[Senate Report 106-390]
[From the U.S. Government Publishing Office]
Calendar No. 766
106th Congress Report
SENATE
2d Session 106-390
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COMMODITY FUTURES MODERNIZATION ACT OF 2000
_______
August 25, 2000.--Ordered to be printed
_______
Mr. Lugar, from the Committee on Agriculture, Nutrition, and Forestry,
submitted the following
R E P O R T
The Committee on Agriculture, Nutrition, and Forestry,
having considered an original bill to reauthorize and amend the
Commodity Exchange Act to promote legal certainty, enhance
competition, and reduce systemic risk in markets for futures
and over-the-counter derivatives; and for other purposes,
reports favorably thereon and recommends that the bill do pass.
CONTENTS
Page
I. Purpose, need and background.....................................1
II. Section-by-section analysis......................................5
III. Legislative history and votes in the Committee..................13
IV. Regulatory impact statement.....................................16
V. Budgetary impact of the bill....................................17
VI. Changes in existing law.........................................20
I. Purpose, Need and Background
Signed into law in 1974, the modern Commodity Exchange Act
(``CEA'' or ``the Act'') is the body of law that governs the
futures industry in the United States. Enforced by the
Commodity Futures Trading Commission (``CFTC''), this Act
attempts to ensure that futures market participants are not
defrauded and that the markets remain efficient, transparent
and free from manipulation. Authorization for the funding of
the CFTC expires on September 30th of this year.
The Commodity Futures Modernization Act of 2000 would
reauthorize appropriations for the CFTC for five additional
years and would reform the CEA in three primary ways. First, it
would incorporate the unanimous recommendations of the
President's Working Group (``Working Group'' or ``PWG''),
consisting of the principals from the U.S. Treasury Department
(``Treasury''), the Federal Reserve System (``Fed''), the
Securities and Exchange Commission (``SEC'') and the CFTC on
the proper legal and regulatory treatment of over-the-counter
(``OTC'') derivatives. Second, it would codify the regulatory
relief proposal of the CFTC to ensure that futures exchanges
are appropriately regulated and remain competitive. Third, this
legislation would reform the Shad-Johnson jurisdictional
accord, which sought to establish jurisdictional boundaries
between the agencies and banned the trading of single stock
futures 18 years ago.
Derivative instruments, both exchange-traded and those
traded over-the-counter, have played a significant role in our
economy's current economic expansion due to their innovative
nature and their risk-transferring attributes. According to the
International Swaps and Derivatives Association, the global
derivatives market has a notional value that exceeds $58
trillion. Identified by Alan Greenspan as the `most significant
event in finance of the past decade,' the development of the
derivatives marketplace has substantially added to the
productivity and wealth of our nation.
Derivatives enable companies to unbundle and transfer risk
to those entities who are willing and able to accept it. By
doing so, efficiency is enhanced as firms are able to
concentrate on their core business objectives. A farmer can
purchase a futures contract, one type of derivative, in order
to lock in a price for a crop at harvest. Automobile
manufacturers, whose profits earned overseas can fluctuate with
changes in currency values, can minimize this uncertainty
through derivatives, allowing them to focus on the business of
building cars. Banks significantly lessen their exposure to
interest rate movements by entering into derivatives contracts
known as interest rate swaps, which enable these institutions
to hedge their risk by exchanging variable and fixed rates of
interest.
The CEA primarily governs one class of derivative
transaction--futures contracts. The Act requires that these
contracts be traded on a CFTC-regulated futures exchange. If a
futures contract is being traded off of an exchange, a court of
law could rule the contract to be illegal and unenforceable.
When Congress enacted the CEA and created the CFTC to enforce
it, the meanings of ``futures contract'' and ``exchange'' were
relatively apparent and the OTC derivatives business was in its
infancy. However, in the 26 years since the statute's creation,
the growth of the OTC derivatives market has significantly
outpaced the exchange-traded futures market. Along with this
expansion, the boundaries between exchanges and OTC markets and
between futures and swaps began to blur both practically and in
legal status and treatment.
cftc concept release
In 1998, the CFTC issued its concept release on OTC
derivatives, which was perceived by many as foreshadowing
possible regulation of these instruments as futures. The
possibility of regulatory action had considerable
ramifications, given the size and importance of the OTC market.
This action significantly magnified the longstanding legal
uncertainty surrounding these instruments, raising concerns in
the OTC market, including suggestions it would cause portions
of the business to move overseas.
This prospect led the Treasury, the Fed and the SEC to
oppose the concept release and request that Congress enact a
moratorium on the CFTC's ability to regulate these instruments
until after the Working Group could complete a study on the
issue. As a result, Congress passed a six-month moratorium on
the CFTC's ability to regulate OTC derivatives. In November
1999, the Working Group completed its unanimous recommendations
on OTC derivatives and presented Congress with these findings.
Adoption of President's Working Group Report
This legislation adopts many of the recommendations of the
PWG report. The bill contains several mechanisms for ensuring
that legal certainty is attained and that certain transactions
remain outside the CEA. The electronic trading facility
exclusion would exclude transactions in certain financial and
other intangible commodities from the Act if conducted: (1) on
a principal to principal basis; (2) between institutions or
persons with high net worth; and (3) on an electronic trading
facility. A second exclusion would exclude certain transactions
from the CEA if (1) conducted between institutions or persons
with high net worth; and (2) not traded on a trading facility.
A third exclusion confirms and clarifies the Treasury Amendment
language already contained in the CEA by excluding all
transactions in foreign currency and government securities from
the Act unless those transactions are futures contracts and
traded on an organized exchange. As recommended by the Working
Group, the bill would clarify the CFTC's jurisdiction over off-
exchange retail futures transactions in foreign currency that
are not effected with a regulated entity. A fourth exclusion
for hybrid securities and depository instruments clarifies
circumstances under which structured securities and depository
instruments with embedded futures- and commodity option-like
payments are excluded from regulations under the CEA. Another
important recommendation of the PWG was to authorize clearing
organizations, including futures clearinghouses, to clear OTC
derivatives in an effort to lessen systemic risk. This bill
incorporates this recommendation and establishes a regulatory
framework for this activity.
Adoption of the CFTC's Regulatory Modernization Proposal
The second major portion of this legislation addresses
regulatory modernization and reform for the futures industry.
When the CEA was enacted in 1974, the futures industry was
primarily agricultural in nature. Farmers, agri-businesses and
speculators traded futures contracts in open-outcry pits on
futures exchanges in an effort to transfer volatile price risk.
Realizing that futures trading was an effective way to transfer
all types of risks, the financial sector began to develop and
trade financial futures, and this market has flourished. Today
non-agricultural futures comprise approximately 85 percent of
the volume on U.S. futures exchanges. With the widespread
adoption of computer technology, electronic exchanges began to
compete head-to-head with open-outcry futures exchanges at a
fraction of the cost. Last year witnessed the Swiss-German
electronic futures exchange, Eurex, overtaking the Chicago
Board of Trade as the global leader in futures trading volume.
Many industry observers believe that the regulatory structure
of the CEA has had a significant competitive impact on the U.S.
futures exchanges and has inhibited the development of the OTC
markets.
In February of 2000, the CFTC issued a proposal that would
provide regulatory reform to futures exchanges and their
customers. Instead of listing specific requirements for
complying with the CEA, the proposal would require exchanges to
meet internationally agreed-upon core principles. The CFTC
proposal creates tiers of regulation for exchanges based on
whether the underlying commodities being traded are susceptible
to manipulation or whether the users of the exchange are
limited to institutional customers.
The legislation incorporates a similar framework and
provides for three levels of regulation. A board of trade that
is designated as a contract market would receive the highest
level of oversight due to the fact that products offered on a
contract market are susceptible to manipulation or are offered
to retail customers. The bill provides for a second level of
regulation under which, in lieu of contract market designation,
a board of trade may register as a derivatives transaction
execution facility (``DTEF'') if the products being offered by
the board of trade are not susceptible to manipulation and are
traded among institutional customers or retail customers who
utilize large futures commission merchants (``FCMs''). A third
option provided in the bill allows a board of trade to choose
to be an exempt board of trade (``XBOT'') and not be subject to
the Act (except for the CFTC's anti-manipulation authority) if
the products being offered are traded among institutions or
high net worth persons and the instruments are not susceptible
to manipulation. This bill would allow a board of trade that is
a DTEF or an XBOT to opt to trade derivatives that are
otherwise excluded from the Act. To the extent that these
products are traded on these facilities, the CFTC would have
exclusive jurisdiction over them. With this provision, it was
the intent of the Committee to provide these facilities that
trade certain specified derivatives with a choice--if
regulation is beneficial, the facility may choose to be
regulated. If not, the facility may choose to be excluded or
exempted from the Act.
Reform of the Shad-Johnson Jurisdictional Accord
The third portion of the bill addresses the Shad-Johnson
jurisdictional accord. In 1982, SEC Chairman John Shad and CFTC
Chairman Phillip Johnson reached an agreement on allocating
between the agencies jurisdiction over futures on securities.
Known as the Shad-Johnson Accord, this agreement prohibited the
trading of futures on non-exempt securities and narrow-based
indices of non-exempt securities (as defined by the Securities
Act of 1933 and the Securities Exchange Act of 1934), allocated
to the SEC jurisdiction over options on securities and
securities indices, and allocated to the CFTC jurisdiction over
futures on exempt securities and broad-based indices of
securities.
Many have suggested that the Shad-Johnson accord, meant as
a temporary agreement, should now be repealed. The Working
Group unanimously agreed that the Accord can be repealed if
regulatory disparities are resolved between the regulation of
futures and securities. In April 2000, the General Accounting
Office (``GAO'') found no legitimate policy reason for
maintaining the ban on single stock futures. The GAO noted in
its report that these products are already being traded in
foreign markets, synthetically in the options markets, and that
economically equivalent transactions are being conducted in the
OTC market.
Despite an eight month effort to get the two agencies to
reach an agreement on lifting the ban on single stock futures,
the SEC and the CFTC were unable to come to any agreement
before this bill was introduced. Furthermore, they were unable
to reach agreement before the bill was reported out of the
Committee despite continued urging from the Chairmen of the
Senate Agriculture and Banking Committees.
This legislation would repeal the prohibition on single
stock futures and narrow-based stock index futures. It would
allow these products, termed designated futures on securities,
to trade on either a CFTC-regulated contract market or a SEC-
regulated national securities exchange or association. The SEC
would maintain its insider trading and anti-fraud enforcement
authority over these products even though traded on a futures
exchange and the CFTC would maintain its anti-manipulation
authority, including the ability to enforce its large trader
reporting requirements, over these products even though traded
on a national securities exchange or association. Each agency
would be required to provide the other regulator with notice
before exercising theseauthorities affecting markets outside
their primary jurisdictions. Under the bill, margin levels on these
products would be required to be harmonized with the options markets.
The bill allows for the creation of an Intermarket Margin Board,
consisting of members from the Fed, the CFTC and the SEC, to set and
maintain margin levels for these products. The bill provides a one year
period before the repeal of Shad-Johnson is effective in order to
provide the regulators adequate time to implement the regulatory
safeguards contained in the bill.
The various sections of this legislation have support from
a broad spectrum of regulators and industry participants. Input
has been solicited and received throughout the drafting process
from numerous groups, including the CFTC, the Treasury, the
Fed, the Chicago Board of Trade, the Chicago Mercantile
Exchange, the New York Mercantile Exchange, the International
Swaps and Derivatives Association, the National Futures
Association, the Coalition of Commercial and Investment Banks,
the Securities Industry Association, the Coalition of
Commercial and Investment Banks, the American Farm Bureau
Federation, the National Cattlemen's Beef Association, the
American Bankers Association, the New York Stock Exchange, the
U.S. Securities Markets Coalition, the Bond Market Association,
the Foreign Exchange Committee, the Futures Industry
Association, and the Financial Services Roundtable.
II. Section-by-Section Analysis
Sec. 1. Short Title and Table of Contents. The Act is
entitled the Commodity Futures Modernization Act of 2000.
Sec. 2. Purposes. The section lists 8 purposes for the bill
including reauthorizing and streamlining the CEA; eliminating
unnecessary regulation for the futures exchanges; clarifying
the jurisdiction of the CFTC over certain retail foreign
currency transactions; transforming the role of the CFTC;
providing a legislative and regulatory framework for the
trading of futures on securities; promoting innovation and
reducing systemic risk for futures and OTC derivatives;
allowing clearing of OTC derivatives; and enhancing the
competitive position of the U.S. financial institutions and
markets.
Sec. 3. Definitions. The section adds definitions to
section 1(a) of the CEA for the following terms: derivatives
clearing organization; designated future on a security;
electronic trading facility; eligible commercial participant;
eligible contract participant; exclusion-eligible commodity;
exempted security; financial commodity; financial institution;
hybrid instrument; national securities exchange; option;
organized exchange; registered entity; security and trading
facility.
Sec. 4. Agreements, Contracts, and Transactions in Foreign
Currency, Government Securities and Certain Other Commodities.
The section strikes clause (ii) of subparagraph 2(a)(1)(A) (the
current law Treasury Amendment) and replaces it with a new
subsection 2(c), which states that nothing in the CEA applies
to transactions in foreign currency, government securities and
other similar instruments unless these instruments are futures
or commodity options traded on an organized exchange. The bill
defines ``organized exchange'' as a trading facility that
either serves retail customers, permits brokered or similar
agency trades, or performs a self regulatory role. New section
2(c)(2) also excludes from CFTC regulation foreign currency
transactions (other than those conducted on an organized
exchange) between specified regulated entities and persons who
are not eligible contract participants (i.e. retail customers).
These excluded transactions include transactions executed on an
electronic facility on which only a single firm is entitled to
act as a market-maker and on which non-market maker
counterparties may not accept bids and offers of other non-
market-maker counterparties (either directly or through the
market-maker running a matched book in which non-market-maker
counterparties' bids and offers become bids and offers of the
market-maker).
The Committee intends that new section 2(c) of the
Commodity Exchange Act codify the decision in Dunn v. Commodity
Futures Trading Commission, 519 U.S. 465 (1997). Accordingly,
the meaning of the phrase ``transactions in'' that is
referenced in section 2(c) should be interpreted in a manner
consistent with the holding of that decision. In making these
clarifications, the Committee does not intend to draw any
distinction between the use of the words ``in'' or
``involving'' contained elsewhere in the CEA.
Sec. 5. Legal Certainty for Over-the-Counter Transactions.
The section amends section 2 of the CEA to create a new
subsection 2(d), which provides two exclusions from the CEA for
OTC derivatives. Paragraph (1) of subsection 2(d) provides that
nothing in the CEA applies to transactions in an exclusion-
eligible commodity if the transaction: (1) is between eligible
contract participants (institutions or high net worth persons)
and (2) is not executed on a trading facility. The second
exclusion in paragraph 2(d)(2) provides that nothing in the CEA
shall apply to a transaction in an exclusion-eligible commodity
if the transaction: (1) is entered into on a principal to
principal basis between parties trading for their own accounts;
(2) is between eligible contract participants (large,
institutional entities) and (3) is executed on an electronic
trading facility.
The exclusion for transactions conducted on a trading
facility only applies to principal to principal transactions.
The exclusion does not apply if an eligible contract
participant: (1) acts as broker or in an equivalent agency
capacity for any other party; or (2) trades in its own name for
the economic risk and benefit of any other party. This
limitation does not preclude an eligible contract participant
from transacting with a counterparty and contemporaneously
entering into an economically identical hedging transaction,
for the eligible contract participant's own account and risk,
on a trading facility. The limitation also does not preclude
certain regulated eligible contract participants from acting in
a discretionary investment management or equivalent fiduciary
capacity for another eligible contract participant as
contemplated under the definition of eligible contract
participant.
Finally, transactions between participants that are
otherwise conducted on a principal to principal basis are not
ineligible for the exclusion merely because the trading
facility itself or its sponsor acts in the capacity of an
inter-participant broker by bringing buyers and sellers
together.
Sec. 6. Excluded Electronic Trading Facilities. The section
amends section 2 of the CEA to create a new subsection 2(e)
that clarifies that trading instruments that are otherwise
excluded from the CEA on an electronic trading facility does
not subject the transactions to regulation under the CEA.
Paragraph (2) of subsection 2(e) states that nothing in the CEA
shall prohibit a contract market or derivatives transaction
execution facility from establishing and operating an excluded
electronic trading facility.
Sec. 7. Hybrid Instruments. The section amends section 2 of
the CEA to create a new subsection 2(f) that provides that
nothing in the CEA applies to a hybrid instrument that is
predominantly a security or depository instrument. Paragraph
(2) of subsection 2(f) definespredominant in terms of 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. Paragraph (3) of subsection 2(f) clarifies that
mark-to-marketing requirements do not include the obligation of an
issuer of a secured debt instrument to increase the amount of
collateral securing its obligations under the instrument.
New section 2(f)(2)(C) refers to mark-to-market margining
requirements between the purchaser and the issuer of the hybrid
instrument, and it is not intended to preclude a hybrid
instrument from qualifying for the exclusion based on the
issuer being subject to mark-to-market margining requirements
when hedging the initial transaction on a regulated futures
exchange or in another market.
Sec. 8. Futures on Securities. Subsection (a) amends
section 2 of the CEA by adding a new subsection 2(g) that
repeals the Shad Johnson jurisdictional accord. The new
paragraph 2(g)(1) is a savings clause to ensure that excluded
OTC equity derivatives remain outside the CEA and the
jurisdiction of the CFTC. This paragraph also prohibits the
CFTC from designating a board of trade as a contract market in
options on securities (as in current law).
Paragraph (2) allows the trading of futures on security
indexes on contract markets and gives the CFTC exclusive
jurisdiction in regulating these futures. In order for these
products to be designated as a contract market, the contracts
must be cash settled and must not be susceptible to
manipulation (applies to both the price of the contract or the
underlying securities (or an option on such securities)).
Paragraph (3) allows the trading of designated futures on
securities (defined in the bill as a contract for future
delivery on a single non-exempted security, an index based on
fewer than 5 non-exempted securities or any index in which a
single stock predominates by its value accounting for more than
30 percent of the index's total value). The Act authorizes
these products to be traded on designated contract markets and
national securities exchanges or associations.
Paragraph (4) provides criteria for contract market
designation of these products including: cash settlement; real-
time audit trails; insusceptibility to price manipulation (both
of the contract and the underlying stock or an option on that
stock); eligibility for listing on a national securities
exchange; margin requirements; conflict of interest rules; and
making information available to the regulators.
Paragraph (5) authorizes the SEC to enforce the securities
laws related to insider trading and fraud with respect to
designated futures on securities listed on a contract market
after providing the CFTC with notice. This paragraph also
requires the SEC and the CFTC, beginning three years from the
date of enactment, to jointly compile a report on the
implementation of this new authority and, four years after the
date of enactment, to submit the report to Congress.
Paragraph (6) authorizes the CFTC to enforce its large
trader reporting and other anti-fraud and anti-manipulation
authorities for designated futures on securities listed on a
national securities exchange after providing the SEC with
notice. It requires national securities exchanges to provide
the CFTC with information to enforce these provisions.
Paragraph (7) provides the process for listing a designated
future on a security on either a futures exchange or a national
securities exchange.
As in current law, paragraph (8) provides the Federal
Reserve with the authority to set margin requirements and
delegate this authority. The paragraph would allow the Fed to
create a three member board consisting of principals of the
CFTC, SEC and the Fed, or their confirmed designees to set and
maintain margin levels on designated futures on securities.
Paragraph (9) would allow futures commission merchants to offer
to U.S. customers futures on foreign stock or foreign stock
indices listed on foreign boards of trade as long as the U.S.
is not the primary market for such products. New section
2(g)(9) of the Act confirms the scope of the Commission's
interest in futures contracts on foreign securities or foreign
securities indices listed for trading on a foreign exchange.
Except as set forth in this section, the Commission, consistent
with existing law, will have no authority to review or approve
any futures contract (or option thereon) on a foreign security
or foreign security index listed for trading on a foreign
exchange.
Paragraph (10) mandates that a registered futures
association adopt customer suitability rules for the trading of
designated futures on securities.
Subsection (b) of section 8 of the bill contains a sense of
the Senate that Congress, to the extent necessary, should
harmonize the tax treatment of equity options and designated
futures on securities and the transaction fees for equity
options and designated futures on securities prior to section 8
of the bill taking effect.
Sec. 9. Exempted Transactions. The section adds a new
section that would allow for an exemption for transactions
other than agricultural products that are traded between
institutional entities on a bilateral basis. The CFTC would
retain its anti-fraud, anti-manipulation authorities over these
transactions.
Although this exemption is limited to transactions between
eligible contract participants that occur off of a trading
facility, the CFTC is encouraged to use its current exemptive
authority, as appropriate and consistent with the public
interest, under section 4(c) of the CEA to exempt transactions
between eligible contract participants that occur on an
electronic trading facility.
Sec. 10. Protection of the Public Interest. Replaces
section 3 of the CEA with a new section listing the
responsibilities of the CFTC in protecting the public interest.
Sec. 11. Prohibited Transactions. Re-writes the current
section 4c for clarity.
Sec. 12. Designation of Boards of Trade as Contract
Markets. Strikes current law sections 5 and 5a and adds 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; 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 would be automatically designated
``contract markets'' under this section.
Subsection (d) sets out the 17 core principles that must be
met to maintain designation as a contract market. This
subsection provides that a board of trade must: monitor and
enforce compliance with the contract market rules; list only
contracts that are not susceptible to manipulation; monitor
trading to prevent manipulation, price distortion and delivery
or settlement disruptions; adopt position limits for
speculators; adopt rules to provide for the exercise
ofemergency 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; ensure that the composition of
the governing board represents the market participants and a diversity
of interests (in the case of mutually owned exchanges); maintain
records and make them available at any time for inspection by the
Attorney General; and avoid taking any action that restrains trade or
imposes anticompetitive burdens on the markets.
Sec. 13. Derivatives Transaction Execution Facilities. The
section amends the CEA by adding a new section 5a authorizing a
new trading designation, the 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: (1) has a nearly inexhaustible supply;
(2) is not susceptible to manipulation; (3) does not have a
cash market in commercial practice; or (4) is determined by the
CFTC (based on market characteristics and the facility's
surveillance history, capacity, and self-regulatory role) to be
unlikely to be susceptible to manipulation. This subsection
allows eligible commercial participants to trade on a DTEF
contracts in non-agricultural commodities. In order to be
eligible to trade on a DTEF, a person must (1) be authorized to
trade on the DTEF by the exchange and (2) be either an eligible
contract participant or a person trading through a registered
FCM that has capital of at least $20,000,000. For purposes of
this section, the term `authorized' should not be construed to
require a board of trade to approve individually every customer
trading through a qualified FCM on a DTEF.
Boards of trade that have been designated as contract
markets may operate DTEFs if they provide a separate location
for DTEF trading or, in the case of an electronic system,
identify whether the trading is on a DTEF or contract market.
Subsection (c) provides requirements for boards of trade
that wish to register as DTEFs, including: establishing and
enforcing trading rules that will deter abuses and provide
market participants impartial access to the markets and capture
information that may be used in rule enforcement; define
trading procedures to be used; and provide for the financial
integrity of DTEF transactions.
To maintain registration as a DTEF, the board of trade must
comply with 8 core principles listed in subsection (d):
maintain and enforce rules; ensure orderly trading and provide
trading information to the CFTC; publicly disclose information
regarding contract terms, trading practices, and financial
integrity protections; provide information on prices, bids and
offers to market participants as well as daily information in
volume and open interest for the actively traded contracts;
establish and enforce rules regarding fitness standards for
those involved in DTEF governance; maintain records and make
them available at any time for inspection by the Attorney
General; and avoid taking any action that restrains trade or
imposes anticompetitive burdens on the markets.
Subsection (e) allows a broker-dealer or a bank 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 the broker-dealer holds the
DTEF customer funds or accounts for more than 1 business day,
the broker-dealer must be a registered FCM and a member of a
registered futures association. The CFTC and SEC are to
coordinate in adopting rules to implement this subsection.
In complying with the implementation of this subsection,
the Commission, in coordination with the SEC, shall endeavor to
subject broker-dealers and financial institutions trading on a
DTEF to record-keeping and reporting requirements that are
comparable to and consistent with the requirements faced by
futures commission merchants trading on a DTEF.
Under (f), the CFTC may adopt regulations to allow FCMs to
provide their customers with the right to opt out of
segregating customer funds for purposes of trading on the DTEF.
Subsection (g) clarifies that a DTEF may trade derivatives
that otherwise would be excluded from the CEA. The CFTC has
exclusive jurisdiction over these instruments to the extent
that these instruments are traded on a DTEF.
Sec. 14. Derivatives Clearing Organizations. The section
amends the CEA to create a new section 5b regarding derivatives
clearing organizations. Under subsection (a), these clearing
entities, which are allowed to clear derivatives (that are not
a security), must register with the CFTC and meet a set of 13
core principles set out in subsection (d), including principles
on financial resources of the clearing facility, participant
eligibility, risk management systems, settlement procedures,
treatment of client funds, default rules, rule enforcement,
system safeguards, reporting, record keeping, public
information disclosure, information sharing, and minimizing
competitive restraints.
Under subsection (b), a derivatives clearing organization
will not have to register with the CFTC if it is registered
with another federal financial regulator and it does not clear
futures. This is intended to encompass those clearing
facilities registered with other financial regulators as well
as those clearing facilities that have previously received an
exemption from registration from these financial regulators.
Under subsection (c), a derivatives clearing organization that
is exempt from registration may opt to register with the CFTC.
Subsection (e) provides that an existing clearing entity that
clears futures contracts on a designated contract market will
automatically be deemed a derivatives clearing organization for
purposes of this section.
Sec. 15. Common Provisions Applicable to Registered
Entities. The section amends the CEA to create a new section 5c
that contains provisions affecting all registered entities
(contract markets, derivatives transaction execution facilities
and derivatives clearing organizations).
Subsection (a) would allow the CFTC to issue or approve
interpretations to describe what would constitute an acceptable
business practice under the core principles for registered
entities.
Subsection (b) would allow 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) would enable the registered entity to trade
new products or adopt or amend rules by providing the CFTC (and
the Treasury Department for contracts in governmentsecurities)
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. This subsection would require the CFTC to pre-
approve any rule changes with regard to open interest agricultural
contracts.
Subsection (d) grants the CFTC the authority to informally
resolve potential violations of the core principles for
registered entities.
Subsection (e) provides that nothing in this section limits
or affects the emergency authorities of the CFTC.
Subsection (f) directs the CFTC to implement core
principles for intermediaries. In carrying out this subsection,
the Commission shall conduct a study of the Act and the
Commission's rules, regulations and orders governing the
conduct of persons required to be registered with the
Commission. Within one year after the date of the enactment of
the bill, the Commission would file a report with the Senate
Committee on Agriculture, Nutrition and Forestry and the House
Committee on Agriculture. The report would identify: (1) the
core principles and interpretations of acceptable business
practices that the Commission has adopted as substitutes for
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 that
it can effect the changes identified in paragraph (1) through
its exemptive authority under section 4(c) of the Act; and (4)
the regulatory functions that the Commission currently performs
that can be delegated to a registered futures association and
the regulatory functions that the Commission has determined
must be retained and the reasons therefor.
Subsection (g) adds a new provision (sec. 4c(a)(3)(B)) to
allow futures commission merchants to trade futures off the
floor of a futures exchange as long as the board of trade
allows such transactions and the FCMs report, record and clear
the transactions in accordance with the rules of the contract
market or derivatives trading execution facility.
Sec. 16. Exempt Boards of Trade. The 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 if (1)
participants are eligible contract participants (large
institutional investors) and (2) the commodity underlying the
futures contract is not a security, has an inexhaustible
deliverable supply, is not subject to manipulation, or has no
cash market. Subsection (c) subjects futures contracts traded
on an exempt board of trade to the 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.
Sec. 17. Suspension or Revocation of Designation as
Registered Entity. The section designates current section 5b as
5e and amends it to authorize the CFTC to suspend the
registration of a registered entity for 180 days for any
violation of the CEA.
Sec. 18. Authorization of Appropriations. The section
amends section 12(d) of the CEA by striking 2000 and
reauthorizing appropriations through fiscal year 2005.
Sec. 19. Preemption. The section rewrites paragraph
12(e)(2) of the CEA for clarity and to conform with changes
made in the bill. Re-states the current provisions that the CEA
supersedes and preempts other laws in the case of transactions
conducted on a registered entity or subject to regulation by
the CFTC (even if outside the United States), and adds that in
the case of excluded electronic trading facilities, and any
agreements, contracts or transactions that are excluded or
covered by a section 4(c) exemption, the CEA supersedes and
preempts state gaming and bucket shop laws (except for the
anti-fraud provisions of those laws that are generally
applicable). It is not a requirement that the underlying
transaction be a futures contract or commodity option in order
to be eligible for the preemption from these state law
provisions.
Sec. 20. Predispute Resolution Agreements for Institutional
Customers. The section amends section 14 of the CEA to clarify
that futures commission merchants, as a condition of doing
business, may require customers that are eligible contract
participants to waive their right to file a reparations claim
with the CFTC.
Sec. 21. Consideration of Costs and Benefits. The section
amends section 15 of the CEA to add a new subsection (a)
requiring the CFTC, before promulgating regulations and issuing
orders, to consider the costs and benefits of their action.
This does not apply to orders associated with an adjudicatory
or investigative process, emergency actions or findings of fact
regarding compliance with CFTC rules.
Sec. 22. Contract Enforcement Between Eligible
Counterparties. The section amends section 22 of the CEA to
provide a safe harbor so that 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.
Sec. 23. Legal Certainty for Swaps. The section provides
that nothing in the bill gives the SEC or CFTC jurisdiction
over swap agreements. It requires the President's Working Group
to conduct a study on the regulatory treatment of swaps in
relation to the securities laws.
Sec. 24. Repeal of Deficiency Orders. The section repeals
section 8e of the Commodity Exchange Act.
Sec. 25. Technical and Conforming Amendments. The section
makes technical and conforming amendments throughout the CEA to
reflect changes made by the bill.
Sec. 26. Effective Date. The Act takes effect on the date
of enactment, except section 8 (dealing with futures on
securities), which takes effect one year after enactment.
III. Legislative History and Committee Votes
On July 30,1998, the Senate Committee on Agriculture,
Nutrition and Forestry held a hearing on the CFTC's concept
release on OTC derivatives. Many industry observers believed
that this document was the first step leading to regulating
these transactions as futures. If these transactions were found
to be off-exchange futures, a court of law could rule them to
be illegal and unenforceable. This possibility posed the risk
of this trillion dollar industry moving off-shore. Federal
Reserve Chairman Alan Greenspan, Deputy Treasury Secretary
Lawrence Summers and SEC Chairman Arthur Levitt testified in
opposition to the CFTC's stance and urged Congress to adopt a
regulatory moratorium on the CFTC until the President's Working
Group could study and report to Congress on this issue. CFTC
Chair Brooksley Born testified in support of the concept
release and urged the Committee to refrain from taking this
action. Tom Jasper, managingdirector of Salomon Smith Barney
and William Miller, president of the End Users of Derivatives
Association also testified regarding this subject.
In October 1998, Congress agreed to impose a six month
regulatory moratorium on the CFTC with regard to OTC
derivatives. This moratorium was contained in the annual
agricultural appropriations bill.
On December 16, 1998, the Senate Committee on Agriculture,
Nutrition and Forestry held a hearing regarding the status of
the CFTC concept release on OTC derivatives and the near
collapse of Long Term Capital Management hedge fund. All five
CFTC commissioners testified, including Chair Brooksley Born,
Commissioner David Spears, Commissioner John Tull, Commissioner
Barbara Holum, and Commissioner James Newsome. Testifying on a
second panel were Roger Anderson, Deputy Assistant Secretary
for Federal Finance of the Treasury, Patrick Parkinson,
Director of the Division of Research and Statistics of the Fed,
Richard Lindsay, Director of the Division of Market Regulation
of the SEC and Dan Waldman, General Counsel of the CFTC. A
third panel, consisting of former CFTC chairs, included Susan
Philips, Dean of the George Washington School of Business and
Public Management; Wendy Gramm, James Buchanan Center of George
Mason University; William Albrecht, Professor of Economics at
the University of Iowa; and Martin Mayer, Guest Scholar at the
Brookings Institute. The Committee also released for public
comment 48 public policy questions regarding CEA
reauthorization.
On February 25 and 26, 1999, the Senate and House
Agriculture Committees held a joint Roundtable on Futures,
Derivatives and Public Policy. Hosted by former CFTC chair
Phillip Johnson and National Futures Association President Bob
Wilmouth, this roundtable assembled a diverse group of eighteen
individuals from the industry and academia to discuss
derivatives policy and possible legislative solutions. These
participants included Jack Coffee, Columbia University; George
Crapple, Millburn Ridgefield Corp.; David Downey, Timber Hill
LLC; Jerry Gulke, Strategic Marketing Services and farmer;
Robert Kohlmeyer, World Perspectives; Howard Kramer, Schiff,
Hardin & Waite; Robert Mackay, National Economic Research
Associates Assoc.; Leo Melamed, Sakura Dellsher, INC.; Merton
Miller, University of Chicago; Ernest T. Patrikis, American
International Group; Todd Petzel, Common Fund; David Pryde, JP
Morgan Futures; Thomas Russo, Lehman Brothers; Rich Sandor,
Environmental Financial Products; Charles Smithson, CIBC World
Markets; Steven Spence, Merrill Lynch; and Jack Wing, Illinois
Institute of Technology.
On May 5, 1999, the Senate Committee on Agriculture,
Nutrition and Forestry held a hearing regarding agricultural
trade options and how these instruments might benefit producers
in managing the risks of farming. In 1997, the CFTC began a
pilot program to allow these products to trade on a conditional
basis. As of the hearing date, no one in the industry had
signed up to participate in the program. The Committee heard
from Commissioner David Spears regarding the CFTC's pilot
program on agricultural trade options and whether additional
rulemaking or legislation was necessary to fix it. Other
witnesses included Jerry Slocum, President, North Mississippi
Grain Company; Dan Dye, Vice President, Cargill; Scott Stewart,
National Introducing Brokers Association; Steve Manaster,
Director, Financial Risk Management Pamplin College of
Business, Virginia Tech; Kenneth Ackerman, Risk Management
Agency, United States Department of Agriculture; and Dave
Rempe, Extension Assistant, Department of Agricultural
Economics, Kansas State University.
On September 23, 1999, the Senate Committee on Agriculture,
Nutrition and Forestry held a hearing to explore the impact of
electronic trading on the derivatives industry and its
regulation. Specifically, the Committee heard testimony
regarding how this industry will look in the near- and long-
term as a result of technological advances; what types of
electronic trading activity should be regulated under the CEA;
and whether electronic exchanges should be regulated
differently than open outcry exchanges. The first panel,
consisting of representatives from the futures exchanges and
electronic OTC trading facilities, addressed the policies that
should drive whether transactions are regulated. These
witnesses included Roger Barton, BrokerTec; David P. Brennan
and Thomas Donovan, Chicago Board of Trade; Shawn Dorsch,
Derivatives Net, Inc. (Blackbird); Howard Lutnick, Cantor
Fitzgerald; Leo Melamed, Chicago Mercantile Exchange; and
Edward J. Rosen, Coalition of Commercial and Investment Banks.
The second panel provided the Committee with demonstrations on
electronic trading and commentary on the future of the
industry. These witnesses included Phillip McBride Johnson,
Skadden, Arps, Slate, Meagher & Flom; David Downey, InterActive
Brokers; and Matt Andresen, Island ECN.
On February 10, 2000, the Senate Committee on Agriculture,
Nutrition and Forestry held a hearing on the release of the
President's Working Group report on OTC derivatives and the
CEA. Senate Agriculture Committee Chairman Richard Lugar and
House Agriculture Committee Chairman Bob Smith had requested
this report subsequent to the regulatory moratorium that
Congress placed on the CFTC regarding OTC derivatives. This
unanimous report made recommendations to Congress on the proper
regulatory treatment for over-the-counter derivatives. Treasury
Secretary Lawrence Summers, Federal Reserve Chairman Alan
Greenspan, CFTC Chairman William Rainer, and Annette Nazareth,
Director of the Division of Market Regulation of the SEC,
testified in support of the report's recommendations. Also
providing testimony were Chairman David Brennan, Chicago Board
of Trade; Chairman Daniel Rappaport, New York Mercantile
Exchange; Jerry Salzman, counsel for the Chicago Mercantile
Exchange; Richard Grove, CEO and President of the International
Swaps and Derivatives Association (ISDA); and Edward J. Rosen,
counsel for the Coalition of Commercial and Investment Banks.
On June 8, 2000, Senate Agriculture Committee Chairman
Richard Lugar, along with Senate Banking Committee Chairman
Phil Gramm and Senator Peter Fitzgerald, introduced S. 2967,
The Commodity Futures Modernization Act of 2000, legislation to
reauthorize and amend the Commodity Exchange Act.
On June 21, 2000, the Senate Committee on Agriculture,
Nutrition and Forestry and the Senate Committee on Banking,
Housing, and Urban Affairs held a joint hearing to consider S.
2697, the Commodity Futures Modernization Act of 2000.
Witnesses included members of the President's Working Group on
Financial Markets consisting of Fed Chairman Alan Greenspan,
Treasury Secretary Lawrence Summers, CFTC Chairman William
Rainer and SEC Chairman Arthur Levitt.
Committee Vote
In compliance with paragraph 7 of rule XXVI of the Standing
Rules of the Senate, the following statements are made
concerning the votes of the Committee in its consideration of
the bill:
The Committee met in open session on Thursday, June 29,
2000, to mark up this bill. The bill was agreed to unanimously
by voice vote. The Committee then ordered that the bill be
favorably reported by a voice vote.
IV. Regulatory Impact Statement
In compliance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the following evaluation is made
concerning the regulatory impact of enacting this legislation:
The number of individuals and businesses who would be
impacted by regulations issued under this bill is substantial.
The entire futures industry in the United States would be
directly affected by this legislation. Its impact would be one
of lower cost both to the businesses and to individuals in the
futures markets due to the expanded market opportunities opened
under the bill and the decrease in the cost of implementing the
regulations under the legislation. As for the record keeping
requirements under the bill, the records that futures exchanges
are required to keep are less circumscribed and therefore the
cost will be lower for the futures exchanges. This cost savings
will result in lower transaction costs to individuals and
businesses trading on the exchanges.
The securities industry would likewise be affected as they
would have new business opportunities opened to them with the
repeal of the ban on single stock futures. Firms in the
financial services business would experience a growth in
opportunities as would individuals trading futures on these
markets. Individuals and businesses in the securities markets
would be better situated to manage their risk.
With the legislation's language to provide legal certainty
for OTC derivatives transactions, firms and banks would
experience decreased legal and paperwork costs associated with
these transactions.
This bill would not affect the personal privacy of the
individuals affected by the changes. The amount of additional
paperwork that will result from the regulations to be
promulgated pursuant to the bill, is moderate. The futures
exchanges would be the most impacted as they would have new
levels of regulations under which they could choose to operate.
During the transition period when new regulations are being
implemented, the paperwork burden on the futures exchanges
might be relatively high. But as the shift to the new
structures is accomplished, the paperwork burden will decrease
resulting in less paper work for the regulated industry.
The National Futures Association (``NFA'') and its members
will be impacted as well by the bill. Section 8 of the bill
mandates that the NFA adopt rules requiring its members who
recommend purchase or sales of futures on securities to
ascertain the suitability of the recommendation for that
customer. This cost would be small because the NFA has had a
substantially similar rule in effect since 1985. The bill also
allows futures exchanges to delegate their self regulatory
functions to a registered futures association, thus potentially
increasing the NFA's responsibilities under the Act.
V. Budgetary Impact of the Bill
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate, the following letter has been
received from the Congressional Budget Office regarding the
budgetary impact of the bill:
Congressional Budget Office Cost Estimate
S. 2697--Commodity Futures Modernization Act of 2000
Summary: S. 2697 would reauthorize funding for the
activities of the Commodity futures Trading Commission (CFTC)
during the 2001-2005 period. The bill would also allow the
trading of single stock futures under certain conditions, with
oversight being shared by the CFTC and the Securities and
Exchange Commission (SEC). In addition, S. 2697 would clarify
that certain over-the-counter derivative transactions are
outside of the jurisdiction of the CFTC. The bill also would
authorize the CFTC to designate boards of trade as contract
markets or execution facilities for derivatives transactions.
Assuming appropriation of the necessary amounts, CBO
estimates that implementing this legislation would cost $363
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 $3 million a year to regulate single stock futures.
S. 2697 also would increase governmental receipts, because the
bill would make single stock futures subject to fees charged by
the SEC. Although CBO estimates that this increase in fee
collections would not be significant, pay-as-you-go procedures
would apply.
S. 2697 contains an intergovernmental mandate 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). The bill also contains a new private-sector mandate
as defined by UMRA, but CBO estimates the costs of this mandate
would not exceed the threshold established in the act ($109
million in 2000, adjusted annually for inflation).
Estimated Cost to the Federal Government: The estimated
budgetary impact of S. 2697 is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------
2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION\1\
Proposed changes to CFTC spending:
Estimated authorization level............................. 67 69 72 74 77
Estimated outlays......................................... 60 68 71 73 76
Proposed changes to SEC spending:
Estimated authorization level............................. 3 3 3 3 3
Estimated outlays......................................... 3 3 3 3 3
Total changes in spending:
Estimated authorization level............................. 70 72 75 77 80
Estimated outlays......................................... 63 71 74 76 79
----------------------------------------------------------------------------------------------------------------
\1\ CBO estimates that enactment of S. 2697 also would result in an insignificant increase in revenues over the
2001-2005 period.
Basis of estimate: For this estimate, CBO assumes that the
bill will be enacted by the end of fiscal year 2000 and that
the necessary amounts will be appropriated by the start of each
fiscal year. Provisions related to the regulation of single
stock futures would take effect one year after enactment. CBO
estimates that S. 2697 would cost $363 million over the 2001-
2005 period, and would have a negligible effect on revenues.
Spending subject to appropriation
S. 2697 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. 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 CFTC would share oversight of single stock
futures transactions with the SEC. The bill also clarifies that
the CFTC does not have jurisdiction over certain over-the-
counter derivatives transactions. The CFTC also would be
authorized to designate boards of trade as contract markets or
execution facilities for derivatives transactions with the SEC.
CBO estimates that these changes to the CFTC's regulatory
responsibilities would require the agency to hire new staff.
S. 2697 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 $3
million a year during the 2001-2005 period.
Finally, CBO estimates that S. 2697 would increase the
amount of offsetting collections received by the SEC, although
the increase would not be significant. The bill would allow
single stock futures to be traded on a national securities
association and would therefore make them subject to
transaction fees collected by the SEC. Under current law, fees
on transactions conducted on national securities associations
are recorded as offsetting collections, which are credited as
an offset to discretionary spending. However, based on
information from the CFTC, the SEC, and private groups, CBO
does not expect that the volume of transactions of single stock
futures that would be conducted on national securities
associations would be large enough to generate a significant
increase in offsetting collections.
Revenues
Under current law, transactions conducted on national
securities exchanges are also subject to certain SEC fees that
are accounted for as governmental receipts (revenues). These
fees are equal to 1/300 of a percent of the aggregate dollar
amount of securities sales.
S. 2697 would allow the trading of single stock futures on
national securities exchanges. By creating a new category of
financial transactions that would be subject to SEC fees, this
bill would increase revenues collected by the SEC. However,
based on information provided by the CFTC, the SEC, and by
private groups, CBO estimates that any increase in revenues
would not be significant.
Pay-as-you-go considerations: The Balanced Budget and
Emergency Deficit Control Act sets up pay-as-you-go procedures
for legislation affecting receipts or direct spending. S. 2697
would affect receipts by adding a new set of financial
transactions that would be subject to fees collected by the
SEC. However, CBO estimates that the amount of additional
receipts would not be significant.
Estimated impact on State, local, and tribal governments:
S. 2697 would preempt state laws affecting certain commodities
transactions that are conducted in markets regulated by the
Commodities Futures Trading Commission. Such a preemption would
be a mandate as defined by UMRA. CBO estimates that the costs
of this mandate, 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: Section 8 of the
bill would require a registered futures association to adopt
rules requiring a futures commission merchant, a commodity
trading advisor, or an introducing broker that recommends a
purchase or sale of a futures on a security, to ascertain the
suitability of that recommendation for that customer. The
national futures association already adopted a ``know your
customer'' rule in 1985. According to industry sources, the
requirements of that rule are very similar to the requirements
of a suitability rule. Thus, CBO estimates that the direct
costs of complying with this mandate would be negligible.
Previous CBO estimate: On June 29, 2000, CBO transmitted a
cost estimate for H.R. 4541, the Commodity Futures
Modernization Act of 2000, as ordered reported by the House
Committee on Agriculture on June 27, 2000. Assuming
appropriation of the necessary amounts, CBO estimates that H.R.
4541 would cost $353 million over the 2001-2005 period. In
comparison, CBO estimates that the costs of S. 2697 would total
$363 million during that time period. Although the two bills
are similar in many respects, CBO estimates that the costs of
S. 2697 would be higher because the SEC would require
additional staff to regulate the trading of single stock
futures on national securities exchanges and associations. S.
2697 also would increase the revenues and offsetting
collections received by the SEC, although we estimate that
these increases would not be significant.
Estimate prepared by: Federal Costs: Kenneth Johnson.
Impact on the State, Local and Tribal Governments: Susan Sieg
Tompkins. Impact on the Private Sector: Judith Ruud.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
VI. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made in
the bill, as reported are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
material 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:
* * * * * * *
(4) 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) 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--
* * * * * * *
(vi) any contract market or
derivatives transaction execution
facility; and
* * * * * * *
(7) Cooperative association of producers.--The term
``cooperative association of producers'' * * *
(8) 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 (other than
a security)--
(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 participants
in the derivatives clearing
organization; or
(iii) otherwise provides clearing
services or arrangements that mutualize
or transfer among participants in the
derivatives clearing organization the
credit risk arising from such
agreements, contracts, or transactions
executed by the participants.
(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.
(9) Designated future on a security.--The term
``designated future on a security'' means a contract of
sale (or option on such a contract) for future delivery
of--
(A) a single nonexempted security;
(B) an index based on fewer than 5
nonexempted securities; or
(C) an index in which during at least 3 of
the 4 calendar quarters preceding the date of
any transaction in the index, a single
nonexempted security accounted for a daily
average of 30 percent or more of the value of
the index.
(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 an eligible
contract participant described in clause (i), (ii),
(v), or (vii) of paragraph (12)(A) or in subparagraph
(12)(C) that--
(A) in connection with its business has a
demonstrable capacity or ability, directly or
through separate contractual agreements, to
make or take delivery of the underlying
physical commodity;
(B) incurs risk, 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 such eligible contract
participants.
(12) Eligible contract participant.--The term
``eligible contract participant'' means--
(A) acting for its own account--
(i) a financial institution;
(ii) an insurance company (as defined
in section 2 of the Bank Holding
Company Act of 1956 (12 U.S.C. 1841));
(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
adviser subject to
regulation under the
Investment Advisers Act
of 1940 (15 U.S.C. 80b-
1 et seq.) or a
commodity trading
advisor subject to
regulation under this
Act;
(bb) a foreign person
performing a role or
function similar to
that of such an
investment adviser or
commodity trading
advisor subject to
foreign regulation in
the performance of that
role or function;
(cc) a financial
institution; or
(dd) an insurance
company (as defined in
section 2 of the Bank
Holding Company Act of
1956 (12 U.S.C. 1841));
(vii)(I) a governmental entity
(including the United States, a State,
or a foreign government) or political
subdivision of a governmental entity;
(II) a multinational or supranational
government entity; or
(III) an instrumentality, agency, or
department of an entity described in
subclause (I) or (II);
(viii) a broker or dealer subject to
regulation under the Securities
Exchange Act of 1934 (15 U.S.C. 78a et
seq.) or a foreign person performing a
similar role or function subject as
such to foreign regulation, except
that, if the broker or dealer or
foreign person is a natural person or
proprietorship, the broker or dealer or
foreign person shall not be considered
to be an eligible contract participant
unless the broker or dealer or foreign
person also meets the requirements of
clause (v) or (xi);
(ix) a futures commission merchant
subject to regulation under this Act or
a foreign person performing a similar
role or function subject as such to
foreign regulation, except that, if the
futures commission merchant or foreign
person is a natural person or
proprietorship, the futures commission
merchant or foreign person shall not be
considered to be an eligible contract
participant unless the futures
commission merchant or foreign person
also meets the requirements of clause
(v) or (xi);
(x) a floor broker or floor trader
subject to regulation under this Act,
to the extent that the floor broker or
floor trader trades on or through the
facilities of a registered entity or
exempt board of trade or any affiliate
of a registered entity or exempt board
of trade; or
(xi) a natural person with total
assets exceeding $10,000,000;
(B)(i) a person described in any of clauses
(i) through (x) of subparagraph (A) or in
subparagraph (C), acting as broker or
performing an equivalent agency function on
behalf of another person described in
subparagraph (A) or (C); or
(ii)(I) an investment adviser subject to
regulation under the Investment Advisers Act of
1940 (15 U.S.C. 80b-1 et seq.);
(II) a commodity trading advisor subject to
regulation under this Act;
(III) a foreign person performing a role or
function similar to that of such an investment
adviser or commodity trading advisor subject to
foreign regulation in the performance of that
role or function; or
(IV) a person described in any of clauses (i)
through (x) of subparagraph (A) or in
subparagraph (C), that is acting as an
investment manager or fiduciary (but excluding
a person acting as a broker or performing an
equivalent agency function) for another person
described in subparagraph (A) or (C) and that
is authorized by the other person to commit the
other person to the transaction; or
(C) any other person that the Commission
determines to be eligible in light of the
financial or other qualifications of the
person.
(13) Exclusion-eligible commodity.--
(A) In general.--The term ``exclusion-
eligible commodity'' means--
(i) a financial commodity; and
(ii) a commodity that has no cash
market.
(B) Exclusion.--The term ``exclusion-eligible
commodity'' does not include any commodity
described in paragraph (3) that is an
agricultural commodity.
(14) Exempted security.--
(A) In general.--The term ``exempted
security'' means a security that is an exempted
security under section 3(a) of the Securities
Act of 1933 (15 U.S.C. 77c(a)) or section 3(a)
of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)).
(B) Exclusion.--The term ``exempted
security'' does not include a municipal
security (as defined in section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C.
78c(a))).
(15) Financial commodity.--The term ``financial
commodity'' means--
(A) an interest rate, exchange rate,
currency, security, security index, credit
risk, debt or equity instrument, or index or
measure of inflation; or
(B) any other rate, differential, index, or
measure of economic risk, return, or value
(excluding any rate, differential, index, or
measure based on a commodity not described in
subparagraph (A) that has a finite supply).
(16) 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 trust company; or
(H) a regulated subsidiary or affiliate of an
entity described in any of subparagraphs (A)
through (G).
[(8)] (17) 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 for
the meeting of persons similarly engaged, shall
purchase or sell for any other person any commodity for
future delivery on or subject to the rules of any
contract market or derivatives transaction execution
facility * * *
[(9)] (18) 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)] (19) Foreign futures authority.--The term
``foreign futures authority'' * * *
[(11)] (20) Future delivery.--The term ``future
delivery'' * * *
[(12)] (21) 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 * * *
* * * * * * *
(22) 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)] (23) Interstate commerce.--The term
``interstate commerce'' * * *
[(14)] (24) Introducing broker.--The term
``introducing broker'' means any person (except an
individual who elects to be and is registered as an
associated person of a futures commission merchant)
engaged in soliciting or in accepting orders for the
purchase or sale of any commodity for future delivery
on or subject to the rules of any contract market or
derivatives transaction execution facility who does not
accept any money, securities, or property (or extend
credit in lieu thereof) to margin, guarantee, or secure
any trades or contracts that result or may result
therefrom.
[(15)] (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 or given members' trading
privileges thereon.
(26) National securities exchange.--The term
``national securities exchange'' means--
(A) an exchange that is registered as a
national securities exchange under section 6 of
the Securities Exchange Act of 1934 (15 U.S.C.
78f); or
(B) an association that is registered as a
national securities association under section
15A of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3).
(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--
(i) trading by or on behalf of a
person that is not an eligible contract
participant; or
(ii) trading 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'' * * *
(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; or
(C) a derivatives clearing organization
registered under section 5b.
(31) Security.--The term ``security'' has the meaning
given the term in section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)).
(32) 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 with
other participants as a result
of the communications exchanged
between the participants and
not from interaction of
multiple orders within a
centralized, predetermined,
nondiscretionary, automated
trade matching algorithm; or
(II)(aa) is a derivatives
clearing organization; or
(bb) permits participants to
submit agreements, contracts,
or transactions to 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) a facility on which bids and
offers and acceptances of bids and
offers effected on the facility are not
binding.
* * * * * * *
[SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF
AGENT.]
SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF
AGENT; COMMODITY FUTURES TRADING COMMISSION;
TRANSACTION IN INTERSTATE COMMERCE.
[(a)(1)(A)(i) The]
(a) Jurisdiction of Commission; Commodity Futures Trading
Commission.--
(1) Jurisdiction of commission.--
(A) In general._The Commission shall have
exclusive jurisdiction, except to the extent
otherwise provided in [subparagraph (B) of this
paragraph] subsection (g), 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 * * *
* * * * * * *
[(ii) Nothing in this Act shall be deemed to govern or in
any way be applicable to transactions in foreign currency,
security warrants, security rights, resales of installment loan
contracts, repurchase options, government securities, or
mortgages and mortgage purchase commitments, unless such
transactions involve the sale thereof for future delivery
conducted on a board of trade.]
[(iii) The] (B) Liability of principal for act of agent._
The act, omission, or failure of any official, agent, or other
person acting for any individual, association, partnership,
corporation, or trust within the scope of his employment or
office shall be deemed the act, omission, or failure of such
individual, association, partnership, corporation, or trust, as
well as of such official, agent, or other person.
[(B) Notwithstanding any other provision of law--
[(i) This Act shall not apply to and the Commission
shall have no jurisdiction to designate a board of
trade as a contract market for any transaction whereby
any party to such transaction acquires any put, call,
or other option on one or more securities (as defined
in section 2(1) of the Securities Act of 1933 or
section 3(a)(10) of the Securities Exchange Act of 1934
on the date of enactment of the Futures Trading Act of
1982), including any group or index of such securities,
or any interest therein or based on the value thereof.
[(ii) This Act shall apply to and the Commission
shall have exclusive jurisdiction with respect to
accounts, agreements (including any transaction which
is of the character of, or is commonly known to the
trade as, an ``option'', ``privilege'', ``indemnity'',
``bid'', ``offer'', ``put'', ``call'', ``advance
guaranty'', or ``decline guaranty'') and transactions
involving, and may designate a board of trade as a
contract market in, contracts of sale (or options on
such contracts) for future delivery of a group or index
of securities (or any interest therein or based upon
the value thereof): Provided, however, That no board of
trade shall be designated as a contract market with
respect to any such contracts of sale (or options on
such contracts) for future delivery unless the board of
trade making such application demonstrates and the
Commission expressly finds that the specific contract
(or option on such contract) with respect to which the
application has been made meets the following minimum
requirements:
[(I) Settlement of or delivery on such
contract (or option on such contract) shall be
effected in cash or by means other than the
transfer or receipt of any security, except an
exempted security under section 3 of the
Securities Act of 1933 or section 3(a)(12) of
the Securities Exchange Act of 1934 as in
effect on the date of enactment of the Futures
Trading Act of 1982 (other than any municipal
security, as defined in section 3(a)(29) of the
Securities Exchange Act of 1934 on the date of
enactment of the Futures Trading Act of 1982);
[(II) Trading in such contract (or option on
such contract) shall not be readily susceptible
to manipulation of the price of such contract
(or option on such contract), nor to causing or
being used in the manipulation of the price of
any underlying security, option on such
security or option on a group or index
including such securities; and
[(III) Such group or index of securities
shall be predominately composed of the
securities of unaffiliated issuers and shall be
a widely published measure of, and shall
reflect, the market for all publicly traded
equity or debt securities or a substantial
segment thereof, or shall be comparable to such
measure.
[(iii) Upon application by a board of trade for
designation as a contract market with respect to any
contract of sale (or option on such contract) for
future delivery involving a group or index of
securities, the Commission shall provide an opportunity
for public comment on whether such contracts (or
options on such contracts) meet the minimum
requirements set forth in clause (ii) of this
subparagraph.
[(iv)(I) The Commission shall consult with the
Securities and Exchange Commission with respect to any
application which is submitted by a board of trade
before December 9, 1982, for designation as a contract
market with respect to any contract of sale (or option
on such contract) for future delivery of a group or
index of securities. If, no later than fifteen days
following the close of the public comment period, the
Securities and Exchange Commission shall object to the
designation of a board of trade as a contract market in
such contract (or option on such contract) on the
ground that any minimum requirement of clause (ii) of
this subparagraph is not met, the Commission shall
afford the Securities and Exchange Commission an
opportunity for an oral hearing, to be transcribed,
before the Commission, and shall give appropriate weight
to the views of the Securities and Exchange Commission.
Such oral hearing shall be held after the public comment
period, prior to Commission action upon such designation,
and not less than thirty nor more than forty-five days after
the close of the public comment period, unless both the
Commission and the Securities and Exchange Commission
otherwise agree. If such an oral hearing is held, the
Securities and Exchange Commission fails to withdraw its
objections, and the Commission issues an order designating
a board of trade as a contract market with respect to any
such contract (or option on such contract), the Securities
and Exchange Commission shall have the right of judicial
review of such order in accordance with the standards of
section 6(c) of this Act. If, pursuant to section 6 of this
Act, there is a hearing on the record with respect to such
application for designation, the Securities and Exchange
Commission shall have the right to participate in that hearing
as an interested party.
[(II) Effective for any application submitted by a
board of trade on or after December 9, 1982, for
designation as a contract market with respect to any
contract of sale (or option on such contract) for
future delivery of a group or index of securities, the
Commission shall transmit a copy of such application to
the Securities and Exchange Commission for review. The
Commission shall not approve any such application if
the Securities and Exchange Commission determines that
such contract (or option on such contract) fails to
meet the minimum requirements set forth in clause (ii)
of this subparagraph. Such determination shall be made
by order no later than forty-five days after the close
of the public comment period under clause (iii) of this
subparagraph. In the event of such determination, the
board of trade shall be afforded an opportunity for a
hearing on the record before the Securities and
Exchange Commission. If a board of trade requests a
hearing on the record, the hearing shall commence no
later than thirty days following the receipt of the
request, and a final determination shall be made no
later than thirty days after the close of the hearing.
A person aggrieved by any such order of the Securities
and Exchange Commission may obtain judicial review
thereof in the same manner and under such terms and
conditions as are provided in section 6(b) of this Act.
[(v) No person shall offer to enter into, enter into,
or confirm the execution of any contract of sale (or
option on such contract) for future delivery of any
security, or interest therein or based on the value
thereof, except an exempted security under section 3 of
the Securities Act of 1933 or section 3(a)(12) of the
Securities Exchange Act of 1934 as in effect on the
date of enactment of the Futures Trading Act of 1982
(other than any municipal security as defined in
section 3(a)(29) of the Securities Exchange Act of 1934
on the date of enactment of the Futures Trading Act of
1982), or except as provided in clause (ii) of this
subparagraph, any group or index of such securities or
any interest therein or based on the value thereof.
[(vi)(I) Notwithstanding any other provision of this
Act, any contract market in a stock index futures
contract (or option thereon) shall file with the Board
of Governors of the Federal Reserve System any rule
establishing or changing the levels of margin (initial
and maintenance) for the stock index futures contract
(or option thereon).
[(II) The Board may at any time request any contract
market to set the margin for any stock index futures
contract (or option thereon) at such levels as the
Board in its judgment determines are appropriate to
preserve the financial integrity of the contract market
or its clearing system or to prevent systemic risk. If
the contract market fails to do so within the time
specified by the Board in its request, the Board may
direct the contract market to alter or supplement the
rules of the contract market as specified in the
request.
[(III) Subject to such conditions as the Board may
determine, the Board may delegate any or all of its
authority under this clause only to the Commission.
[(IV) Nothing in this clause shall supersede or limit
the authority granted to the Commission in section
8a(9) to direct a contract market, on finding an
emergency to exist, to raise temporary emergency margin
levels on any futures contract or option on the
contract covered by this clause.
[(V) Any action taken by the Board, or by the
Commission acting under the delegation of authority
under subclause III,2-095 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.]
* * * * * * *
(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)(B)(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 theapplication, 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
action under this Act (including 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 other 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
* * * * * * *
(b) For the purposes of this Act (but not in any wise
limiting the foregoing definition of interstate commerce) a
transaction in respect to any article shall be considered to be
in interstate commerce if such article is part of that current
of commerce usual in the commodity trade whereby commodities
and commodity products and by-products thereof are sent from
one State with the expectation that they will end their
transit, after purchase, in another, including, in addition to
cases within the above general description, all cases where
purchase or sale is either for shipment to another State, or
for manufacture within the State and the shipment outside the
State of the products resulting from such manufacture. Articles
normally in such current of commerce shall not be considered
out of such commerce through resort being had to any means or
device intended to remove transactions in respect thereto from
the provisions of this Act. For the purpose of this paragraph
the word ``State'' includes Territory, the District of
Columbia, possession of the United States, and foreign nation.
(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) sales and resales of installment loan
contracts;
(F) purchase transactions and repurchase
transactions in a financial commodity; or
(G) mortgages or mortgage purchase or sale
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--
(i)(I) is a contract of sale of a
commodity for future delivery (or an
option on such a contract); and
(II) is executed or traded on an
organized exchange;
(ii)(I) is an option on a commodity
other than foreign currency or a
security; and
(II) is executed or traded on an
organized exchange; or
(iii)(I) is an option on foreign
currency; and
(II) is executed or traded on an
organized exchange that is not a
national securities exchange.
(B) Agreements, contracts, and transactions
in retail foreign currency.--This Act applies
to, and the Commission shall have jurisdiction
over, an agreement, contract, or transaction in
foreign currency that--
(i) is--
(I) a contract of sale for
future delivery; or
(II) 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 (as
defined in section 2 of the
Bank Holding Company Act of
1956 (12 U.S.C. 1841));
(V) a financial holding
company (as defined in section
2 of the Bank Holding Company
Act of 1956 (12 U.S.C. 1841));
or
(VI) an investment bank
holding company (as defined in
section 17(i) of the Securities
Exchange Act of 1934 (15 U.S.C.
78q(i))).
(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 exclusion-
eligible 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 5b or 12(e)(2)(B))
governs or applies to an agreement, contract, or
transaction in an exclusion-eligible 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(11)(B)(ii);
(B) the agreement, contract, or transaction
is entered into only between persons that are
eligible contract participants (as defined in
subparagraph (A), (B)(ii), or (C) of section
1a(11)) 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.
(3) Exception to prevent manipulation.--
Notwithstanding paragraphs (1) and (2), any agreement,
contract, or transaction in an exclusion-eligible
commodity (other than a financial commodity) that is
susceptible to a material risk of manipulation shall be
subject to sections 6(c) and 9(a)(2).
(e) 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 the facility to
transactions that satisfy the requirements of
subsection (d)(2).
(2) Effect on authority to establish and operate.--
Nothing in this Act shall prohibit a board of trade
designated by the Commission as a contract market or
derivatives transaction execution facility, or an
exempt board of trade, from establishing and operating
an electronic trading facility excluded under this Act
by 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) Futures on Securities.--
(1) Exclusions.--
(A) Exclusion of over-the-counter equity
instruments.--Nothing in this subsection
governs or applies to--
(i) an agreement, contract, or
transaction in a commodity that is
excluded under subsection (c) or (d);
(ii) an electronic trading facility
that is excluded under subsection (e);
or
(iii) 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).
(B) Exclusion of security options.--This Act
does not apply to, and the Commission shall
have no jurisdiction to designate a board of
trade as a contract market or register a
derivatives transaction execution facility for,
any transaction under which a party to the
transaction acquires an option on 1 or more
securities, group or index of securities, or
interest in, or interest that is based on the
value of, a security.
(2) Inclusion of trading of nondesignated futures on
securities on a contract market.--
(A) In general.--This Act applies to, and the
Commission shall have exclusive jurisdiction
with respect to and may designate a board of
trade as a contract market in, accounts,
agreements, and transactions involving a
contract of sale (or option on such a contract)
for future delivery of a group or index of
nonexempted securities (or an interest in, or
interest that is based on the value of, such
securities), none of which is a designated
future on a security.
(B) Requirements for designation.--
(i) In general.--No board of trade
shall be designated as a contract
market with respect to any contract of
sale (or option on such a contract) for
future delivery under subparagraph (A)
unless--
(I) the board of trade files
with the Commission an
application for designation;
and
(II) the board of trade
demonstrates and the Commission
expressly finds that the
specific contract (or option on
such a contract) with respect
to which the application is
made meets the minimum
requirements of clauses (ii)
and (iii).
(ii) Means of effectuation of
settlement or delivery.--Settlement of
or delivery on a contract (or option on
such a contract) described in
subparagraph (A) shall be effected in
cash or by means other than the
transfer or receipt of a security other
than an exempted security.
(iii) Susceptibility to price
manipulation.--Trading in a contract
(or option on such a contract)
described in subparagraph (A) shall not
be readily susceptible to--
(I) manipulation of the price
of the contract (or option on
such a contract); or
(II) causing or being used in
the manipulation of the price
of any underlying security,
option on a security, or option
on a group or index that
includes a security.
(3) Trading of designated futures on securities on a
contract market or national securities exchange.--No
person shall offer to enter into, enter into, or
confirm the execution of a designated future on a
security, or an interest in or interest that is based
on the value of a designated future on a security,
unless the contract--
(A) is transacted on or subject to the rules
of--
(i) a board of trade that has been
designated by the Commission as a
contract market for the commodity that
is the subject of the contract; or
(ii) a securities exchange that is
registered with the Securities and
Exchange Commission as a national
securities exchange; and
(B) meets the requirements of clauses (ii)
through (vii) of paragraph (4)(B).
(4) Minimum requirements for designated futures on
securities traded on a contract market.--
(A) In general.--Subject to paragraph (5),
this Act applies to, and the Commission shall
have jurisdiction with respect to and may
designate a board of trade as a contract market
in, accounts, agreements, and transactions
involving a designated future on a security.
(B) Requirements for designation.--
(i) In general.--No board of trade
shall be designated as a contract
market with respect to any contract of
sale (or option on such a contract)
under subparagraph (A) unless--
(I) the board of trade files
with the Commission an
application for designation;
and
(II) the board of trade
demonstrates and the Commission
expressly finds that the
specific contract (or option on
such a contract) with respect
to which the application is
made meets the minimum
requirements of clauses (ii)
through (viii).
(ii) Means of effectuation of
settlement or delivery.--Settlement of
or delivery on a contract (or option on
such a contract) described in
subparagraph (A) shall be effected in
cash or by means other than the
transfer or receipt of a security other
than an exempted security.
(iii) Real-time audit trail.--Trading
in a contract (or option on such a
contract) described in subparagraph (A)
shall occur on a contract market that
executes trades by means of a system
that provides a real-time audit trail.
(iv) Susceptibility to price
manipulation.--Trading in a contract
(or option on such a contract)
described in subparagraph (A) shall not
be readily susceptible to--
(I) manipulation of the price
of the contract (or option on
such a contract); or
(II) causing or being used in
the manipulation of the price
of any underlying security,
option on a security, or option
on a group or index that
includes a security.
(v) Underlying security approved for
listing on national securities
exchange.--Each security that underlies
a designated future on a security
shall--
(I) meet all requirements for
the listing of an option on
that security on a national
securities exchange: or
(II) be the subject of
options trading on a national
securities exchange.
(vi) Margins for futures contracts.--
(I) In general.--The contract
described in subparagraph (A)
shall be traded on a board of
trade that establishes and
maintains margin levels for
designated futures on
securities that are consistent
with the margin levels
established and maintained on
an option contract on the same
underlying security that is
listed on any national
securities exchange.
(II) Consistency.--For the
purposes of subclause (I), a
margin for designated futures
on securities and options on
securities shall be considered
to be consistent if the margin
provides a similar level of
protection against defaults by
counterparties, taking into
account any differences in--
(aa) the price
volatility of the
contracts;
(bb) the frequency
with which compliance
with margin
requirements is
assessed;
(cc) the length of
time permitted to cure
any margin deficiency;
and
(dd) the degree of
leverage permitted by
the margin.
(vii) Conflicts of interest.--The
contract described in subparagraph (A)
shall be traded on a board of trade
that establishes and enforces rules
that protect the customer from
conflicts of interest and related
trading abuses on the part of brokers
or any other person performing similar
roles or functions.
(viii) Provision of information
necessary for enforcement.--The
contract described in subparagraph (A)
shall be traded on a board of trade
that, in accordance with regulations
promulgated by the Commission,
collects, maintains, and promptly
provides to the Securities and Exchange
Commission on request such information
as the Commission and the Securities
and Exchange Commission jointly
determine to be appropriate for the
performance of the enforcement
responsibilities described in paragraph
(5).
(5) SEC enforcement authority for designated futures
on securities contracts listed on a contract market.--
(A) In general.--On notice to the Commission,
the Securities and Exchange Commission may
enforce the provisions of the securities laws
specified in subparagraph (B) against any
person that purchases or sells a designated
future on a security to the same extent as if
the person had purchased or sold an option on a
security.
(B) Provisions of the securities laws.--The
provisions of the securities laws referred to
in subparagraph (A) are--
(i) section 16 of the Securities
Exchange Act of 1934 (15 U.S.C. 78p);
and
(ii) section 10(b) of the Securities
Exchange Act of 1934 (15 U.S.C.
78j(b)).
(C) Authority of sec.--Nothing in this
paragraph expands the authority of the
Securities and Exchange Commission with respect
to registered entities or contracts of sale of
a commodity for future delivery (or options on
such contracts) except as specifically provided
in this paragraph.
(D) Report.--Not earlier than the date that
is 3 years after the date of enactment of this
subsection, the Commission and the Securities
and Exchange Commission shall begin to compile,
and not later than the date that is 4 years
after the date of enactment of this subsection,
the Commission and the Securities and Exchange
Commission shall submit to Congress, a report
on the implementation of this subsection.
(6) CFTC enforcement authority for designated futures
on securities listed on a national securities
exchange.--
(A) In general.--Except as provided in
subparagraph (B), the Securities and Exchange
Commission shall have jurisdiction over a
designated future on a security to the extent
that the designated future on a security is
traded on a national securities exchange.
(B) Large trader reporting, anti-fraud, and
anti-manipulation authority.--On notice to the
Securities and Exchange Commission, the
Commission shall enforce sections 4b, 4i, 4o,
6(c), and 9(a)(2) against any person that
purchases or sells a designated future on a
security on a national securities exchange.
(C) Provision of information necessary for
enforcement.--A designated future on a security
shall be traded on a national securities
exchange that, in accordance with regulations
promulgated by the Securities and Exchange
Commission, collects, maintains, and promptly
provides to the Commission on request such
information as the Securities and Exchange
Commission and the Commission jointly determine
to be appropriate for the performance of the
enforcement responsibilities described in
subparagraph (B).
(7) Process for listing futures on a security.--
(A) Contract market process.--
(i) In general.--The Commission shall
transmit to the Securities and Exchange
Commission a copy of any application
that is submitted by a board of trade
for designation as a contract market
with respect to a contract of sale (or
option on such a contract) for future
delivery of a nonexempted security or a
group or index of nonexempted
securities.
(ii) Hearing.--
(I) Objection by sec.--If,
not later than 15 days
following transmittal of an
application under clause (i),
the Securities and Exchange
Commission submits to the
Commission an objection to
designation of the board of
trade as a contract market in
the contract (or option on such
a contract) based on evidence
(including an economic analysis
of relevant factors including
benefits and costs) that any
minimum requirement under
paragraph (2)(B) or (4)(B) is
not met, the Commission shall
afford the Securities and
Exchange Commission an
opportunity for a hearing on
the record before the
Commission.
(II) Timing.--A hearing under
subclause (I) shall be held
before the Commission takes
action on the application, and
not less than 30 nor more than
45 days after the Securities
and Exchange Commission submits
the objection.
(B) National securities exchange process.--
(i) In general.--The Securities and
Exchange Commission shall transmit to
the Commission a copy of any
application that is submitted by a
person for listing of a designated
future on a security on a national
securities exchange.
(ii) Objection by the commission.--
If, not later than 15 days following
transmittal of an application under
clause (i), the Commission submits to
the Securities and Exchange Commission
an objection to listing of a designated
future on a security on a national
securities exchange based on evidence
(including an economic analysis of
relevant factors including benefits and
costs) that any minimum requirement
under paragraph (4)(B) is not met, the
Securities and Exchange Commission
shall afford the Commission an
opportunity for a hearing on the record
before the Securities and Exchange
Commission.
(8) Margin.--
(A) In general.--Notwithstanding any other
provision of this Act, any designated contract
market in a contract for sale of future
delivery of a nonexempted security or
nonexempted securities index (or option on such
a contract) shall file with the Board of
Governors of the Federal Reserve System any
rule establishing or changing the level of
initial margin or maintenance margin for the
nonexempted security or nonexempted securities
index futures contract (or option on such a
contract).
(B) Request to set margin.--
(i) In general.--The Board may at any
time request a contract market to set
the margin for a nonexempted security
or nonexempted securities index futures
contract (or option on a nonexempted
security or nonexempted securities
index futures contract) at a level that
the Board determines is appropriate
to--
(I) preserve the financial
integrity of the contract
market or of the clearing
system of the contract market;
(II) prevent competitive
distortions between markets
offering similar products; or
(III) prevent systemic risk.
(ii) Failure to set margin.--If the
contract market fails to comply with a
request under clause (i) within the
time specified by the Board in the
request, the Board may direct the
contract market to alter or supplement
the rules of the contract market as
specified in the request.
(C) Delegation of authority to the
commission.--Subject to such conditions as the
Board may determine, the Board may delegate any
or all of its authority with respect to margin
levels--
(i) in the case of a designated
future on a security or other stock
index futures contract or related
option, to the Commission, if the
contract or option is traded on a
designated contract market or
derivatives transaction execution
facility; or
(ii) in the case of a designated
future on a security--
(I) to the Securities and
Exchange Commission, if the
designated future on a security
is listed on a national
securities exchange; or
(II) to the intermarket
margin board established under
subparagraph (D).
(D) Intermarket margin board.--
(i) Establishment.--With the
concurrence of the Securities and
Exchange Commission and the Commission,
the Board may establish an intermarket
margin board consisting of the Chairman
of the Board, the Chairman of the
Commission, and the Chairman of the
Securities and Exchange Commission, or
their designees.
(ii) Duties.--The intermarket margin
board established under clause (i) may
set and maintain margin levels and
rules pertaining to margin for a
designated future on a security listed
on a contract market or on a national
securities exchange.
(iii) Requirement as to designees.--
An individual may not be designated as
a member of the intermarket margin
board unless the individual is an
officer of the United States appointed
by the President with the advice and
consent of the Senate.
(E) Relationship to other authority.--Nothing
in this section supersedes or limits the
authority of the Commission under section
8a(9).
(F) Judicial review.--
(i) In general.--Any action taken by
the Board (or by the Commission acting
under the delegation of authority under
subparagraph (C) or by the intermarket
margin board established under
subparagraph (D)) under this paragraph
directing a contract market to alter or
supplement a contract market rule shall
be subject to review only in the United
States Court of Appeals for the
judicial circuit in which the party
seeking review resides or has its
principal place of business, or in the
United States Court of Appeals for the
District of Columbia Circuit.
(ii) Basis for review.--Review under
clause (i) shall be based on the
examination of all information before
the Board (or the Commission,
Securities and Exchange Commission, or
intermarket margin board) at the time
at which the action was taken.
(iii) Standard of review.--The court
reviewing an action of the Board (or
the Commission, Securities and Exchange
Commission, or intermarket margin
board) shall not enter a stay or order
of mandamus unless the court
determines, after notice and hearing,
that the action was arbitrary,
capricious, an abuse of discretion, or
otherwise not in accordance with law.
(9) Futures on securities listed on foreign
exchanges.--Nothing in this Act requires or authorizes
the Commission to review or approve any contract, rule,
regulation, or action adopted by a foreign board of
trade, exchange, or market, or a clearinghouse for such
a board of trade, exchange, or market, relating to any
transaction involving a contract of sale for future
delivery (or option on such a contract) in any
security, including any foreign government debt
security, or group or index of such securities, if--
(A)(i) in the case of a contract of sale for
future delivery (or option on such a contract)
in a single equity security, the United States
is not the primary trading market for the
underlying security; or
(ii) in the case of a contract of sale for
future delivery (or option on such a contract)
in or involving a group or index of equity
securities, less than 25 percent of the
weighting of the group or index is derived from
securities for which the United States is the
primary trading market for the securities
underlying the contract for future delivery (or
option on the contract); and
(B) settlement of or delivery on the contract
for future delivery (or option on such a
contract) is to be effected in cash or by means
other than the transfer or receipt of a
security in the United States other than an
exempted security.
(10) Suitability standards.--
(A) Rules.--
(i) In general.--Not later than 270
days after the date of enactment of
this subsection, a registered futures
association shall adopt rules requiring
a futures commission merchant, a
commodity trading advisor, or an
introducing broker that recommends to
any customer the purchase or sale of a
designated future on a security to
ascertain through reasonable due
diligence that the recommendation is
suitable for that customer in light of
the customer's financial position and
trading goals.
(ii) Procedure.--Before adopting a
rule under clause (i), a registered
futures association shall--
(I) consult with the
Commission and the Securities
and Exchange Commission; and
(II) submit the proposed rule
to the Commission for approval
in accordance with section
17(j).
(iii) Timing.--If the Commission
fails to disapprove a proposed rule
within 90 days after the date on which
the rule is submitted for approval, the
rule shall become effective on the day
after that date.
(B) Compliance.--No futures commission
merchant, commodity trading advisor, or
introducing broker shall recommend to any
customer the purchase or sale of a designated
future on a security unless the futures
commission merchant, commodity advisor, or
introducing broker complies with the rules,
adopted under subparagraph (A,) of a registered
futures association of which suchmerchant,
advisor, or broker is a member.
(h) Exempted Transactions.--
(1) Exemption.--Except as provided in paragraph (2)
and except with respect to a contract, agreement, or
transaction in or involving an agricultural commodity
specified in section 1a(3), nothing in this Act applies
to a contract, agreement, or transaction--
(A) that is entered into solely between
eligible contract participants;
(B) that is not entered into or traded on or
through a trading facility; and
(C) except for contract, agreement, or
transaction submitted for clearance or
settlement to a clearinghouse as provided under
section 5b, in which the creditworthiness of
any party having an actual or potential
obligation under the contract, agreement, or
transaction would be a material consideration
in entering into or determining the terms of
the contract, agreement, or transaction
(including pricing, cost, credit enhancement
terms).
(2) Reservation of authority.--A contract, agreement,
or transaction described in paragraph (1) shall be
subject to--
(A) sections 4b, 4n, 5b and 12(e)(2)(B);
(B) any anti-fraud regulation promulgated by
the Commission under section 4c(b); and
(C) sections 6(c) and 9(a)(2), to the extent
that those provisions prohibit manipulation of
the market price of any commodity in interstate
commerce or for future delivery.
[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. FINDING AND PURPOSES.
(a) Finding.--Congress finds that 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, in that such futures
contracts and options contracts provide 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) Purposes.--The purposes of this Act are--
(1) to serve the public interest 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; and
(2) to authorize the Commission--
(A) to deter and prevent price manipulation
or any other disruptions to market integrity;
(B) to ensure the financial integrity of all
transactions subject to this Act and the
avoidance of systemic risk;
(C) to protect all market participants from
fraudulent or other abusive sales practices and
misuse of customer assets; and
(D) to promote responsible innovation and
fair competition among boards of trade, other
markets, and market participants.
Sec. 4. (a) Unless exempted by operation of section 5d or
unless exempted by the Commission * * *
(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)]
section 2(g)), if the Commission determines that the exemption
would be consistent with the public interest.
* * * * * * *
(2)(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. EXCESSIVE SPECULATION AS BURDEN ON INTERSTATE COMMERCE.
(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 facilities
as the Commission
* * * * * * *
(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 derivatives transaction
execution facilities or markets 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
facilities in excess of any position limit fixed by the
Commission for or with respect to such commodity.
* * * * * * *
(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, 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 transactionexecution 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. CONTACTS DESIGNED TO DEFRAUD OR MISLEAD.
(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
* * * * * * *
[SEC. 4C PROHIBITED TRANSACTIONS
[(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.
(b) No person shall offer to enter into, * * *
* * * * * * *
(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 or
derivatives transaction execution facility who is present on
the floor at the time such order is placed.
SEC. 4D. DEALING BY UNREGISTERED FUTURES COMMISSION MERCHANTS OR
INTRODUCING MERCHANTS PROHIBITED.
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 futuredelivery, on or subject to the rules of any
contract market or derivatives transaction execution facility unless--
* * * * * * *
(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, 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. REQUIRED REGISTRATION OF FLOOR TRADERS AND FLOOR BROKERS.
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. REGISTRATION OF FUTURES COMMISSION MERCHANTS, INTRODUCING
BROKERS, AND FLOOR BROKERS.
(a) 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.
(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 or derivatives transaction
execution facility in its bylaws, rules, regulations, or
resolutions and approved by the Commission as adequate to
effectuate the purposes of this subsection * * *
* * * * * * *
(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. REPORTING AND RECORDKEEPING.
* * * * * * *
(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 entity when such determinations are warranted in the
judgment of the Commission.
SEC. 4H. FALSE SELF-REPRESENTATION AS [CONTRACT MARKET] REGISTERED
ENTITY MEMBER PROHIBITED.
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. REPORTS OF DEALS EQUAL TO OR IN EXCESS OF TRADING LIMIT.
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--
* * * * * * *
[SEC. 4J. TRADES AND EXECUTIONS BY FLOOR BROKERS.
[(a)(1) The Commission shall issue regulations to prohibit
the privilege of dual trading on each contract market which has
not been exempted from such regulations under paragraph (3).
The regulations issued by the Commission under this paragraph--
[(A) shall provide that the prohibition of dual
trading thereunder shall take effect not less than
thirty days after the issuance of the regulations;
[(B) shall provide for exceptions, as the Commission
determines necessary and appropriate, to ensure
fairness and orderly trading in affected contract
markets, including--
[(i) transition measures and a reasonable
phase-in period,
[(ii) exceptions for spread transactions and
the correction of trading errors,
[(iii) allowance for a customer to designate
in writing not less than once annually a named
floor broker to execute orders for such
customer, notwithstanding the regulations to
prohibit the privilege of dual trading required
under this paragraph, and
[(iv) other measures reasonably designed to
accommodate unique or special characteristics
of individual boards of trade or contract
markets, to address emergency or unusual market
conditions, or otherwise to further the public
interest;
[(C) shall establish procedures for the application
for and issuance of exemptions under paragraph (3)
which, among other things, shall specify the relevant
data required to be submitted by the board of trade
with each application;
[(D) shall specify the methodology by which it shall
determine the average daily trading volume on a
contract market for purposes of paragraph (4) based on
a moving daily average of either six or twelve months;
and
[(E) shall establish an expeditious procedure to
revoke an exemption granted under paragraph (3)
providing sufficient notice, opportunity for hearing,
and findings to assure fundamental fairness.
[(2) As used in this section, the term ``dual trading''
means the execution of customer orders by a floor broker during
any trading session in which the floor broker executes any
trade in the same contract market for--
[(A) the account of such floor broker;
[(B) an account for which such floor broker has
trading discretion; or
[(C) an account controlled by a person with whom such
floor broker is subject to trading restrictions under
section 4j(d).
[(3) The Commission shall exempt a contract market from the
regulations issued under paragraph (1), either unconditionally
or on stated conditions (including stated periods of time)
relevant to the attainment or maintenance of compliance with
the standards in subparagraphs (A) and (B), upon finding that--
[(A) the trade monitoring system in place at the
contract market satisfies the requirements of section
5a(b) with regard to violations attributable to dual
trading at such contract market; or
[(B)(i) there is a substantial likelihood that a dual
trading suspension would harm the public interest in
hedging or price basing at such contract market, and
[(ii) other corrective actions, such as those
described in section 8e, are sufficient and appropriate
to bring the contract market into compliance with the
standard in subparagraph (A).
[(4)(A) The regulations issued by the Commission under
paragraph (1) shall not apply to any contract market in which
the Commission determines that the average daily trading volume
is less than the threshold trading level established for the
contract market under this paragraph.
[(B) The threshold trading level shall be set initially at
eight thousand contracts.
[(C) The Commission may, by rule or order--
[(i) increase, or
[(ii) at any time following the date three years
after the date of enactment of this paragraph,
decrease, the threshold trading level for specific
contract markets after taking into consideration the
actual or potential effects of a dual trading ban on
the public interest in hedging or price basing at the
affected contract market.
[(D) The Commission shall provide the affected contract
market with adequate notice of any such increase or decrease.
[(5) Before the Commission denies an application for an
exemption under paragraph (3) or exempts a contract market
subject to conditions, it shall--
[(A) provide the affected board of trade with notice
of the reason or reasons that the application was not
approved as submitted, including--
[(i) any reason the Commission has to believe
that the trade monitoring system in place at
the contract market does not satisfy the
requirements of paragraph (3)(A) and the basis
for such reason;
[(ii) any corrective action or actions, such
as those described in section 8e, that the
Commission believes the affected contract
market must take to satisfy the requirements of
paragraph (3)(A), and an acceptable timetable
for such corrective action; and
[(iii) any conditions or limitations that the
Commission proposes to attach to the exemption
under paragraph (3);
[(B) provide the affected board of trade with an
opportunity for a hearing through submission of written
data, views, or arguments and, under terms set by the
Commission at the request of the board of trade,
through an oral presentation of views and comments to
the Commission, in order to make the demonstration
required under paragraph (3) or otherwise to petition
the Commission with respect to its application; and
[(C) make findings, based on the information, views,
and arguments placed before it in connection with the
application, as to whether--
[(i) the standard in either paragraph (3)(A)
or (3)(B) applies, and
[(ii) any conditions or limitations which the
Commission proposes to attach under paragraph
(3) are appropriate in light of the purposes of
this subsection.
The Commission shall publish in the Federal Register notice of
any exemptive petitions filed under paragraph (3) and any
proposed or final actions the Commission may take on such
petitions. Unless the Commission determines that more immediate
action is appropriate in the public interest, any Commission
order denying an application or exempting a contract market
conditionally shall not take effect for at least twenty days
following the issuance of the order.
[(6) Violation of an order issued under this subsection
shall be considered a violation of an order of the Commission
for purposes of--
[(i) establishing liability and assessing penalties
against a contract market or any director, officer,
agent, or employee thereof under section 6b or 6c; or
[(ii) initiating proceedings under section 5b or
6(a).
[(7) Any board of trade which has applied to the Commission
to exempt a contract market from the regulations issued under
paragraph (1) may obtain judicial review of any final action of
the Commission to deny such application, to issue an exemption
subject to conditions, or to revoke an exemption, only in the
United States Court of Appeals for the circuit in which the
party seeking review resides or has its principal place of
business, or in the United States Court of Appeals for the
District of Columbia Circuit, under the standards applicable to
rulemaking proceedings under section 553 of title 5, United
States Code.
[(8)(A) The Commission shall issue the regulations required
under paragraph (1) not later than two hundred and seventy days
after the enactment of this section. If, prior to the effective
date of the prohibition on dual trading under such regulations,
a board of trade submits to the Commission an application for
an exemption for a contract market under paragraph (3), the
Commission shall not apply the prohibition against dual trading
under paragraph (1) to the contract market until the Commission
has approved or denied the application.
[(B) The Commission shall approve or deny any application
for an exemption under paragraph (3) within seventy-five days
after receipt of the application, or as soon as practicable.
[(b) If, in addition to the regulations issued pursuant to
subsection (a), the Commission has reason to believe that dual
trading-related or facilitated abuses are not being or cannot
be effectively addressed by subsection (a), the Commission
shall make a determination, after notice and opportunity for
hearing, whether or not a floor broker may trade for his own
account or any account in which such broker has trading
discretion, and also execute a customer's order for future
delivery and, if the Commission determines that such trades and
such executions shall be permitted, the Commission shall
further determine the terms, conditions, and circumstances
under which such trades and such executions shall be conducted:
Provided, That any such determination shall, at a minimum, take
into account the effect upon the liquidity of trading of each
market: And provided further, That nothing herein shall be
construed to prohibit the Commission from making separate
determinations for different contract markets when such are
warranted in the judgment of the Commission, or to prohibit
contract markets from setting terms and conditions more
restrictive than those set by the Commission.
[(c) The Commission shall within nine months after the
effective date of the Commodity Futures Trading Commission Act
of 1974, and subsequently when it determines that changes are
required, make a determination, after notice and opportunity
for hearing, whether or not a futures commission merchant may
trade for its own account or any proprietary account, as
defined by the Commission, and if the Commission determines
that such trades shall be permitted, the Commission shall
further determine the terms, conditions, and circumstances
under which such trades shall be conducted: Provided, That any
such determination, at a minimum, shall take into account the
effect upon the liquidity of trading of each market: And
provided further, That nothing herein shall be construed to
prohibit the Commission from making separate determinations for
different contract markets when such are warranted in the
judgment of the Commission, or to prohibit contract markets
from setting terms and conditions more restrictive than those
set by the Commission.
[(d)(1) Except as provided in paragraph (2), a floor broker
may not execute an order of a customer if such floor broker
knows the opposite party to the transaction to be a floor
broker or floor trader with whom such trader or broker has a
relationship involving trading on such contract market as--
[(A) a partner in a partnership;
[(B) an employer or employee; or
[(C) Such other affiliation as the Commission may
specify by rule.
[(2) Paragraph (1) shall not apply--
[(A) if the Commission has adopted rules that the
Commission certifies to Congress require procedures and
standards designed to prevent violations of this Act
attributable to the trading described in paragraph (1);
or
[(B) to any contract market that has implemented
rules designed to prevent violations of this Act
attributable to the trading described in paragraph (1),
except that, if the Commission determines, by rule or
order, that such rules are not adequate to prevent such
violations, paragraph (1) shall become effective with
respect to such contract market after a reasonable
period determined by the Commission.]
SEC. 4[K]J. REGISTRATION OF ASSOCIATES OF FUTURES COMMISSION MERCHANTS,
COMMODITY POOL OPERATORS, AND COMMODITY TRADING
ADVISORS.
* * * * * * *
SEC. 4[L]K. COMMODITY TRADING ADVISORS AND COMMODITY POOL OPERATORS.
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--
* * * * * * *
(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. 4[M]L. USE OF MAILS OR OTHER MEANS OR INSTRUMENTALITIES OF
INTERSTATE COMMERCE BY COMMODITY TRADING ADVISORS
AND COMMODITY POOL OPERATORS.
* * * * * * *
SEC. 4[N]M. REGISTRATION OF COMMODITY TRADING ADVISORS AND COMMODITY
POOL OPERATORS.
* * * * * * *
SEC. 4[O]N. FRAUD AND MISREPRESENTATION BY COMMODITY TRADING ADVISORS,
COMMODITY POOL OPERATORS, AND ASSOCIATED PERSONS.
* * * * * * *
SEC. 4[P]O. STANDARDS AND EXAMINATIONS.
(a) * * * 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.
* * * * * * *
(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. 5. DESIGNATION OF BOARD OF TRADE AS ``CONTRACT MARKET''
[The Commission is hereby authorized and directed to
designate any board of trade as a ``contract market'' when, and
only when, such board of trade complies with and carries out
the following conditions and requirements:
[(1) When located at a terminal market where any cash
commodity of the kind specified in the contracts of
sale of commodities for future delivery to be executed
on such board is sold in sufficient volumes and under
such conditions as fairly to reflect the general value
of the commodity and the differences in value between
the various grades of such commodity, and where there
is available to such board of trade official inspection
service approved by the Secretary of Agriculture or the
Commission for the purpose: Provided, That any board of
trade not so located shall be designated as a
``contract market'' if such board of trade provides for
the delivery of commodities on such contracts at a
delivery point or points and upon terms and conditions
approved by the Commission.
[(2) When the governing board thereof provides for
the making and filing by the board or any member
thereof, as the Commission may direct, of reports in
accordance with the rules and regulations, and in such
manner and form and at such times as may be prescribed
by the Commission, showing the details and terms of all
transactions entered into by the board, or the members
thereof, either in cash transactions or transactions
for future delivery consummated on or subject to the
rules of a board of trade, and when such governing
board provides, in accordance with such rules and
regulations, for the keeping of a record by the board
or the members of the board of trade, as the Commission
may direct, showing the details and terms of all cash
and future transactions entered into by them,
consummated on or subject to the rules of a board of
trade, such record to be in permanent form, showing the
parties to all such transactions, including the persons
for whom made, any assignments or transfers thereof,
with the parties thereto, and the manner in which said
transactions are fulfilled, discharged, or terminated.
Such record shall be required to be kept for a period
of three years from the date thereof, or for a longer
period if the Commission shall so direct, and shall at
all times be open to the inspection of any
representative of the Commission or United States
Department of Justice.
[(3) When the governing board thereof provides for
the prevention of dissemination by the board or any
member thereof, of false or misleading or knowingly
inaccurate reports concerning crop or market
information or conditions that affect or tend to affect
the price of any commodity in interstate commerce.
[(4) When the governing board thereof provides for
the prevention of manipulation of prices and the
cornering of any commodity by the dealers or operators
upon such board.
[(5) When the governing board thereof does not
exclude from membership in, and all privileges on, such
board of trade, any duly authorized representative of
any lawfully formed and conducted cooperative
association of producers having adequate financial
responsibility which is engaged in any cash commodity
business, if such association has complied, and agrees
to comply, with such terms and conditions as are or may
be imposed lawfully on other members of such board:
Provided, That no rule of a contract market shall
forbid or be construed to forbid the return on a
patronage basis by such cooperative association to its
bona fide members of moneys collected in excess of the
expense of conducting the business of such association.
[(6) When the governing board provides for making
effective the final orders or decisions entered
pursuant to the provisions of section 6(c), and the
orders issued pursuant to the provisions of section 5a
of this Act, and for compliance in all other respects
with the requirements applicable to such board of trade
under this Act.
[(7) When such board of trade demonstrates that
transactions for future delivery in the commodity for
which designation as a contract market is sought will
not be contrary to the public interest.
[(8) When such board of trade demonstrates that every
contract market for which such board of trade is
designated complies with the requirements of section
5a(b).
[SEC. 5A. DUTIES OF CONTRACT MARKETS
[(a) Each contract market shall--
[(1) promptly furnish the Commission copies of all
bylaws, rules, regulations, and resolutions made or
issued by it or by the governing board thereof or any
committee, and of all changes and proposed changes
therein;
[(2) keep all books, records, minutes, and journals
of proceedings of such contract market, and its
governing board, committees, subsidiaries, and
affiliates in a manner that will clearly describe all
matters discussed by such contract market, governing
board, committees, subsidiaries and affiliates and
reveal any action taken in such matters, and allow
inspection at all times by any authorized
representative of the Commission or United States
Department of Justice of all such books, records,
minutes, and journals of proceedings. Such books,
records, minutes, and journals of proceedings shall be
kept for a period of three years from the date thereof,
or for a longer period if the Commission shall so
direct;
[(3) require the operators of warehouses in which or
out of which any commodity is deliverable on any
contract for future delivery made on or subject to the
rules of such contract market, to make such reports,
keep such records, and permit such warehouse visitation
as the Commission may prescribe. Such books and records
shall be required to be kept for a period of three
years from the date thereof, or for a longer period if
the Commission shall so direct, and such books,
records, and warehouses shall be open at all times to
inspection by any representative of the Commission or
United States Department of Justice;
[(4) when so directed by order of the Commission,
provide for a period, after trading in contracts of
sale of any commodity for future delivery in a delivery
month has ceased, during which contracts of sale of
such commodity for future delivery in such month may be
satisfied by the delivery of the actual cash commodity.
Whenever, after due notice and opportunity for hearing,
the Commission finds that provision for such a period
of delivery for any one or more commodities or markets
would prevent or tend to prevent ``squeezes'' and
market congestion endangering price stability, it
shall, by order, require such period of delivery (which
shall be not less than three nor more than ten business
days) applicable to such commodities and markets as it
finds will prevent or tend to prevent such ``squeezes''
and market congestion: Provided, however, that such
order shall not apply to then existing contracts;
[(5) require the party making delivery of any
commodity on any contract of sale of such commodity for
future delivery to furnish the party obligated under
the contract to accept delivery, written notice of the
date of delivery at least one business day prior to
such date of delivery. Whenever, after due notice and
opportunity for hearing, the Commission finds that the
giving of longer notice of delivery is necessary to
prevent or diminish unfair practices in trading in any
one or more commodities or markets, it shall by order
require such longer notice of delivery (which shall be
not more than ten business days) applicable to such
commodities and markets as it finds will prevent or
diminish such unfair practices: Provided, however, That
such order shall not apply to then existing contracts;
[(6) require that all contracts of sale of any
commodity for future delivery on such contract market
shall provide for the delivery thereunder of
commodities of grades conforming to United States
standards, if such standards shall have been officially
promulgated and adopted by the Commission;
[(7) require that receipts issued under the United
States Warehouse Act 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 the Commission's regulations which would be
violated. At the conclusion of such proceedings, the
Commission shall approve or disapprove such rule. Any
disapproval shall specify the sections of this Act or
the Commission's regulations which the Commission
determines such rule has violated or, if effective,
would violate. If the Commission does not approve or
institute disapproval proceedings with respect to any
rule within one hundred and eighty days after receipt
or within such longer period as the contract market may
agree to, or if the Commission does not conclude a
disapproval proceeding with respect to any rule within
one year after receipt or within such longer period as
the contract market may agree to, such rule may be made
effective by the contract market until such time as the
Commission disapproves such rule in accordance with
this paragraph.
[(B)(i) The Commission shall issue regulations to
specify the terms and conditions under which, in an
emergency as defined by the Commission, a contract
market may, by a two-thirds vote of its governing
board, make a rule (hereinafter referred to as an
``emergency rule'') effective on a temporary basis
without prior Commission approval, or without
compliance with the ten-day notice requirement under
subparagraph (A), or during any period of review by the
Commission, if the contract market makes every effort
practicable to notify the Commission of such emergency
rule, along with a complete explanation of the
emergency involved, prior to making the emergency rule
effective. If the contract market does not provide the
Commission with such notification and explanation
before making the emergency rule effective, the
contract market shall provide the Commission with such
notification and explanation at the earliest possible
date. The Commission may delegate the power to receive
such notification and explanation to such individuals
as the Commission determines necessary and appropriate.
[(ii) Within ten days of the receipt from a contract
market of notification of such an emergency rule and an
explanation of the emergency involved, or as soon as
practicable, the Commission shall determine whether it
is appropriate either--
[(I) to permit such rule to remain in effect
during the pendency of the emergency, or
[(II) to suspend the effect of such rule
pending review either under the procedures of
subparagraph (A) or otherwise.
The Commission shall submit a report on its
determination and the basis thereof with respect to
such emergency rule to the affected contract market, to
the Committee on Agriculture of the House of
Representatives and the Committee on Agriculture,
Nutrition, and Forestry of the Senate. If the report is
submitted more than ten days after the Commission's
receipt of notification of such an emergency rule from
a contract market, the report shall explain why
submission within such ten-day period was not
practicable. A determination by the Commission to suspend
the effect of a rule under this subparagraph shall be subject
to judicial review on the same basis as an emergency
determination under section 8a(9). Nothing in this paragraph
shall be construed to limit the authority of the Commission
under section 8a(9);
[(13) provide for disclosure to the contract market
and the Commission of any trade, business, or financial
partnership, cost-, profit-, or capital-sharing
agreements or other formal arrangement among or between
floor brokers and traders on such contract market where
such partnership agreement or arrangement is material
and known to the floor broker or floor trader;
[(14)(A) provide for meaningful representation on the
governing board of the contract market's board of trade
of a diversity of interests, including--
[(i) futures commission merchants;
[(ii) producers of, and consumers,
processors, distributors, or merchandisers of,
principal commodities traded on the board of
trade;
[(iii) floor brokers and traders; and
[(iv) participants in a variety of pits or
principal groups of commodities traded on the
exchange.
[(B) provide that no less than 20 percent of the
regular voting members of such board be comprised of
nonmembers of such contract market's board of trade
with--
[(i) expertise in futures trading, or the
regulation thereof, or in commodities traded
through contracts on the board of trade; or
[(ii) other eminent qualifications making
such person capable of participating in and
contributing to board deliberations.
[(C) provide that no less than 10 percent of the
regular voting members of such board be comprised where
applicable of farmers, producers, merchants, or
exporters of principal commodities traded on the
exchange;
[(15)(A) provide on all major disciplinary committees
for a diversity of membership sufficient to ensure
fairness and to prevent special treatment or preference
for any person in the conduct of disciplinary
proceedings and the assessment of penalties.
[(B) Consistent with Commission rules, a major
disciplinary committee hearing a disciplinary matter
shall include--
[(i) a majority of qualified persons
representing a trading status other than that
of the subject of the proceeding; and
[(ii) where appropriate to carry out the
purposes of this Act, qualified persons who are
not members of the exchange.
[(C) For purposes of this paragraph, a trading status
on a contract market may include, consistent with
Commission rules, such categories as
[(i) floor brokers and traders;
[(ii) producers, consumers, processors,
distributors, or merchandisers of commodities;
[(iii) futures commission merchants; and
[(iv) members of the aforementioned
categories who participate in particular
contract markets or principal groups of
commodities on the board of trade.
[(D) If a contract market takes final disciplinary
action against a member for a violation that involves
the execution of a customer transaction and results in
financial harm to such customer, the contract market
shall promptly inform the futures commission merchant
identified on the records of such contract market as
having cleared such transaction, and such futures
commission merchant shall promptly inform the person
identified on its records as the owner of the account
for which such transaction was executed, of the
disciplinary action and the principal facts thereof;
[(16) provide that no member found by the Commission,
a contract market, a registered futures association, or
a court of competent jurisdiction to have committed any
violation of this Act or any other provision of law
that would reflect on the fitness of the member may
serve on any contract market oversight or disciplinary
panel for an appropriate period (as defined by
Commission rule); and
[(17)(A) provide for the avoidance of conflict of
interest in deliberations by the governing board and
any disciplinary and oversight committees. In order to
comply with this subparagraph, each contract market
shall adopt rules and procedures to require, at a
minimum, that
[(i) any member of a governing board or a
disciplinary or other oversight committee must
abstain from confidential deliberations and
voting on any matter where the named party in
interest is the member, the member's employer,
the member's employee, or any other person that
has a business, employment, or family
relationship with the member that warrants
abstention by the member;
[(ii) any member of a governing board or a
disciplinary or other oversight committee must
abstain from voting on any significant action
that would not be submitted to the Commission
for its prior approval, if, as determined in
accordance with regulations promulgated by the
Commission, the member knowingly has a direct
and substantial financial interest in the
result of the vote, based either on positions
held personally or at an affiliated firm;
[(iii) prior to the deliberations of the
governing board, disciplinary board, or other
oversight committee, acting directly or
indirectly through an authorized member or
contract market official, the positions of the
members of such board or committee, and
positions of the firm or firms with which such
members are affiliated, are reviewed: Provided,
however, That no contract market or official,
employee, member, other than the member whose
position or positions are being reviewed, or
agent thereof shall be subject to liability,
except for liability in an action initiated by
the Commission, for having conducted this
review and for having taken or not taken
further action; and
[(iv) the board or committee shall clearly
reflect, in the minutes of such meeting, that
the review required in clause (iii) occurred
and any decisions by a member to abstain or by
the board or committee whether to direct a
member or members to abstain from deliberations
or voting on the matter before the board or
committee.
Any member prohibited from voting on a rule pursuant to
this paragraph shall not be included in determining
whether there has been a two-thirds vote of members of
the governing board or committee as required by
subparagraph (12).
[(B) For the purposes of this paragraph, the term
``significant action that would not be submitted to the
Commission for its prior approval'' includes--
[(i) any nonphysical emergency rule; or
[(ii) any changes in margin levels designed
to respond to extraordinary market conditions
that are likely to have a substantial affect on
prices in any contract traded on such contract
market, but does not include any rule not
submitted for prior Commission approval because
such rule is unrelated to terms and conditions
of any contract traded on such contract market.
[(C) Notwithstanding the provisions of subparagraph
(A)(ii), the Commission shall issue rules establishing
the conditions under which a member of a board or
committee who is required to abstain from voting on a
significant action, as provided in subparagraph
(A)(ii), may participate in deliberations on that
action prior to such vote, where the member's
participation is consistent with the public interest.
[(b)(1) Each contract market shall maintain and utilize a
system to monitor trading to detect and deter violations of the
contract market's rules and regulations committed in the making
of trades and the execution of customer orders on the floor or
subject to the rules of such contract market. The system shall
include--
[(A) physical observation of trading areas;
[(B) audit trail and recordkeeping systems able to
capture essential data on the terms, participants, and
sequence of transactions (including relevant data on
unmatched trades and out-trades);
[(C) systems capable of reviewing, and used to
review, data on trades effectively on a regular basis
to detect violations committed in making trades and
executing customer orders on the floor or subject to
the rules of such contract market, including--
[(i) all types of violations attributable to
dual trading; and
[(ii) to the full extent feasible, as
determined by the Commission, all other types
of violations involving the making of trades
and the execution of customer orders;
[(D) the use of information gathered through such
system on a consistent basis to bring appropriate
disciplinary actions against violators;
[(E) the commitment of resources to such system
necessary for such system to be effective in detecting
and deterring such violations, including adequate staff
to develop and prosecute disciplinary actions; and
[(F) the assessment of meaningful penalties against
violators and the referral of appropriate cases to the
Commission.
[(2) The audit trail system of the contract market shall,
consistent with Commission regulations, accurately record--
[(A) the times of trades in increments of no more
than one minute in length; and
[(B) the sequence of trades for each floor trader and
broker.
[(3) Beginning three years after the date of enactment of
this subsection, the audit trail system of each contract
market, except as provided in paragraph (5) and except to the
extent the Commission determines that circumstances beyond the
control of the contract market prevent compliance despite the
contract market's affirmative good faith efforts to comply,
shall--
[(A) for all trades, record accurately and promptly
the essential data on terms, participants, and times as
required by the Commission by rule, including the time
of execution of such trade, through a means that--
[(i) records such data in a form which cannot
be altered except in a manner that will leave a
complete and independent record of such
alteration;
[(ii) continually provides such data to the
contract market;
[(iii) identifies such time, to the extent
practicable as determined by the Commission--
[(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. 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.
(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 designated 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 data
entry and 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 (including a 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 board of trade, 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 provide for meaningful
representation on its governing board of the diversity
of interests that trade on that contract market.
(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 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
during that 2-year period 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 appropriate to
achieve the purposes of this Act, the board of trade
shall avoid--
(A) adopting any rule or taking any action
that results in any unreasonable restraint of
trade; or
(B) imposing any material anticompetitive
burden on trading on the contract market.
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) that is
not a designated future on a security on or through the
facility only by satisfying the requirements of this
section.
(2) Requirements for underlying commodities.--A
registered derivatives transaction execution facility
may trade any futures contract only if--
(A) the underlying commodity has a nearly
inexhaustible deliverable supply;
(B) the underlying commodity has a
deliverable supply that is sufficiently large
that the contract is highly unlikely to be
susceptible to manipulation;
(C) the underlying commodity has no cash
market;
(D)(i) the underlying commodity is not an
agricultural commodity specified in section
1a(3); and
(ii) trading access to the derivatives
transaction execution facility is limited to
eligible commercial participants trading for
their own account; or
(E) the Commission determines, based on the
market characteristics, surveillance history,
self-regulatory record, and capacity of the
facility that trading in the futures contract
is unlikely to be 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 adjusted net capital of at
least $20,000,000.
(4) Trading by contract markets.--A board of trade
that is designated as a contract market shall, to the
extent that the contract market also operates a
registered derivatives transaction execution facility--
(A) provide a physical location for the
contract market trading of the board of trade
that is separate from trading on the
derivatives transaction execution facility of
the board of trade; or
(B) if the board of trade uses the same
electronic trading system for trading on the
contract market and derivatives transaction
execution facility of the board of trade,
identify whether the electronic trading is
taking place on the contract market or the
derivatives transaction execution facility.
(c) Criteria for Registration.--
(1) In general.--To be registered as a registered
derivatives transaction execution facility, the board
of trade shall demonstrate to the Commission that the
board of trade meets the criteria specified in this
paragraph.
(2) Deterrence of abuses.--The board of trade shall
establish and enforce trading rules that will deter
abuses and has the capacity to detect, investigate, and
enforce those rules, including means to--
(A) obtain information necessary to perform
the functions required under this section; or
(B) use technological means to--
(i) provide market participants with
impartial access to the market; and
(ii) capture information that may be
used in establishing whether rule
violations have occurred.
(3) Trading procedures.--The board of trade shall
establish and enforce rules or terms and conditions
defining, or specifications detailing, trading
procedures to be used in entering and executing orders
traded on the facilities of the board of trade.
(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
derivatives transaction execution 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 representative of the Commission or the
Department of Justice.
(9) Antitrust considerations.--Unless appropriate to
achieve the purposes of this Act, the board of trade
shall avoid--
(A) adopting any rule or taking any action
that results in any unreasonable restraint of
trade; or
(B) imposing any material anticompetitive
burden on trading on the derivatives
transaction execution facility.
(e) Use of Broker-Dealers and 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) a broker-dealer be in good standing with
the Securities and Exchange Commission and a
depository institution or institution of the
Farm Credit System be in good standing, as
determined by the appropriate Federal banking
agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813))
(including the Farm Credit Administration), as
applicable; and
(B) if a 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 Transactions.--
(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 that are excluded from this Act under
subsection (c) or (d) of section 2.
(2) Exclusive jurisdiction of the commission.--The
Commission shall have exclusive jurisdiction over
agreements, contracts, or transactions described in
paragraph (1) to the extent that the agreements,
contracts, or transactions are traded on a derivatives
transaction execution facility.
SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.
(a) Registration Requirement.--Except as provided in
subsection (b), it shall be unlawful for a derivatives clearing
organization, unless registered with the Commission, directly
or indirectly to make use of the mails or any means or
instrumentality of interstate commerce to perform the functions
of a derivatives clearing organization described in section
1a(8).
(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 contract of sale for future
delivery, option on a contract of sale for future
delivery, or option on a commodity that is not a
security (unless the contract or option is excluded
under subsection (c) or (d) of section 2).
(c) Voluntary Registration.--A derivatives clearing
organization that is 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
appropriate to achieve the purposes of this
Act, the derivatives clearing organization
shall avoid--
(i) adopting any rule or taking any
action that results in any unreasonable
restraint of trade; or
(ii) imposing any material
anticompetitive burden on trading on
the contract market.
(3) Orders concerning competition.--A derivatives
clearing organization may request the Commission to
issue an order concerning whether a rule or practice of
the applicant is the least anticompetitive means of
achieving the objectives, purposes, and policies of
this Act.
(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
the core principles for registered entities specified
in sections 5(d), 5a(d), and 5b(d)(2) to describe what
would constitute an acceptable business practice under
the core principles.
(2) Timing.--If any person submits to the Commission
a request for an interpretation or for approval of an
interpretation under paragraph (1), the Commission
shall issue the interpretation or shall approve or
disapprove the interpretation not later than 45 days
after receiving the request.
(3) Effect of interpretation.--An interpretation
issued under paragraph (1) shall not provide the
exclusive means for complying with the core principles.
(b) Delegation of Functions Under Core Principles.--
(1) In general.--A registered entity 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 registered entity that
delegates a function under paragraph (1) shall remain
responsible for carrying out the function.
(c) New Contracts, New Rules, and Rule Amendments.--
(1) In general.--Subject to paragraph (2), a
registered entity may elect to list for trading any new
contract or other instrument, or may elect to approve
and implement any new rule or rule amendment, by
providing to the Commission (and the Secretary of the
Treasury, in the case of a contract, rule, or rule
amendment that relates to or affects a government
security) 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) 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.
(C) Agricultural contracts.--Notwithstanding
any other provision of this section, a
designated contract market shall submit for
prior approval by the Commission each rule
amendment that materially changes a term or
condition in any contract of sale of a
commodity for future delivery or related option
traded through the facilities of the designated
contract market, if--
(i) the commodity is specifically
listed in section 1a(3); and
(ii) the rule amendment applies to
contracts and delivery months that have
previously been listed for trading and
have open interest.
(3) Approval.--The Commission shall approve any such
new contract or instrument, new rule, or rule amendment
unless the Commission finds that the new contract or
instrument, new rule, or rule amendment would violate
this Act.
(d) Violation of Core Principles.--
(1) In general.--If the Commission determines, on the
basis of substantial evidence, that a registered entity
is violating any of the applicable core principles
specified in sections 5(d), 5a(d), and 5b(d)(2), the
Commission shall--
(A) notify the registered entity of the
determination; and
(B) afford the registered entity an
opportunity to make appropriate changes to
bring the registered entity into compliance
with the core principles.
(2) Failure to make changes.--If, not later than 30
days after receiving a notification under paragraph
(1), a registered entity fails to make changes that, in
the opinion of the Commission, are necessary to
accomplish the objectives of the core principles, the
Commission may take further action in accordance with
this Act.
(e) Reservation of Emergency Authority.--Notwithstanding
any other provision of this section, the Commission shall
retain the full scope of its emergency powers under section
8a(9) to direct any contract market to take emergency action in
compliance with the provisions and standards of section 8a(9).
(f) Core Principles for Intermediaries.--The Commission
shall--
(1) review the provisions of this Act relating to
registered entities and intermediaries (including the
regulations and interpretations applying those
provisions); and
(2) to the extent appropriate and consistent with
this Act, administer those provisions in a manner that
is consistent with core principles and interpretations
of acceptable business practices for intermediaries as
described in this section.
(g) Effect of Act.--Nothing in this Act--
(1) prohibits an exchange of--
(A) futures in connection with a cash
commodity transaction;
(B) futures for cash commodities;
(C) transfer trades or office trades; or
(D) futures for swaps; or
(2) prohibits a futures commission merchant, acting
as a principal or agent, from entering into or
confirming the execution of a contract for the purchase
or sale of a commodity for future delivery if the
contract is reported, recorded, and cleared in
accordance with the rules of the contract market.
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
manipulation; or
(C) no cash market;
(2) that are entered into only between persons that--
(A) are eligible contract participants at the
time at which the persons enter into the
contract; or
(B) enter into the contract or option for the
benefit only of eligible contract participants;
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) Anti-manipulation 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 for future
delivery, or related option, to the extent that such an
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
establishinga separate subsidiary or other legal entity and
otherwise satisfying the requirements of this section.
[SEC. 5B. SUSPENSION OR REVOCATION OF DESIGNATION AS ``CONTRACT
MARKET''
[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 commission5b-1
thereunder, shall be cause for suspending for a period not to
exceed six months or revoking the designation of such board of
trade as a ``contract market'' in accordance with the procedure
and subject to the judicial review provided in section 6(b) of
this Act.]
SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS REGISTERED ENTITY.
The failure of a registered entity to comply with any
provision of this Act, or any regulation or order of the
Commission under this Act, shall be cause for the suspension of
the registered entity for a period not to exceed 180 days, or
revocation of designation as a registered entity in accordance
with the procedures and subject to the judicial review provided
in section 6(b).
SEC. 6. APPLICATION FOR DESIGNATION AS ``[CONTRACT MARKET] REGISTERED
ENTITY''.
(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 registered entity 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 registered entity 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 therefore, such board of trade]
designate or register as a registered entity any person that
has made application therefore, 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 registered entity on a showing that such
[board of trade] registered entity is not enforcing or has not
enforced its rules of government made a condition of its
[designation as set forth in section 5 of this Act] designation
or registration as set forth in sections 5 through 5c or that
such [board of trade] registered entity, 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]
registered entity 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) Exclusion of Persons From Privilege of ``[Contract
Markets] Registered Entity; Enforcement Powers of Commission.--
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] privileges to such person, until further notice of the
Commission and to show cause why the registration of such person, if
registered with the Commission in any capacity, should not be suspended
or revoked. Said hearing may be held in Washington, District of
Columbia, or elsewhere, before the Commission or before an
Administrative Law Judge designated by the Commission, which
Administrative Law Judge shall cause all evidence to be reduced to
writing and forthwith transmit the same to the Commission. For the
purpose of securing effective enforcement of the provisions of this
Act, for the purpose of any investigation or proceeding under this Act,
and for the purpose of any action taken under section 12(f), any member
of the Commission or any Administrative Law Judge or other officer
designated by the Commission (except as provided in the fifth sentence
of this subsection) may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda, or other
records that the Commission deems relevant or material to the inquiry.
The attendance of witnesses and the production of any such records may
be required from any place in the United States, any State or any
foreign country or jurisdiction at any designated place of hearing. A
subpoena issued under this section may be served upon any person who is
not to be found within the territorial jurisdiction of any court of the
United States in such manner as the Federal Rules of Civil Procedure
prescribe for service of process in a foreign country, except that a
subpoena to be served on a person who is not to be found within the
territorial jurisdiction of any court of the United States may be
issued only on the prior approval of the Commission. In case of
contumacy by, or refusal to obey a subpoena issued to, any person, the
Commission may invoke the aid of any court of the United States within
the jurisdiction in which the investigation or proceeding is conducted,
or where such person resides or transacts business, in requiring the
attendance and testimony of witnesses and the production of books,
papers, correspondence, memoranda, and other records. Such court may
issue an order requiring such person to appear before the Commission or
member or Administrative Law Judge or other officer designated by the
Commission, there to produce records, if so ordered, or to give
testimony touching the matter under investigation or in question. Any
failure to obey such order of the court may be punished by the court as
a contempt thereof. All process in any such case may be served in the
judicial district wherein such person is an inhabitant or transacts
business or wherever such person may be found. Upon evidence received,
the Commission may (1) prohibit such person from trading on or subject
to the rules of any [contract market] registered entity and require all
[contract markets] registered entities to refuse such person all
[trading privileges] 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.
The first, second, and tenth sentences through the end of
section 6(c) are classified to 7 U.S.C. 9. The third through
the ninth sentence of section 6(c) are classified to 7 U.S.C.
15.
(d) Manipulations or Other Violations.--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, * * *
* * * * * * *
(e) Assessment of Money Penalties.--
(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 thesatisfaction 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
(B) if such person is registered with the
Commission, such registration shall be
suspended automatically.
If the person against whom the money penalty is
assessed fails to pay such penalty after the lapse of
the period allowed for appeal or after the affirmance
of such penalty, the Commission may refer the matter to
the Attorney General who shall recover such penalty by
action in the appropriate United States district court.
SEC. 6A. COOPERATIVE ASSOCIATIONS AND CORPORATIONS, EXCLUSION FROM
BOARD OF TRADE.
(a) No board of trade which has been designated as a
[``contract market''] designated or registered as a contract
market or a derivatives transaction execution facility shall
exclude from membership in, and all privileges on, such board
of trade, any association or corporation
* * * * * * *
(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
* * * * * * *
SEC. 6B. NONENFORCEMENT OF RULES OF GOVERNMENT OR OTHER VIOLATIONS.
If any [contract market] registered entity is not enforcing
or has not enforced its rules of government made a condition of
its [designation as set forth in section 5 of this Act]
designation or registration as set forth in sections 5 through
5c, or if any [contract market] registered entity, or any
director, officer, agent, or employee of any contract market
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 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. ACTION TO ENJOIN OR RESTRAIN VIOLATIONS.
(a) Whenever it shall appear to the Commission that any
[contract market] registered entity or other person has
engaged, is engaging, or is about to engage in any act or
practice constituting a violation of any provision of this Act
or any rule, regulation, or order thereunder, or is restraining
trading in any commodity for future delivery,
* * * * * * *
SEC. 6D. JURISDICTION OF STATES.
(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
* * * * * * *
SEC. 7. VACATION OF REQUEST OF DESIGNATION AS ``[CONTRACT MARKET]
REGISTERED ENTITY.
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. PUBLIC DISCLOSURE.
* * * * * * *
(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
* * * * * * *
SEC. 8A. THE COMMISSION IS AUTHORIZED.
* * * * * * *
(1)(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 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;
* * * * * * *
(2)(F) if such person is subject to an outstanding
order of the Commission denying [trading privileges]
privileges on any contract market to such person,
denying, suspending * * *
* * * * * * *
(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;
* * * * * * *
(N) any principal, as defined in paragraph (2) of
this section, of such person has been or could be
refused registration
* * * * * * *
(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,* * * Nothing herein shall be deemed
to limit the meaning or interpretation given by a
[contract market] registered entity to the terms
``market emergency'', ``emergency'', or equivalent
language in its own bylaws, rules, regulations, or
resolutions;
SEC. 8B. TRADING BAN VIOLATIONS.
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.
SEC. 8C. DISCIPLINARY ACTIONS.
(a)(1) Any exchange or the Commission if the exchange fails
to act, may suspend, expel, or otherwise discipline any person
who is a member of that exchange, or deny any person access to
the exchange. Any such action shall be taken solely in
accordance with the rules of that exchange.
(2) Any suspension, expulsion, disciplinary, or access
denial procedure established by an exchange rule shall provide
for written notice to the Commission and to the person who is
suspended, expelled, or disciplined, or denied access, within
thirty days, which includes the reasons for the exchange action
in the form and manner the Commission prescribes. An exchange
shall make public its findings and the reasons for the exchange
action in any such proceeding, including the action taken or
the penalty imposed, but shall not disclose the evidence
therefor, except to the person who is suspended, expelled, or
disciplined, or denied access, and to the Commission.
(b) The Commission may, in its discretion and in accordance
with such standards and procedures as it deems appropriate,
review any decision by an exchange whereby a person is
suspended, expelled, otherwise disciplined, or denied access to
the exchange. In addition, the Commission may, in its
discretion and upon application of any person who is adversely
affected by any other exchange action, review such action.
(c) The Commission may affirm, modify, set aside, or remand
any exchange decision it reviews pursuant to subsection (b),
after a determination on the record whether the action of
theexchange was in accordance with the policies of this Act. Subject to
judicial review, any order of the Commission entered pursuant to
subsection (b) shall govern the exchange in its further treatment of
the matter.
(d) The Commission, in its discretion, may order a stay of
any action taken pursuant to subsection (a) pending review
thereof.
(e)(1) The Commission shall issue regulations requiring
each [contract market] registered entity 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.
(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 individual who is found to
have committed any major violation from service on the
governing board of any [contract market] registered entity or
registered futures association, or on any disciplinary
committee thereof
* * * * * * *
SEC. 9. VIOLATIONS GENERALLY.
(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:
* * * * * * *
(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)] section 4n(1), or section 19.
(3) Any person knowingly to make, or cause to be
made, any statement in any application, report, or
document required to be filed under this Act or any
rule or regulation thereunder or any undertaking
contained in a registration statement required under
this Act, or by any [contract market] registered entity
or registered futures association in connection with an
application for membership or participation therein or
to become associated with a member thereof, which
statement was false or misleading with respect to any
material fact, or knowingly to omit any material fact
required to be stated therein or necessary to make the
statements therein not misleading.
(4) Any person willfully to falsify, conceal, or
cover up by any trick, scheme, or artifice a material
fact, make any false, fictitious, or fraudulent
statements or representations, or make or use any false
writing or document knowing the same to contain any
false, fictitious, or fraudulent statement or entry to
a [contract market] registered entity, board of trade,
or futures association designated or registered under
this Act acting in furtherance of its official duties
under this Act * * *
(f) It shall be a felony for any person--
(1) who is an employee, member of the governing
board, or member of any committee of a board of trade,
[contract market] registered entity, or registered
futures association, in violation of a regulation
issued by the Commission * * *
* * * * * * *
(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 was obtained in
violation of paragraph (1) from an employee, member of
the governing board, or member of any committee of a
board of trade, [contract market] registered entity, or
registered futures association * * *
SEC. 12. COMMISSION OPERATIONS.
* * * * * * *
(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 anti-fraud provisions of general
applicability), that is not a transaction or class of
transactions that has received or is covered by the
terms of any exemption previously granted by the
Commission under subsection (c) of section 4 of this
Act, or (B) (except as otherwise specified by the
Commission by rule or regulation) that is not conducted
on or subject to the rules of any board of trade,
exchange, or market located outside the United States,
its territories or possessions, or (C) that is not
subject to regulation by the Commission under section
4c or 19 of this Act; or]
(2) the application of any Federal or State law
(including any regulation) to an agreement, contract,
or transaction in or involving any commodity, product,
right, service, or interest, except that this Act shall
supersede and preempt--
(A) any Federal or State law (including any
regulation), in the case of any such agreement,
contract, or transaction--
(i) that is conducted on or subject
to the rules of a registered entity or
exempt board of trade;
(ii) that is conducted on or subject
to the rules of any board of trade,
exchange, or market located outside the
United States, or any territory or
possession of the United States (in
accordance with any terms or conditions
specified by the Commission by
regulation); and
(iii) that is subject to regulation
by the Commission under section 4c or
19; and
(B) any State or local law that prohibits or
regulates gaming or the operation of bucket
shops (other than anti-fraud provisions of
general applicability) in the case of--
(i) an excluded trading facility
under section 2(e); or
(ii) an agreement, contract, or
transaction that--
(I) is excluded under
subsection (c), (d), or (f) of
section 2; or
(II) 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
(3) the application * * *
* * * * * * *
SEC. 14. COMPLAINTS AGAINST REGISTERED PERSONS.
(a)(1) Any person complaining of any violation * * *
* * * * * * *
(B) in the case of any action arising from a
willful and intentional violation in the
execution of an order on the floor of a
[contract market] registered entity, punitive
or exemplary damages equal to no more than two
times the amount of such actual damages. If an
award of punitive or exemplary damages is made
against a floor broker in connection with the
execution of a customer order, and the futures
commission merchant which selected the floor
broker for the execution of the customer order
is held to be responsible under section 2(a)(1)
for the floor broker's violation, such futures
commission merchant may be required to satisfy
such award if the floor broker fails to do so,
except that such requirement shall apply to the
futures commission merchant only if it
willfully and intentionally selected the floor
broker with the intent to assist or facilitate
the floor broker's violation.
(f) Unless the party against whom a reparation order has
been issued shows to the satisfaction of the Commission within
fifteen days from the expiration of the period allowed for
compliance with such order that either an appeal as herein
authorized has been taken or payment of the full amount of the
order (or any agreed settlement thereof) has been made, such
party shall be prohibited automatically from trading on all
[contract markets] registered entities and, if the party is
registered with the Commission, such registration shall be
suspended automatically at the expiration of such fifteen-day
period until such party shows to the satisfaction of the
Commission that payment of such amount with interest thereon to
date of payment has been made: Provided, That if on appeal the
appellee prevails or if the appeal is dismissed, the automatic
prohibition against trading and suspension of registration
shall become effective at the expiration of thirty days from
the date of judgment on the appeal, but if the judgment is
stayed by a court of competent jurisdiction, the suspension
shall become effective ten days after the expiration of such
stay, unless prior thereto the judgment of the court has been
satisfied.
[(g) The provisions of this section shall not become
effective until fifteen months after the date of its enactment:
Provided, That claims which arise within one year immediately
prior to the effective date of this section may be heard by the
Commission after such 15-month period.]
(g) Predispute Resolution Agreements for Institutional
Customers.--Nothing in this Act prohibits a registered futures
commission merchant from requiring a customer that is an
eligible contract participant, as a condition to the commission
merchant's conducting a transaction for the customer, to enter
into an agreement--
(1) waiving the right to file a claim under this
section; and
(2) otherwise agreeing to submit any claim the
customer may have against the futures commission
merchant to binding arbitration pursuant to the rules
and procedures of a registered entity or registered
futures association or any other forum authorized to
hear such claims.
[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]
registered entity or registered futures association established
pursuant to section 17 of this Act.
SEC. 15. 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] registered entities or
registered futures association established pursuant to section
17 of this Act.
* * * * * * *
SEC. 17. REGISTERED FUTURES ASSOCIATIONS
* * * * * * *
(b) An applicant association shall not be registered as a
futures association unless the Commission finds, under
standards established by the Commission, that
* * * * * * *
(2) the rules of the association provide that any
person registered under this Act, [contract market]
registered entities, 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 * * * 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 entities or has been and is barred
or suspended from being associated with all members of
such [contract market] registered entities, for
violation of any rule of such [contract market]
registered entities;
(3) * * *
(A) has been and is suspended or expelled
from a registered futures association or from a
[contract market] registered entities 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 entities, for
violation of any rule of such association or
[contract market] registered entities 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 entities, 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
entities or association shall have jurisdiction
to determine whether or not any person was a
cause thereof; or
(10) the rules of the association provide a fair,
equitable, and expeditious procedure through
arbitration or otherwise for the settlement of
customers' claims and grievances against any member or
employee thereof: Provided, That (A) the use of such
procedure by a customer shall be voluntary, (B) the
term ``customer'' as used in this paragraph shall not
include another member of the association, and (C) in
the case of a claim arising from a violation in the
execution of an order on the floor of a [contract
market] registered entities, such procedure shall
provide, to the extent appropriate--
* * * * * * *
(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 entities 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)(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 entities,
or on any disciplinary committee thereof * * *
* * * * * * *
SEC. 22. PRIVATE RIGHTS OF ACTION.
(a)(1) Any person (other than a contract market, clearing
organization of a [contract market, licensed board of trade]
registered entity, or registered futures association) who
violates this Act or who willfully aids, abets, counsels,
induces, or procures the commission of a violation of this Act
shall be liable for actual damages resulting from one or more
of the transactions referred to in subparagraphs (A) through
(D) of this paragraph and caused by such violation to any other
person * * *
* * * * * * *
(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)]
``sections 5(d)(13), 5b(d)(2)(H)(i),'', 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 * * *
(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--
* * * * * * *
(4) Contract enforcement between eligible counterparties.--
No agreement, contract, or transaction between eligible
contract participants shall be void, voidable, or
unenforceable, and no such 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)] sections 5 through
5c of this Act, (B) a licensed board of trade that fails to
enforce any bylaw, rule, regulation, or resolution that it is
required to enforce by the Commission, or (C) any [contract
market, clearing organization of a contract market, or licensed
board of trade] registered entity that in enforcing any such
bylaw, rule, regulation, or resolution violates this Act or any
Commission rule, regulation, or order, shall be liable for
actual damages sustained by a person who engaged in any
transaction on or subject to the rules of such [contract market
or licensed board of trade] registered entity to the extent of
such person's actual losses that resulted from such transaction
and were caused by such failure to enforce or enforcement of
such bylaws, rules, regulations, or resolutions
* * * * * * *
(3) Any individual who, in the capacity as an officer,
director, governor, committee member, or employee of a
[contract market, clearing organization, licensed board of
trade] registered entity, or a registered futures association
willfully aids, abets, counsels, induces, or procures any
failure by any such entity to enforce (or any violation of the
Act in enforcing) any bylaw, rule, regulation, or resolution
referred to in paragraph (1) or (2) of this subsection, shall
be liable for actual damages sustained by a person who engaged
in any transaction specified in subsection (a) of this section
on, or subject to the rules of, such [contract market, licensed
board of trade] registered entity or, in the case of an
officer, director, governor, committee member, or employee of a
registered futures association, any transaction specified in
subsection (a) of this section, in either case to the extent of
such person's actual losses that resulted from such transaction
and were caused by such failure or violation.
(4) A person seeking to enforce liability under this
section must establish that the [contract market, licensed
board of trade, clearing organization] registered entity,
registered futures association, officer, director, governor,
committee member, or employee acted in bad faith in failing to
take action or in taking such action as was taken, and that
such failure or action caused the loss.
(5) The rights of action authorized by this subsection
shall be the exclusive remedy under this Act available to any
person who sustains a loss as a result of (A) the alleged
failure by a [contract market, licensed board of trade,
clearing organization] registered entity, or registered futures
association or by any officer, director, governor, committee
member, or employee to enforce any bylaw, rule, regulation, or
resolution referred to inparagraph (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
* * * * * * *
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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.