Reserve System any rule
establishing or changing the levels of
margin (initial and maintenance) for
such stock index futures contract (or
option thereon), other than security
future products.
``(II) The Board may at any time
request any contract market to set the
margin for any stock index futures
contract (or option thereon), other
than for any security future product,
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,
relating to margin for any stock index
futures contract (or option thereon),
other than security future products,
under this clause to the Commission.
``(IV) Margin regulations.--It shall
be unlawful for any futures commission
merchant to, directly or indirectly,
extend or maintain credit to or for, or
collect margin from any customer on any
security future product unless such
activities comply with the rules and
regulations which the Securities and
Exchange Commission, after consultation
with the Commission, shall prescribe
pursuant to section 7(c)(2)(B) of the
Securities Exchange Act of 1934.
``(V) 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 margin levels on any futures
contract, or option on the contract
covered by this clause, or on any
security future product.''.
(c) Exemption From Registration for Investment Advisers.--Section 4m
of the Commodity Exchange Act (7 U.S.C. 6m) is amended by adding at the
end the following:
``(3) The provisions of subsection (1) of this section shall not
apply to any commodity trading advisor that is registered with the
Securities and Exchange Commission as an investment adviser whose
business does not consist primarily of acting as a commodity trading
advisor, as defined in section 1a of this Act, and that does not act as
a commodity trading advisor to any investment trust, syndicate, or
similar form of enterprise that is engaged primarily in trading in any
commodity for future delivery on or subject to the rules of any
contract market.''.
(d) Exemption From Investigations of Markets in Underlying
Securities.--Section 16 of the Commodity Exchange Act (7 U.S.C. 20) is
amended by adding at the end the following:
``(e) The provisions of this section shall not apply to
investigations involving any security underlying a security future
product.''.
SEC. 222. APPLICATION OF THE COMMODITY EXCHANGE ACT TO NATIONAL
SECURITIES EXCHANGES AND NATIONAL SECURITIES
ASSOCIATIONS THAT TRADE SECURITY FUTURES.
(a) Notice Designation of National Securities Exchanges and National
Securities Associations.--The Commodity Exchange Act is amended by
inserting after section 5e (7 U.S.C. 7b), as amended by section 115,
the following:
``SEC. 5F. DESIGNATION OF SECURITIES EXCHANGES AND ASSOCIATIONS AS
CONTRACT MARKETS.
``(a) Any board of trade that is registered with the Securities and
Exchange Commission as a national securities exchange, is a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934, or is an alternative trading system
shall be a designated contract market in security future products if--
``(1) such national securities exchange, national securities
association, or alternative trading system lists or trades no
other contracts of sale for future delivery, except for
security future products;
``(2) such national securities exchange, national securities
association, or alternative trading system files written notice
with the Commission in such form as the Commission, by rule,
may prescribe containing such information as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of customers; and
``(3) the registration of such national securities exchange,
association, or alternative trading system is not suspended
pursuant to an order by the Securities and Exchange Commission.
Such designation shall be effective immediately upon filing of the
written notice with the Commission.
``(b)(1) A national securities exchange, national securities
association, or alternative trading system that is designated as a
contract market pursuant to section 5f of this Act shall be exempt from
the following provisions of this Act and the rules thereunder:
``(A) Subsections (c), (e), and (g) of section 4c.
``(B) Subsections (a) and (d) of section 4j.
``(C) Section 5.
``(D) Section 5c.
``(E) Section 6a.
``(F) Section 8(d).
``(G) Section 8e.
``(H) Section 9(f).
``(I) Section 16.
``(J) Section 22(b).
``(2)(A) Except as provided in subparagraph (B), but notwithstanding
any other provision of this Act, the Commission, by rule, regulation,
or order, may conditionally or unconditionally exempt any designated
contract market in security futures subject to the designation
requirement of this section from any provision of this Act or of any
rule or regulation thereunder, to the extent such exemption is
necessary or appropriate in the public interest and is consistent with
the protection of investors.
``(B) The Commission shall, by rule or regulation, determine the
procedures under which an exemptive order under this section is granted
and may, in its sole discretion, decline to entertain any application
for an order of exemption under this section.''.
(b) Notice Registration of Certain Securities Broker-Dealers;
Exemption From Registration for Certain Securities Broker-Dealers.--
Section 4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a)) is
amended--
(1) by inserting ``(1)'' after ``(a)''; and
(2) by adding at the end the following:
``(2) Notwithstanding paragraph (1), and except as provided in
paragraph (3), any broker or dealer that is registered with the
Securities and Exchange Commission shall be registered as a futures
commission merchant or introducing broker, as applicable, if--
``(A) such broker or dealer limits its solicitation of
orders, acceptance of orders, or execution of orders, or
placing of orders on behalf of others involving any contracts
of sale of any commodity for future delivery, on or subject to
the rules of any contract market to security future products;
``(B) such broker or dealer files written notice with the
Commission in such form as the Commission, by rule, may
prescribe containing such information as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors;
``(C) the registration of such broker or dealer is not
suspended pursuant to an order of the Securities and Exchange
Commission; and
``(D) such broker or dealer is a member of a national
securities association registered pursuant to section 15A(a) of
the Securities Exchange Act of 1934.
Such registration shall be effective immediately upon filing of the
written notice with the Commission.
``(3) A floor broker or floor trader shall be exempt from the
registration requirements of section 4e and paragraph (1) of this
subsection if--
``(A) such floor broker or floor trader is a broker or dealer
registered with the Securities and Exchange Commission;
``(B) such floor broker or floor trader limits its
solicitation of orders, acceptance of orders, or execution of
orders, or placing of orders on behalf of others involving any
contracts of sale of any commodity for future delivery, on or
subject to the rules of any contract market to security future
products; and
``(C) the registration of such floor broker or floor trader
is not suspended pursuant to an order of the Securities and
Exchange Commission.''.
(c) Exemption for Securities Broker-Dealers.--Section 4f(a) of the
Commodity Exchange Act (7 U.S.C. 6f(a)) is amended by inserting after
paragraph (3), as added by subsection (b), the following:
``(4)(A) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to paragraph (2), or
that is a floor broker or floor trader exempt from registration
pursuant to paragraph (3), shall be exempt from the following
provisions of this Act and the rules thereunder:
``(i) Subsections (b), (d), (e), and (g) of section 4c.
``(ii) Sections 4d, 4e, and 4h.
``(iii) Subsections (b) and (c) of this section.
``(iv) Subsections (b) and (c) of section 4j.
``(v) Section 4k(1).
``(vi) Section 4p.
``(vii) Section 6d.
``(viii) Subsections (d) and (g) of section 8.
``(ix) Section 16.
``(x) Section 22(a).
``(B)(i) Except as provided in clause (ii), but notwithstanding any
other provision of this Act, the Commission, by rule, regulation, or
order, may conditionally or unconditionally exempt any broker or dealer
subject to the registration requirement of paragraph (2) of this
subsection, or exempt from registration pursuant to paragraph (3) of
this subsection, from any provision of this Act or of any rule or
regulation thereunder, to the extent such exemption is necessary or
appropriate in the public interest and is consistent with the
protection of investors.
``(ii) The Commission shall, by rule or regulation, determine the
procedures under which an exemptive order under this section shall be
granted and may, in its sole discretion, decline to entertain any
application for an order of exemption under this section.
``(C)(i) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to paragraph (2) or
an associated person thereof, or that is a floor broker or floor trader
exempt from registration pursuant to paragraph (3), shall not be
required to become a member of any futures association registered under
section 17 of this Act.
``(ii) No futures association registered under section 17 of this Act
shall limit its members from carrying an account, accepting an order,
or transacting business with a broker or dealer that is registered as a
futures commission merchant or introducing broker pursuant to paragraph
(2) or an associated person thereof, or that is a floor broker or floor
trader exempt from registration pursuant to paragraph (3).''.
(d) Exemptions for Associated Persons of Securities Broker-Dealers.--
Section 4k of the Commodity Exchange Act (7 U.S.C. 6k) is amended by
adding at the end the following:
``(6) Any associated person of a broker or dealer that is registered
with the Securities and Exchange Commission, and who limits its
solicitation of orders, acceptance of orders, or execution of orders,
or placing of orders on behalf of others involving any contracts of
sale of any commodity for future delivery, on or subject to the rules
of any contract market to security future products, shall be exempt
from the following provisions of this Act and the rules thereunder:
``(A) Subsections (b), (d), (e), and (g) of section 4c.
``(B) Sections 4d, 4e, and 4h.
``(C) Subsections (b) and (c) of section 4f.
``(D) Subsections (b) and (c) of section 4j.
``(E) Paragraph (1) of this section.
``(F) Section 4p.
``(G) Section 6d.
``(H) Subsections (d) and (g) of section 8.
``(I) Section 16.
``(J) Section 22(a).''.
SEC. 223. NOTIFICATION OF INVESTIGATIONS AND ENFORCEMENT ACTIONS.
(a) Section 8(a) of the Commodity Exchange Act (7 U.S.C. 12(a)) is
amended by adding at the end the following:
``(3) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding and a copy
of any order entered by the Commission against any futures commission
merchant or introducing broker registered pursuant to section 4f(a)(2),
any floor broker or floor trader exempt from registration pursuant to
section 4f(a)(3), any associated person exempt from registration
pursuant to section 4k(6), or any board of trade designated as a
contract market pursuant to section 5f.''.
(b) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 9, 9a, 9b,
13b, 15) is amended by adding at the end the following:
``(g) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding and a copy
of any order entered by the Commission pursuant to subsections (c) and
(d) of this section against any futures commission merchant or
introducing broker registered pursuant to section 4f(a)(2), any floor
broker or floor trader exempt from registration pursuant to section
4f(a)(3), any associated person exempt from registration pursuant to
section 4k(6), or any board of trade designated as a contract market
pursuant to section 5f.''.
(c) Section 6c of the Commodity Exchange Act (7 U.S.C. 13a-1) is
amended by adding at the end the following:
``(h) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding and a copy
of any order entered by the Commission against any futures commission
merchant or introducing broker registered pursuant to section 4f(a)(2),
any floor broker or floor trader exempt from registration pursuant to
section 4f(a)(3), any associated person exempt from registration
pursuant to section 4k(6), or any board of trade designated as a
contract market pursuant to section 5f.''.
Subtitle C--Effective Date
SEC. 231. EFFECTIVE DATE.
This title and the amendments made by this title take effect on the
date of enactment of this Act.
Purpose and Summary
The purpose of this legislation is threefold: to create
legal certainty for over-the-counter derivative transactions
under the Commodity Exchange Act; to repeal the ban on single
stock futures; and to provide regulatory relief for the futures
exchanges. The legislation seeks to further the viability of
the over-the-counter derivatives market by creating legal
certainty for certain derivative transactions. Over-the-counter
financial derivatives contracts between eligible contract
participants are excluded from the Commodity Exchange Act (CEA)
under this legislation. The Commodity Futures Trading
Commission (CFTC) retains anti-fraud and anti-manipulation
authority over non-financial exempted commodities. The CFTC
retains full jurisdiction over contracts on agricultural
commodities.
This legislation also seeks to ensure that the market is
the final arbiter of a product's economic worth by repealing
the ban on single stock futures and narrow based stock index
futures and developing a joint regulatory framework for these
products administered by both the Securities and Exchange
Commission (SEC) and the CFTC. The regulatory framework
promotes competition both within and across markets while
preserving investor protections.
The legislation also promotes competition between the
contract markets and the over-the-counter markets by providing
greater flexibility for trading on contract markets.
Background and Need for Legislation
Legal Certainty for Over-the-Counter Derivatives.
Derivative instruments are important financial management tools
that, in many respects, reflect the unique strength and
innovation of American capital markets. U.S. markets and market
professionals have been global leaders in derivatives
technology and development. Derivatives, such as options, have
traded on U.S. securities exchanges for decades.
Of particular importance are U.S. OTC derivatives markets.
America's institutions, and institutional investors use
derivative instruments to manage risks associated with their
business activities or their financial assets. Because of the
range of benefits these products offer, the OTC derivatives
market has grown significantly during the past two decades. The
growth in activity involving this market has come, in part, as
a result of the careful approach to regulation taken by the
Congress and by U.S. financial regulators. That approach has
focused on promoting legal certainty for OTC derivative
transactions and encouraging the development of sound industry
practices.
Certain, but not all, derivative transactions in the U.S.
are regulated under various statutes. Among these is the CEA, a
statute that predates the establishment of significant markets
for financial derivatives in the United States. The CEA evolved
from the Grain Futures Act of 1922, which was designed to
protect farmers from speculative excesses and price
manipulation on agricultural products by enabling the
Government to deal with exchanges themselves, rather than with
individual traders. In order to conduct futures trading
lawfully, the grain exchanges were required to be federally
licensed or ``designated'' as ``contract markets.'' A condition
of such designation was that the exchanges had to take
responsibility for the prevention of price manipulation by
their members. If they failed to do so, the only recourse was
suspension or revocation of their designations. The Act was
administered by the Agriculture Department.
Under 1936 amendments, the legislation was renamed the
Commodity Exchange Act and the regulatory coverage was extended
to cotton and other specified commodities as well as grains.
Broad additional authority was granted over traders generally
as well as exchange members, and over the previously uncovered
field of commodity brokerage.
The Commodity Futures Trading Commission Act of 1974
constituted a significant and substantial revision of the CEA.
In 1974, Congress extended the coverage of the CEA to include
not only previously unregulated commodities, but also all other
goods and articles, and all services, rights, and interests in
which contracts for future delivery are presently or in the
future dealt. Congress also created the CFTC as an independent
regulatory agency to administer the CEA, and granted the CFTC
exclusive jurisdiction over transactions involving futures
contracts and certain other commodity-related activities.
OTC derivatives do not fall within the regulatory scope of
the CEA but do, however, have a quality similar to a futures
contract: a promise for delivery or payment in the future. This
similarity to futures contracts has caused legal uncertainty
under the CEA for OTC derivative transactions. If a court were
to determine an OTC derivative was a future, the contract would
be void because futures traded off exchange are illegal and
unenforceable. By contrast, the securities laws do not have a
similar prohibition of off-exchange trading.
While the Congress and the CFTC have both acted to create
legal certainty through the creation of a Swaps and Hybrids
Exemption (Swaps Exemption), a certain amount of uncertainty
under the CEA remains. Because the Swaps Exemption is
administered by the CFTC, it is subject to changes in the
regulatory perspective of the agency.
The issuance by the CFTC of a concept release suggesting a
new regulatory framework for swaps, enhanced the uncertainty
surrounding OTC derivatives transactions. The concept release
drew objection from the Secretary of the Treasury, the Chairman
of the Federal Reserve Board and the Chairman of the SEC, and
led Congress to call for a moratorium on CFTC rulemaking in
this area.
In addition, the CFTC cannot exempt products subject to the
Shad-Johnson Jurisdictional Accord, causing legal uncertainty
for equity swaps, as further discussed below.
The over-the-counter derivatives market accounts for
trillions of dollars (notional value) in transactions each
year, and provides useful tools for investment banks,
commercial banks, companies and individuals wishing to
neutralize business and investment risks. The President's
Working Group on Financial Markets emphasized the importance
that the market serves and stressed the immediate need to
improve legal certainty under the CEA for the transactions
(President's Working Group on Financial Markets, Over-the-
Counter Derivatives Markets and the Commodity Exchange Act
(1999)). Testimony provided to this Committee, as well as other
committees of both the House and Senate, demonstrated
widespread agreement that greater legal certainty under the CEA
for over-the-counter derivative transactions would be
beneficial for further development of these products.
To help achieve greater legal certainty for over-the-
counter transactions, the legislation excludes from the CEA
financial derivatives contracts traded off exchange by eligible
contract participants. The legislation exempts any contract on
a commodity which is not an agricultural commodity and not
otherwise excluded from the CEA. Anti-fraud, anti-manipulation
and transparency provisions of the CEA apply to exempt
commodities. Further, the legislation excludes from the CEA
electronic trading facilities that execute contracts traded on
a principle to principle basis between eligible contract
participants.
Lifting the Ban on Single Stock Futures and Narrow-based
Stock Index Futures. In the early 1980's, disputes arose as to
whether certain derivative transactions based on stock prices
were best regulated as futures or securities. In 1982, the CFTC
and the SEC agreed on a regulatory scheme (known as the Shad-
Johnson Jurisdictional Accord). The Accord reinforced the SEC's
jurisdiction over options on securities and recognized the
CFTC's jurisdiction over options on certain futures. The CFTC
also received jurisdiction over futures on broad-based stock
indices. However, the SEC was given an explicit role in the
determination of whether a stock index was properly
characterized as broad-based. The question of what constitutes
a narrow-based index under the Shad-Johnson Accord was
litigated in Board of Trade of the City of Chicago v. SEC 187
F.3d 713 (7th Cir 1999). Futures on government securities were
permitted. The SEC and the CFTC failed to reach agreement on
regulation of futures on single stocks and narrow-based indices
and on options on these products. They therefore agreedto ban
the products. The Congress codified the ban in 1982 (Futures Trading
Act of 1982, P.L. 97-444). The SEC and the CFTC planned to undertake a
study within five years of the Accord's codification regarding its
operation and whether and on what terms the prohibition should be
lifted. The agencies never conducted the study.
Futures industry officials have said that the Accord
prohibition should be repealed because it has restricted U.S.
futures exchanges from competing with other markets that trade
derivatives on single stocks and narrow based indices. Banks
and options exchanges have been permitted to trade products
economically similar to futures products. A synthetic future
can be created by buying a call option on a single stock and
selling a put option on the same stock. A naked option (i.e.,
an option for which the buyer or seller does not hold an
underlying security position) can also replicate the economic
function of a future. Finally, many over-the- counter
derivative transactions (equity swaps) can be used to achieve
positions similar to those unavailable through stock futures.
The Accord prohibits futures exchanges from competing with the
options exchanges and banks who are trading in these
instruments.
In the President's Working Group on Financial Markets 1999
report entitled Over-the-Counter Derivatives Markets and the
Commodity Exchange Act, the members agreed that: ``the current
prohibition on single stock futures can be repealed if issues
about the integrity of the underlying securities market and
regulatory arbitrage are resolved.'' Such issues reflect
legitimate regulatory concerns of both the SEC and the CFTC and
their respective oversight committees. In a letter dated March
2, 2000, to Chairman Bliley, Chairman Levitt of the SEC and
Chairman Rainer of the CFTC noted that these products should be
subject to joint regulation by both agencies. The Committee
agrees.
The legislation lifts the prohibition on the trading of
security futures by providing that cash, options, and futures
exchanges can trade single stock futures and narrow-based
indices under a system of SEC and CFTC joint regulation.
Exchanges registered with one agency are required to file a
notice registration with the other agency. For futures
products, the legislation extends SEC jurisdiction over the
Futures Exchanges for core securities regulations, and the CFTC
jurisdiction over the cash and options markets for core futures
regulations.
The legislation also enhances competition among market
centers by explicitly providing that Alternative Trading
Systems (ATSs) may also trade in security futures.
For security futures, margin requirements, suitability,
sales practice rules, and transaction fees are harmonized
between the options and futures markets to minimize competitive
disparity between the markets. On each market, security futures
must trade in decimals with no mandatory minimum increments.
Finally, to ensure equity in tax treatment between the markets
trading security futures, the legislation provides that trading
in security futures may commence only after tax treatments
between options and futures are harmonized.
CFTC Regulatory Reform. The legislation also enacts changes
to CFTC regulatory oversight of the futures markets.
Hearings
The Subcommittee on Finance and Hazardous Materials held a
hearing on H.R. 4541, the Commodity Futures Modernization Act
of 2000 on July 12, 2000. The Subcommittee received testimony
from: The Honorable Arthur Levitt, Securities and Exchange
Commission; Mr. C. Robert Paul, Commodity Futures Trading
Commission; Mr. Patrick M. Parkinson, Board of Governors of the
Federal Reserve System; and Mr. Lewis A. Sachs, Department of
the Treasury.
Committee Consideration
On July 20, 2000, the Subcommittee on Finance and Hazardous
Materials met in open markup session and approved H.R. 4541 for
Full Committee consideration, as amended, by a voice vote. The
Full Commerce Committee met in open markup session on July 25,
2000, and ordered H.R. 4541 reported to the House with a
favorable recommendation, as amended, by a voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto.
There were no record votes taken in connection with ordering
H.R. 4541 reported. A motion by Mr. Bliley to order H.R. 4541
reported to the House, as amended, was agreed to by a voice
vote.
The following amendment was agreed to by a voice vote:
An amendment in the nature of a substitute by Mr.
Shimkus, No. 1, raising the threshold for eligible
contract participants, exempting futures exchanges from
the short sale rule, applying section 31 fees to
security futures, delaying trading in security futures
until tax treatments of options and futures are
harmonized, providing for trading of security futures
in decimals with no minimum mandatory increments,
extending privacy provisions of Gramm-Leach-Bliley to
Futures Commission Merchants, applying large trader
reporting requirements to securities exchanges trading
security futures, and allowing ATSs to trade security
futures on futures listed on securities exchanges.
Committee on Government Reform Oversight Findings
Pursuant to 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.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that H.R.
4541, would result in additional revenues from the
legislation's extension of the section 31 transaction fee to
security futures. The Committee estimates that this provision
will generate revenues comparable to the section 31 fees on
listed options.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974, with the
following addition. The Committee notes that the legislation
extends the section 31 transaction fee to security futures.
This extension will generate additional revenues comparable to
those generated by the section 31 fees on listed options.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 6, 2000.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
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 Act of 2000.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Ken Johnson
and Mark Hadley.
Sincerely,
Steven Lieberman
(For Dan L. Crippen, Director).
Enclosure.
H.R. 4541--Commodity Futures Modernization Act of 2000]
Summary: H.R. 4541 would reauthorize funding for the
activities of the Commodity Futures Trading Commission (CFTC)
during the 2001-2005 period. The bill also would authorize the
CFTC and the Securities and Exchange Commission (SEC) to
regulate the trading of futures contracts on single stocks
(single-stock futures) under certain conditions. In addition,
H.R. 4541 would authorize those agencies to regulate trading of
options on single-stock futures. Finally, the bill also would
clarify that certain over-the-counter derivative transactions
are outside of the jurisdiction of the CFTC.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing this legislation would cost $368
million over the 2001-2005 period. Although most of this cost
would be incurred by the CFTC, CBO estimates that the SEC would
spend about $4 million a year to regulate single-stock futures.
H.R. 4541 would not affect direct spending or receipts;
therefore, pay-as-you-go procedures would not apply.
H.R. 4541 contains intergovernmental mandates as defined in
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that
the costs, if any, would not exceed the threshold established
in the act ($55 million in 2000, adjusted annually for
inflation). CBO's estimate of the impact of this bill on the
private sector will be provided later in a separate statement.
Estimated cost to 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
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.................................. 4 4 4 4 4
Estimated outlays.............................................. 4 4 4 4 4
Total changes in spending:
Estimated authorization level.................................. 71 73 76 78 81
Estimated outlays.............................................. 64 72 75 77 80
----------------------------------------------------------------------------------------------------------------
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.
H.R. 4541 would reauthorize funding for the activities of
the CFTC during the 2001-2005 period. For 2000, the agency
received an appropriation of $63 million. Based on the agency's
current budget and adjusting for anticipated inflation, this
reauthorization would cost about $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
transactions for derivatives.
H.R. 4541 also would require that the SEC play a
significant role in overseeing the market for single stock
futures. Based on information from the SEC, CBO estimates that
the SEC would have to hire additional staff to handle these new
responsibilities. These new personnel would cost about $4
million a year during the 2001-2005 period.
To the extent that single-stock futures would be traded on
national securities exchanges, these transactions would be
subject to fees charged by the SEC. However, H.R. 4541 would
allow the trading of single-stock futures one year after
enactment of the bill if the Congress makes the income tax
treatment of single-stock futures equal to the income tax
treatment of stock options. Because the trading of single-stock
futures would be contingent upon enactment of subsequent
legislation, CBO estimates that the provisions of H.R. 4541
related to single-stock futures would not cause an increase in
fee collections.
H.R. 4541 also would authorize the SEC and CFTC to allow
the trading of options on single-stock futures three years
after the enactment of the bill, if single-stock futures can be
traded. To the extent that options on single-stock futures
would be traded on national securities exchanges, these
transactions would be subject to fees charged by the SEC.
Because the trading of options on single-stock futures would be
contingent upon a future action of the Congress, CBO estimates
that the provisions of H.R. 4541 related to such options would
not cause an increase in fee collections or revenues.
Pay-as-you-go considerations: None.
Estimated impact on State, local, and tribal governments:
H.R. 4541 would preempt state laws affecting certain
commodities transactions that are conducted in markets
regulated by the Commodities Futures Trading Commission. The
bill also would expand a preemption of privacy laws in certain
states by placing entities regulated by the CFTC under federal
rather than state privacy requirements. Both a new preemption
and an expansion of an existing one would be mandates as
defined by UMRA. CBO estimates that the costs of these
mandates, if any, would not exceed the threshold in that act
($55 million in 2000, adjusted annually for inflation). The
bill would impose no other costs on state, local, or tribal
governments.
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 estimate: 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. The authorized
activities for the CFTC and the SEC are different in those
versions of the legislation, and our cost estimate reflects
those differences. 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. H.R.
4541 and S. 2697 would authorize the CFTC and SEC to carry out
different activities, and our cost estimates reflect these
differences.
Estimate prepared by: Federal costs: Ken Johnson and Mark
Hadley; impact on State, local, and tribal governments: Susan
Sieg Tompkins.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of impacts on
State, local, and tribal governments prepared by the Director
of the Congressional Budget Office pursuant to section 423 of
the Unfunded Mandates Reform Act. The estimate of impacts on
the private sector was not timely submitted to the Committee.
The Chairman of the Committee shall cause such estimate to be
printed in the Congressional Record when it is submitted to the
Committee.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional authority for this legislation is provided in
Article I, section 8, clause 3, which grants Congress the power
to regulate commerce with foreign nations, among the several
States, and with the Indian tribes.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short title; table of contents
This section provides the table of contents and short title
of the bill, the Commodity Futures Modernization Act of 2000.
Section 2. Purposes
This section lists eight purposes for the bill including:
reauthorizing the CFTC; streamlining the CEA; eliminating
unnecessary regulation for the 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.
TITLE I--COMMODITY EXCHANGE ACT AMENDMENTS
Section 101. Definitions
Section 101 adds definitions to section 1a of the CEA for
the following terms: ``alternative trading system'';
``derivatives clearing organization''; ``designated future on a
security''; ``electronic trading facility''; ``eligible
commercial participant''; ``eligible contract participant'';
``exempt commodity''; ``excluded commodity''; ``financial
institution''; ``hybrid instrument''; ``margin''; ``narrow
based security index''; ``nonexempt security''; ``option'';
``organized exchange''; ``registered entity''; ``security'';
``security future''; ``security future product''; and ``trading
facility''.
Section 102. Agreements, contracts, and transactions in foreign
currency, government securities and certain other commodities
This section redesignates section 2(a)(1)(A)(ii) of the CEA
(the ``Treasury Amendment'') as section 2(c) and clarifies the
application of the Treasury Amendment. The new section 2(c)
clarifies the list of products that are excluded from the CEA
under the Treasury Amendment.
New subsection (c)(2) excludes foreign currency
transactions from CFTC regulation, other than those conducted
on an organized exchange, between specified regulated entities
and persons who are not eligible contract participants.
The bill defines ``organized exchange'' as a trading
facility that either allows retail customers, permits agency
trades, or has a self- regulatory role. New subsection
(c)(2)(B) provides the CFTC with jurisdiction over retail
foreign currency transactions that are not traded on an
organized exchange and that are not regulated by another
federal regulator. This would allow the CFTC to take
enforcement action against illegal bucket shops.
Section 103. Legal certainty for excluded derivatives transactions
This section amends section 2 of the CEA to create a new
subsection (d), which provides that nothing in the CEA applies
to a transaction in an excluded commodity if the transaction
(1) is entered into only between eligible contract participants
and (2) is not executed on a trading facility. New section 2
also provides that nothing in the CEA applies to a transaction
in an excluded commodity executed or traded on electronic
trading facilities as long as the transaction is entered into
on a principal-to-principal basis by certain eligible contract
participants trading for their own accounts.
Section 104. Excluded electronic trading facilities
This section amends section 2 of the CEA to create a new
subsection (e) which excludes from the CEA electronic trading
of excluded and exempt commodities by eligible contract
participants. Paragraph (2) provides that nothing in the CEA
prohibits a contract market or derivatives transaction
execution facility from establishing and operating an excluded
electronic trading facility.
Section 105. Hybrid instruments
Section 105 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. New paragraph (2) 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 or as an option on a futures
contract. New paragraph (3) clarifies that 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 to secure the repayment obligations. This
section does not prevent the issuer of a hybrid instrument from
using exchange-traded futures or other instruments requiring
mark-to-market margin requirements to hedge its obligations
under the hybrid instrument.
Section 106. Futures on securities
Section 106 ensures that excluded OTC equity derivatives
remain outside the CEA and jurisdiction of the CFTC.
Section 107. Transactions in exempt commodities and swap transactions
This section amends section 2 of the CEA by adding a new
subsection (h) to provide legal certainty for exempt
commodities. New section 2(h) provides that nothing in the CEA
applies to transactions in exempt commodities that are entered
into between eligible participants and are not entered into on
a trading facility. The amendment further provides that nothing
in the CEA applies to transactions in an exempt commodity that
are conducted on a principal to principal basis between
eligible contract participants on an electronic trading
facility. However, transactions in exempt commodities are
subject to the clearing system provisions of the bill, and the
fraud and anti-manipulation provisions of the Act. In addition,
the CFTC may prescribe rules to ensure the timely dissemination
of electronic trading facility data if the CFTC determines that
the electronic facility performs a significant prices discovery
function.
Section 108. Protection of the public interest
Section 108 rewrites section 3 of the CEA that lists the
responsibilities of the CFTC and purposes of the CEA in
protecting thepublic interest. These include: promoting
financial innovation and competition; protecting investors from fraud
and manipulation; fostering efficiency with transparent price
dissemination; and preventing market manipulation and minimizing the
risk of systemic failure.
Section 109. Prohibited transactions
Section 109 rewrites section 4c of the CEA for clarity.
Section 110. Designation of boards of trade as contract markets
This section amends section 5 and 5a of the CEA by creating
a new section 5 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 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 avoid taking any action that restrains
trade or imposes anti-competitive 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 commodities to trade on a derivatives
transaction execution facility in instances where it would
promote responsible economic or financial innovation and
competition.
Section 111. Derivatives transaction execution facilities
Section 111 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 it meets the DTEF designation requirements.
A registered DTEF may trade any non-designated futures contract
if the commodity underlying the contract has a nearly
inexhaustible supply, is not readily 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. Security future products, except
futures on exempt securities, may not be traded on a DTEF.
Subsection (c) provides criteria for boards of trade that
wish to register as DTEFs, including: establishing and
enforcing trading rules that will deter abuses, provide market
participants impartial access to the markets, and capture
information that may be used in rule enforcement. In addition,
subsection (c) requires DTEFs to establish trading procedures
to be used and to 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). It
must: 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 minimize conflicts of interest in a
derivatives transaction execution facility; maintain records;
and avoid taking any action that restrains trade or imposes
anti-competitive 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 customer 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 is
required to coordinate with the SEC, the Secretary of the
Treasury, and the Federal banking regulatory authorities in
adopting rules to implement this subsection.
Under subsection (f), the CFTC may adopt regulations to
allow FCMs to give customers that are eligible contract
participants 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, other than derivatives involving securities (including
security future products), and the CFTC has exclusive
jurisdiction only when these instruments are traded on a DTEF.
Section 112. Derivatives clearing organizations
This section amends the CEA to create a new section 5b
regarding derivatives clearing organizations.
Subsection (a) makes it unlawful for a derivatives clearing
organization to operate unless it is registered with the CFTC.
Subsection (b) provides an exclusion from the requirements
in subsection (a) for clearing organizations that meet two
requirements: first, the clearing organization must be
registered with another federal regulatory agency (SEC or a
federal banking regulator) or be subject to a foreign
regulatory authority recognized by U.S. federal regulators; and
second, the clearing organization must not clear futures or
options other than (a) futures or options on security future
products or (b) options on securities.
Subsection (c) provides that organizations that are not
excluded under subsection (b) may voluntarily register with the
CFTC as a clearing organization.
Subsection (d) sets forth the process for applying with the
CFTC to be a clearing organization under this section, and
provides 14 core principles that must be met and maintained in
order to maintain registration as a clearing organization. The
clearing organization must: register as a derivatives clearing
organization; demonstrate adequate financial, operational and
managerial resources; establish participant and product
eligibility standards; have the ability to manage risks
associated with derivatives clearing organizations; have the
ability to perform proper settlement; have standards and
procedures to protect member and participant funds; have rules
and procedures to deal with defaults; monitor and enforce
rules; ensure system safeguards for daily processing, clearing,
and settlement of transactions; provide the CFTC with necessary
information for the CFTC's oversight function; maintain and
keep available records; make rules and procedures fully
available; enter into and abide by information-sharing
agreements; and avoid imposing any unreasonable or anti-
competitive burden on trading.
Subsection (e) grandfathers existing derivatives clearing
organizations that clear transactions for designated contract
markets prior to date of enactment.
Subsection (f) authorizes the CFTC to seek the appointment
of a trustee by an appropriate U.S. district court if the
registration of aderivatives clearing organization is suspended
or revoked by the CFTC under section 5e.
Subsection (g) requires the CFTC to facilitate and
coordinate with Federal banking agencies and the SEC with
respect to clearing organizations registered under this Act and
other regulated clearing facilities.
Section 113. Common provisions applicable to registered entities
Section 113 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 the 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) reserves all of the CFTC's emergency powers.
Section 114. 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 readily
susceptible to manipulation, or has no cash market; (2) the
futures contracts are entered into only by eligible contract
participants; 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 115. Suspension or revocation of designation as contract market
Section 115 amends redesignated section 5e of the CEA to
authorize the CFTC to suspend the registration of a registered
entity for 180 days for any violation of the CEA.
Section 116. Authorization of appropriations
Section 116 amends section 12(d) of the CEA by
reauthorizing appropriations through fiscal year 2005.
Section 117. Preemption
This section rewrites paragraph 12(e)(2) of the CEA for
clarity and to conform with changes made in the bill. New
section 12(e)(2) restates that the CEA supercedes 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 supercedes and preempts
state gaming and bucket shop laws (except for the anti-fraud
provisions of bucket shop laws that are generally applicable).
Section 118. Consideration of costs and benefits and antitrust laws
Section 118 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 119. Contract enforcement between eligible counterparties
This section amends subsection 22(a) of the CEA to provide
a safe harbor so that excluded transactions will not be
voidable based solely on the failure of the transaction to
comply with the terms or conditions of an exclusion or
exemption from the Act or CFTC regulations.
The Committee intends that any failure to provide a
statutory exclusion or exemption for any type 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 CEA.
Section 120. 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 121. Rule of construction
Section 121 provides that nothing in the CEA as amended by
this legislation supersedes, affects, or otherwise limits or
expands the scope and applicability of laws governing the
Securities and Exchange Commission unless expressly provided.
Section 122. Technical and conforming amendments
Section 122 makes technical and conforming amendment
throughout the CEA to reflect changes made by the bill.
Section 123. Privacy
This section extends privacy provisions of the Gramm-Leach-
Bliley Act to any entity or person subject to the jurisdiction
of the CFTC under the CEA.
Section. 124. Report to Congress
Section 124 requires the CFTC to study the CEA and its
rules, regulations and orders governing the conduct of CFTC's
registrants and report to Congress within one year.
Section. 125. Effective date
This section specifies that the changes made by this
legislation take effect on the date of enactment.
Section 126. 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 establishes that it is the sense of
Congress that it is important for 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.
TITLE II--SECURITIES ACTS AMENDMENTS
Subtitle A--Amendments
Section 201. Definitions under the Securities Exchange Act of 1934
Section 201 amends section 3 of the Securities Exchange Act
of 1934 (Exchange Act) to add definitions of the terms
``security future,'' ``security future product,'' and ``narrow-
based security index'' (15 U.S.C. 78c). The question of what
constitutes a narrow-based index under the Shad-Johnson Accord
was litigated in Board of Trade of the City of Chicago v. SEC
187 F.3d 713 (7th Cir 1999). The Committee does not intend any
provision of title II, including but not limited to the
definition of ``narrow-based security index'' in the Exchange
Act, the Securities Act of 1933, the Investment Company Act of
1940, or the Investment Advisers Act of 1940, to disturb the
determination of the Seventh Circuit in that case.
This section also amends section 3 to add definitions of
the terms ``margin,'' ``margin level,'' ``level of margin,''
``higher margin level,'' and ``higher level of margin.'' In
addition, section 3 includes the term ``security future'' in
the definitions of the terms ``security'' and ``equity
security.''
Section 202. Regulatory relief for markets trading security future
products
Section 202 amends section 6 of the Exchange Act to provide
for expedited SEC registration of CFTC designated contract
markets that fall within the statutory definition of the term
``exchange'' by trading security future products. These
``notice registrant'' exchanges become registered by filing a
notice with the SEC. Because notice registrant exchanges
continue to be subject to the CEA, they are exempt from all but
the core provisions of the federal securities laws applicable
to exchanges.
Section 202 also amends section 6 of the Exchange Act to
permit notice registrant exchanges to increase margin levels
above minimum levels established jointly by the SEC and the
CFTC by submitting proposed rule changes through the expedited
filing process described below. In addition, amended section 6
provides that notice registrant exchanges are required to
submit any other proposed rule changes relating to margin
(except for changes resulting in higher margin levels) for SEC
approval under section 19(b)(2) of the Exchange Act.
Section 202 further amends section 6 of the Exchange Act to
provide a waiting period before security future products may be
traded. Specifically, section 6 prohibits the trading of
security future products until the later of: (a) the date on
which federal income tax treatment for security future products
is equivalent to that for equity options; or (b) one year after
enactment of the legislation.
Section 202 amends section 19 of the Exchange Act to limit
the types of proposed rule changes that notice registrant
exchanges have to file and to provide for expedited treatment
of such proposed rule changes. In particular, section 19
requires notice registrant exchanges to file with the SEC under
new section 19(b)(7) only proposed rule changes that relate to
higher margin levels, fraud or manipulation, record keeping,
reporting, listing standards, decimal pricing for security
future products, sales practices for security futures products
for persons who effect transactions in security future
products, and rules effectuating their obligations to enforce
the federal securities laws. Notice registrant exchanges are
required to file these proposed rule changes with the CFTC
simultaneously. The SEC is permitted to abrogate a proposed
rule change filed by a notice registrant exchange after it
takes effect, but only if the SEC determines that the rule
change unduly burdens competition, conflicts with the federal
securities laws, does not promote efficiency, or is
inconsistent with the public interest and the protection of
investors.
Section 202 provides for SEC consultation with the CFTC,
except for emergencies, for proposed rule changes that
primarily concern conduct related to security future product
transactions submitted by national securities exchanges and
national securities associations that are not notice
registrants.
Section 202 also amends section 19 of the Exchange Act to
provide that the SEC does not have the authority to review
final disciplinary proceedings by notice registrant exchanges
except to the extent that they relate to a violation of the
federal securities laws or a violation of the exchange's rules
with respect to a security future product. Finally, section 202
requires that security future products be priced in decimals
with no SEC or CFTC mandated minimum increments.
Section 203. Regulatory relief for intermediaries trading security
future products
Section 203 amends section 15 of the Exchange Act to
provide for expedited SEC registration of CFTC registered
futures commission merchants (FCMs) and introducing brokers
that would fall within the statutory definition of the term
``broker'' or ``dealer'' solely by effecting transactions in
security future products. These ``notice registrant'' broker-
dealers become registered by filing a notice with the SEC.
Because notice registrant broker-dealers continue to be subject
to the CEA, they are exempt from all but the core provisions of
the federal securities laws applicable to broker-dealers.
Section 203 also amends section 15 of the Exchange Act to
provide an exemption from all broker-dealer registration
requirements for floor brokers and floor traders on CFTC
designated contract markets.
Section 203 amends section 15A of the Exchange Act to allow
futures associations to become national securities associations
for the limited purpose of regulating the activities of notice
registrant broker-dealers.
Amended section 15A also exempts futures associations from
all but the core requirements of the federal securities laws
applicable to national securities associations and provides for
limited review by the SEC of futures association rules relating
to security future products. A futures association, such as the
National Futures Association (NFA), becomes a national
securities association automatically as long as it meets
certain conditions. The NFA (and other limited purpose national
securities associations) are expected to enforce securities
laws applicable to security future products. As a result,
notice registrant broker-dealers that belong to the NFA do not
have to join the National Association of Securities Dealers.
Section 203 amends the Securities Investor Protection Act
of 1970 to exempt notice registrant broker-dealers from the
requirement to join the Securities Investor Protection
Corporation (SIPC) (15 U.S.C. 78bbb-78kkk). In addition,
section 203 extends the protections of SIPC to customer
positions in security future products that are held by
registered broker-dealers (other than notice registrant broker-
dealers).
Finally, section 203 makes a technical amendment to section
15(i)(6)(A) of the Exchange Act to avoid extending the
definition of ``new hybrid product'' to security future
products.
Section 204. Special provisions for interagency cooperation
Section 204 amends section 17 of the Exchange Act to permit
the SEC to examine limited purpose national securities
associations, notice registrant broker-dealers and exchanges.
Amended section 17 requires the SEC to notify the CFTC of such
examinations. In addition, amended section 17 requires the SEC,
to the fullest extent possible, to use the CFTC's examination
reports.
In addition, it requires the SEC and the CFTC jointly to
prescribe rules to require large trader reporting with respect
to security future products. Those rules must specify a
reporting level for each security future product, a format for
reporting, and the procedures for filing the reports with the
SEC and the CFTC.
Section 205. Maintenance of market integrity for security future
products
Section 205 is intended to ensure effective enforcement
against unlawful practices with respect to the trading of
security future products. Specifically, section 205 amends
sections 9(b), 9(g), 20(d), and 21A(a)(1) of the Exchange Act,
which relate to the trading of options and their underlying
securities, so they expressly apply to security future
products. In addition, section 205 amends section 21 of the
Exchange Act to require the SEC to file with the CFTC a notice
of the commencement of any proceeding, and a copy of any order
issued, against a notice registrant broker-dealer or exchange.
Section 206. Special provisions for the trading of security future
products
Section 206 amends section 6 of the Exchange Act to provide
minimum requirements for the listing and trading of security
future products, including requirements that trading in the
security future not be readily susceptible to manipulation or
to causing or being used in the manipulation of the underlying
security, transactions in security future products be effected
by broker-dealers subject to suitability requirements generally
comparable to those of the National Association of Securities
Dealers (NASD), and procedures for coordinated surveillance.
This section also provides that any market other than a
national securities exchange or national securities association
registered pursuant to section 15(A)(a), such as an ATS, may
trade a security future product provided that it does so
pursuant to procedures and rules established by a national
securities association regarding surveillance coordination,
audit trails, and trading halt coordination. The section
requires that these rules be adopted no later than one year
after enactment of the bill so that trading of security future
products will not commence until ATSs also can trade the
products. The Committee intends that the rules adopted by the
NSA pertaining to ATSs not impose an undue burden on
competition. The Committee further intends that the SEC
disapprove any SRO rule that would allow the trading of
security future products on an exchange on terms more favorable
than those pertaining to an ATS, consistent with the
requirements of section 3(f) of the Securities Exchange Act of
1934. The Committee intends that this section improve
competition within the marketplace by allowing ATSs to trade
security futures in full and fair competition with exchanges
and the NASD.
After a study, this section allows the SEC and CFTC jointly
to permit options on security futures.
This section also amends section 7 of the Exchange Act to
permit the SEC to establish margin requirements for security
futures and narrow based indices after consultation with the
CFTC.
Section 206 also amends section 11A of the Exchange Act to
require the SEC to consult with the CFTC on national market
system rulemaking relating to security future products. In
addition, amended section 11A provides that any national market
system rules adopted by the SEC do not apply to trading on
notice registrant exchanges unless the CFTC specifically orders
that they should apply.
This section also amends section 17A of the Exchange Act to
provide that clearing agencies regulated by the CFTC do not
have to register with the SEC in order to clear and settle
transactions in security future products. Amended section 17A
also provides that all clearing agencies that clear security
future products (whether registered or exempted from
registration) must coordinate with and develop links with one
another.
Finally, section 206 amends section 12 of the Exchange Act
to require the SEC to consult with the CFTC before suspending
trading in a security future product or taking emergency action
with respect to a security future product.
Section 207. Amendments relating to the clearance and settlement of
over-the-counter derivatives
This section amends section 17A of the Exchange Act to
provide registered clearing agencies with the express authority
to clear and settle over-the-counter derivatives.
Section 208. Amendments relating to registration and disclosure issues
under the Securities Act of 1933 and the Securities Exchange
Act of 1934
Section 208 amends section 2 of the Securities Act of 1933
(Securities Act) to incorporate definitions of the terms
``security future,'' ``security future product,'' and ``narrow-
based security index.'' (15 U.S.C. 77b). In addition, section 2
includes the term ``security future'' in the definition of the
term ``security.''
Section 208 further amends section 2 of the Securities Act
to provide that any offer or sale of a security future product
by or on behalf of an issuer of underlying securities, any
affiliate of an issuer, or an underwriter constitutes a
contract for sale of, sale of, offer for sale of, or offer to
sell the underlying securities.
Section 208 also amends section 3 of the Securities Act to
exempt from the registration requirements of section 5 any
security future product that is (1) cleared by a clearing
agency registered under section17A of the Exchange Act or
exempt from registration under section 17A(b)(7) of the Exchange Act;
and (2) listed on a registered exchange or a national securities
association registered pursuant to section 15A(a) of the Exchange Act.
Further, section 208 amends section 12(a)(2) of the
Securities Act to exempt offers or sales of security futures
that are exempt from section 5 by reason of section 3(a) from
the liability provisions of section 12(a)(2) of the Securities
Act.
Section 208 amends section 12(a) of the Exchange Act to
exempt security future product listed on a national securities
exchange from the registration requirements of that section.
Because the security future product need not be registered
under section 12, the provisions of sections 13, 14 and 16 of
the Exchange Act do not apply to the security future product as
a class of equity security registered under section 12.
Sections 13(e), 14(d) and 14(e) of the Exchange Act still apply
to the securities underlying security futures.
Section 208 also amends section 12(g)(5) of the Exchange
Act to clarify that, for purposes of section 12(g), a security
future product is not to be considered a separate class of
equity security of the issuer of the securities underlying the
security future product.
Lastly, section 208 amends section 16 of the Exchange Act
to provide that, for purposes of section 16 of the Exchange
Act, ownership of and transactions in security futures are
considered ownership of and transactions in the underlying
equity securities.
Section 209. Amendments to the Investment Company Act of 1940 and the
Investment Advisers Act of 1940
Section 209 amends section 2 of the Investment Company Act
of 1940 (Investment Company Act) to incorporate definitions of
the terms ``security future'' and ``narrow-based security
index'' (15 U.S.C. 80a-2). In addition, section 2 of the
Investment Company Act is amended to include the term
``security future'' in the definition of the term ``security.''
Section 209 will assure that a publicly offered pooled
investment vehicle that invests in security futures and that is
not excluded from the definition of ``investment company''
under the Investment Company Act will be encompassed within the
definition of an ``investment company'' and regulated as such
under the Investment Company Act. Mutual funds investing in
securities and pools investing in security futures would be
engaged in functionally equivalent economic activity. The
performance of security futures necessarily will be closely
correlated with the performance of the underlying securities.
Pools of securities and pools of comparable security futures
can be expected to have very similar performance results. From
an investor's point of view, purchasing shares of a mutual
fund, or interests in a similar pool that invests in security
futures, will appear to be economically equivalent. As a
result, the Committee provides for the regulation of these
pools as investment companies.
Section 209 also amends section 202 of the Investment
Advisers Act of 1940 (Advisers Act) to add definitions of the
terms ``security future'' and ``narrow-based security index''
and to include the term ``security future'' in the definition
of the term ``security'' (15 U.S.C 80b-2). Section 209 also
adds new section 203(b)(6) to the Advisers Act, which exempts
from the registration provisions of the Advisers Act any
investment adviser that is registered with the CFTC as a
commodity trading adviser, whose business does not consist
primarily of acting as an investment adviser and that does not
act as an investment advisor to an investment company
registered under the Investment Company Act or a business
development company that has elected to be regulated under the
Investment Company Act and has not withdrawn such election.
The SEC and the CFTC will promulgate complementary rules or
regulations to give effect to these provisions.
Section 210. Preemption
Section 210 amends Section 28 of the Exchange Act to
clarify the preemption of the state laws related to gaming and
bucket shops.
Subtitle B--Conforming Amendments to the Commodity Exchange Act
Section 221. Amendments relating to the jurisdiction of the Securities
and Exchange Commission
Section 221 amends section 2 of the CEA to clarify that
security futures are jointly regulated by the CFTC and the SEC,
and that security futures are not subject to the exclusive
jurisdiction of the CFTC.
Section 221 also amends section 2 of the CEA to provide
criteria that security futures will have to meet before they
could be traded on a designated contract market. These criteria
include requirements that trading in the security future
product not be readily susceptible to manipulation or to
causing or being used in the manipulation of the underlying
security, transactions in security futures be effected only by
futures commission merchants, introducing brokers, commodity
trading advisers, commodity pool operators, or associated
persons subject to suitability requirements comparable to those
of a registered national securities association, and procedures
for coordinated surveillance be in place to detect manipulation
and insider trading between the market trading the security
future product and markets trading the underlying securities
and other related securities.
In addition, section 221 amends section 2 of the CEA to
permit the CFTC to examine designated contract markets, futures
commission merchants, introducing brokers, commodity trading
advisers, commodity pool operators, and associated persons that
are registered with the CFTC under the expedited notice
registration process described below. Amended section 2
requires the CFTC to notify the SEC of such examinations. In
addition, amended section 2 requires the CFTC to the fullest
extent possible, to use the SEC's examination reports.
Moreover, section 221 allows the SEC and CFTC jointly to
permit options on security futures after a period of study.
Section 221 amends section 2 of the CEA to permit the CFTC
and the SEC to establish margin requirements for security
futures.
Furthermore, section 221 amends section 4m of the CEA to
exempt from regulation as commodity trading advisors,
investment advisers registered with the SEC whose business does
not consist primarily of acting as a commodity trading advisor
and that does not act as a commodity trading advisor to any
investment trust, syndicate, or similar form of enterprise that
is engaged primarily in trading in any commodity for future
delivery on or subject to the rules of any contract market.
Finally, section 221 amends section 16 of the CEA to clarify
that this section's provisions do not apply to investigations
involving any security underlying a security future product.
Section 222. Regulatory relief under the Commodity Exchange Act for
markets and intermediaries trading security future products
Section 222 adds section 5f to the CEA to provide for
expedited CFTC registration as designated contract markets of
national securities exchanges, national securities
associations, and alternative trading systems that are
registered with the SEC that would fall within the statutory
definition of the term ``board of trade'' by trading security
future products. These ``notice registrant'' designated
contract markets become registered by filing a notice with the
CFTC. Because notice registrant designated contract markets
continue to be subject to the federal securities laws, they are
exempt from all but the core provisions of the CEA applicable
to designated contract markets.
This section also amends section 4f of the CEA to provide
for expedited CFTC registration of SEC registered broker-
dealers that would fall within the statutory definition of the
term ``futures commission merchant'' or ``introducing broker''
by effecting transactions in security future products. These
``notice registrants'' become registered by filing a notice
with the CFTC. In addition, amended section 4f provides that
SEC registered broker-dealers that would fall within the
definition of ``floor broker'' or ``floor trader'' by effecting
transactions in security future products are exempt from CEA
registration. Because these entities continue to be subject to
the federal securities laws, they are exempt from all but the
core provisions of the CEA that otherwise would apply to them.
In addition, section 222 amends section 4k of the CEA to
provide exemptions from relevant provisions of the CEA for
associated persons of SEC registered broker-dealers.
Section 223. Amendments relating to the notification of investigations
and enforcement actions
Section 223 amends sections 6, 6c, and 8 of the CEA to
require the CFTC to file with the SEC a notice of the
commencement of any proceeding, and a copy of any order issued,
against a notice registrant designated contract market, futures
commission merchant, introducing broker, floor broker, or floor
trader.
Subtitle C--Effective Date
Section 231. Effective date
This section provides that amendments made by this bill
become effective on the date of the enactment of the
legislation.
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) Alternative trading system.--The term
``alternative trading system'' means an organization,
association, or group of persons that is registered as
a broker or dealer pursuant to section 15(b) of the
Securities Exchange Act of 1934 (except paragraph (11)
thereof) and that performs the functions commonly
performed by an exchange (as defined in section 3(a)(1)
of such Act) but that is exempt from the definition of
the term ``exchange'' under such section 3(a)(1) by
rule or regulation of the Securities and Exchange
Commission on terms that require compliance with
regulations of the trading functions of such
organization, association, or group of persons.
[(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, 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;
* * * * * * *
(B) Exclusions.--Subject to subparagraph (C),
the term ``commodity trading advisor'' does not
include--
(i) * * *
* * * * * * *
(vi) any contract market or
derivatives transaction execution
facility; and
* * * * * * *
[(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
transactionsexecuted 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
(viii) 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 or a foreign government
(including a regulated 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
similarrole 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 or a foreign
government (including a
regulated 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)(I) 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);
(II) an associated person of a
registered broker or dealer 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));
(III) an investment bank holding
company (as defined in section 17(i) of
the Securities Exchange Act of 1934 (15
U.S.C. 78q(i)));
(ix)(I) 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); or
(II) an affiliate of a registered
futures commission merchant concerning
the financial activities of which the
registered person makes and keeps
records under section 4f(c)(2)(B) of
this Act;
(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) a natural person with total
assets exceeding $10,000,000;
(B)(i) a person described in clause (i),
(ii), (viii), (ix), or (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); or
(ii) an investment adviser subject to
regulation under the Investment Advisers 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 clause (i), (ii), (viii), (ix), or
(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
(C) any other person that the Commission
determines to be eligible in light of the
financial or other qualifications of the
person;
except that entities that are eligible contract
participants under clause (v), (vi), (vii)(I) or (III),
or (xi) of subparagraph (A) or subparagraph (C) and own
and invest on a discretionary basis less than
$50,000,000 in investments, shall only be considered
eligible contract participants if the agreement,
contract, or transaction is offered by, and entered
into with, an entity that is listed in any of
subclauses (I) through (VI) of section 2(c)(2)(B)(ii)
of this Act.
(13) Excluded commodity.--The term ``excluded
commodity'' means--
(A) an interest rate, exchange rate,
currency, security, security index, credit risk
or measure, debt or equity instrument, or index
or measure of inflation;
(B) any other rate, differential, index, or
measure of economic or commercial risk, return,
or value that--
(i) is not within the control of any
party to the relevant contract,
agreement, or transaction; and
(ii) is not based in substantial part
on the value of a limited number of
commodities not described in
subparagraph (A) that have a finite
supply; or
(C) an occurrence, extent of an occurrence,
or contingency associated with commercial or
economic consequences beyond the control of the
parties to the relevant contract, agreement, or
transaction.
(14) Exempt commodity.--The term ``exempt commodity''
means a commodity that is not an excluded commodity and
is not 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) a financial holding company (as defined
in section 2 of the Bank Holding Company Act of
1956 (12 U.S.C. 1841));
(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.
[(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 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.--The term ``hybrid
instrument'' means a deposit (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813))
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.
[(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.
(24)(A) Margin.--The term ``margin'', when used with
respect to a security future product, means the amount,
type, and form of collateral required to secure any
extension or maintenance of credit, or the amount,
type, and form of collateral required as a performance
bond related to the purchase, sale, or carrying of a
security future product, and all other uses of
collateral related to the purchasing, selling, or
carrying of a security future product.
(B) The terms ``margin level'' and ``level of
margin'', when used with respect to a security future
product, mean the amount of margin required to secure
any extension or maintenance of credit, or the amount
of margin required as a performance bond related to the
purchase, sale, or carrying of a security future
product.
(C) The terms ``higher margin level'' and ``higher
level of margin'', when used with respect to a security
future product, mean a margin level established by a
contract market that is higher than the minimum amount
established by the Securities and Exchange Commission
pursuant to section 7(c)(2)(B) of the Securities
Exchange Act of 1934.
[(15)] (25) 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. A participant in
an alternative trading system that is designated as a
contract market pursuant to section 5f shall be deemed
a member of such contract market for purposes of
transactions in security future products through such
contract market.
(26) Narrow-based security index.--The term ``narrow-
based security index'' means an index of securities on
which contracts for future delivery are not permitted
under section 2(a)(1)(C) of this Act, including any
interest therein or based on the value thereof.
(27) 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''.
(28) Organized exchange.--The term ``organized
exchange'' means a trading facility that--
(A) permits trading--
(i) by or on behalf of a person that
is not an eligible contract
participant; or
(ii) by persons other than on a
principal-to-principal basis; 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)] (29) Person.--The term ``person'' imports the
plural or singular, and includes individuals,
associations, partnerships, corporations, and trusts.
(30) 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;
(C) a derivatives clearing organization
registered under section 5b; or
(D) a board of trade designated as a contract
market under section 5f.
(31) Security.--The term ``security'' means a
security as defined in section 2(a)(1) of the
Securities Act of 1933 (15 U.S.C. 77b(a)(1)) or section
3(a)(10) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(10)).
(32) Security future.--The term ``security future''
means a contract of sale for future delivery of a
single security or of a narrow-based security index,
including any interest therein or based on the value
thereof, except an exempted security under 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 as in effect on the date of enactment of
the Futures Trading Act of 1982).
(33) Security future product.--The term ``security
future product'' means a security future or any put,
call, straddle, option, or privilege on any security
future.
(34) 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--
(I) 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; or
(II) is a derivatives
clearing organization;
(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))); or
(iii) facilities on which bids and
offers, and acceptances of bids and
offers effected on the facility, are
not binding.
[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] subparagraphs (C) and (D) of this
paragraph and subsections (c), (d), (e), (f),
(g), and (h) of this section, 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) supersede or limit the jurisdiction
at any time conferred on the Securities and
Exchange Commission or other regulatory
authorities under the laws of the United States
or of any State, or (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)] (C) Notwithstanding any other provision
of law--
(i) * * *
(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);
* * * * * * *
(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
reviewthereof 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 or
subparagraph (D), 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.]
(vi)(I) Notwithstanding any other
provision of this Act, any contract
market in a stock index futures
contract (or option thereon), other
than a security future product, shall
file with the Board of Governors of the
Federal Reserve System any rule
establishing or changing the levels of
margin (initial and maintenance) for
such stock index futures contract (or
option thereon), other than security
future products.
(II) The Board may at any time
request any contract market to set the
margin for any stock index futures
contract (or option thereon), other
than for any security future product,
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,
relating to margin for any stock index
futures contract (or option thereon),
other than security future products,
under this clause to the Commission.
(IV) Margin regulations.--It shall be
unlawful for any futures commission
merchant to, directly or indirectly,
extend or maintain credit to or for, or
collect margin from any customer on any
security future product unless such
activities comply with the rules and
regulations which the Securities and
Exchange Commission, after consultation
with the Commission, shall prescribe
pursuant to section 7(c)(2)(B) of the
Securities Exchange Act of 1934.
(V) 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 margin levels on any futures
contract, or option on the contract
covered by this clause, or on any
security future product.
[(V)] (VI) 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.
(D)(i) Notwithstanding any other provision of
this Act, the Securities and Exchange
Commission shall have jurisdiction and
authority over security futures as defined
insection 3(a)(55) of the Securities Exchange Act of 1934, section
2(a)(16) of the Securities Act of 1933, section 2(a)(52) of the
Investment Company Act of 1940, and section 202(a)(27) of the
Investment Advisers Act of 1940, options on security futures, and
persons effecting transactions in security futures and options thereon,
and this Act shall apply to and the Commission shall have 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, a security future product as defined in section
1a(33) of this Act: Provided, however, That, except as provided in
clause (v) of this subparagraph, no board of trade shall be designated
as a contract market with respect to any such contracts of sale for
future delivery unless the board of trade making such application
demonstrates and the Commission expressly finds that the specific
contract with respect to which the application has been made, or the
board of trade, meets the following criteria:
(I) Except as otherwise provided in a
rule, regulation, or order issued
pursuant to clause (vi) of this
subparagraph, any security underlying
the security future, including each
component security of a contract of
sale for future delivery on a narrow-
based security index, is registered
pursuant to section 12 of the
Securities Exchange Act of 1934.
(II) Except as otherwise provided in
a rule, regulation, or order issued
pursuant to clause (vi) of this
subparagraph, the security future
product is cash settled.
(III) The security future product is
not traded on an exempt board of trade
or a designated transaction execution
facility.
(IV) Except as otherwise provided in
a rule, regulation, or order issued
pursuant to clause (vi) of this
subparagraph, the security future is
based upon common stock and such other
equity securities as the Commission and
the Securities and Exchange Commission
jointly determine appropriate.
(V) The security future product is
cleared by a clearing agency that has
in place provisions for linked and
coordinated clearing with other
clearing agencies that clear security
future products, which permits the
security future product to be purchased
on a designated contract market,
national securities exchange registered
under section 6(a) of the Securities
Exchange Act of 1934, or national
securities association registered
pursuant to section 15A(a) of the
Securities Exchange Act of 1934 and
offset on any other designated contract
market, national securities exchange
registered under section 6(a) of the
Securities Exchange Act of 1934, or
national securities association
registered pursuant to section 15A(a)
of the Securities Exchange Act of 1934
on which the security future product is
traded.
(VI) Only futures commission
merchants, introducing brokers,
commodity trading advisers, commodity
pool operators or associated persons
subject to suitability rules comparable
to those of a national securities
association registered pursuant to
section 15A(a) of the Securities
Exchange Act of 1934 solicit, accept
any order for, or otherwise deal in any
transaction in or in connection with a
security future product.
(VII) The security future product is
subject to a prohibition against dual
trading in section 4j of this Act and
the rules and regulations thereunder or
the provisions of section 11(a) of the
Securities Exchange Act of 1934 and the
rules and regulations thereunder,
except to the extent otherwise
permitted under the Securities Exchange
Act of 1934 and the rules and
regulations thereunder.
(VIII) Trading in the security future
product is not readily susceptible to
manipulation of the price of such
security future product, 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.
(IX) The board of trade on which the
security future product is traded has
procedures in place for coordinated
surveillance among such board of trade,
any market on which any security
underlying the security future product
is traded, and other markets on which
any related security is traded to
detect manipulation and insider
trading, except that, if the board of
trade is an alternative trading system,
a national securities association
registered pursuant to section 15A(a)
of the Securities Exchange Act of 1934
ofwhich such alternative trading system
is a member has in place such procedures.
(X) The board of trade on which the
security future product is traded has
in place audit trails necessary or
appropriate to facilitate the
coordinated surveillance required in
subclause (IX), except that, if the
board of trade is an alternative
trading system, a national securities
association registered pursuant to
section 15A(a) of the Securities
Exchange Act of 1934 of which such
alternative trading system is a member
has rules to require such audit trails.
(XI) The board of trade on which the
security future product is traded has
in place procedures to coordinate
trading halts between such board of
trade and any market on which any
security underlying the security future
product is traded and other markets on
which any related security is traded,
except that, if the board of trade is
an alternative trading system, a
national securities association
registered pursuant to section 15A(a)
of the Securities Exchange Act of 1934
of which such alternative trading
system is a member has rules to require
such coordinated trading halts.
(XII) The margin requirements for a
security future product are consistent
with the margin requirements for
comparable option contracts traded on
an exchange registered pursuant to
section 6(a) of the Securities Exchange
Act of 1934 and initial and maintenance
margin levels for a security future
product are not lower than the levels
of margin required for comparable
option contracts traded on an exchange
registered pursuant to section 6(a) of
the Securities Exchange Act of 1934,
except that nothing in this subclause
shall be construed to prevent a board
of trade from requiring higher margin
levels for a security future product
when it deems such action to be
necessary or appropriate.
(ii) It shall be unlawful for any person to
offer, 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 security future product
unless--
(I) 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 in such
security future product;
(II) such security future product is
executed or consummated by, through, or
with a member of such contract market;
and
(III) such security future product is
evidenced by a record in writing which
shows the date, the parties to such
security future product and their
addresses, the property covered and its
price: Provided, That each contract
market member shall keep such record
for a period of 3 years from the date
thereof, or for a longer period if the
Commission so directs, which record
shall at all times be open to the
inspection of any representative of the
Commission, the Securities and Exchange
Commission, or the Department of
Justice.
(iii)(I) Except as provided in subclause (II)
but notwithstanding any other provision of this
Act, no person shall offer to enter into, enter
into, or confirm the execution of any option on
a security future.
(II) After 3 years after the date of
enactment of the Commodity Futures
Modernization Act of 2000, the Commission and
the Securities and Exchange Commission may by
order jointly determine to permit trading of
options on any security future authorized to be
traded under the provisions of this Act and the
Securities Exchange Act of 1934. Before any
such determination, the Commission and the
Securities and Exchange Commission shall
conduct a study of the effect of the trading of
security futures on the markets for futures
contracts, securities, and options and the
adequacy of protections for investors and other
market participants.
(iv)(I) All records of a futures commission
merchant or introducing broker registered
pursuant to section 4f(a)(2), a floor broker or
floor trader exempt from registration
pursuantto section 4f(a)(3), an associated person exempt from
registration pursuant to section 4k(6), or a board of trade designated
as a contract market in a security future product pursuant to section
5f shall be subject at any time, or from time to time, to such
reasonable periodic, special, or other examinations by representatives
of the Commission as the Commission deems necessary or appropriate in
the public interest, for the protection of investors, or otherwise in
furtherance of the purposes of this title: Provided, That the
Commission, prior to conducting any such examination, gives notice to
the Securities and Exchange Commission of such proposed examination and
consults with the Securities and Exchange Commission concerning the
feasibility and desirability of coordinating such examination with
examinations conducted by the Securities and Exchange Commission with a
view to avoiding unnecessary regulatory duplication or undue regulatory
burdens for such registrant or board of trade.
(II) The Commission shall notify the
Securities and Exchange Commission of any
examination conducted of any futures commission
merchant or introducing broker registered
pursuant to section 4f(a)(2), floor broker or
floor trader exempt from registration pursuant
to section 4f(a)(3), associated person exempt
from registration pursuant to section 4k(6), or
board of trade designated as a contract market
in a security future product pursuant to
section 5f, and, upon request, furnish to the
Securities and Exchange Commission any
examination report and data supplied to the
Commission in connection with such examination.
(III) The Commission shall, to the fullest
extent possible, use the reports of
examinations of any futures commission merchant
or introducing broker registered pursuant to
section 4f(a)(2), floor broker or floor trader
exempt from registration pursuant to section
4f(a)(3), associated person exempt from
registration pursuant to section 4k(6), or
board of trade designated as a contract market
in a security future product pursuant to
section 5f, made by the Securities and Exchange
Commission, a national securities association
registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-
3), or a national securities exchange
registered pursuant to section 6(a) of the
Securities Exchange Act of 1934 (15 U.S.C.
78f(g)).
(IV) Nothing in this subsection shall be
construed to impair or limit (other than by the
requirement of prior consultation) the power of
the Commission under this subsection to examine
any futures commission merchant or introducing
broker registered pursuant to section 4f(a)(2),
floor broker or floor trader exempt from
registration pursuant to section 4f(a)(3),
associated person exempt from registration
pursuant to section 4k(6), or board of trade
designated as a contract market in a security
future product pursuant to section 5f, or to
affect in any way the power of the Commission
under any other provision of this Act.
(v) A board of trade designated as a contract
market pursuant to section 5f shall be
designated as a contract market with respect to
a security future product by providing to the
Commission a written certification that the
specific contract with respect to which the
application has been made, or the board of
trade, meets the criteria specified in
subclauses (I) through (XII) of clause (i).
(vi) The Commission and the Securities and
Exchange Commission, by rule, regulation, or
order, may jointly modify the criteria
specified in subclause (I), (II), or (IV) of
clause (i) of this subparagraph to the extent
such modification fosters the development of
fair and orderly markets in security future
products, is necessary or appropriate in the
public interest, and is consistent with the
protection of investors.
* * * * * * *
(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) * * *
(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
* * * * * * *
(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 agreements 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 or group or index of
securities), 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 registered
pursuant to section 6(a) of the
Securities Exchange Act of 1934.
(B) Agreements, contracts, and transactions
in retail foreign currency.--This Act applies
to, and the Commission shall have jurisdiction
over, an agreement, contract, or transaction in
foreign currency that--
(i) is a contract of sale 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).
(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 entered into 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;
(B) the agreement, contract, or transaction
is entered into only between persons that are
eligible contract participants (as defined in
sections 1a(12)(A), (B)(ii), and (C)) at the
time at which the persons enter into the
agreement, contract, or transaction; and
(C) 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) 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 excluded 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
hybrid instrument that is predominantly a security or
depository instrument.
(2) Predominance.--A hybrid instrument shall be
considered to be predominantly a security or depository
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.
(3) Mark-to-market margining requirements.--For the
purposes of paragraph (2)(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) Nothing in subsection (a)(1)(C) or (a)(1)(D) governs or
applies to--
(1) an agreement, contract, or transaction that is
excluded under subsection (c) or (d) (whether or not
the agreement, contract, or transaction is otherwise
subject to this Act);
(2) an electronic trading facility that is excluded
under subsection (e); or
(3) 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).
(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 4o 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 which--
(A) is entered into on a principal-to-
principal basis solely between persons that are
eligible contract participants at the time at
which the persons enter into the agreement,
contract, or transaction;
(B) entered into only between persons that
are eligible contract participants (as defined
in sections 1a(12)(A), (B)(ii), (B)(iii), and
(C) at the time at which the persons enter into
the agreement, contract, or transaction; and
(C) 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 5a (to the extent so provided in
section 5a(g)), 5b, and 12(e)(2)(B) of this
Act;
(B) sections 4b and 4o 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 would otherwise be subject to those
provisions;
(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 and to the extent such agreement,
contract, or transaction would otherwise be
subject to those provisions; and
(D) 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 in the cash
market for the commodity underlying any
agreement, contract, or transaction executed or
traded on the electronic trading facility.
(i) Application of the Act.--Nothing in this Act shall be
construed (1) as 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) as conferring
jurisdiction on the Commission with respect to any such
agreement, contract, or transaction, except as expressly
provided in section 5a (to the extent so provided in section
5a(g)) and 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 the Commission 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)] sections 2(a)(1)(C) and
2(a)(1)(D)), 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''. TheCommission 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)(1) Any person desiring to register as a
futures commission merchant, introducing broker, floor broker,
or floor trader hereunder shall be registered upon application
to the Commission. The application shall be made in such form
and manner as prescribed by the Commission, giving such
information and facts as the Commission may deem necessary
concerning the business in which the applicant is or will be
engaged, including in the case of an application of a futures
commission merchant or an introducing broker, the names and
addresses of the managers of all branch offices, and the names
of such officers and partners, if a partnership, and of such
officers, directors, and stockholders, if a corporation, as the
Commission may direct. Such person, when registered hereunder,
shall likewise continue to report and furnish to the Commission
the above-mentioned information and such other information
pertaining to such person's business as the Commission may
require. Each registration shall expire on December 31 of the
year for which issued or at such other time, not less than one
year from the date of issuance, as the Commission may by rule,
regulation, or order prescribe, and shall be renewed upon
application therefor unless the registration has been suspended
(and the period of such suspension has not expired) or revoked
pursuant to the provisions of this Act.
(2) Notwithstanding paragraph (1), and except as provided in
paragraph (3), any broker or dealer that is registered with the
Securities and Exchange Commission shall be registered as a
futures commission merchant or introducing broker as
applicable, if--
(A) such broker or dealer limits its solicitation of
orders, acceptance of orders, or execution of orders,
or placing of orders on behalf of others involving any
contracts of sale of any commodity for future delivery,
on or subject to the rules of any contract market to
security future products;
(B) such broker or dealer files written notice with
the Commission in such form as the Commission, by rule,
may prescribe containing such information as the
Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the
protection of investors;
(C) the registration of such broker or dealer is not
suspended pursuant to an order of the Securities and
Exchange Commission; and
(D) such broker or dealer is a member of a national
securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934.
Such registration shall be effective immediately upon filing of
the written notice with the Commission.
(3) A floor broker or floor trader shall be exempt from the
registration requirements of section 4e and paragraph (1) of
this subsection if--
(A) such floor broker or floor trader is a broker or
dealer registered with the Securities and Exchange
Commission;
(B) such floor broker or floor trader limits its
solicitation of orders, acceptance of orders, or
execution of orders, or placing of orders on behalf of
others involving any contracts of sale of any commodity
for future delivery, on or subject to the rules of any
contract market to security future products; and
(C) the registration of such floor broker or floor
trader is not suspended pursuant to an order of the
Securities and Exchange Commission.
(4)(A) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to paragraph
(2), or that is a floor broker or floor trader exempt from
registration pursuant to paragraph (3), shall be exempt from
the following provisions of this Act and the rules thereunder:
(i) Subsections (b), (d), (e), and (g) of section 4c.
(ii) Sections 4d, 4e, and 4h.
(iii) Subsections (b) and (c) of this section.
(iv) Subsections (b) and (c) of section 4j.
(v) Section 4k(1).
(vi) Section 4p.
(vii) Section 6d.
(viii) Subsections (d) and (g) of section 8.
(ix) Section 16.
(x) Section 22(a).
(B)(i) Except as provided in clause (ii), but notwithstanding
any other provision of this Act, the Commission, by rule,
regulation, or order, may conditionally or unconditionally
exempt any broker or dealer subject to the registration
requirement of paragraph (2) of this subsection, or exempt from
registration pursuant to paragraph (3) of this subsection, from
any provision of this Act or of any rule or regulation
thereunder, to the extent such exemption is necessary or
appropriate in the public interest and is consistent with the
protection of investors.
(ii) The Commission shall, by rule or regulation, determine
the procedures under which an exemptive order under this
section shall be granted and may, in its sole discretion,
decline to entertain any application for an order of exemption
under this section.
(C)(i) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to paragraph
(2) or an associated person thereof, or that is a floor broker
or floor trader exempt from registration pursuant to paragraph
(3), shall not be required to become a member of any futures
association registered under section 17 of this Act.
(ii) No futures association registered under section 17 of
this Act shall limit its members from carrying an account,
accepting an order, or transacting business with a broker or
dealer that is registered as a futures commission merchant or
introducing broker pursuant to paragraph (2) or an associated
person thereof, or that is a floor broker or floor trader
exempt from registration pursuant to paragraph (3).
(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
for security future products which has not been exempted from
such regulations under paragraph (3). The regulations issued by
the Commission under this paragraph--
(A) * * *
* * * * * * *
(3) The Commission shall exempt a contract market, other than
a designated contract market in a security future product, 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)] section 5 with regard to violations attributable
to dual trading at such contract market; or
* * * * * * *
(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]
section 5e or 6(a).
* * * * * * *
Sec. 4k. (1) * * *
* * * * * * *
(6) Any associated person of a broker or dealer that is
registered with the Securities and Exchange Commission, and who
limits its solicitation of orders, acceptance of orders, or
execution of orders, or placing of orders on behalf of others
involving any contracts of sale of any commodity for future
delivery, on or subject to the rules of any contract market to
security future products, shall be exempt from the following
provisions of this Act and the rules thereunder:
(A) Subsections (b), (d), (e), and (g) of section 4c.
(B) Sections 4d, 4e, and 4h.
(C) Subsections (b) and (c) of section 4f.
(D) Subsections (b) and (c) of section 4j.
(E) Paragraph (1) of this section.
(F) Section 4p.
(G) Section 6d.
(H) Subsections (d) and (g) of section 8.
(I) Section 16.
(J) Section 22(a).
Sec. 4l. 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. (1) * * *
* * * * * * *
(3) The provisions of subsection (1) of this section shall
not apply to any commodity trading advisor that is registered
with the Securities and Exchange Commission as an investment
adviser whose business does not consist primarily of acting as
a commodity trading advisor, as defined in section 1a of this
Act, and that does not act as a commodity trading advisor to
any investment trust, syndicate, or similar form of enterprise
that is engaged primarily in trading in any commodity for
future delivery on or subject to the rules of any contract
market.
* * * * * * *
Sec. 4p. (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 be registered 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 andthe 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. 4Q. 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(4) 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 andconducted 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 boardthereof 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
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; 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 theCommission'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 monthsor 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 not--
(A) adopt any rules or taking any actions
that result in any unreasonable restraints of
trade; or
(B) impose 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(4) 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 not readily susceptible to
manipulation;
(C) the underlying commodity has no cash
market; or
(D) the Commission determines, based on the
market characteristics, surveillance history,
self-regulatory record, or capacity of the
facility that trading in the futures contract
is not readily susceptible to 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.
(5) Impermissible products.--It shall be unlawful for
any person to execute or trade a security future
product or other future involving a security, except an
exempt security as defined in 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,
on a designated 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
subsection.
(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 therecords 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 not--
(A) adopt any rules or take any actions that
result in any unreasonable restraint of trade;
or
(B) impose 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 other than
securities, except exempt securities under 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, that are otherwise excluded or exempt from
this Act under section 2(c), 2(d), or 2(h).
Notwithstanding section 5a(b)(2), a board of trade on
which agreements, contracts, or transactions excluded
or exempt from this Act under section 2(c), 2(d), or
2(h) are traded may elect, but shall not be required,
to register as a derivatives transaction execution
facility with respect to such agreements, contracts, or
transactions, other than any agreement, contract, or
transaction in a security other than such an exempt
security.
(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(9).
(b) Exclusion of Derivatives Clearing Organizations Subject
to Other Regulatory Authorities.--A derivatives clearing
organization shall not be required to register with the
Commission, and the Commission shall have no jurisdiction with
respect to the derivatives clearing organization, if the
derivatives clearing organization--
(1)(A) is registered as a clearing agency under the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.);
(B) is subject to the supervisory jurisdiction of a
Federal banking agency (as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813)) or the
National Credit Union Administration; or
(C) is subject to the supervisory jurisdiction of a
foreign regulatory authority that is recognized by the
Securities and Exchange Commission, the Board of
Governors of the Federal Reserve System, the
Comptroller of the Currency, or the Commission as
overseeing a system of consolidated supervision
comparable to that provided under applicable United
States law; and
(2) does not clear--
(A) a contract of sale for future delivery
other than a security future product;
(B) an option on a contract of sale for
future delivery other than a security future
product; or
(C) an option on a commodity other than a
security.
(c) Voluntary Registration.--A derivatives clearing
organization that is not exempt from registration under
subsection (b) may register with the Commission as a
derivatives clearing organization.
(d) 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
necessary or appropriate to achieve the
purposes of this Act, the derivatives clearing
organization shall not--
(i) adopt any rule or take any action
that results in any unreasonable
restraint of trade; or
(ii) impose 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.
(e) 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.
(f) 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.
(g) 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.--Except as provided in sections
2(a)(1)(C) and 2(a)(1)(D), and 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(4) 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) 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 forfuture 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, 4o, 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, 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. 5F. DESIGNATION OF SECURITIES EXCHANGES AND ASSOCIATIONS AS
CONTRACT MARKETS.
(a) Any board of trade that is registered with the Securities
and Exchange Commission as a national securities exchange, is a
national securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934, or is an
alternative trading system shall be a designated contract
market in security future products if--
(1) such national securities exchange, national
securities association, or alternative trading system
lists or trades no other contracts of sale for future
delivery, except for security future products;
(2) such national securities exchange, national
securities association, or alternative trading system
files written notice with the Commission in such form
as the Commission, by rule, may prescribe containing
such information as the Commission, by rule, may
prescribe as necessary or appropriate in the public
interest or for the protection of customers; and
(3) the registration of such national securities
exchange, association, or alternative trading system is
not suspended pursuant to an order by the Securities
and Exchange Commission.
Such designation shall be effective immediately upon filing of
the written notice with the Commission.
(b)(1) A national securities exchange, national securities
association, or alternative trading system that is designated
as a contract market pursuant to section 5f of this Act shall
be exempt from the following provisions of this Act and the
rules thereunder:
(A) Subsections (c), (e), and (g) of section 4c.
(B) Subsections (a) and (d) of section 4j.
(C) Section 5.
(D) Section 5c.
(E) Section 6a.
(F) Section 8(d).
(G) Section 8e.
(H) Section 9(f).
(I) Section 16.
(J) Section 22(b).
(2)(A) Except as provided in subparagraph (B), but
notwithstanding any other provision of this Act, the
Commission, by rule, regulation, or order, may conditionally or
unconditionally exempt any designated contract market in
security futures subject to the designation requirement of this
section from any provision of this Act or of any rule or
regulation thereunder, to the extent such exemption is
necessary or appropriate in the public interest and is
consistent with the protection of investors.
(B) The Commission shall, by rule or regulation, determine
the procedures under which an exemptive order under this
section is granted and may, in its sole discretion, decline to
entertain any application for an order of exemption under this
section.
SEC. 5G. PRIVACY.
(a) Treatment as Financial Institutions.--Notwithstanding
section 509(3)(B) of the Gramm-Leach-Bliley Act, any person or
entity that is subject to the jurisdiction of the Commission
under this Act with respect to any financial activity shall be
treated as a financialinstitution for purposes of title V of
such Act with respect to such financial activity.
(b) Treatment of CFTC as Federal Functional Regulator.--For
purposes of title V of such Act, the Commodity Futures Trading
Commission shall be treated as a Federal functional regulator
within the meaning of section 509(2) of such Act and shall
prescribe regulations under such title within 6 months after
the date of enactment of this section.
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
section 5, 5a, 5b, or 5f 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 the weight 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 orany 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
* * * * * * *
(g) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding
and a copy of any order entered by the Commission pursuant to
subsections (c) and (d) of this section against any futures
commission merchant or introducing broker registered pursuant
to section 4f(a)(2), any floor broker or floor trader exempt
from registration pursuant to section 4f(a)(3), any associated
person exempt from registration pursuant to section 4k(6), or
any board of trade designated as a contract market pursuant to
section 5f.
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 as are 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 section 5, 5a,
5b, or 5f, 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 anycommodity 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.
* * * * * * *
(h) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding
and a copy of any order entered by the Commission against any
futures commission merchant or introducing broker registered
pursuant to section 4f(a)(2), any floor broker or floor trader
exempt from registration pursuant to section 4f(a)(3), any
associated person exempt from registration pursuant to section
4k(6), or any board of trade designated as a contract market
pursuant to section 5f.
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)(1) * * *
* * * * * * *
(3) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding
and a copy of any order entered by the Commission against any
futures commission merchant or introducing broker registered
pursuant to section 4f(a)(2), any floor broker or floor trader
exempt from registration pursuant to section 4f(a)(3), any
associated person exempt from registration pursuant to section
4k(6), or any board of trade designated as a contract market
pursuant to section 5f.
* * * * * * *
(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 futures association, 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 ``marketemergency'',
``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 orregistration 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), 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 contracts for future delivery or options
thereon on the basis of any material nonpublic
information that such person knows wasobtained 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 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) any Federal or State law, other than
antifraud provisions of general applicability
and the securities laws (as defined in section
3(a)(47) of the Securities Exchange Act of
1934), as such Federal or State law applies to
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); or
(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 daysafter the expiration of such
stay, unless prior thereto the judgment of the court has been
satisfied.
* * * * * * *
[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. 16. (a) * * *
* * * * * * *
(e) The provisions of this section shall not apply to
investigations involving any security underlying a security
future product.
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 forthe 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 a derivatives clearing
organization exempt from registration pursuant to section 5b(b)
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.--No
agreement, contract, or transaction a party to which is
reasonably believed by another party to which to be an eligible
contract participant shall be void, voidable, or unenforceable,
and no such reasonably believed 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 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)(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 eithercase 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.
* * * * * * *
----------
SECTION 402 OF THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT
ACT OF 1991
SEC. 402. DEFINITIONS.
For purposes of this subtitle--
(1) * * *
* * * * * * *
(2) Clearing organization.--The term ``clearing
organization'' means a clearinghouse, clearing
association, clearing corporation, or similar
organization--
(A) * * *
* * * * * * *
[(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.
* * * * * * *
----------
SECURITIES EXCHANGE ACT OF 1934
* * * * * * *
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
definitions and application of title
Sec. 3. (a) When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
(10) The term ``security'' means any note, stock,
treasury stock, security future, bond, debenture,
certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or other mineral
royalty or lease, any collateral-trust certificate,
preorganization certificate or subscription,
transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, any
put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of
securities (including any interest therein or based on
the value thereof), or any put, call, straddle, option,
or privilege entered into on a national securities
exchange relating to foreign currency, or in general,
any instrument commonly known as a ``security''; or any
certificate of interest or participation in, temporary
or interim certificate for, receipt for, or warrant or
right to subscribe to or purchase, any of the
foregoing; but shall not include currency or any note,
draft, bill of exchange, or banker's acceptance which
has a maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited.
[(11) The term ``equity security'' means any stock or
similar security; or any security convertible, with or
without consideration, into such a security, or
carrying any warrant or right to subscribe to or
purchase such a security; or any such warrant or right;
or any other security which the Commission shall deem
to be of similar nature and consider necessary or
appropriate, by such rules and regulations as it may
prescribe in the public interest or for the protection
of investors, to treat as an equity security.]
(11) The term ``equity security'' means any stock or
similar security; or any security future; or any
security convertible, with or without consideration,
into such a security, or carrying any warrant or right
to subscribe to or purchase such a security; or any
such warrant or right; or any put, call, straddle,
option, or privilege on any such security; or any other
security which the Commission shall deem to be of
similar nature and consider necessary or appropriate,
by such rules and regulations as it may prescribe in
the public interest or for the protection of investors,
to treat as an equity security.
* * * * * * *
(13) The terms ``buy'' and ``purchase'' each include
any contract to buy, purchase, or otherwise acquire.
For security future products, such term includes any
contract, agreement, or transaction for future
delivery.
(14) The terms ``sale'' and ``sell'' each include any
contract to sell or otherwise dispose of. For security
future products, such term includes any contract,
agreement, or transaction for future delivery.
* * * * * * *
(55)(A) The term ``security future'' means a contract
of sale for future delivery of a single security or of
a narrow-basedsecurity index, including any interest
therein or based on the value thereof, except an exempted security
under 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) as in
effect on the date of enactment of the Futures Trading Act of 1982).
The term ``security future'' does not include any agreement, contract,
or transaction excluded under subsection (c), (d), or (f) of section 2
of the Commodity Exchange Act as in effect on the date of enactment of
the Commodity Futures Modernization Act of 2000.
(B) The term ``narrow-based security index'' means an
index of securities on which contracts for future
delivery are not permitted under section 2(a)(1)(C) of
the Commodity Exchange Act, including any interest
therein or based on the value thereof.
(C) The term ``security future product'' means a
security future or any put, call, straddle, option, or
privilege on any security future.
(56)(A) The term ``margin'', when used with respect
to a security future product, means the amount, type,
and form of collateral required to secure any extension
or maintenance of credit, or the amount, type, and form
of collateral required as a performance bond related to
the purchase, sale, or carrying of a security future
product, and all other uses of collateral related to
the purchasing, selling, or carrying of a security
future product.
(B) The terms ``margin level'' and ``level of
margin'', when used with respect to a security future
product, mean the amount of margin required to secure
any extension or maintenance of credit, or the amount
of margin required as a performance bond related to the
purchase, sale, or carrying of a security future
product.
(C) The terms ``higher margin level'' and ``higher
level of margin'', when used with respect to a security
future product, mean a margin level established by a
national securities exchange registered pursuant to
section 6(g) that is higher than the minimum amount
established by the Commission pursuant to section
7(c)(2)(B).
* * * * * * *
national securities exchanges
Sec. 6. (a) * * *
* * * * * * *
(g) Notice Registration of Security Future Product
Exchanges.--
(1) Registration required.--An exchange that lists or
trades security future products may be registered as a
national securities exchange solely for the purposes of
trading security future products if--
(A) the exchange is a board of trade, as that
term is defined by the Commodity Exchange Act
(7 U.S.C. 1a(2)), that has been designated a
contract market by the Commodity Futures
Trading Commission and is not subject to a
suspension order by the Commodity Futures
Trading Commission; and
(B) such exchange does not serve as a market
place for transactions in securities other
than--
(i) security future products; or
(ii) futures on exempted securities
or groups or indexes of securities or
options thereon that have been
authorized under section 2(a)(1)(C) of
the Commodity Exchange Act by Commodity
Futures Trading Commission order.
(2) Registration by notice filing.--
(A) Form and content.--An exchange required
to register only because such exchange lists or
trades security future products may register
for purposes of this section by filing with the
Commission a written notice in such form, and
containing the rules of the exchange and such
other information and documents concerning such
exchange as the Commission, by rule, may
prescribe as necessary or appropriate in the
public interest or for the protection of
investors.
(B) Immediate effectiveness.--Such
registration shall be effective immediately
upon filing of the written notice with the
Commission, except that such registration shall
not be effective if such registration would be
subject to suspension or revocation.
(C) Termination.--Such registration shall be
terminated immediately if any of the conditions
for registration set forth in this subsection
are no longer satisfied.
(3) Public availability.--The Commission shall make
available to the public all notices it receives under
this subsection.
(4) Exemption of exchanges from specified
provisions.--
(A) Transaction exemptions.--An exchange that
is registered under paragraph (1) of this
subsection shall be exempt from, and shall not
be required to enforce compliance by its
members with, and its members shall not, solely
with respect to those transactions effected on
such exchange in security future products, be
required to comply with, the following
provisions of this title and the rules
thereunder:
(i) Subsections (b)(2), (b)(3),
(b)(4), (b)(7), (b)(9), (c), (d), and
(e) of this section.
(ii) Subsection (a) of section 10.
(iii) Section 11.
(iv) Subsections (d), (f), and (k) of
section 17.
(v) Subsections (a), (f), and (h) of
section 19.
(B) Rule change exemptions.--An exchange that
is subject to the registration requirement of
paragraph (1) of this subsection shall also be
exempt from submitting proposed rule changes
pursuant to section 19(b) of this title, except
that--
(i) such exchange shall file proposed
rule changes related to higher margin
levels, fraud or manipulation,
recordkeeping, reporting, listing
standards, or decimalpricing for
security future products, sales practices for security future products
for persons who effect transactions in security future products or
rules effectuating such exchange's obligation to enforce the securities
laws pursuant to section 19(b)(7);
(ii) such exchange shall file
pursuant to sections 19(b)(1) and
19(b)(2) proposed rule changes related
to margin, except for changes resulting
in higher margin levels; and
(iii) such exchange shall file
pursuant to section 19(b)(1) proposed
rule changes that have been abrogated
by the Commission pursuant to section
19(b)(7)(C).
(5) Association compliance with requirements.--No
exchange that is registered under paragraph (1) of this
subsection shall trade any security future product
until a futures association registered under section 17
of the Commodity Exchange Act has met the requirements
set forth in section 15A(k)(2) of this title.
(6) Trading in security future products.--It shall be
unlawful for any person to execute or trade a security
future product until the later of--
(A) one year after the date of enactment of
the Commodity Futures Modernization Act of
2000; or
(B) such date as the Federal income tax
treatment applicable to the security future
products permitted under this title are
equivalent to the Federal income tax treatment
of equity options traded on a national
securities exchange.
(h) Trading in Security Future Products.--
(1) Trading on exchange or association required.--It
shall be unlawful for any person to effect transactions
in security future products that are not listed on a
national securities exchange or a national securities
association registered pursuant to section 15A(a).
(2) Listing standards and conditions for trading
required.--A national securities exchange or a national
securities association registered pursuant to section
15A(a) may trade only security future products that (A)
conform with listing standards and conditions for
trading that such exchange or association files with
the Commission under section 19(b), and (B) meet the
criteria specified in section 2(a)(1)(D)(i) of the
Commodity Exchange Act.
(3) Requirements for listing standards and conditions
for trading.--Such listing standards and conditions for
trading shall--
(A) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that any security
underlying the security future, including each
component security of a narrow-based security
index, be registered pursuant to section 12 of
this title;
(B) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that the security future
product be cash settled;
(C) be no less restrictive than comparable
listing standards for options traded on a
national securities exchange or a national
securities association registered pursuant to
section 15A(a) of this title;
(D) except as otherwise provided in a rule,
regulation, or order issued pursuant to
paragraph (4), require that the security future
be based upon common stock and such other
equity securities as the Commission and the
Commodity Futures Trading Commission jointly
determine appropriate;
(E) require that the security future product
is cleared by a clearing agency that has in
place provisions for linked and coordinated
clearing with other clearing agencies that
clear security future products, which permits
the security future product to be purchased on
one market and offset on any other market on
which the security future product is traded;
(F) require that only a broker or dealer
subject to suitability rules comparable to
those of a national securities association
registered pursuant to section 15A(a) effect
transactions in the security future product;
(G) require that the security future product
be subject to the prohibition against dual
trading in section 4j of the Commodity Exchange
Act (7 U.S.C. 6j) and the rules and regulations
thereunder or the provisions of section 11(a)
of this title and the rules and regulations
thereunder, except to the extent otherwise
permitted under this title and the rules and
regulations thereunder;
(H) require that trading in the security
future product not be readily susceptible to
manipulation of the price of such security
future product, 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;
(I) require that procedures be in place for
coordinated surveillance among the market on
which the security future product is traded,
any market on which any security underlying the
security future product is traded, and other
markets on which any related security is traded
to detect manipulation and insider trading;
(J) require that the market on which the
security future product is traded has in place
audit trails necessary or appropriate to
facilitate the coordinated surveillance
required in subparagraph (I);
(K) require that the market on which the
security future product is traded has in place
procedures to coordinate trading halts between
such market and any market on which any
security underlying the security future product
is traded and other markets on which any
related security is traded; and
(L) require that the margin requirements for
a security future product be consistent with
the margin requirements for comparable option
contracts traded on an exchange registered
pursuant to section 6(a) of this title and that
initialand maintenance margin levels for a
security future product not be lower than the levels of margin required
for comparable option contracts traded on an exchange registered
pursuant to section 6(a) of this title, except that nothing in this
subparagraph shall be construed to prevent a national securities
exchange or national securities association from requiring higher
margin levels for a security future product when it deems such action
to be necessary or appropriate.
(4) Authority to modify certain listing standard
requirements.--The Commission and the Commodity Futures
Trading Commission, by rule, regulation, or order, may
jointly modify the listing standard requirements
specified in subparagraph (A), (B), or (D) of paragraph
(3) to the extent such modification fosters the
development of fair and orderly markets in security
future products, is necessary or appropriate in the
public interest, and is consistent with the protection
of investors.
(5) Requirements for other persons trading security
future products.--It shall be unlawful for any person
(other than a national securities exchange or a
national securities association registered pursuant to
section 15A(a)) to constitute, maintain, or provide a
marketplace or facilities for bringing together
purchasers and sellers of security future products or
to otherwise perform with respect to security future
products the functions commonly performed by a stock
exchange as that term is generally understood, unless a
national securities association registered pursuant to
section 15A(a)--
(A) has in place procedures for coordinated
surveillance among such person, the market
trading the securities underlying the security
future products, and other markets trading
related securities to detect manipulation and
insider trading;
(B) has rules to require audit trails
necessary or appropriate to facilitate the
coordinated surveillance required in
subparagraph (A); and
(C) has rules to require such person to
coordinate trading halts with markets trading
the securities underlying the security future
products and other markets trading related
securities.
(6) Deferral of options on security futures
trading.--No person shall offer to enter into, enter
into, or confirm the execution of any put, call,
straddle, option, or privilege on a security future,
except that, after 3 years after the date of enactment
of this subsection, the Commission and the Commodity
Futures Trading Commission may by order jointly
determine to permit trading of puts, calls, straddles,
options, or privileges on any security future
authorized to be traded under the provisions of this
Act and the Commodity Exchange Act. Before any such
determination, the Commission and the Commodity Futures
Trading Commission shall conduct a study of the effect
of the trading of security futures on the markets for
futures contracts, securities, and options and the
adequacy of protections for investors and other market
participants.
margin requirements
Sec. 7. (a) For the purpose of preventing the excessive use
of credit for the purchase or carrying of securities, the Board
of Governors of the Federal Reserve System shall, prior to the
effective date of this section and from time to time
thereafter, prescribe rules and regulations with respect to the
amount of credit that may be initially extended and
subsequently maintained on any security (other than an exempted
security or a security future product). For the initial
extension of credit, such rules and regulations shall be based
upon the following standard: An amount not greater than
whichever is the higher of--
(1) * * *
* * * * * * *
(c) Unlawful Credit Extension to Customers.--
(1) Prohibition.--It shall be unlawful for any member
of a national securities exchange or any broker or
dealer, directly or indirectly, to extend or maintain
credit or arrange for the extension or maintenance of
credit to or for any
customer--
(A) on any security (other than an exempted
security), except as provided in paragraph (2),
in contravention of the rules and regulations
which the Board of Governors of the Federal
Reserve System (hereafter in this section
referred to as the ``Board'') shall prescribe
under subsections (a) and (b); and
* * * * * * *
(2) Margin regulations.--
(A) Compliance with margin rules required.--
It shall be unlawful for any broker, dealer, or
member of a national securities exchange to,
directly or indirectly, extend or maintain
credit to or for, or collect margin from any
customer on, any security future product unless
such activities comply with the rules and
regulations which the Commission, after
consultation with the Commodity Futures Trading
Commission shall prescribe pursuant to
subparagraph (B).
(B) Criteria for issuance of rules.--The
Commission shall issue such regulations to
establish margin requirements, including the
establishment of levels of margin (initial and
maintenance) and use of collateral for security
future products under such terms, and at such
levels, as the Commission deems appropriate--
(i) to preserve the financial
integrity of markets trading security
future products;
(ii) to prevent systemic risk;
(iii) to make consistent the margin
levels (initial and maintenance) and
other margin requirements between
security future products and comparable
options contracts traded on a national
securities exchange; and
(iv) to ensure that the margin
requirements (other than levels of
margin) including the type, form, and
use of collateral for security future
products, are andremain consistent with
the requirements established by the Federal Reserve Board, pursuant to
subparagraphs (A) and (B) of paragraph (1).
[(2)] (3) Exception.--This subsection and the rules
and regulations issued under this subsection shall not
apply to any credit extended, maintained, or arranged
by a member of a national securities exchange or a
broker or dealer to or for a member of a national
securities exchange or a registered broker or dealer--
(A) * * *
* * * * * * *
prohibition against manipulation of security prices
Sec. 9. (a) * * *
* * * * * * *
(b) It shall be unlawful for any person to effect, by use of
any facility of a national securities exchange, in
contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public
interest or for the protection of investors--
(1) any transaction in connection with any security
whereby any party to such transaction acquires (A) any
put, call, straddle, or other option or privilege of
buying the security from or selling the security to
another without being bound to do so[; or], or (B) any
security future product on the security; or
(2) any transaction in connection with any security
with relation to which he has, directly or indirectly,
any interest in any (A) such put, call, straddle,
option, or privilege[; or], or (B) such security future
product delivery; or
(3) any transaction in any security for the account
of any person who he has reason to believe has, and who
actually has, directly or indirectly, any interest in
any (A) such put, call, straddle, option, or privilege,
or (B) such security future product with relation to
such security.
* * * * * * *
(g)(1) Notwithstanding any other provision of law, the
Commission shall have the authority to regulate the trading of
any put, call, straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value thereof),
or any put, call, straddle, option, or privilege entered into
on a national securities exchange relating to foreign currency
(but not, with respect to any of the foregoing, an option on a
contract for future delivery other than a security future
product).
(2) Notwithstanding the Commodity Exchange Act, the
Commission shall have the authority to regulate the trading of
any security future product to the extent provided in the
securities laws.
* * * * * * *
national market system for securities; securities information
processors
Sec. 11A. (a) * * *
* * * * * * *
(e) National Markets System for Security Future Products.--
(1) Consultation and cooperation required.--With
respect to security future products, the Commission and
the Commodity Futures Trading Commission shall consult
and cooperate so that, to the maximum extent
practicable, their respective regulatory
responsibilities may be fulfilled and the rules and
regulations applicable to security future products may
foster a national market system for security future
products if the Commission and the Commodity Futures
Trading Commission jointly determine that such a system
would be consistent with the congressional findings in
subsection (a)(1). In accordance with this objective,
the Commission shall, at least 15 days prior to the
issuance for public comment of any proposed rule or
regulation under this section concerning security
future products, consult and request the views of the
Commodity Futures Trading Commission.
(2) Application of rules by order of cftc.--No rule
adopted pursuant to this section shall be applied to
any person with respect to the trading of security
future products on an exchange that is registered under
section 6(g) unless the Commodity Futures Trading
Commission has issued an order directing that such rule
is applicable to such persons.
registration requirements for securities
Sec. 12. (a) It shall be unlawful for any member, broker, or
dealer to effect any transaction in any security (other than an
exempted security) on a national securities exchange unless a
registration is effective as to such security for such exchange
in accordance with the provisions of this title and the rules
and regulations thereunder. The provisions of this subsection
shall not apply in respect of a security future product listed
on a national securities exchange.
* * * * * * *
(g)(1) * * *
* * * * * * *
(5) For the purposes of this subsection the term ``class''
shall include all securities of an issuer which are of
substantially similar character and the holders of which enjoy
substantially similar rights and privileges. The Commission may
for the purpose of this subsection define by rules and
regulations the terms ``total assets'' and ``held of record''
as it deems necessary or appropriate in the public interest or
for the protection of investors in order to prevent
circumvention of the provisions of this subsection. For
purposes of this subsection, a security future product shall
not be considered aclass of equity security of the issuer of
the securities underlying the security future product.
* * * * * * *
(k) Trading Suspensions; Emergency Authority.--
(1) Trading suspensions.--If in its opinion the
public interest and the protection of investors so
require, the Commission is authorized by order--
(A) * * *
* * * * * * *
The action described in subparagraph (B) shall not take
effect unless the Commission notifies the President of
its decision and the President notifies the Commission
that the President does not disapprove of such
decision. If the actions described in subparagraph (A)
or (B) involve a security future product, the
Commission shall consult with and consider the views of
the Commodity Futures Trading Commission.
(2) Emergency orders.--(A) * * *
* * * * * * *
(B) An order of the Commission under this paragraph
(2) shall continue in effect for the period specified
by the Commission, and may be extended, except that in
no event shall the Commission's action continue in
effect for more than 10 business days, including
extensions. If the actions described in subparagraph
(A) involve a security future product, the Commission
shall consult with and consider the views of the
Commodity Futures Trading Commission. In exercising its
authority under this paragraph, the Commission shall
not be required to comply with the provisions of
section 553 of title 5, United States Code, or with the
provisions of section 19(c) of this title.
* * * * * * *
registration and regulation of brokers and dealers
Sec. 15. (a) * * *
* * * * * * *
(b)(1) * * *
* * * * * * *
(11) Broker/dealer registration with respect to
transactions in security future products.--
(A) Notice registration.--
(i) Contents of notice.--Notwithstanding
paragraphs (1) and (2), a broker or dealer
required to register only because it effects
transactions in security future products on an
exchange registered pursuant to section 6(g)
may register for purposes of this section by
filing with the Commission a written notice in
such form and containing such information
concerning such broker or dealer and any
persons associated with such broker or dealer
as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest
or for the protection of investors. A broker or
dealer may not register under this paragraph
unless that broker or dealer is a member of a
national securities association registered
under section 15A(k).
(ii) Immediate effectiveness.--Such
registration shall be effective immediately
upon filing of the written notice with the
Commission, except that such registration shall
not be effective if the registration would be
subject to suspension or revocation under
paragraph (4).
(iii) Suspension.--Such registration shall be
suspended immediately if a national securities
association registered pursuant to section
15A(k) of this title suspends the membership of
that broker or dealer.
(iv) Termination.--Such registration shall be
terminated immediately if any of the above
stated conditions for registration set forth in
this paragraph are no longer satisfied.
(B) Exemptions for registered brokers and dealers.--A
broker or dealer registered pursuant to the
requirements of subparagraph (A) shall be exempt from
the following provisions of this title and the rules
thereunder with respect to transactions in security
future products:
(i) Section 8.
(ii) Subsection (a) of section 10.
(iii) Section 11.
(iv) Subsections (c)(3) and (c)(5) of this
section.
(v) Section 15B.
(vi) Section 15C.
(vii) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.
(12) Exemption for security future product exchange
members.--
(A) Registration exemption.--A natural person shall
be exempt from the registration requirements of this
section if such person--
(i) is a member of a designated contract
market registered with the Commission as an
exchange pursuant to section 6(g);
(ii) effects transactions only in securities
on the exchange of which such person is a
member; and
(iii) has no direct contact with public
customers.
(B) Other exemptions.--A natural person exempt from
registration pursuant to subparagraph (A) shall also be
exempt from the following provisions of this title and
the rules thereunder:
(i) Section 8.
(ii) Subsection (a) of section 10.
(iii) Section 11.
(iv) Subsections (c)(3), (c)(5), and (e) of
this section.
(v) Section 15B.
(vi) Section 15C.
(vii) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.
* * * * * * *
(i) Rulemaking To Extend Requirements to New Hybrid
Products.--
(1) * * *
* * * * * * *
(6) Definitions.--For purposes of this subsection:
(A) New hybrid product.--The term ``new
hybrid product'' means a product that--
(i) was not subjected to regulation
by the Commission as a security prior
to the date of the enactment of the
Gramm-Leach-Bliley Act;
(ii) is not an identified banking
product as such term is defined in
section 206 of such Act; [and]
(iii) is not an equity swap within
the meaning of section 206(a)(6) of
such Act[.]; and
(iv) is not a security future
product.
* * * * * * *
registered securities associations
Sec. 15A. (a) * * *
* * * * * * *
(k) Limited Purpose National Securities Association.--
(1) Regulation of members with respect to security
future products.--A futures association registered
under section 17 of the Commodity Exchange Act shall be
a registered national securities association for the
limited purpose of regulating the activities of members
who are registered as brokers or dealers in security
future products pursuant to section 15(b)(11).
(2) Requirements for registration.--Such a securities
association shall--
(A) be so organized and have the capacity to
carry out the purposes of the securities laws
applicable to security future products and to
comply, and (subject to any rule or order of
the Commission pursuant to section 19(g)(2)) to
enforce compliance by its members and persons
associated with its members, with the
provisions of the securities laws applicable to
security future products, the rules and
regulations thereunder, and its rules;
(B) have rules that--
(i) are designed to prevent
fraudulent and manipulative acts and
practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest, including rules
governing sales practices and the
advertising of security future products
comparable to those of other national
securities associations registered
pursuant to subsection (a); and
(ii) are not designed to regulate by
virtue of any authority conferred by
this title matters not related to the
purposes of this title or the
administration of the association;
(C) have rules that provide that (subject to
any rule or order of the Commission pursuant to
section 19(g)(2)) its members and persons
associated with its members shall be
appropriately disciplined for violation of any
provision of the securities laws applicable to
security future products, the rules or
regulations thereunder, or the rules of the
association, by expulsion, suspension,
limitation of activities, functions, and
operations, fine, censure, being suspended or
barred from being associated with a member, or
any other fitting sanction; and
(D) have rules that ensure that members and
natural persons associated with members meet
such standards of training, experience, and
competence necessary to effect transactions in
security future products and are tested for
their knowledge of securities and security
future products.
(3) Exemption from rule change submission.--Such a
securities association shall be exempt from submitting
proposed rule changes pursuant to section 19(b) of this
title, except that--
(A) the association shall file proposed rule
changes related to higher margin levels, fraud
or manipulation, recordkeeping, reporting,
listing standards, or decimal pricing for
security future products, sales practices,
advertising of security future products, or
standards of training, experience, competence,
or other qualifications for security future
products for persons who effect transactions in
security future products or rules effectuating
the association's obligation to enforce the
securities laws pursuant to section 19(b)(7);
(B) the association shall file pursuant to
sections 19(b)(1) and 19(b)(2) proposed rule
changes related to margin, except for changes
resulting in higher margin levels; and
(C) the association shall file pursuant to
section 19(b)(1) proposed rule changes that
have been abrogated by the Commission pursuant
to section 19(b)(7)(C).
(4) Other exemptions.--Such a securities association
shall be exempt from and shall not be required to
enforce compliance by its members, and its members
shall not, solely with respect to their transactions
effected in security future products, be required to
comply, with the following provisions of this title and
the rules thereunder:
(A) Subsections (b)(1), (b)(3), (b)(4),
(b)(5), (b)(8), (b)(10), (b)(11), (b)(12),
(b)(13), (c), (d), (e), (f), (g), (h), and (i)
of this section.
(B) Subsections (d), (f), and (k) of section
17.
(C) Subsections (a), (f), and (h) of section
19.
(l) Procedures and Rules for Security Future Products.--A
national securities association registered pursuant to
subsection (a) shall, not later than one year after the date of
enactment of the Commodity Futures Modernization Act of 2000,
implement the procedures specified in section 6(h)(5)(A) of
this title and adopt the rules specified in subparagraphs (B)
and (C) of section 6(h)(5) of this title.
* * * * * * *
directors, officers, and principal stockholders
Sec. 16. (a) * * *
* * * * * * *
(f) Treatment of Transactions in Security Future Products.--
The provisions of this section shall apply to ownership of and
transactions in security future products as if they were
ownership of and transactions in the underlying equity
security. The Commission may adopt such rules and regulations
as it deems necessary or appropriate in the public interest to
carry out the purposes of this section.
* * * * * * *
accounts and records, examinations of exchanges, members, and others
Sec. 17. (a) * * *
* * * * * * *
[(b) All records of persons described in subsection (a) of
this section are subject at any time, or from time to time, to
such reasonable periodic, special, or other examinations by
representatives of the Commission and the appropriate
regulatory agency for such persons as the Commission or the
appropriate regulatory agency for such persons deems necessary
or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of this
title: Provided, however, That the Commission shall, prior to
conducting any such examination of a registered clearing
agency, registered transfer agent, or registered municipal
securities dealer for which it is not the appropriate
regulatory agency, give notice to the appropriate regulatory
agency for such clearing agency, transfer agent, or municipal
securities dealer of such proposed examination and consult with
such appropriate regulatory agency concerning the feasibility
and desirability of coordinating such examination with
examinations conducted by such appropriate regulatory agency
with a view to avoiding unnecessary regulatory duplication or
undue regulatory burdens for such clearing agency, transfer
agent, or municipal securities dealer. Nothing in the proviso
to the preceding sentence shall be construed to impair or limit
(other than by the requirement of prior consultation) the power
of the Commission under this subsection to examine any clearing
agency, transfer agent, or municipal securities dealer or to
affect in any way the power of the Commission under any other
provision of this title or otherwise to inspect, examine, or
investigate any such clearing agency, transfer agent, or
municipal securities dealer.]
(b) Records Subject to Examination.--
(1) Procedures for cooperation with other agencies.--
All records of persons described in subsection (a) are
subject at any time, or from time to time, to such
reasonable periodic, special, or other examinations by
representatives of the Commission and the appropriate
regulatory agency for such persons as the Commission or
the appropriate regulatory agency for such persons
deems necessary or appropriate in the public interest,
for the protection of investors, or otherwise in
furtherance of the purposes of this title if the
Commission, prior to conducting any such examination of
a--
(A) registered clearing agency, registered
transfer agent, or registered municipal
securities dealer for which it is not the
appropriate regulatory agency, gives notice to
the appropriate regulatory agency for such
clearing agency, transfer agent, or municipal
securities dealer, of such proposed examination
and consults with the appropriate regulatory
agency concerning the feasibility and
desirability of coordinating such examinations
conducted by the appropriate regulatory agency
with a view to avoiding unnecessary regulatory
duplication or undue regulatory burdens for
such clearing agency, transfer agent, or
municipal securities dealer; or
(B) broker or dealer registered pursuant to
section 15(b)(11), exchange registered pursuant
to section 6(g), or national securities
association registered pursuant to section
15A(k) gives notice to the Commodity Futures
Trading Commission of such proposed examination
and consults with the Commodity Futures Trading
Commission concerning the feasibility and
desirability of coordinating such examination
with examinations conducted by the Commodity
Futures Trading Commission with a view to
avoiding unnecessary regulatory duplication or
undue regulatory burdens for such broker or
dealer or exchange.
(2) Furnishing data and reports to cftc.--The
Commission shall notify the Commodity Futures Trading
Commission of any examination conducted of any broker
or dealer registered pursuant to section 15(b)(11),
exchange registered pursuant to section 6(g), or
national securities association registered pursuant to
section 15A(k) and, upon request, furnish to the
Commodity Futures Trading Commission any examination
report and data supplied to the Commission in
connection with such examination.
(3) Use of cftc reports.--The Commission shall, to
the fullest extent possible, use the reports of
examinations of any broker or dealer registered
pursuant to section 15(b)(11) or exchange registered
pursuant to section 6(g) made by the Commodity Futures
Trading Commission, a national securities association
registered pursuant to section 15A(k), or an exchange
registered pursuant to section 6(g).
(4) Large trader reporting.--The Commission and the
Commodity Futures Trading Commission shall jointly
prescribe rules to require large trader reporting with
respect to security future products. Such rules shall
specify a reporting level for each security future
product, a format for reporting, and the procedures for
filing such reports with the Commission and the
Commodity Futures Trading Commission.
(5) Rule of construction.--Nothing in this subsection
shall be construed to impair or limit (other than by
the requirement of prior consultation) the power of the
Commission under this subsection to examine any
clearing agency, transfer agent, or municipal
securities dealer, broker or dealer registered pursuant
to section 15(b)(11), exchange registered pursuant
tosection 6(g), or national securities association registered pursuant
to section 15A(k), or to affect in any way the power of the Commission
under any other provision of this title or otherwise to inspect,
examine, or investigate any clearing agency, transfer agent, or
municipal securities dealer, broker or dealer registered pursuant to
section 15(b)(11), exchange registered pursuant to section 6(g), or
national securities association registered pursuant to section 15A(k).
* * * * * * *
national system for clearance and settlement of securities transactions
Sec. 17A. (a)(1) The Congress finds that--
(A) * * *
* * * * * * *
(E) The clearance and settlement of transactions in
over-the-counter derivatives through clearing agencies
registered with the Commission will reduce systemic
risk and provide stability to financial markets during
times of market disorder.
(2)(A) The Commission is directed, therefore, having due
regard for the public interest, the protection of investors,
the safeguarding of securities and funds, and maintenance of
fair competition among brokers and dealers, clearing agencies,
and transfer agents, to use its authority under this title--
(i) * * *
(ii) to facilitate the establishment of linked or
coordinated facilities for clearance and settlement of
transactions in securities, securities options,
contracts of sale for future delivery and options
thereon, [and commodity options] commodity options, and
over-the-counter derivatives;
in accordance with the findings and to carry out the objectives
set forth in paragraph (1) of this subsection.
* * * * * * *
(b)(1) * * *
* * * * * * *
(3) A clearing agency shall not be registered unless the
Commission determines that--
(A) Such clearing agency is so organized and has the
capacity to be able to facilitate the prompt and
accurate clearance and settlement of securities
transactions and derivative agreements, contracts, and
transactions for which it is responsible, to safeguard
securities and funds in its custody or control or for
which it is responsible, to comply with the provisions
of this title and the rules and regulations thereunder,
to enforce (subject to any rule or order of the
Commission pursuant to section 17(d) or 19(g)(2) of
this title) compliance by its participants with the
rules of the clearing agency, and to carry out the
purposes of this section.
* * * * * * *
(F) The rules of the clearing agency are designed to
promote the prompt and accurate clearance and
settlement of securities transactions and, to the
extent applicable, derivative agreements, contracts,
and transactions, to assure the safeguarding of
securities and funds which are in the custody or
control of the clearing agency or for which it is
responsible, to foster cooperation and coordination
with persons engaged in the clearance and settlement of
securities transactions, to remove impediments to and
perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of
securities transactions, and, in general, to protect
investors and the public interest; and are not designed
to permit unfair discrimination in the admission of
participants or among participants in the use of the
clearing agency, or to regulate by virtue of any
authority conferred by this title matters not related
to the purposes of this section or the administration
of the clearing agency.
* * * * * * *
(7) A clearing agency that is regulated directly or
indirectly by the Commodity Futures Trading Commission through
its association with a designated contract market for security
future products, and that performs the functions of a clearing
agency only with respect to security future products and
transactions in securities effected pursuant to the rules of
the designated contract market with which such agency is
associated, is exempted from the provisions of this section and
the rules and regulations thereunder, except that any clearing
agency that performs the functions of a clearing agency with
respect to security future products must coordinate with and
develop fair and reasonable links with any and all other
clearing agencies that perform the functions of a clearing
agency with respect to security future products, in order to
permit security future products to be purchased on a national
securities exchange or national securities association
registered pursuant to section 15A(a) and offset on another
national securities exchange or national securities association
registered pursuant to section 15A(a).
(8) A registered clearing agency shall be permitted to
provide facilities for the clearance and settlement of any
derivative agreements, contracts, or transactions that are
excluded from the Commodity Exchange Act, subject to the
requirements of this section and to such rules and regulations
as the Commission may prescribe as necessary or appropriate in
the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of this title.
* * * * * * *
registration, responsibilities, and oversight of self-regulatory
organizations
Sec. 19. (a) * * *
* * * * * * *
(b)(1) * * *
* * * * * * *
(7) Security future product rule changes.--
(A) Filing required.--A self-regulatory organization
that is an exchange registered with the Commission
pursuant to section 6(g) of this title or that is a
national securitiesassociation registered pursuant to
section 15A(k) of this title shall file with the Commission, in
accordance with such rules as the Commission may prescribe, copies of
any proposed rule change or any proposed change in, addition to, or
deletion from the rules of such self-regulatory organization
(hereinafter in this paragraph collectively referred to as a ``proposed
rule change'') that relates to higher margin levels, fraud or
manipulation, recordkeeping, reporting, listing standards, or decimal
pricing for security future products, sales practices for security
future products for persons who effect transactions in security future
products or rules effectuating such self-regulatory organization's
obligation to enforce the securities laws. Such proposed rule change
shall be accompanied by a concise general statement of the basis and
purpose of such proposed rule change. The Commission shall, upon the
filing of any proposed rule change, publish notice thereof together
with the terms of substance of the proposed rule change or a
description of the subjects and issues involved. The Commission shall
give interested persons an opportunity to submit written data, views,
and arguments concerning such proposed rule change.
(B) Filing with cftc.--A proposed rule change filed
with the Commission pursuant to subparagraph (A) shall
be filed concurrently with the Commodity Futures
Trading Commission. Such proposed rule change may take
effect upon filing of a written certification with the
Commodity Futures Trading Commission, upon a
determination by the Commodity Futures Trading
Commission that review of the proposed rule change is
not necessary or upon approval of the proposed rule
change by the Commodity Futures Trading Commission.
(C) Abrogation of rule changes.--Any proposed rule
change of a self-regulatory organization that has taken
effect pursuant to subparagraph (B) may be enforced by
such self-regulatory organization to the extent such
rule is not inconsistent with the provisions of this
title, the rules and regulations thereunder, and
applicable Federal law. At any time within 60 days of
the date of the filing of a written certification with
the Commodity Futures Trading Commission, the date the
Commodity Futures Trading Commission determines that
review of such proposed rule change is not necessary,
or the date the Commodity Futures Trading Commission
approves such proposed rule change, the Commission,
after consultation with the Commodity Futures Trading
Commission, summarily may abrogate the proposed rule
change and require that the proposed rule change be
refiled in accordance with the provisions of paragraph
(1), if it appears to the Commission that such proposed
rule change unduly burdens competition, conflicts with
the securities laws, does not promote efficiency, or is
inconsistent with the public interest and the
protection of investors. Commission action pursuant to
the preceding sentence shall not affect the validity or
force of the rule change during the period it was in
effect and shall not be reviewable under section 25 nor
deemed to be a final agency action for purposes of
section 704 of title 5, United States Code.
(D) Review of resubmitted abrogated rules.--
(i) Proceedings.--Within 35 days of the date
of publication of notice of the filing of a
proposed rule change that is abrogated in
accordance with subparagraph (C) and refiled in
accordance with paragraph (1), or within such
longer period as the Commission may designate
up to 90 days after such date if the Commission
finds such longer period to be appropriate and
publishes its reasons for so finding or as to
which the self-regulatory organization
consents, the Commission shall--
(I) by order approve such proposed
rule change; or
(II) after consultation with the
Commodity Futures Trading Commission,
institute proceedings to determine
whether the proposed rule change should
be disapproved.
Proceedings under subclause (II) shall include
notice of the grounds for disapproval under
consideration and opportunity for hearing and
be concluded within 180 days after the date of
publication of notice of the filing of the
proposed rule change. At the conclusion of such
proceedings, the Commission, by order, shall
approve or disapprove such proposed rule
change. The Commission may extend the time for
conclusion of such proceedings for up to 60
days if it finds good cause for such extension
and publishes its reasons for so finding or for
such longer period as to which the self-
regulatory organization consents.
(ii) Grounds for approval.--The Commission
shall approve a proposed rule change of a self-
regulatory organization under this subparagraph
if it finds that such proposed rule change
promotes efficiency, does not unduly burden
competition, does not conflict with the
securities laws, and is not inconsistent with
the public interest or the protection of
investors. The Commission shall disapprove such
a proposed rule change of a self-regulatory
organization if it does not make such finding.
The Commission shall not approve any proposed
rule change prior to the 30th day after the
date of publication of notice of the filing
thereof, unless the Commission finds good cause
for so doing and publishes its reasons for so
finding.
(8) Decimal pricing.--Not later than 9 months after the later
of the dates specified in section 6(g)(5), all self-regulatory
organizations listing or trading security future products shall
file proposed rule changes necessary to implement decimal
pricing of security future products. The Commission may not
require such rules to contain equal minimum increments in such
decimal pricing.
(9) Consultation with cftc.--
(A) Consultation required.--The Commission shall
consult with and consider the views of the Commodity
Futures Trading Commission prior to approving a
proposed rule change filed by a national securities
association registered pursuant to section 15A(a) or a
national securities exchange subject to the provisions
of subsection (a) that primarily concerns conduct
related to transactions in security futures products,
except where the Commission determines that an
emergency exists requiring expeditious or summary
action and publishes its reasons therefor.
(B) Responses to cftc comments and findings.--If the
Commodity Futures Trading Commission comments in
writing to the Commission on a proposed rule that has
been published for comment, the Commission shall
respond in writing to such written comment before
approving the proposed rule. If the Commodity Futures
Trading Commission determines, and notifies the
Commission, that such rule, if implemented or as
applied, would--
(i) adversely affect the liquidity or
efficiency of the market for security future
products; or
(ii) impose any burden on competition not
necessary or appropriate in furtherance of the
purposes of this section,
the Commission shall, prior to approving the
proposed rule, find that such rule is necessary
and appropriate in furtherance of the purposes
of this section notwithstanding the Commodity
Futures Trading Commission's determination.
(C) Considerations of existing regulation.--In
approving rules described in subparagraph (A), the
Commission shall consider the sufficiency and
appropriateness of then existing laws and rules
applicable to security futures products.
* * * * * * *
(d)(1) * * *
* * * * * * *
(3) The provisions of this subsection shall apply to an
exchange registered pursuant to section 6(g) of this title or a
national securities association registered pursuant to section
15A(k) of this title only to the extent that such exchange or
association imposes any final disciplinary sanction for--
(A) a violation of the federal securities laws or the
rules and regulations thereunder; or
(B) a violation of a rule of such exchange or
association, as to which a proposed change would be
required to be filed under section 19 of this title,
except that, to the extent that the exchange or
association rule violation relates to any account,
agreement, or transaction, this subsection shall apply
only to the extent such violation involves a security
future product.
* * * * * * *
liability of controlling persons and persons who aid and abet
violations
Sec. 20. (a) * * *
* * * * * * *
(d) Wherever communicating, or purchasing or selling a
security while in possession of, material nonpublic information
would violate, or result in liability to any purchaser or
seller of the security under any provision of this title, or
any rule or regulation thereunder, such conduct in connection
with a purchase or sale of a put, call, straddle, option, [or
privilege] privilege, or security future product with respect
to such security or with respect to a group or index of
securities including such security, shall also violate and
result in comparable liability to any purchaser or seller of
that security under such provision, rule, or regulation.
* * * * * * *
investigations; injunctions and prosecution of offenses
Sec. 21. (a) * * *
* * * * * * *
(i) Information to CFTC.--The Commission shall provide the
Commodity Futures Trading Commission with notice of the
commencement of any proceeding and a copy of any order entered
by the Commission against any broker or dealer registered
pursuant to section 15(b)(11) or any exchange registered
pursuant to section 6(g).
civil penalties for insider trading
Sec. 21A. (a) Authority To Impose Civil Penalties.--
(1) Judicial actions by commission authorized.--
Whenever it shall appear to the Commission that any
person has violated any provision of this title or the
rules or regulations thereunder by purchasing or
selling a security while in possession of material,
nonpublic information in, or has violated any such
provision by communicating such information in
connection with, a transaction on or through the
facilities of a national securities exchange or from or
through a broker or dealer, and which is not part of a
public offering by an issuer of securities other than
[standardized options, the Commission--] standardized
options or security future products, the Commission--
(A) * * *
* * * * * * *
effect on existing law
Sec. 28. (a) Except as provided in subsection (f), the rights
and remedies provided by this title shall be in addition to any
and all other rights and remedies that may exist at law or in
equity; but no person permitted to maintain a suit for damages
under the provisions of this title shall recover, through
satisfaction of judgment in one or more actions, a total amount
in excess of his actual damages on account of the act
complained of. Except as otherwise specifically provided in
this title, nothing in this title shall affect thejurisdiction
of the securities commission (or any agency or officer performing like
functions) of any State over any security or any person insofar as it
does not conflict with the provisions of this title or the rules and
regulations thereunder. No State law which prohibits or regulates the
making or promoting of wagering or gaming contracts, or the operation
of ``bucket shops'' or other similar or related activities, shall
invalidate any put, call, straddle, option, privilege, or other
security subject to this title, or apply to any activity which is
incidental or related to the offer, purchase, sale, exercise,
settlement, or closeout of [any such instrument, if such instrument is
traded pursuant to rules and regulations of a self-regulatory
organization that are filed with the Commission pursuant to section
19(b) of this Act] any such security.
* * * * * * *
(e)(1) * * *
* * * * * * *
(4) The provisions of this subsection shall not apply with
regard to securities that are security future products.
* * * * * * *
----------
SECURITIES INVESTOR PROTECTION ACT OF 1970
* * * * * * *
SEC. 3. SECURITIES INVESTOR PROTECTION CORPORATION.
(a) Creation and Membership.--
(1) * * *
* * * * * * *
(2) Membership.--
(A) Members of sipc.--SIPC shall be a
membership corporation the members of which
shall be all persons registered as brokers or
dealers under section 15(b) of the 1934 Act,
other than--
(i) persons whose principal business,
in the determination of SIPC, taking
into account business of affiliated
entities, is conducted outside the
United States and its territories and
possessions; [and]
(ii) persons whose business as a
broker or dealer consists exclusively
of (I) the distribution of shares of
registered open end investment
companies or unit investment trusts,
(II) the sale of variable annuities,
(III) the business of insurance, or
(IV) the business of rendering
investment advisory services to one or
more registered investment companies or
insurance company separate accounts[.];
and
(iii) persons who are registered as a
broker or dealer pursuant to section
15(b)(11)(A) of the Securities Exchange
Act of 1934.
* * * * * * *
SEC. 16. DEFINITIONS.
For purposes of this Act, including the application of the
Bankruptcy Act to a liquidation proceeding:
(1) * * *
* * * * * * *
(14) Security.--The term ``security'' means any note,
stock, treasury stock, bond, debenture, evidence of
indebtedness, any collateral trust certificate,
preorganization certificate or subscription,
transferable share, voting trust certificate,
certificate of deposit, certificate of deposit for a
security, or any security future as that term is
defined in section 3(a)(55)(A) of the Securities
Exchange Act of 1934, any investment contract or
certificate of interest or participation in any profit-
sharing agreement or in any oil, gas, or mineral
royalty or lease (if such investment contract or
interest is the subject of a registration statement
with the Commission pursuant to the provisions of the
Securities Act of 1933), any put, call, straddle,
option, or privilege on any security, or group or index
of securities (including any interest therein or based
on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national
securities exchange relating to foreign currency, any
certificate of interest or participation in, temporary
or interim certificate for, receipt for, guarantee of,
or warrant or right to subscribe to or purchase or sell
any of the foregoing, and any other instrument commonly
known as a security. Except as specifically provided
above, the term ``security'' does not include any
currency, or any commodity or related contract or
futures contract, or any warrant or right to subscribe
to or purchase or sell any of the foregoing.
----------
SECURITIES ACT OF 1933
* * * * * * *
definitions
Sec. 2. (a) Definitions.--When used in this title, unless the
context otherwise requires--
(1) The term ``security'' means any note, stock,
treasury stock, security future, bond, debenture,
evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement,
collateral-trust certificate, preorganization
certificate or subscription, transferable share,
investment contract, voting-trust certificate,
certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral
rights, any put, call, straddle, option, or privilege
on any security, certificate of deposit, or group or
index of securities (including any interest therein or
based on the value thereof), or any put, call,
straddle, option, or privilege entered into on a
national securities exchange relating to foreign
currency, or, in general, any interest or instrument
commonly known as a ``security'', or any certificate of
interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, orwarrant
or right to subscribe to or purchase, any of the foregoing.
* * * * * * *
(3) The term ``sale'' or ``sell'' shall include every
contract of sale or disposition of a security or
interest in a security, for value. The term ``offer to
sell'', ``offer for sale'', or ``offer'' shall include
every attempt or offer to dispose of, or solicitation
of an offer to buy, a security or interest in a
security, for value. The terms defined in this
paragraph and the term ``offer to buy'' as used in
subsection (c) of section 5 shall not include
preliminary negotiations or agreements between an
issuer (or any person directly or indirectly
controlling or controlled by an issuer, or under direct
or indirect common control with an issuer) and any
underwriter or among underwriters who are or are to be
in privity of contract with an issuer (or any person
directly or indirectly controlling or controlled by an
issuer, or under direct or indirect common control with
an issuer). Any security given or delivered with, or as
a bonus on account of, any purchase of securities or
any other thing, shall be conclusively presumed to
constitute a part of the subject of such purchase and
to have been offered and sold for value. The issue or
transfer of a right or privilege, when originally
issued or transferred with a security, giving the
holder of such security the right to convert such
security into another security of the same issuer or of
another person, or giving a right to subscribe to
another security of the same issuer or of another
person, which right cannot be exercised until some
future date, shall not be deemed to be an offer or sale
of such other security; but the issue or transfer of
such other security upon the exercise of such right of
conversion or subscription shall be deemed a sale of
such other security. Any offer or sale of a security
future product by or on behalf of the issuer of the
securities underlying the security future product, an
affiliate of the issuer, or an underwriter, shall
constitute a contract for sale of, sale of, offer for
sale, or offer to sell the underlying securities.
* * * * * * *
(16) The terms ``security future'', ``narrow-based
security index'', and ``security future product'' have
the same meanings as provided in section 3(a)(55) of
the Securities Exchange Act of 1934.
* * * * * * *
exempted securities
Sec. 3. (a) Except as hereinafter expressly provided, the
provisions of this title shall not apply to any of the
following classes of securities:
(1) * * *
* * * * * * *
(14) Any security future product that is--
(A) cleared by a clearing agency registered
under section 17A of the Securities Exchange
Act of 1934 or exempt from registration under
subsection (b)(7) of such section 17A; and
(B) listed on a national securities exchange
or a national securities association registered
pursuant to section 15A(a) of the Securities
Exchange Act of 1934.
* * * * * * *
civil liabilities arising in connection with prospectuses and
communications
Sec. 12. (a) In General.--Any person who--
(1) offers or sells a security in violation of
section 5, or
(2) offers or sells a security (whether or not
exempted by the provisions of section 3, other than
[paragraph (2)] paragraphs (2) and (14) of subsection
(a) thereof), by the use of any means or instruments of
transportation or communication in interstate commerce
or of the mails, by means of a prospectus or oral
communication, which includes an untrue statement of a
material fact or omits to state a material fact
necessary in order to make the statements, in the light
of the circumstances under which they were made, not
misleading (the purchaser not knowing of such untruth
or omission), and who shall not sustain the burden of
proof that he did not know, and in the exercise of
reasonable care could not have known, of such untruth
or omission,
shall be liable, subject to subsection (b), to the person
purchasing such security from him, who may sue either at law or
in equity in any court of competent jurisdiction, to recover
the consideration paid for such security with interest thereon,
less the amount of any income received thereon, upon the tender
of such security, or for damages if he no longer owns the
security.
* * * * * * *
----------
SECTION 2 OF THE INVESTMENT COMPANY ACT OF 1940
general definitions
Sec. 2. (a) When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
(36) ``Security'' means any note, stock, treasury
stock, security future, bond, debenture, evidence of
indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or
subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option,
or privilege on any security (including a certificate
of deposit) or on any group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on anational securities exchange
relating to foreign currency, or, in general, any interest or
instrument commonly known as a ``security'', or any certificate of
interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or
purchase, any of the foregoing.
* * * * * * *
(52) The terms ``security future'' and ``narrow-based
security index'' have the same meanings as provided in
section 3(a)(55) of the Securities Exchange Act of
1934.
* * * * * * *
----------
INVESTMENT ADVISERS ACT OF 1940
* * * * * * *
TITLE II--INVESTMENT ADVISERS
* * * * * * *
definitions
Sec. 202. (a) When used in this title, unless the context
otherwise requires, the following definitions shall apply:
(1) * * *
* * * * * * *
(18) ``Security'' means any note, stock, treasury
stock, security future, bond, debenture, evidence of
indebtedness, certificate of interest or participation
in any profit-sharing agreement, collateral-trust
certificate, preorganization certificate or
subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option,
or privilege on any security (including a certificate
of deposit) or on any group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on a national securities
exchange relating to foreign currency, or, in general,
any interest or instrument commonly known as a
``security'', or any certificate of interest or
participation in, temporary or interim certificate for,
receipt for, guaranty of, or warrant or right to
subscribe to or purchase any of the foregoing.
* * * * * * *
(27) The terms ``security future'' and ``narrow-based
security index'' have the same meanings as provided in
section 3(a)(55) of the Securities Exchange Act of
1934.
* * * * * * *
registration of investment advisers
Sec. 203. (a) * * *
(b) The provisions of subsection (a) shall not apply to--
(1) * * *
* * * * * * *
(4) any investment adviser that is a charitable
organization, as defined in section 3(c)(10)(D) of the
Investment Company Act of 1940, or is a trustee,
director, officer, employee, or volunteer of such a
charitable organization acting within the scope of such
person's employment or duties with such organization,
whose advice, analyses, or reports are provided only to
one or more of the following:
(A) any such charitable organization;
(B) a fund that is excluded from the
definition of an investment company under
section 3(c)(10)(B) of the Investment Company
Act of 1940; or
(C) a trust or other donative instrument
described in section 3(c)(10)(B) of the
Investment Company Act of 1940, or the
trustees, administrators, settlors (or
potential settlors), or beneficiaries of any
such trust or other instrument; [or]
(5) any plan described in section 414(e) of the
Internal Revenue Code of 1986, any person or entity
eligible to establish and maintain such a plan under
the Internal Revenue Code of 1986, or any trustee,
director, officer, or employee of or volunteer for any
such plan or person, if such person or entity, acting
in such capacity, provides investment advice
exclusively to, or with respect to, any plan, person,
or entity or any company, account, or fund that is
excluded from the definition of an investment company
under section 3(c)(14) of the Investment Company Act of
1940[.]; or
(6) any investment adviser that is registered with
the Commodity Futures Trading Commission as a commodity
trading advisor whose business does not consist
primarily of acting as an investment adviser, as
defined in section 202(a)(11) of this title, and that
does not act as an investment adviser to (A) an
investment company registered under title I of this
Act, or (B) a company which has elected to be a
business development company pursuant to section 54 of
title I of this Act and has not withdrawn its election.
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