F:\M6\EWING\EWING.027
H.L.C.
AMENDMENT IN THE NATURE OF A SUBSTITUTE TO
H.R. 4541
OFFERED
BY
MR. EWING
Strike all after the enacting clause and insert the following: 1
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
2
(a) SHORT TITLE.—This Act may be cited as the
3 ‘‘Commodity Futures Modernization Act of 2000’’. 4
(b) TABLE
OF
CONTENTS.—The table of contents of
5 this Act is as follows: Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
1. 2. 3. 4.
Short title; table of contents. Purposes. Definitions. Agreements, contracts, and transactions in foreign currency, government securities, and certain other commodities. 5. Legal certainty for excluded derivative transactions. 6. Excluded electronic trading facilities. 7. Hybrid instruments. 8. Futures on securities. 9. Transactions in energy commodities. 10. Protection of the public interest. 11. Prohibited transactions. 12. Designation of boards of trade as contract markets. 13. Derivatives transaction execution facilities. 14. Derivatives clearing organizations. 15. Common provisions applicable to registered entities. 16. Exempt boards of trade. 17. Suspension or revocation of designation as contract market. 18. Authorization of appropriations. 19. Preemption. 20. Predispute resolution agreements for institutional customers. 21. Consideration of costs and benefits and antitrust laws. 22. Contract enforcement between eligible counterparties. 23. Rule of construction. 24. Technical and conforming amendments. 25. Report to Congress. 26. Effective date.
F:\M6\EWING\EWING.027
H.L.C.
2 1
SEC. 2. PURPOSES.
2
The purposes of this Act are—
3 4
(1) to reauthorize the appropriation for the Commodity Futures Trading Commission;
5
(2) to streamline and eliminate unnecessary
6
regulation for the commodity futures exchanges and
7
other entities regulated under the Commodity Ex-
8
change Act;
9
(3) to transform the role of the Commodity Fu-
10
tures Trading Commission to oversight of the fu-
11
tures markets;
12
(4) to provide a statutory and regulatory frame-
13
work for allowing the trading of futures on securi-
14
ties;
15
(5) to provide the Commission jurisdiction over
16
certain retail foreign exchange transactions and
17
bucket shops that may not be otherwise regulated;
18
(6) to promote innovation for futures and de-
19
rivatives and to reduce systemic risk by enhancing
20
legal certainty in the markets for certain futures and
21
derivatives transactions;
22
(7) to reduce systemic risk and provide greater
23
stability to markets during times of market disorder
24
by allowing the clearing of transactions in over-the-
25
counter derivatives through appropriately regulated
26
clearing organizations; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
3 1
(8) to enhance the competitive position of
2
United States financial institutions and financial
3
markets.
4
SEC. 3. DEFINITIONS.
5
Section 1a of the Commodity Exchange Act (7 U.S.C.
6 1a) is amended— 7
(1) by redesignating paragraphs (8) through
8
(12), (13) through (15), and (16) as paragraphs
9
(15) through (19), (21) through (23), and (27), re-
10 11 12
spectively; (2) by inserting after paragraph (7) the following:
13
‘‘(8) DERIVATIVES
14
‘‘(A) IN
CLEARING ORGANIZATION.—
GENERAL.—The
term ‘derivatives
15
clearing organization’ means a clearinghouse,
16
clearing association, clearing corporation, or
17
similar entity, facility, system, or organization
18
that, with respect to a derivative agreement,
19
contract, or transaction—
20
‘‘(i) enables each party to the deriva-
21
tive agreement, contract, or transaction to
22
substitute, through novation or otherwise,
23
the credit of the derivatives clearing orga-
24
nization for the credit of the parties;
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
4 1
‘‘(ii) arranges or provides, on a multi-
2
lateral basis, for the settlement or netting
3
of obligations resulting from such agree-
4
ments, contracts, or transactions executed
5
by parties in the derivatives clearing orga-
6
nization; or
7
‘‘(iii) otherwise provides clearing serv-
8
ices or arrangements that mutualize or
9
transfer among parties in the derivatives
10
clearing organization the credit risk arising
11
from such agreements, contracts, or trans-
12
actions executed by the parties.
13
‘‘(B) EXCLUSIONS.—The term ‘derivatives
14
clearing organization’ does not include an enti-
15
ty, facility, system, or organization solely be-
16
cause it arranges or provides for—
17
‘‘(i) settlement, netting, or novation of
18
obligations resulting from agreements, con-
19
tracts, or transactions, on a bilateral basis
20
and without a centralized counterparty;
21
‘‘(ii) settlement or netting of cash
22
payments through an interbank payment
23
system; or
24
‘‘(iii) settlement, netting, or novation
25
of obligations resulting from a sale of a
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
5 1
commodity in a transaction in the spot
2
market for the commodity.
3
‘‘(9) ELECTRONIC
TRADING
FACILITY.—The
4
term ‘electronic trading facility’ means a trading fa-
5
cility that—
6 7
‘‘(A) operates by means of an electronic network; and
8
‘‘(B) maintains a real-time audit trail of
9
bids, offers, and the matching of orders or the
10
execution of transactions.
11
‘‘(10) ELIGIBLE
CONTRACT PARTICIPANT.—The
12
term ‘eligible contract participant’ means—
13
‘‘(A) acting for its own account—
14
‘‘(i) a financial institution;
15
‘‘(ii) an insurance company regulated
16
by a State (including a subsidiary or affil-
17
iate of such an insurance company);
18
‘‘(iii) an investment company subject
19
to regulation under the Investment Com-
20
pany Act of 1940 (15 U.S.C. 80a–1 et
21
seq.) or a foreign person performing a
22
similar role or function subject as such to
23
foreign regulation (regardless of whether
24
each investor in the investment company or
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
6 1
the foreign person is itself an eligible con-
2
tract participant);
3
‘‘(iv) a commodity pool that—
4 5
‘‘(I) has total assets exceeding $5,000,000; and
6
‘‘(II) is formed and operated by a
7
person subject to regulation under
8
this Act or a foreign person per-
9
forming a similar role or function sub-
10
ject as such to foreign regulation (re-
11
gardless of whether each investor in
12
the commodity pool or the foreign per-
13
son is itself an eligible contract partic-
14
ipant);
15
‘‘(v) a corporation, partnership, pro-
16
prietorship, organization, trust, or other
17
entity—
18 19
‘‘(I) that has total assets exceeding $10,000,000;
20
‘‘(II) the obligations of which
21
under an agreement, contract, or
22
transaction are guaranteed or other-
23
wise supported by a letter of credit or
24
keepwell, support, or other agreement
25
by an entity described in subclause
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
7 1
(I), in clause (i), (ii), (iii), (iv), or
2
(vii), or in subparagraph (C); or
3
‘‘(III) that—
4 5
‘‘(aa) has a net worth exceeding $1,000,000; and
6
‘‘(bb) enters into an agree-
7
ment, contract, or transaction in
8
connection with the conduct of
9
the entity’s business or to man-
10
age the risk associated with an
11
asset or liability owned or in-
12
curred or reasonably likely to be
13
owned or incurred by the entity
14
in the conduct of the entity’s
15
business;
16
‘‘(vi) an employee benefit plan subject
17
to the Employee Retirement Income Secu-
18
rity Act of 1974 (29 U.S.C. 1001 et seq.)
19
or a foreign person performing a similar
20
role or function subject as such to foreign
21
regulation—
22 23 24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(I) that has total assets exceeding $5,000,000; or ‘‘(II) the investment decisions of which are made by—
F:\M6\EWING\EWING.027
H.L.C.
8 1
‘‘(aa) an investment advisor
2
or commodity trading advisor
3
subject to regulation under the
4
Investment Advisers Act of 1940
5
(15 U.S.C. 80b–1 et seq.) or this
6
Act;
7
‘‘(bb) a foreign person per-
8
forming a similar role or function
9
subject as such to foreign regula-
10
tion;
11 12
‘‘(cc) a financial institution; or
13
‘‘(dd) an insurance company
14
regulated by a State (including a
15
subsidiary or affiliate of such an
16
insurance company);
17
‘‘(vii)(I) a governmental entity (in-
18
cluding the United States, a State, or a
19
foreign government) or political subdivision
20
of a governmental entity;
21 22
‘‘(II) a multinational or supranational government entity; or
23
‘‘(III) an instrumentality, agency, or
24
department of an entity described in sub-
25
clause (I) or (II);
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
9 1
‘‘(viii) a broker or dealer subject to
2
regulation under the Securities Exchange
3
Act of 1934 (15 U.S.C. 78a et seq.) or a
4
foreign person performing a similar role or
5
function subject as such to foreign regula-
6
tion, except that, if the broker or dealer or
7
foreign person is a natural person or pro-
8
prietorship, the broker or dealer or foreign
9
person shall not be considered to be an eli-
10
gible contract participant unless the broker
11
or dealer or foreign person also meets the
12
requirements of clause (v) or (xi);
13
‘‘(ix) a futures commission merchant
14
subject to regulation under this Act or a
15
foreign person performing a similar role or
16
function subject as such to foreign regula-
17
tion, except that, if the futures commission
18
merchant or foreign person is a natural
19
person or proprietorship, the futures com-
20
mission merchant or foreign person shall
21
not be considered to be an eligible contract
22
participant unless the futures commission
23
merchant or foreign person also meets the
24
requirements of clause (v) or (xi);
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
10 1
‘‘(x) a floor broker or floor trader sub-
2
ject to regulation under this Act in connec-
3
tion with any transaction that takes place
4
on or through the facilities of a registered
5
entity or an exempt board of trade, or any
6
affiliate thereof, on which such person reg-
7
ularly trades; or
8 9
‘‘(xi) a natural person with total assets exceeding $10,000,000;
10
‘‘(B)(i) a person described in any of
11
clauses (i) through (x) of subparagraph (A) or
12
in subparagraph (C), acting as broker or per-
13
forming an equivalent agency function on behalf
14
of another person described in subparagraph
15
(A) or (C);
16
‘‘(ii) an investment adviser subject to regu-
17
lation under the Investment Advisors Act of
18
1940, a commodity trading advisor subject to
19
regulation under this Act, a foreign person per-
20
forming a similar role or function subject as
21
such to foreign regulation, or a person de-
22
scribed in any of clauses (i) through (x) of sub-
23
paragraph (A) or in subparagraph (C), in any
24
such case acting as investment manager or fi-
25
duciary (but excluding a person acting as
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
11 1
broker or performing an equivalent agency
2
function) for another person described in sub-
3
paragraph (A) or (C) and who is authorized by
4
such person to commit such person to the
5
transaction; or
6
‘‘(iii) a commodity trading advisor subject
7
to regulation under this Act, having assets
8
under
9
$25,000,000 and acting as investment manager
10
or fiduciary for another person and authorized
11
by such person to commit such person to the
12
transaction; or
management
of
not
less
than
13
‘‘(C) any other person that the Commis-
14
sion determines to be eligible in light of the fi-
15
nancial or other qualifications of the person.
16
‘‘(11) ENERGY
COMMODITY.—The
term ‘energy
17
commodity’ means coal, condensates, crude oil, elec-
18
tricity, natural gas, or natural gas liquids.
19
‘‘(12) EXCLUDED
COMMODITY.—The
term ‘ex-
20
cluded commodity’ means any commodity other than
21
an agricultural commodity enumerated in paragraph
22
(3) or an energy commodity.
23
‘‘(13) FINANCIAL
24
nancial commodity’ means—
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
COMMODITY.—The
term ‘fi-
F:\M6\EWING\EWING.027
H.L.C.
12 1
‘‘(A) an interest rate, exchange rate, cur-
2
rency, security, security index, credit risk, debt
3
or equity instrument, or widely published index
4
or measure of inflation; or
5
‘‘(B) any other rate, differential, index, or
6
measure of economic risk, return, or value (ex-
7
cluding any rate, differential, index, or measure
8
based on a commodity not described in subpara-
9
graph (A) that has a finite supply).
10
‘‘(14) FINANCIAL
11
nancial institution’ means—
INSTITUTION.—The
term ‘fi-
12
‘‘(A) a corporation operating under the
13
fifth undesignated paragraph of section 25 of
14
the Federal Reserve Act (12 U.S.C. 603), com-
15
monly known as ‘an agreement corporation’;
16
‘‘(B) a corporation organized under section
17
25A of the Federal Reserve Act (12 U.S.C. 611
18
et seq.), commonly known as an ‘Edge Act cor-
19
poration’;
20 21
‘‘(C) an institution that is regulated by the Farm Credit Administration;
22
‘‘(D) a Federal credit union or State credit
23
union (as defined in section 101 of the Federal
24
Credit Union Act (12 U.S.C. 1752));
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
13 1
‘‘(E) a depository institution (as defined in
2
section 3 of the Federal Deposit Insurance Act
3
(12 U.S.C. 1813));
4
‘‘(F) a foreign bank or a branch or agency
5
of a foreign bank (each as defined in section
6
1(b) of the International Banking Act of 1978
7
(12 U.S.C. 3101(b)));
8
‘‘(G) a trust company; or
9
‘‘(H) a similarly regulated subsidiary or af-
10
filiate of an entity described in any of subpara-
11
graphs (A) through (F).’’;
12
(3) by inserting after paragraph (19) (as redes-
13 14
ignated by paragraph (1)) the following: ‘‘(20) HYBRID
INSTRUMENT.—The
term ‘hybrid
15
instrument’ means a deposit (as defined in section 3
16
of the Federal Deposit Insurance Act (12 U.S.C.
17
1813)) offered by a financial institution, or a secu-
18
rity, having 1 or more payments indexed to the
19
value, level, or rate of 1 or more commodities.’’;
20 21 22
(4) by inserting after paragraph (23) (as redesignated by paragraph (1)) the following: ‘‘(24) NONEXEMPT
SECURITY.—The
term ‘non-
23
exempt security’ means a security that is not an ex-
24
empted security under section 3 of the Securities
25
Act of 1933 or section 3(a)(12) of the Securities Ex-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
14 1
change Act of 1934 (other than any municipal secu-
2
rity, as defined in section 3(a)(29) of the Securities
3
Exchange Act of 1934).
4
‘‘(25) OPTION.—The term ‘option’ means an
5
agreement, contract, or transaction that is of the
6
character of, or is commonly known to the trade as,
7
an ‘option,’ ‘privilege,’ ‘indemnity,’ ‘bid,’ ‘offer,’
8
‘put,’ ‘call,’ ‘advance guaranty,’ or ‘decline guar-
9
anty.’
10 11 12 13 14 15
‘‘(26) ORGANIZED
EXCHANGE.—The
term ‘or-
ganized exchange’ means a trading facility that— ‘‘(A) permits trading— ‘‘(i) by or on behalf of a person that is not an eligible contract participant; or ‘‘(ii) by persons other than on a bona
16
fide principal-to-principal basis; or
17
‘‘(B) has adopted (directly or through an-
18
other nongovernmental entity) rules that—
19
‘‘(i) govern the conduct of partici-
20
pants, other than rules that govern the
21
submission of orders or execution of trans-
22
actions on the trading facility; or
23
‘‘(ii) include disciplinary sanctions
24
other than the exclusion of participants
25
from trading.’’; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
15 1
(5) by adding at the end the following:
2
‘‘(28) REGISTERED
3 4 5 6 7 8 9
ENTITY.—The
term ‘reg-
istered 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.
10
‘‘(29) SECURITY.—The term ‘security’ has the
11
meaning given the term in section 3(a) of the Secu-
12
rities Exchange Act of 1934 (15 U.S.C. 78c(a)) as
13
in effect on date of the enactment of this paragraph.
14 15
‘‘(30) TRADING ‘‘(A) IN
FACILITY.—
GENERAL.—The
term ‘trading fa-
16
cility’ means a person or group of persons that
17
constitutes, maintains, or provides a physical or
18
electronic facility or system in which multiple
19
participants have the ability to execute or trade
20
agreements, contracts, or transactions by ac-
21
cepting bids and offers made by other partici-
22
pants that are open to multiple participants in
23
the facility or system.
24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(B) EXCLUSIONS.—The term ‘trading facility’ does not include—
F:\M6\EWING\EWING.027
H.L.C.
16 1
‘‘(i) a person or group of persons sole-
2
ly because the person or group of persons
3
constitutes, maintains, or provides an elec-
4
tronic facility or system that enables par-
5
ticipants to negotiate the terms of and
6
enter into bilateral transactions as a result
7
of communications exchanged by the par-
8
ties and not from interaction of multiple
9
orders within a predetermined, nondis-
10
cretionary automated trade matching algo-
11
rithm;
12
‘‘(ii) a government securities dealer or
13
government securities broker, to the extent
14
that the dealer or broker executes or
15
trades agreements, contracts, or trans-
16
actions in government securities, or assists
17
persons in communicating about, negoti-
18
ating, entering into, executing, or trading
19
an agreement, contract, or transaction in
20
government securities (as the terms ‘gov-
21
ernment securities dealer’, ‘government se-
22
curities broker’, and ‘government securi-
23
ties’ are defined in section 3(a) of the Se-
24
curities Exchange Act of 1934 (15 U.S.C.
25
78c(a))); or
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
17 1
‘‘(iii) facilities on which bids and of-
2
fers, and acceptances of bids and offers ef-
3
fected on the facility, are not binding.’’.
4
SEC. 4. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN
5
FOREIGN CURRENCY, GOVERNMENT SECURI-
6
TIES, AND CERTAIN OTHER COMMODITIES.
7
Section 2 of the Commodity Exchange Act (7 U.S.C.
8 2, 2a, 3, 4, 4a) is amended by adding at the end the fol9 lowing: 10 11
‘‘(c) AGREEMENTS, CONTRACTS, IN
AND
TRANSACTIONS
FOREIGN CURRENCY, GOVERNMENT SECURITIES,
AND
12 CERTAIN OTHER COMMODITIES.— 13
‘‘(1) IN
GENERAL.—Except
as provided in para-
14
graph (2), nothing in this Act (other than section 5b
15
or 12(e)(2)(B)) governs or applies to an agreement,
16
contract, or transaction in—
17
‘‘(A) foreign currency;
18
‘‘(B) government securities;
19
‘‘(C) security warrants;
20
‘‘(D) security rights;
21
‘‘(E) resales of installment loan contracts;
22
‘‘(F) repurchase transactions in a financial
23 24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
commodity; or ‘‘(G) mortgages or mortgage purchase commitments.
F:\M6\EWING\EWING.027
H.L.C.
18 1 2
‘‘(2) COMMISSION ‘‘(A)
JURISDICTION.—
AGREEMENTS,
CONTRACTS,
AND
3
TRANSACTIONS THAT ARE FUTURES TRADED
4
ON AN ORGANIZED EXCHANGE.—This
5
plies to, and the Commission shall have juris-
6
diction over, an agreement, contract, or trans-
7
action described in paragraph (1) that is—
Act ap-
8
‘‘(i) a contract of sale of a commodity
9
for future delivery (or an option thereon),
10
or an option on a commodity (other than
11
foreign currency or a security), that is exe-
12
cuted or traded on an organized exchange;
13
or
14
‘‘(ii) an option on foreign currency
15
and is executed or traded on an organized
16
exchange that is not a national securities
17
exchange.
18
‘‘(B)
19
TRANSACTIONS
20
RENCY.—This
21
sion shall have jurisdiction over, an agreement,
22
contract, or transaction in foreign currency
23
that—
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
AGREEMENTS, IN
CONTRACTS,
RETAIL
FOREIGN
AND CUR-
Act applies to, and the Commis-
F:\M6\EWING\EWING.027
H.L.C.
19 1
‘‘(i) is a contract of sale for future de-
2
livery (or an option on such a contract) or
3
an option; and
4
‘‘(ii) is offered to, or entered into
5
with, a person that is not an eligible con-
6
tract participant, unless the counterparty,
7
or
8
counterparty, of the person is—
the
9
person
offering
to
be
the
‘‘(I) a financial institution;
10
‘‘(II) a broker or dealer reg-
11
istered under section 15(b) or 15C of
12
the Securities Exchange Act of 1934
13
(15 U.S.C. 78o(b), 78o–5) or a fu-
14
tures commission merchant registered
15
under this Act;
16
‘‘(III) an associated person of a
17
broker or dealer registered under sec-
18
tion 15(b) or 15C of the Securities
19
Exchange Act of 1934 (15 U.S.C.
20
78o(b), 78o–5), or an affiliated person
21
of a futures commission merchant
22
registered under this Act, concerning
23
the financial or securities activities of
24
which the registered person makes
25
and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
keeps
records
under
section
F:\M6\EWING\EWING.027
H.L.C.
20 1
15C(b) or 17(h) of the Securities Ex-
2
change Act of 1934 (15 U.S.C. 78o–
3
5(b), 78q(h)) or section 4f(c)(2)(B) of
4
this Act;
5
‘‘(IV) an insurance company that
6
is subject to State regulation (includ-
7
ing a subsidiary or affiliate of such an
8
insurance company);
9
‘‘(V) a financial holding company
10
(as defined in section 2 of the Bank
11
Holding Company Act of 1956); or
12
‘‘(VI) an investment bank hold-
13
ing company (as defined in section
14
17(i) of the Securities Exchange Act
15
of 1934).’’.
16
SEC. 5. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE
17 18
TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C.
19 2, 2a, 3, 4, 4a) (as amended by section 4) is amended 20 by adding at the end the following: 21 22
‘‘(d) EXCLUDED DERIVATIVE TRANSACTIONS.— ‘‘(1) IN
GENERAL.—Nothing
in this Act (other
23
than section 5b or 12(e)(2)(B)) governs or applies to
24
an agreement, contract, or transaction in an ex-
25
cluded commodity if—
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
21 1
‘‘(A) the agreement, contract, or trans-
2
action is entered into only between persons that
3
are eligible contract participants at the time at
4
which the persons enter into the agreement,
5
contract, or transaction; and
6
‘‘(B) the agreement, contract, or trans-
7
action is not executed or traded on a trading fa-
8
cility.
9
‘‘(2) ELECTRONIC
TRADING FACILITY EXCLU-
10
SION.—Nothing
11
5b, or 12(e)(2)(B)) governs or applies to an agree-
12
ment, contract, or transaction in an excluded com-
13
modity if—
in this Act (other than section 5a,
14
‘‘(A) the agreement, contract, or trans-
15
action is entered into on a bona fide principal-
16
to-principal basis between parties trading for
17
their own accounts or as described in section
18
1a(10)(B)(ii) of this Act;
19
‘‘(B) the agreement, contract, or trans-
20
action is entered into only between persons that
21
are eligible contract participants (as defined in
22
sections 1a(10)(A), (B)(ii), and (C)) at the time
23
at which the persons enter into the agreement,
24
contract, or transaction; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
22 1
‘‘(C) the agreement, contract, or trans-
2
action is executed or traded on an electronic
3
trading facility.’’.
4
SEC. 6. EXCLUDED ELECTRONIC TRADING FACILITIES.
5
Section 2 of the Commodity Exchange Act (7 U.S.C.
6 2, 2a, 3, 4, 4a) (as amended by section 5) is amended 7 by adding at the end the following: 8 9
‘‘(e) EXCLUDED ELECTRONIC TRADING FACILITIES.—
10
‘‘(1) IN
GENERAL.—Nothing
in this Act (other
11
than section 12(e)(2)(B)) governs or is applicable to
12
an electronic trading facility that limits transactions
13
authorized to be conducted on its facilities to those
14
satisfying the requirements of sections 2(d)(2) and
15
2(h)(1)(B) of this Act.
16
‘‘(2) EFFECT
ON AUTHORITY TO ESTABLISH
17
AND OPERATE.—Nothing
18
board of trade designated by the Commission as a
19
contract market or derivatives transaction execution
20
facility, or an exempt board of trade, from estab-
21
lishing and operating an excluded electronic trading
22
facility excluded under this Act pursuant to para-
23
graph (1).’’.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
in this Act shall prohibit a
F:\M6\EWING\EWING.027
H.L.C.
23 1
SEC. 7. HYBRID INSTRUMENTS.
2
Section 2 of the Commodity Exchange Act (7 U.S.C.
3 2, 2a, 3, 4, 4a) (as amended by section 6) is amended 4 by adding at the end the following: 5 6
‘‘(f) EXCLUSION
FOR
QUALIFYING HYBRID INSTRU-
MENTS.—
7
‘‘(1) IN
GENERAL.—Nothing
in this Act (other
8
than section 12(e)(2)(B)) governs or is applicable to
9
a hybrid instrument that is predominantly a security
10
or depository instrument.
11
‘‘(2) PREDOMINANCE.—A hybrid instrument
12
shall be considered to be predominantly a security or
13
depository instrument if—
14
‘‘(A) the issuer of the hybrid instrument
15
receives payment in full of the purchase price of
16
the hybrid instrument, substantially contem-
17
poraneously with delivery of the hybrid instru-
18
ment;
19
‘‘(B) the purchaser or holder of the hybrid
20
instrument is not required to make any pay-
21
ment to the issuer in addition to the purchase
22
price paid under subparagraph (A), whether as
23
margin, settlement payment, or otherwise, dur-
24
ing the life of the hybrid instrument or at ma-
25
turity;
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
24 1
‘‘(C) the issuer of the hybrid instrument is
2
not subject by the terms of the instrument to
3
mark-to-market margining requirements; and
4
‘‘(D) the hybrid instrument is not mar-
5
keted as a contract of sale for future delivery
6
of a commodity (or option on such a contract)
7
subject to this Act.
8
‘‘(3) MARK-TO-MARKET
9
MENTS.—For
MARGINING REQUIRE-
the purposes of paragraph (2)(C),
10
mark-to-market margining requirements do not in-
11
clude the obligation of an issuer of a secured debt
12
instrument to increase the amount of collateral held
13
in pledge for the benefit of the purchaser of the se-
14
cured debt instrument to secure the repayment obli-
15
gations of the issuer under the secured debt instru-
16
ment.’’.
17
SEC. 8. FUTURES ON SECURITIES.
18
Section 2 of the Commodity Exchange Act (7 U.S.C.
19 2, 2a, 3, 4, 4a) (as amended by section 7) is amended 20 by adding at the end the following: 21
‘‘(g) Notwithstanding any other provision of law:
22
‘‘(1) This Act shall not apply to and the Com-
23
mission shall have no jurisdiction to designate a
24
board of trade as a contract market for any trans-
25
action whereby any party to the transaction acquires
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
25 1
a put, call, or other option on 1 or more securities
2
(as defined in section 2(a)(1) of the Securities Act
3
of 1933 or section 3(a)(10) of the Securities Ex-
4
change Act of 1934, on the date of enactment of the
5
Futures Trading Act of 1982), including any group
6
or index of securities and any interest in or based
7
on the value of securities.
8 9
‘‘(2) Nothing in this subsection governs or applies to—
10
‘‘(A) an agreement, contract, or trans-
11
action in a commodity that is excluded under
12
subsection (c) or (d);
13 14
‘‘(B) an electronic trading facility that is excluded under subsection (e); or
15
‘‘(C) a hybrid instrument that is covered
16
by an exclusion under subsection (f) or an ex-
17
emption granted by the Commission under sec-
18
tion 4(c) (whether or not the hybrid instrument
19
is otherwise subject to this Act).
20
‘‘(3) Except as provided in paragraph (4) of
21
this subsection, or unless excluded by paragraph (2)
22
of this subsection, a person shall not offer to enter
23
into, enter into, or confirm the execution of any con-
24
tract of sale (or option on the contract) for future
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
26 1
delivery of any security or interest in or based on
2
the value of a nonexempt security.
3
‘‘(4)(A) Except as excluded by paragraph (2) of
4
this subsection, this Act shall apply to and the Com-
5
mission shall have exclusive jurisdiction with respect
6
to accounts, agreements (including any transaction
7
which is of the character of, or is commonly known
8
to the trade as an option, privilege, indemnity, bid,
9
offer, put, call, advance guaranty, or decline guar-
10
anty), and transactions involving, and may designate
11
a board of trade as a contract market under section
12
5 or register the board of trade as a derivatives
13
transaction execution facility under section 5a in,
14
contracts of sale (or options on the contracts) for fu-
15
ture delivery of 1 or more securities (as defined in
16
section 2(a)(1) of the Securities Act of 1933 or sec-
17
tion 3(a)(10) of the Securities Exchange Act of
18
1934), including any group or index of securities
19
and any interest in or based on the value of securi-
20
ties.
21
‘‘(B) The Commission shall not designate a
22
board of trade as a contract market under section
23
5 or register a board of trade as a derivatives trans-
24
action execution facility under section 5a with re-
25
spect to any such contracts of sale (or options on the
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
27 1
contracts) for future delivery unless the board of
2
trade demonstrates and the Commission expressly
3
finds that the specific contract (or option on the
4
contract) with respect to which the application for
5
the designation or recognition has been made meets
6
the following requirements:
7
‘‘(i) Settlement of or delivery on the con-
8
tract (or option on the contract) shall be ef-
9
fected in cash or by means other than the
10 11
transfer or receipt of a nonexempt security. ‘‘(ii) SUSCEPTIBILITY
TO PRICE MANIPULA-
12
TION.—Trading
13
such a contract) described in subparagraph (A)
14
shall not be readily susceptible to—
in a contract (or option on
15
‘‘(I) manipulation of the price of the
16
contract (or option on such a contract); or
17
‘‘(II) causing or being used in the ma-
18
nipulation of the price of any underlying
19
security, option on a security, or option on
20
a group or index that includes a security.
21
‘‘(iii) If the contract is based on a single
22
nonexempt security, an option on the security
23
underlying the contract would meet all Securi-
24
ties and Exchange Commission requirements
25
for listing on a national securities exchange.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
28 1
‘‘(iv) If the contract is based on any group
2
or index of nonexempt securities comprised of
3
fewer than 5 securities, or on an index in which
4
a single nonexempt security predominates, an
5
option on each security comprising the group or
6
index would meet all requirements for listing on
7
a national securities exchange.
8
‘‘(v) The contract will be traded on a
9
board of trade that establishes the level of mar-
10
gin for futures contracts (or options on the con-
11
tracts) based on a single nonexempt security,
12
an index of fewer than 5 nonexempt securities,
13
or an index in which a single nonexempt secu-
14
rity predominates, at a level consistent with the
15
level of margin on comparable option contracts
16
listed on any national securities exchange.
17
‘‘(vi) The contract will be traded on a
18
board of trade that prohibits a person who acts
19
as a floor broker for any contract of sale (or op-
20
tions on the contract) for future delivery of a
21
nonexempt security, an index based on fewer
22
than 5 nonexempt securities, or an index in
23
which a single nonexempt security predomi-
24
nates, from trading that contract for the bro-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
29 1
ker’s own account during the same trading ses-
2
sion.
3
‘‘(vii) The contract will be traded on a
4
board of trade that collects, maintains, and
5
promptly provides to the Securities and Ex-
6
change Commission such information as the
7
Commission and the Securities and Exchange
8
Commission jointly consider necessary to per-
9
form the enforcement responsibilities described
10
in paragraph (6).
11
‘‘(5) The Commission shall consult with the Se-
12
curities and Exchange Commission with respect to
13
any application submitted by a board of trade for
14
designation as a contract market or derivatives
15
transaction execution facility with respect to any
16
contract of sale (or option on the contract) for fu-
17
ture delivery of a nonexempt security or a group or
18
index of such securities. If, not later than 15 days
19
after the consultation, the Securities and Exchange
20
Commission objects to the designation of a board of
21
trade as a contract market or derivatives transaction
22
execution facility in the contract (or option on the
23
contract) on the ground that any requirement of
24
paragraph (3) is not met, the Commission shall af-
25
ford the Securities and Exchange Commission an op-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
30 1
portunity for an oral hearing to be transcribed be-
2
fore the Commission, and shall give appropriate
3
weight to the views of the Securities and Exchange
4
Commission. The oral hearing shall be held before
5
Commission action upon the application for the des-
6
ignation, and not less than 30 nor more than 45
7
days after the Securities and Exchange Commission
8
has objected. If such an oral hearing is held, the Se-
9
curities and Exchange Commission fails to withdraw
10
its objections, and the Commission issues an order
11
designating a board of trade as a contract market
12
or recognizes the board of trade as a derivatives
13
transaction execution facility with respect to any
14
such contract (or option on the contract), the Secu-
15
rities and Exchange Commission may seek judicial
16
review of the order in accordance with the proce-
17
dural requirements set forth in section 6(c). If, pur-
18
suant to section 6, there is a hearing on the record
19
with respect to an application for such designation,
20
the Securities and Exchange Commission may par-
21
ticipate in that hearing as an interested party.
22
‘‘(6) Notwithstanding any other provision of
23
this Act, the Securities and Exchange Commission
24
may enforce against a person that purchases or sells
25
any contract of sale (or option on the contract) for
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
31 1
future delivery of any nonexempt security, any index
2
comprised of fewer than 5 nonexempt securities, or
3
any index in which a single nonexempt security pre-
4
dominates to the same extent as if the person had
5
purchased or sold an option on the security or index
6
under the following provisions of the securities laws
7
and regulations with respect to the following cat-
8
egories of conduct:
9
‘‘(A) Section 10(b) and 21A of the Securi-
10
ties Exchange Act of 1934 (15 U.S.C. 78j(b),
11
78u–1) with respect to insider trading.
12
‘‘(B) Section 16(b) of such Act (15 U.S.C.
13
78p(b)) with respect to unfair use of informa-
14
tion in short swing trading by a corporate in-
15
sider.
16
‘‘(C) Section 9 of such Act (15 U.S.C. 78i)
17
with respect to manipulation of securities
18
prices.
19
‘‘(D) Section 10(b) of such Act (15 U.S.C.
20
78J(b)) and section 204A of the Investment
21
Adviser’s Act of 1940 (15 U.S.C. 80b–4a) with
22
respect to frontrunning.
23
‘‘(E) Section 14 of the Securities Ex-
24
change Act of 1934 (15 U.S.C. 78n) with re-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
32 1
spect to the pricing and integrity of tender of-
2
fers.
3
‘‘(F) Rule 144 of the rules of the Securi-
4
ties and Exchange Commission (17 C.F.R.
5
230.144) with respect to trading in restricted
6
securities.
7
‘‘(7)(A) Notwithstanding any other provision of
8
this Act, any contract market or derivatives trans-
9
action execution facility in a nonexempt security or
10
stock index futures contract (or option thereon) shall
11
file with the Board of Governors of the Federal Re-
12
serve System any rule establishing or changing the
13
levels of margin (initial and maintenance) for the
14
nonexempt security or stock index futures contract
15
(or option on the contract).
16
‘‘(B) The Board may at any time request any
17
contract market or derivatives transaction execution
18
facility to set the level of margin for any nonexempt
19
security or stock index futures contract (or option
20
on the contract) at such levels as the Board in its
21
judgment determines are appropriate to preserve the
22
financial integrity of the contract market or deriva-
23
tives transaction execution facility or its clearing
24
system or to prevent systemic risk. If the contract
25
market or derivatives transaction execution facility
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
33 1
fails to do so within the time specified by the Board
2
in its request, the Board may direct the contract
3
market or derivatives transaction execution facility
4
to alter or supplement the rules of the contract mar-
5
ket or derivatives transaction execution facility as
6
specified in the request.
7
‘‘(C) Subject to such conditions as the Board
8
may determine, the Board may delegate any or all
9
of its authority under this paragraph to the Com-
10
mission or an intermarket margin board as provided
11
in subparagraph (D).
12
‘‘(D) INTERMARKET
MARGIN BOARD.—
13
‘‘(i) ESTABLISHMENT.—With the concur-
14
rence of the Securities and Exchange Commis-
15
sion and the Commission, the Board may estab-
16
lish an intermarket margin board, consisting of
17
representatives of any or all of the three agen-
18
cies.
19
‘‘(ii) DUTIES.—The intermarket margin
20
board may set and maintain margin levels and
21
rules pertaining to margin for futures on a sin-
22
gle nonexempt security, an index of fewer than
23
5 nonexempt securities, or an index in which a
24
single nonexempt security predominates, listed
25
on a contract market or derivatives transaction
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
34 1
execution facility. In discharging these duties,
2
the intermarket margin board shall endeavor to
3
make the levels of margin for futures and op-
4
tions on a single nonexempt security consistent
5
taking into account any material differences in
6
such contracts, including—
7 8 9 10 11 12
‘‘(I) the price volatility of the contracts; ‘‘(II) the frequency with which margin calls are made; and ‘‘(III) the period of time within which margin calls must be met.
13
‘‘(E) This paragraph shall not be construed to
14
supersede or limit the authority granted to the Com-
15
mission in section 8a(9) to direct a contract market
16
or derivatives transaction execution facility, on find-
17
ing an emergency to exist, to raise temporary emer-
18
gency margin levels on any futures contract or op-
19
tion on the contract covered by this paragraph.
20
‘‘(F) Any action taken by the Board under this
21
paragraph, or by the Commission acting under the
22
delegation of authority under subparagraph (C), di-
23
recting a contract market or derivatives transaction
24
execution facility to alter or supplement a contract
25
market or derivatives transaction execution facility
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
35 1
rule shall be subject to review only in the United
2
States Court of Appeals for the judicial circuit in
3
which the party seeking review resides or has its
4
principal place of business, or in the United States
5
Court of Appeals for the District of Columbia Cir-
6
cuit. The review shall be based on the examination
7
of all information before the Board or the Commis-
8
sion, as the case may be, at the time the determina-
9
tion was made. The court reviewing the action of the
10
Board or the Commission shall not enter a stay or
11
order of mandamus unless the court determines,
12
after notice and a hearing before a panel of the
13
court, that the agency action complained of was ar-
14
bitrary, capricious, an abuse of discretion, or other-
15
wise not in accordance with law.
16 17
‘‘(8) This subsection shall not be construed to prohibit—
18
‘‘(A) an agreement, contract, or trans-
19
action excluded from this Act by paragraph (2);
20
or
21
‘‘(B) any hybrid instrument that is covered
22
by the terms of any exemption granted by the
23
Commission under section 4(c) (whether or not
24
any such hybrid instrument is otherwise subject
25
to this Act).
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
36 1
‘‘(9)(A) No futures commission merchant, com-
2
modity trading advisor, or introducing broker shall
3
recommend to any customer the purchase or sale of
4
any contract of sale for future delivery of a single
5
nonexempt security, an index of fewer than 5 non-
6
exempt securities, or an index in which a single non-
7
exempt security predominates, unless the futures
8
commission merchant, commodity trading advisor, or
9
introducing broker complies with the rules described
10
in subparagraph (B) of a registered futures associa-
11
tion of which such merchant, advisor, or broker is a
12
member.
13
‘‘(B) Within 9 months of the date of enactment
14
of the Commodity Futures Modernization Act of
15
2000, a registered futures association shall adopt
16
rules requiring a futures commission merchant, a
17
commodity trading advisor, or an introducing broker
18
which recommends to any customer the purchase or
19
sale of any contract of sale for future delivery of a
20
single nonexempt security, an index of fewer than 5
21
nonexempt securities, or an index in which a single
22
nonexempt
23
through reasonable due diligence that the rec-
24
ommendation is suitable for that customer in light
25
of the customer’s financial position and trading
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
security
predominates
to
ascertain
F:\M6\EWING\EWING.027
H.L.C.
37 1
goals. The registered futures association shall con-
2
sult with the Commission and the Securities and Ex-
3
change Commission prior to the adoption of any
4
such rule, and shall submit any such rule to the
5
Commission for approval in the manner and accord-
6
ing to the procedures described in section 17(j) of
7
this Act, provided, that in such case the rule shall
8
become effective if the Commission fails to dis-
9
approve such rule within 90 days of submission.’’.
10
SEC. 9. TRANSACTIONS IN ENERGY COMMODITIES.
11
Section 2 of the Commodity Exchange Act (7 U.S.C.
12 2, 2a, 3, 4, 4a) (as amended by section 8) is amended 13 by adding at the end the following. 14 15
‘‘(h) LEGAL CERTAINTY ACTIONS IN
FOR
CERTAIN TRANS-
ENERGY COMMODITIES.—
16
‘‘(1) Except as provided in paragraph (2) of
17
this subsection, nothing in this Act shall apply to a
18
contract, agreement or transaction in an energy
19
commodity which—
20
‘‘(A)(i) is entered into between persons
21
that are eligible contract participants at the
22
time they enter into the agreement, contract, or
23
transaction; and
24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(ii) is not entered into on a trading facility; or
F:\M6\EWING\EWING.027
H.L.C.
38 1
‘‘(B)(i) is entered into on a bona fide prin-
2
cipal-to-principal basis between parties trading
3
for their own accounts (or as described in sec-
4
tion 1a(10)(B)(ii) of this Act);
5
‘‘(ii) is entered into between persons that
6
are eligible contract participants (as defined in
7
sections 1a(10)(A), (B)(ii) or (C) of this Act) at
8
the time at which the persons enter into the
9
agreement, contract, or transaction; and
10
‘‘(iii) is executed or traded on an electronic
11
trading facility.
12
‘‘(2) An agreement, contract, or transaction de-
13
scribed in paragraph (1) of this subsection shall be
14
subject to—
15 16
‘‘(A) sections 5b and 12(e)(2)(B) of this Act;
17
‘‘(B) sections 4b and 4n of this Act and
18
the regulations of the Commission pursuant to
19
section 4c(b) of this Act proscribing fraud in
20
connection with commodity option transactions;
21
‘‘(C) such rules and regulations as the
22
Commission may prescribe under sections 6(c)
23
and 9(a)(2) of this Act to the extent these pro-
24
visions prohibit manipulation of the market
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
39 1
price of any commodity in interstate commerce;
2
and
3
‘‘(D) such rules and regulations as the
4
Commission may prescribe in the case of any
5
agreement, contract, or transaction described in
6
paragraph (1)(B) of this subsection, if nec-
7
essary to ensure timely dissemination by the
8
electronic trading facility of price, trading vol-
9
ume, and other trading data, to the extent ap-
10
propriate to the energy commodity and elec-
11
tronic trading facility, if the Commission deter-
12
mines the electronic trading facility performs a
13
significant price discovery function for related
14
transactions in the energy commodity under-
15
lying the agreement, contract, or transaction.’’.
16
SEC. 10. PROTECTION OF THE PUBLIC INTEREST.
17
The Commodity Exchange Act is amended by striking
18 section 3 (7 U.S.C. 5) and inserting the following: 19
‘‘SEC. 3. FINDINGS AND PURPOSE.
20
‘‘(a) FINDINGS.—The futures contracts and options
21 contracts that are subject to this Act are entered into reg22 ularly in interstate and international commerce and are 23 affected with a national public interest by providing a 24 means for managing and assuming price risks, discovering 25 prices, and disseminating pricing information through
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
40 1 trading in liquid, fair and financially secure trading facili2 ties. 3
‘‘(b) PURPOSE.—It is the purpose of this Act to serve
4 the public interests described in subsection (a) through a 5 system of effective self-regulation of trading facilities, 6 clearing systems, market participants and market profes7 sionals under the oversight of the Commission. To foster 8 these public interests, it is further the purpose of this Act 9 to deter and prevent price manipulation or any other dis10 ruptions to market integrity; to ensure the financial integ11 rity of all transactions subject to this Act and the avoid12 ance of systemic risk; to protect all market participants 13 from fraudulent or other abusive sales practices and mis14 uses of customer assets; and to promote responsible inno15 vation and fair competition among boards of trade, other 16 markets and market participants.’’. 17
SEC. 11. PROHIBITED TRANSACTIONS.
18
Section 4c of the Commodity Exchange Act (7 U.S.C.
19 6c) is amended by striking ‘‘SEC. 4c.’’ and all that follows 20 through subsection (a) and inserting the following: 21
‘‘SEC. 4c. PROHIBITED TRANSACTIONS.
22
‘‘(a) IN GENERAL.—
23
‘‘(1) PROHIBITION.—It shall be unlawful for
24
any person to offer to enter into, enter into, or con-
25
firm the execution of a transaction described in
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
41 1
paragraph (2) involving any commodity if the trans-
2
action is used or may be used to—
3
‘‘(A) hedge any transaction in interstate
4
commerce in the commodity or the product or
5
byproduct of the commodity;
6
‘‘(B) determine the price basis of any such
7
transaction in interstate commerce in the com-
8
modity; or
9
‘‘(C) deliver any such commodity sold,
10
shipped, or received in interstate commerce for
11
the execution of the transaction.
12
‘‘(2) TRANSACTION.—A transaction referred to
13
in paragraph (1) is a transaction that—
14
‘‘(A)(i) is, is of the character of, or is com-
15
monly known to the trade as, a ‘wash sale’ or
16
‘accommodation trade’; or
17
‘‘(ii) is a fictitious sale; or
18
‘‘(B) is used to cause any price to be re-
19
ported, registered, or recorded that is not a
20
true and bona fide price.’’.
21
SEC. 12. DESIGNATION OF BOARDS OF TRADE AS CON-
22 23 24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
TRACT MARKETS.
The Commodity Exchange Act is amended— (1) by redesignating section 5b (7 U.S.C. 7b) as section 5e; and
F:\M6\EWING\EWING.027
H.L.C.
42 1
(2) by striking sections 5 and 5a (7 U.S.C. 7,
2 3
7a) and inserting the following: ‘‘SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CON-
4 5
TRACT MARKETS.
‘‘(a) APPLICATIONS.—A board of trade applying to
6 the Commission for designation as a contract market shall 7 submit an application to the Commission that includes any 8 relevant materials and records the Commission may re9 quire consistent with this Act. 10 11
‘‘(b) CRITERIA FOR DESIGNATION.— ‘‘(1) IN
GENERAL.—To
be designated as a con-
12
tract market, the board of trade shall demonstrate
13
to the Commission that the board of trade meets the
14
criteria specified in this subsection.
15
‘‘(2) PREVENTION
OF
MARKET
MANIPULA-
16
TION.—The
17
prevent market manipulation through market sur-
18
veillance, compliance, and enforcement practices and
19
procedures, including methods for conducting real-
20
time monitoring of trading and comprehensive and
21
accurate trade reconstructions.
22
board of trade shall have the capacity to
‘‘(3) FAIR
AND
EQUITABLE
TRADING.—The
23
board of trade shall establish and enforce trading
24
rules to ensure fair and equitable trading through
25
the facilities of the contract market, and the capac-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
43 1
ity to detect, investigate, and discipline any person
2
that violates the rules. Such rules may authorize—
3
‘‘(A) an exchange of—
4 5
‘‘(i) futures in connection with a cash commodity transaction;
6
‘‘(ii) futures for cash commodities;
7
‘‘(iii) transfer trades or office trades;
8 9
or ‘‘(iv) futures for swaps; and
10
‘‘(B) a futures commission merchant, act-
11
ing as principal or agent, to enter into or con-
12
firm the execution of a contract for the pur-
13
chase or sale of a commodity for future delivery
14
if the contract is reported, recorded, and
15
cleared in accordance with the rules of the con-
16
tract market.
17
‘‘(4) TRADE
18
EXECUTION FACILITY.—The
board
of trade shall—
19
‘‘(A) establish and enforce rules defining,
20
or specifications detailing, the manner of oper-
21
ation of the trade execution facility maintained
22
by the board of trade, including rules or speci-
23
fications describing the operation of any elec-
24
tronic matching platform; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
44 1
‘‘(B) demonstrate that the trading facility
2
operates in accordance with the rules or speci-
3
fications.
4
‘‘(5)
FINANCIAL
INTEGRITY
OF
TRANS-
5
ACTIONS.—The
6
enforce rules and procedures for ensuring the finan-
7
cial integrity of transactions entered into by or
8
through the facilities of the contract market.
9
board of trade shall establish and
‘‘(6) DISCIPLINARY
PROCEDURES.—The
board
10
of trade shall establish and enforce disciplinary pro-
11
cedures that authorize the board of trade to dis-
12
cipline, suspend, or expel members or market par-
13
ticipants that violate the rules of the board of trade,
14
or similar methods for performing the same func-
15
tions, including delegation of the functions to third
16
parties.
17
‘‘(7) PUBLIC
ACCESS.—The
board of trade shall
18
provide the public with access to the rules, regula-
19
tions, and contract specifications of the board of
20
trade.
21
‘‘(8) ABILITY
TO OBTAIN INFORMATION.—The
22
board of trade shall establish and enforce rules that
23
will allow the board of trade to obtain any necessary
24
information to perform any of the functions de-
25
scribed in this subsection, including the capacity to
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
45 1
carry out such international information-sharing
2
agreements as the Commission may require.
3
‘‘(c) EXISTING CONTRACT MARKETS.—A board of
4 trade that is designated as a contract market on the effec5 tive date of the Commodity Futures Modernization Act of 6 2000 shall be considered to be a designated contract mar7 ket under this section. 8 9
‘‘(d) CORE PRINCIPLES ‘‘(1) IN
FOR
CONTRACT MARKETS.—
GENERAL.—To
maintain the designa-
10
tion of a board of trade as a contract market, a
11
board of trade shall comply with the core principles
12
specified in this subsection.
13
‘‘(2) COMPLIANCE
WITH RULES.—The
board of
14
trade shall monitor and enforce compliance with the
15
rules of the contract market, including the terms
16
and conditions of any contracts to be traded and any
17
limitations on access to the contract market.
18
‘‘(3) CONTRACTS
NOT READILY SUBJECT TO
19
MANIPULATION.—The
board of trade shall list on
20
the contract market only contracts that are not
21
readily susceptible to manipulation.
22
‘‘(4) MONITORING
OF TRADING.—The
board of
23
trade shall monitor trading to prevent manipulation,
24
price distortion, and disruptions of the delivery or
25
cash-settlement process.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
46 1
‘‘(5) POSITION
LIMITATIONS
OR
ACCOUNT-
2
ABILITY.—To
3
manipulation or congestion, especially during trading
4
in the delivery month, the board of trade shall adopt
5
position limitations or position accountability for
6
speculators, where necessary and appropriate.
7
reduce the potential threat of market
‘‘(6) EMERGENCY
AUTHORITY.—The
board of
8
trade shall adopt rules to provide for the exercise of
9
emergency authority, in consultation or cooperation
10
with the Commission, where necessary and appro-
11
priate, including the authority to—
12 13 14 15 16
‘‘(A) liquidate or transfer open positions in any contract; ‘‘(B) suspend or curtail trading in any contract; and ‘‘(C) require market participants in any
17
contract to meet special margin requirements.
18
‘‘(7) AVAILABILITY
OF
GENERAL
INFORMA-
19
TION.—The
20
market authorities, market participants, and the
21
public information concerning—
22 23
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
board of trade shall make available to
‘‘(A) the terms and conditions of the contracts of the contract market; and
F:\M6\EWING\EWING.027
H.L.C.
47 1
‘‘(B) the mechanisms for executing trans-
2
actions on or through the facilities of the con-
3
tract market.
4
‘‘(8) DAILY
PUBLICATION OF TRADING INFOR-
5
MATION.—The
6
daily information on settlement prices, volume, open
7
interest, and opening and closing ranges for actively
8
traded contracts on the contract market.
9
‘‘(9)
board of trade shall make public
EXECUTION
OF
TRANSACTIONS.—The
10
board of trade shall provide a competitive, open, and
11
efficient market and mechanism for executing trans-
12
actions.
13
‘‘(10) TRADE
INFORMATION.—The
board of
14
trade shall maintain rules and procedures to provide
15
for the recording and safe storage of all identifying
16
trade information in a manner that enables the con-
17
tract market to use the information for purposes of
18
assisting in the prevention of customer and market
19
abuses and providing evidence of any violations of
20
the rules of the contract market.
21
‘‘(11) FINANCIAL
INTEGRITY OF CONTRACTS.—
22
The board of trade shall establish and enforce rules
23
providing for the financial integrity of any contracts
24
traded on the contract market, including rules to en-
25
sure the financial integrity of any futures commis-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
48 1
sion merchants and introducing brokers and the pro-
2
tection of customer funds.
3
‘‘(12)
PROTECTION
OF
MARKET
PARTICI-
4
PANTS.—The
5
force rules to protect market participants from abu-
6
sive practices committed by any party acting as an
7
agent for the participants.
8
‘‘(13) DISPUTE
board of trade shall establish and en-
RESOLUTION.—The
board of
9
trade shall establish and enforce rules regarding and
10
provide facilities for alternative dispute resolution as
11
appropriate for market participants and any market
12
intermediaries.
13
‘‘(14) GOVERNANCE
FITNESS
STANDARDS.—
14
The board of trade shall establish and enforce ap-
15
propriate fitness standards for directors, members of
16
any disciplinary committee, members of the contract
17
market, and any other persons with direct access to
18
the facility (including any parties affiliated with any
19
of the persons described in this paragraph).
20
‘‘(15) CONFLICTS
OF INTEREST.—The
board of
21
trade shall establish and enforce rules to minimize
22
conflicts of interest in the decisionmaking process of
23
the contract market and establish a process for re-
24
solving such conflicts of interest.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
49 1
‘‘(16) COMPOSITION
OF BOARDS OF MUTUALLY
2
OWNED CONTRACT MARKETS.—In
3
tually owned contract market, the board of trade
4
shall ensure that the composition of the governing
5
board reflects market participants.
6 7
the case of a mu-
‘‘(17) RECORDKEEPING.—The board of trade shall—
8
‘‘(A) maintain full records of all activities
9
related to the business of the contract market
10
in a form and manner acceptable to the Com-
11
mission for a period of at least 5 years;
12
‘‘(B) make the records readily available
13
during at least the first 2 years of the 5-year
14
period and provide the records to the Commis-
15
sion at the expense of the person required to
16
maintain the records; and
17
‘‘(C) keep the records open to inspection
18
by any representative of the Commission or the
19
Department of Justice.
20
‘‘(18) ANTITRUST
CONSIDERATIONS.—Unless
21
necessary or appropriate to achieve the purposes of
22
this Act, the board of trade shall endeavor to
23
avoid—
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
50 1
‘‘(A) adopting any rules or taking any ac-
2
tions that result in any unreasonable restraints
3
of trade; or
4
‘‘(B) imposing any material anticompeti-
5
tive burden on trading on the contract market.
6
‘‘(e) CURRENT AGRICULTURAL COMMODITIES.—A
7 contract for purchase or sale for future delivery of an agri8 cultural commodity enumerated in section 1a(3) that is 9 available for trade on a contract market, as of the date 10 of the enactment of this subsection, may be traded only 11 on a contract market designated under this section.’’. 12
SEC. 13. DERIVATIVES TRANSACTION EXECUTION FACILI-
13
TIES.
14
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
15 is amended by inserting after section 5 (as amended by 16 section 12(2)) the following: 17
‘‘SEC. 5a. DERIVATIVES TRANSACTION EXECUTION FACILI-
18 19
TIES.
‘‘(a) IN GENERAL.—In lieu of compliance with the
20 contract market designation requirements of section 5, a 21 board of trade may elect to operate as a registered deriva22 tives transaction execution facility if the facility is— 23 24
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(1) designated as a contract market and meets the requirements of this section; or
F:\M6\EWING\EWING.027
H.L.C.
51 1
‘‘(2) registered as a derivatives transaction exe-
2
cution facility under subsection (c).
3
‘‘(b) REQUIREMENTS
4
TRACTS OR
5
FOR
TRADING FUTURES CON-
OTHER DERIVATIVES TRANSACTIONS.—
‘‘(1) IN
GENERAL.—A
registered derivatives
6
transaction execution facility under subsection (a)
7
may trade any futures contract (or option on such
8
a contract) on or through the facility only by satis-
9
fying the requirements of this section.
10
‘‘(2) REQUIREMENTS
FOR UNDERLYING COM-
11
MODITIES.—A
12
cution facility may trade any futures contract only
13
if—
14 15
registered derivatives transaction exe-
‘‘(A) the underlying commodity has a nearly inexhaustible deliverable supply;
16
‘‘(B) the underlying commodity has a de-
17
liverable supply that is sufficiently large that
18
the contract is highly unlikely to be susceptible
19
to the threat of manipulation;
20 21
‘‘(C) the underlying commodity has no cash market; or
22
‘‘(D) the Commission determines, based on
23
the market characteristics, surveillance history,
24
self-regulatory record, and capacity of the facil-
25
ity that trading in the futures contract is highly
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
52 1
unlikely to be susceptible to the threat of ma-
2
nipulation.
3
‘‘(3) ELIGIBLE
TRADERS.—To
trade on a reg-
4
istered derivatives transaction execution facility, a
5
person shall—
6 7
‘‘(A) be authorized by the board of trade to trade on the facility; and
8 9 10 11
‘‘(B)(i) be an eligible contract participant; or ‘‘(ii) be a person trading through a futures commission merchant that—
12 13
‘‘(I) is registered with the Commission;
14 15
‘‘(II) is a member of a futures selfregulatory organization;
16 17
‘‘(III) is a clearing member of a derivatives clearing organization; and
18 19 20
‘‘(IV) has net capital of at least $20,000,000. ‘‘(4) TRADING
BY
CONTRACT
MARKETS.—A
21
board of trade that is designated as a contract mar-
22
ket shall, to the extent that the contract market also
23
operates a registered derivatives transaction execu-
24
tion facility—
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
53 1
‘‘(A) provide a physical location for the
2
contract market trading of the board of trade
3
that is separate from trading on the derivatives
4
transaction execution facility of the board of
5
trade; or
6
‘‘(B) if the board of trade uses the same
7
electronic trading system for trading on the
8
contract market and derivatives transaction
9
execution facility of the board of trade, identify
10
whether the electronic trading is taking place
11
on the contract market or the derivatives trans-
12
action execution facility.
13
‘‘(c) CRITERIA FOR REGISTRATION.—
14
‘‘(1) IN
GENERAL.—To
be registered as a reg-
15
istered derivatives transaction execution facility, the
16
board of trade shall demonstrate to the Commission
17
that the board of trade meets the criteria specified
18
in this paragraph.
19
‘‘(2) DETERRENCE
OF ABUSES.—The
board of
20
trade shall establish and enforce trading rules that
21
will deter abuses and has the capacity to detect, in-
22
vestigate, and enforce those rules, including means
23
to—
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
54 1
‘‘(A) obtain information necessary to per-
2
form the functions required under this section;
3
or
4
‘‘(B) use technological means to—
5 6
‘‘(i) provide market participants with impartial access to the market; and
7
‘‘(ii) capture information that may be
8
used in establishing whether rule violations
9
have occurred.
10
‘‘(3) TRADING
PROCEDURES.—The
board of
11
trade shall establish and enforce rules or terms and
12
conditions defining, or specifications detailing, trad-
13
ing procedures to be used in entering and executing
14
orders traded on the facilities of the board of trade.
15
Such rules may authorize—
16
‘‘(A) an exchange of—
17 18
‘‘(i) futures in connection with a cash commodity transaction;
19
‘‘(ii) futures for cash commodities;
20
‘‘(iii) transfer trades or office trades;
21 22
or ‘‘(iv) futures for swaps; and
23
‘‘(B) a futures commission merchant, act-
24
ing as principal or agent, to enter into or con-
25
firm the execution of a contract for the pur-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
55 1
chase or sale of a commodity for future delivery
2
if the contract is reported, recorded, and
3
cleared in accordance with the rules of the reg-
4
istered derivatives transaction execution facility.
5
‘‘(4)
FINANCIAL
INTEGRITY
OF
TRANS-
6
ACTIONS.—The
7
enforce rules or terms and conditions providing for
8
the financial integrity of transactions entered on or
9
through the facilities of the board of trade, including
10
rules or terms and conditions to ensure the financial
11
integrity of any futures commission merchants and
12
introducing brokers and the protection of customer
13
funds.
14
‘‘(d) CORE PRINCIPLES
15
TIVES
16
board of trade shall establish and
FOR
REGISTERED DERIVA-
TRANSACTION EXECUTION FACILITIES.— ‘‘(1) IN
GENERAL.—To
maintain the registra-
17
tion of a board of trade as a derivatives transaction
18
execution facility, a board of trade shall comply with
19
the core principles specified in this subsection.
20
‘‘(2) COMPLIANCE
WITH RULES.—The
board of
21
trade shall monitor and enforce the rules of the fa-
22
cility, including any terms and conditions of any
23
contracts traded on or through the facility and any
24
limitations on access to the facility.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
56 1
‘‘(3) MONITORING
OF TRADING.—The
board of
2
trade shall monitor trading in the contracts of the
3
facility to ensure orderly trading in the contract and
4
to maintain an orderly market while providing any
5
necessary trading information to the Commission to
6
allow the Commission to discharge the responsibil-
7
ities of the Commission under the Act.
8 9 10
‘‘(4) DISCLOSURE TION.—The
OF
GENERAL
INFORMA-
board of trade shall disclose publicly
and to the Commission information concerning—
11
‘‘(A) contract terms and conditions;
12
‘‘(B) trading conventions, mechanisms, and
13
practices;
14
‘‘(C) financial integrity protections; and
15
‘‘(D) other information relevant to partici-
16
pation in trading on the facility.
17
‘‘(5) PROVISION
OF TRADING INFORMATION.—
18
The board of trade shall provide to market partici-
19
pants on a fair, equitable, and timely basis—
20 21
‘‘(A) information regarding prices, bids, and offers; and
22
‘‘(B) for actively traded contracts, daily in-
23
formation on settlement prices, volume, open in-
24
terest, and opening and closing ranges.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
57 1
‘‘(6) FITNESS
STANDARDS.—The
board of trade
2
shall establish and enforce appropriate fitness stand-
3
ards for directors, members of any disciplinary com-
4
mittee, members, and any other persons with direct
5
access to the facility, including any parties affiliated
6
with any of the persons described in this paragraph.
7
‘‘(7) CONFLICTS
OF INTEREST.—The
board of
8
trade shall establish and enforce rules to minimize
9
conflicts of interest in the decisionmaking process of
10
the derivatives transaction execution facility and es-
11
tablish a process for resolving such conflicts of inter-
12
est.
13 14
‘‘(8) RECORDKEEPING.—The board of trade shall—
15
‘‘(A) maintain full records of all activities
16
related to the business of the derivatives trans-
17
action execution facility in a form and manner
18
acceptable to the Commission for a period of at
19
least 5 years;
20
‘‘(B) make the records readily available
21
during at least the first 2 years of the 5-year
22
period and provide the records to the Commis-
23
sion at the expense of the person required to
24
maintain the records; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
58 1
‘‘(C) keep the records open to inspection
2
by any representatives of the Commission or the
3
Department of Justice.
4
‘‘(9)
ANTITRUST
CONSIDERATIONS.—Unless
5
necessary or appropriate to achieve the purposes of
6
this Act, the board of trade shall endeavor to
7
avoid—
8
‘‘(A) adopting any rules or taking any ac-
9
tions that result in any unreasonable restraint
10
of trade; or
11
‘‘(B) imposing any material anticompeti-
12
tive burden on trading on the derivatives trans-
13
action execution facility.
14 15
‘‘(e) USE
OF
TUTIONS, AND
BROKER-DEALERS, DEPOSITORY INSTI-
FARM CREDIT SYSTEM INSTITUTIONS
AS
16 INTERMEDIARIES.— 17
‘‘(1) IN
GENERAL.—A
registered derivatives
18
transaction execution facility may by rule allow a
19
broker-dealer, depository institution, or institution of
20
the Farm Credit System that meets the require-
21
ments of paragraph (2) to—
22
‘‘(A) act as an intermediary in trans-
23
actions executed on the facility on behalf of cus-
24
tomers of the broker-dealer, depository institu-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
59 1
tion, or institution of the Farm Credit System;
2
and
3
‘‘(B) receive funds of customers to serve as
4
margin or security for such transactions.
5
‘‘(2) REQUIREMENTS.—The requirements re-
6
ferred to in paragraph (1) are that—
7
‘‘(A) the broker-dealer be in good standing
8
with the Securities and Exchange Commission,
9
or the depository institution or institution of
10
the Farm Credit System be in good standing
11
with Federal bank regulatory agencies (includ-
12
ing the Farm Credit Administration), as appli-
13
cable; and
14
‘‘(B) if the broker-dealer, depository insti-
15
tution, or institution of the Farm Credit Sys-
16
tem carries or holds customer accounts or funds
17
for transactions on the derivatives transaction
18
execution facility for more than 1 business day,
19
the broker-dealer, depository institution, or in-
20
stitution of the Farm Credit System is reg-
21
istered as a futures commission merchant and
22
is a member of a registered futures association.
23
‘‘(3) IMPLEMENTATION.—The Commission shall
24
cooperate and coordinate with the Securities and Ex-
25
change Commission, the Secretary of the Treasury,
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
60 1
and Federal banking regulatory agencies (including
2
the Farm Credit Administration) in adopting rules
3
and taking any other appropriate action to facilitate
4
the implementation of this subsection.
5
‘‘(f) SEGREGATION
OF
CUSTOMER FUNDS.—Not
6 later than 180 days after the effective date of the Com7 modity Futures Modernization Act of 2000, consistent 8 with regulations adopted by the Commission, a registered 9 derivatives transaction execution facility may authorize a 10 futures commission merchant to offer any customer of the 11 futures commission merchant that is an eligible contract 12 participant the right to not segregate the customer funds 13 of the futures commission merchant for purposes of trad14 ing on or through the facilities of the registered derivatives 15 transaction execution facility. 16 17
‘‘(g) ELECTION TO TRADE EXCLUDED COMMODITIES.—
18
‘‘(1) IN
GENERAL.—A
board of trade that is a
19
registered derivatives transaction execution facility
20
may trade on the facility any agreements, contracts,
21
or transactions involving excluded commodities that
22
are otherwise excluded from this Act under section
23
2(c) or 2(d).
24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(2) EXCLUSIVE MISSION.—The
JURISDICTION OF THE COM-
Commission shall have exclusive ju-
F:\M6\EWING\EWING.027
H.L.C.
61 1
risdiction over agreements, contracts, or transactions
2
described in paragraph (1) to the extent that the
3
agreements, contracts, or transactions are traded on
4
a derivatives transaction execution facility.’’.
5
SEC. 14. DERIVATIVES CLEARING ORGANIZATIONS.
6
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
7 is amended by inserting after section 5a (as added by sec8 tion 13) the following: 9
‘‘SEC. 5b. DERIVATIVES CLEARING ORGANIZATIONS.
10
‘‘(a) APPLICATION.—A derivatives clearing organiza-
11 tion for a board of trade that is designated as a contract 12 market under section 5 or is registered as a derivatives 13 transaction execution facility under section 5a, or for an 14 exempt board of trade, or a derivatives clearing organiza15 tion for transactions excluded by subsection (c), (d) or (h) 16 of section 2, desiring to be registered with the Commission 17 as a registered derivatives clearing organization may sub18 mit to the Commission an application for such registration 19 which shall be in such form and in accordance with such 20 procedures as the Commission may prescribe by regula21 tion, and which shall contain the rules of the derivatives 22 clearing organization and such other information and doc23 uments as the Commission may prescribe by regulation. 24 An applicant may withdraw an application submitted
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
62 1 under this subsection by filing with the Commission a 2 written notice of withdrawal. 3
‘‘(b) QUALIFICATIONS.—The Commission shall not
4 approve an application submitted under subsection (a), 5 unless the Commission determines that— 6
‘‘(1) the rules of the applicant are in accord-
7
ance with such rules as the Commission may adopt
8
with respect to—
9
‘‘(A) standards of financial responsibility,
10
operational capability, experience, competence,
11
and conduct applicable to participants in de-
12
rivatives clearing organizations;
13 14 15 16 17 18 19
‘‘(B) governance of derivatives clearing organizations; ‘‘(C) qualifications of management of derivatives clearing organizations; ‘‘(D) dues, fees, and other charges imposed by derivatives clearing organizations; and ‘‘(E) procedures for resolving disputes and
20
redressing grievances;
21
‘‘(2) the applicant—
22
‘‘(A) has sufficient financial resources,
23
standards for participant eligibility, and ade-
24
quate risk management policies and procedures
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
63 1
to protect the financial integrity of the appli-
2
cant, consistent with international standards;
3
‘‘(B) has adequate operational systems and
4
settlement and default procedures designed to
5
ensure orderly settlement of contracts;
6
‘‘(C) has procedures and mechanisms to
7
ensure the performance of obligations in the
8
event of participant default;
9
‘‘(D) has such other resources and mecha-
10
nisms as are necessary to ensure compliance
11
with this Act; and
12
‘‘(E) meets such other requirements as the
13
Commission may prescribe by rule or order; and
14
‘‘(3) the operation of the applicant would not be
15
inconsistent with the public interest protected by the
16
antitrust laws.
17
‘‘(c) PUBLICATION
OF
NOTICE
OF
APPLICATION.—
18 On the filing of an application under subsection (a), the 19 Commission shall publish notice of the filing and afford 20 interested persons an opportunity to submit written data, 21 views, and arguments concerning the application. 22 23 24
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(d) DISPOSITION OF APPLICATION.— ‘‘(1) IN
GENERAL.—Within
90 days after the
publication of a notice under subsection (c) (or with-
F:\M6\EWING\EWING.027
H.L.C.
64 1
in such longer period as the applicant may agree to),
2
the Commission shall—
3
‘‘(A) by order, approve the application; or
4
‘‘(B) institute proceedings to determine
5
whether to disapprove the application.
6
‘‘(2) RULES
7
APPLICABLE TO ADMINISTRATIVE
DISPOSITION PROCEEDINGS.—
8
‘‘(A) The proceedings referred to in para-
9
graph (1)(B) shall include notice of the grounds
10
for disapproval under consideration and shall
11
provide an opportunity for a hearing, and shall
12
be concluded within 180 days after the filing of
13
the application for registration.
14
‘‘(B) At the conclusion of the proceedings,
15
the Commission, by order, shall approve or dis-
16
approve the application.
17
‘‘(C) The Commission shall approve the
18
application unless the Commission determines
19
that the applicant does not meet the qualifica-
20
tions set forth in subsection (b).
21
‘‘(3) JUDICIAL
REVIEW OF APPLICATION DIS-
22
APPROVAL.—An
23
mitted under subsection (a) is disapproved may ap-
24
peal the disapproval to the United States Court of
25
Appeals for the judicial circuit in which the appli-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
applicant whose application sub-
F:\M6\EWING\EWING.027
H.L.C.
65 1
cant has its principal place of business, in accord-
2
ance with the procedural requirements set forth in
3
section 6(b).
4
‘‘(e) REVOCATION OF REGISTRATION.—
5
‘‘(1) NOTICE.—If the Commission makes a pre-
6
liminary determination that finds that a registered
7
derivatives clearing organization has ceased to exist
8
or is operating in violation of this Act, the Commis-
9
sion shall notify the registered derivatives clearing
10
organization in writing of the reasons for the pre-
11
liminary determination, including any data, mate-
12
rials, and specific findings the Commission has re-
13
lied on in reaching the preliminary determination.
14
The Commission shall allow the registered deriva-
15
tives clearing organization not fewer than 21 days to
16
respond in writing to such a notice. The Commission
17
may, in its discretion, extend the period of time for
18
filing such a response.
19
‘‘(2) DISCUSSIONS.—After the Commission re-
20
ceives the response, the Commission shall promptly
21
initiate discussions with the registered derivatives
22
clearing organization to attempt to remedy the al-
23
leged violation in a mutually acceptable manner.
24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(3) REVOCATION
AUTHORITY.—If,
after a rea-
sonable period of time, no mutually acceptable reso-
F:\M6\EWING\EWING.027
H.L.C.
66 1
lution is reached, the Commission may make a final
2
determination to revoke the registration of the reg-
3
istered derivatives clearing organization under this
4
section.
5
‘‘(4) JUDICIAL
REVIEW.—A
derivatives clearing
6
organization may appeal a final determination to re-
7
voke its registration under this section to the United
8
States Court of Appeals for the judicial circuit in
9
which the derivatives clearing organization has its
10
principal place of business, in accordance with the
11
procedural requirements set forth in section 6(b).
12
‘‘(f) RECORDKEEPING
AND
EXAMINATION.—A reg-
13 istered derivatives clearing organization shall make and 14 keep for prescribed periods such records, furnish such cop15 ies of the records, and make and disseminate such reports 16 as the Commission prescribes by regulation or order. 17
‘‘(g) AUTHORITY TO CLEAR OVER-THE-COUNTER
18 TRANSACTIONS.—A derivatives clearing organization de19 scribed in subsection (a) of this section may clear an 20 agreement, contract, or transaction excluded from this Act 21 by subsection (c), (d) or (h) of section 2. 22 23
‘‘(h) EXCLUSIVE JURISDICTION SION.—
OF THE
COMMIS-
The Commission shall have exclusive jurisdiction
24 with respect to any registered derivatives clearing organi25 zation.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
67 1 2
‘‘(i) REGISTERED DERIVATIVES CLEARING ORGANIZATION.—In
this section, the term ‘registered derivatives
3 clearing organization’ means a derivatives clearing organi4 zation registered under this section.’’. 5
SEC. 15. COMMON PROVISIONS APPLICABLE TO REG-
6
ISTERED ENTITIES.
7
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
8 is amended by inserting after section 5b (as added by sec9 tion 14) the following: 10
‘‘SEC. 5c. COMMON PROVISIONS APPLICABLE TO REG-
11 12
ISTERED ENTITIES.
‘‘(a) ACCEPTABLE BUSINESS PRACTICES UNDER
13 CORE PRINCIPLES.— 14
‘‘(1) IN
GENERAL.—Consistent
with the pur-
15
poses of this Act, the Commission may issue inter-
16
pretations, or approve interpretations submitted to
17
the Commission, of sections 5(d), 5a(d), and 5b(b)
18
to describe what would constitute an acceptable busi-
19
ness practice under such sections.
20
‘‘(2) EFFECT
OF INTERPRETATION.—An
inter-
21
pretation issued under paragraph (1) shall not pro-
22
vide the exclusive means for complying with such
23
sections.
24
‘‘(b) DELEGATION
25 PRINCIPLES.—
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
OF
FUNCTIONS UNDER CORE
F:\M6\EWING\EWING.027
H.L.C.
68 1
‘‘(1) IN
GENERAL.—A
contract market or de-
2
rivatives transaction execution facility may comply
3
with any applicable core principle through delegation
4
of any relevant function to a registered futures asso-
5
ciation or another registered entity.
6
‘‘(2) RESPONSIBILITY.—A contract market or
7
derivatives transaction execution facility that dele-
8
gates a function under paragraph (1) shall remain
9
responsible for carrying out the function.
10
‘‘(c) NEW CONTRACTS, NEW RULES,
AND
RULE
11 AMENDMENTS.— 12
‘‘(1) IN
GENERAL.—Subject
to paragraph (2), a
13
registered entity may elect to list for trading any
14
new contract or other instrument, or may elect to
15
approve and implement any new rule or rule amend-
16
ment, by providing to the Commission (and the Sec-
17
retary of the Treasury, in the case of a contract,
18
rule, or rule amendment that relates to or affects a
19
government security) a written certification that the
20
new contract, new rule, or rule amendment complies
21
with this Act (including regulations under this Act).
22 23 24
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(2) PRIOR
APPROVAL.—
‘‘(A) IN
GENERAL.—A
registered entity
may request that the Commission grant prior
F:\M6\EWING\EWING.027
H.L.C.
69 1
approval to any new contract or other instru-
2
ment, new rule, or rule amendment.
3
‘‘(B) PRIOR
APPROVAL REQUIRED.—Not-
4
withstanding any other provision of this section,
5
a designated contract market shall submit to
6
the Commission for prior approval each rule
7
amendment that materially changes the terms
8
and conditions, as determined by the Commis-
9
sion, in any contract of sale for future delivery
10
of a commodity specifically enumerated in sec-
11
tion 1a(3) of this Act (or any option thereon)
12
traded through its facilities if such rule amend-
13
ment applies to contracts and delivery months
14
which have already been listed for trading and
15
have open interest.
16
‘‘(C) DEADLINE.—If prior approval is re-
17
quested under subparagraph (A), the Commis-
18
sion shall take final action on the request not
19
later than 90 days after submission of the re-
20
quest, unless the person submitting the request
21
agrees to an extension of the time limitation es-
22
tablished under this subparagraph.
23
‘‘(3) APPROVAL.—The Commission shall ap-
24
prove any such new contract or instrument, new
25
rule, or rule amendment unless the Commission
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
70 1
finds that the new contract or instrument, new rule,
2
or rule amendment would violate this Act.
3
‘‘(d) VIOLATION OF CORE PRINCIPLES.—
4
‘‘(1) IN
GENERAL.—If
the Commission has rea-
5
son to believe that a registered entity is violating
6
any applicable provision specified in section 5(d),
7
5a(d), or 5b(b), the Commission shall notify the reg-
8
istered entity in writing of the reasons for the pre-
9
liminary determination by the Commission of a vio-
10
lation, including any data, materials, and facts the
11
Commission relied on in making the preliminary de-
12
termination.
13
‘‘(2) INJUNCTIVE
OR
ADMINISTRATIVE
AC-
14
TION.—The
15
an injunction under section 6c or an administrative
16
proceeding, to demonstrate, by the preponderance of
17
the evidence, that—
Commission may initiate an action for
18
‘‘(A) the registered entity is violating any
19
applicable provision specified in section 5(f),
20
5a(d), or 5b(b); and
21
‘‘(B) the Commission has recommended an
22
appropriate remedial action to remove the defi-
23
ciency based on an analysis of the costs and
24
benefits of the Commission recommendation.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
71 1
‘‘(3) BURDEN
OF PROOF.—In
making a deter-
2
mination any that a registered entity is violating any
3
applicable provision specified in section 5(d), 5a(d),
4
or 5b(b), the Commission shall have the burden of
5
proving that the registered entity is violating the ap-
6
plicable core principle.
7
‘‘(e) RESERVATION
OF
EMERGENCY AUTHORITY.—
8 Nothing in this section shall limit or in any way affect 9 the emergency powers of the Commission provided in sec10 tion 8a(9) of this Act.’’. 11
SEC. 16. EXEMPT BOARDS OF TRADE.
12
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
13 is amended by inserting after section 5c (as added by sec14 tion 15) the following: 15
‘‘SEC. 5d. EXEMPT BOARDS OF TRADE.
16
‘‘(a) IN GENERAL.—Except as otherwise provided in
17 this section, a contract of sale (or option on such a con18 tract) of a commodity for future delivery traded on or 19 through the facilities of an exempt board of trade shall 20 be exempt from all provisions of this Act, other than sec21 tion 2(g). 22
‘‘(b) CRITERIA
FOR
EXEMPTION.—To qualify for an
23 exemption under subsection (a), a board of trade shall 24 limit trading on or through the facilities of the board of
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
72 1 trade to contracts of sale of a commodity for future deliv2 ery (or options on such contracts)— 3
‘‘(1) that have—
4 5
‘‘(A) a nearly inexhaustible deliverable supply;
6
‘‘(B) a deliverable supply that is suffi-
7
ciently large, and a cash market sufficiently liq-
8
uid, to render any contract traded on the com-
9
modity highly unlikely to be susceptible to the
10
threat of manipulation; or
11
‘‘(C) no cash market;
12
‘‘(2) that are entered into only between persons
13
that are eligible contract participants at the time at
14
which the persons enter into the contract; and
15
‘‘(3) that are not contracts of sale (or options
16
on the contract) for future delivery of any security,
17
including any group or index of securities or any in-
18
terest in, or interest that is based on the value of,
19
any security.
20
‘‘(c) ANTIMANIPULATION REQUIREMENTS.—A party
21 to a futures contract or related option that is traded on 22 an exempt board of trade shall be subject to sections 4b, 23 4n, 6(c), and 9(a)(2), and the Commission shall enforce 24 those provisions with respect to any such trading.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
73 1
‘‘(d) PRICE DISCOVERY.—If the Commission finds
2 that an exempt board of trade is a significant source of 3 price discovery for any underlying commodity in any 4 transaction traded on or through the facilities of the board 5 of trade, the board of trade shall disseminate publicly on 6 a daily basis trading volume, opening and closing price 7 ranges, open interest, and other trading data as appro8 priate to the market. 9
‘‘(e) JURISDICTION.—The Commission shall have ex-
10 clusive jurisdiction over any account, agreement, or trans11 action involving a contract of sale of a commodity for fu12 ture delivery, or related option, to the extent that such 13 account, agreement, or transaction is traded on an exempt 14 board of trade. 15
‘‘(f) SUBSIDIARIES.—A board of trade that is des-
16 ignated as a contract market or registered as a derivatives 17 transaction execution facility may operate an exempt 18 board of trade by establishing a separate subsidiary or 19 other legal entity and otherwise satisfying the require20 ments of this section.’’. 21
SEC. 17. SUSPENSION OR REVOCATION OF DESIGNATION
22 23
AS CONTRACT MARKET.
Section 5e of the Commodity Exchange Act (7 U.S.C.
24 7b) (as redesignated by section 12(1)) is amended to read 25 as follows:
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
74 1
‘‘SEC. 5e. SUSPENSION OR REVOCATION OF DESIGNATION
2
AS REGISTERED ENTITY.
3
‘‘The failure of a registered entity to comply with any
4 provision of this Act, or any regulation or order of the 5 Commission under this Act, shall be cause for the suspen6 sion of the registered entity for a period not to exceed 180 7 days, or revocation of designation as a registered entity 8 in accordance with the procedures and subject to the judi9 cial review provided in section 6(b).’’. 10
SEC. 18. AUTHORIZATION OF APPROPRIATIONS.
11
Section 12(d) of the Commodity Exchange Act (7
12 U.S.C. 16(d)) is amended by striking ‘‘2000’’ and insert13 ing ‘‘2005’’. 14
SEC. 19. PREEMPTION.
15
Section 12(e) of the Commodity Exchange Act (7
16 U.S.C. 16(e)) is amended by striking paragraph (2) and 17 inserting the following: 18
‘‘(2) the application of any Federal or State law
19
(including any regulation) to an agreement, contract,
20
or transaction in or involving any commodity, prod-
21
uct, right, service, or interest, except that this Act
22
shall supersede and preempt—
23 24
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(A) in the case of any such agreement, contract, or transaction—
F:\M6\EWING\EWING.027
H.L.C.
75 1
‘‘(i) that is conducted on or subject to
2
the rules of a registered entity or exempt
3
board of trade;
4
‘‘(ii) that is conducted on or subject
5
to the rules of any board of trade, ex-
6
change, or market located outside the
7
United States, or any territory or posses-
8
sion of the United States (in accordance
9
with any terms or conditions specified by
10
the Commission by regulation); and
11
‘‘(iii) that is subject to regulation by
12
the Commission under section 4c or 19;
13
and
14
‘‘(B) any State or local law that prohibits
15
or regulates gaming or the operation of bucket
16
shops (other than antifraud provisions of gen-
17
eral applicability) in the case of—
18 19
‘‘(i) an electronic trading facility under section 2(e); or
20
‘‘(ii) an agreement, contract, or trans-
21
action that is excluded or exempt under
22
section 2(c), 2(d), 2(f), or 2(h) or is cov-
23
ered by the terms of an exemption granted
24
by the Commission under section 4(c) (re-
25
gardless of whether any such agreement,
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
76 1
contract, or transaction is otherwise sub-
2
ject to this Act); or’’.
3
SEC. 20. PREDISPUTE RESOLUTION AGREEMENTS FOR IN-
4
STITUTIONAL CUSTOMERS.
5
Section 14 of the Commodity Exchange Act (7 U.S.C.
6 18) is amended by striking subsection (g) and inserting 7 the following: 8
‘‘(g) PREDISPUTE RESOLUTION AGREEMENTS
FOR
9 INSTITUTIONAL CUSTOMERS.—Nothing in this section 10 prohibits a registered futures commission merchant from 11 requiring a customer that is an eligible contract partici12 pant, as a condition to the commission merchant’s con13 ducting a transaction for the customer, to enter into an 14 agreement waiving the right to file a claim under this sec15 tion.’’. 16
SEC. 21. CONSIDERATION OF COSTS AND BENEFITS AND
17
ANTITRUST LAWS.
18
Section 15 of the Commodity Exchange Act (7 U.S.C.
19 19) is amended by striking ‘‘SEC. 15. The Commission’’ 20 and inserting the following: 21
‘‘SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND
22 23 24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
ANTITRUST LAWS.
‘‘(a) COSTS AND BENEFITS.— ‘‘(1) IN
GENERAL.—Before
promulgating a reg-
ulation under this Act or issuing an order (except as
F:\M6\EWING\EWING.027
H.L.C.
77 1
provided in paragraph (3)), the Commission shall
2
consider the costs and benefits of the action of the
3
Commission.
4
‘‘(2) CONSIDERATIONS.—The costs and benefits
5
of the proposed Commission action shall be evalu-
6
ated in light of—
7 8
‘‘(A) considerations of protection of market participants and the public;
9
‘‘(B) considerations of the efficiency, com-
10
petitiveness, and financial integrity of futures
11
markets;
12
‘‘(C) considerations of price discovery;
13
‘‘(D) considerations of sound risk manage-
14 15 16 17
ment practices; and ‘‘(E) other public interest considerations. ‘‘(3) APPLICABILITY.—This subsection does not apply to the following actions of the Commission:
18
‘‘(A) An order that initiates, is part of, or
19
is the result of an adjudicatory or investigative
20
process of the Commission.
21
‘‘(B) An emergency action.
22
‘‘(C) A finding of fact regarding compli-
23 24
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
ance with a requirement of the Commission. ‘‘(b) ANTITRUST LAWS.—The Commission’’.
F:\M6\EWING\EWING.027
H.L.C.
78 1
SEC. 22. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE
2
COUNTERPARTIES.
3
Section 22(a) of the Commodity Exchange Act (7
4 U.S.C. 25(a)) is amended by adding at the end the fol5 lowing: 6
‘‘(4) CONTRACT
ENFORCEMENT BETWEEN ELI-
7
GIBLE COUNTERPARTIES.—No
8
or transaction between eligible contract participants
9
shall be void, voidable, or unenforceable, and no
10
such eligible contract participant shall be entitled to
11
rescind, or recover any payment made with respect
12
to, such an agreement, contract, or transaction,
13
under this section based solely on the failure of the
14
agreement, contract, or transaction to comply with
15
the terms or conditions of an exemption or exclusion
16
from any provision of this Act or regulations of the
17
Commission.’’.
18
agreement, contract,
SEC. 23. RULE OF CONSTRUCTION.
19
Except as expressly provided in this Act or an amend-
20 ment made by this Act, nothing in this Act or an amend21 ment made by the Act supersedes, affects, or otherwise 22 limits or expands the scope and applicability of laws gov23 erning the Securities and Exchange Commission. 24
SEC. 24. TECHNICAL AND CONFORMING AMENDMENTS.
25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
(a) COMMODITY EXCHANGE ACT.—
F:\M6\EWING\EWING.027
H.L.C.
79 1
(1) Section 1a of the Commodity Exchange Act
2
(7 U.S.C. 1a) is amended—
3
(A) in paragraphs (4), (5), (8), (9), (12),
4
and (14), by inserting ‘‘or derivatives trans-
5
action execution facility’’ after ‘‘contract mar-
6
ket’’ each place it appears; and
7
(B) in paragraph (15)—
8
(i) in the paragraph heading, by strik-
9
ing ‘‘CONTRACT
10
‘‘REGISTERED
MARKET’’
ENTITY’’;
and inserting
and
11
(ii) by striking ‘‘contract market’’
12
each place it appears and inserting ‘‘reg-
13
istered entity’’.
14
(2) Section 2 of the Commodity Exchange Act
15
(7 U.S.C. 2, 2a, 4, 4a, 3) is amended—
16
(A) by striking ‘‘SEC. 2. (a)(1)(A)(i) The’’
17
and inserting the following:
18
‘‘SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF
19
PRINCIPAL FOR ACT OF AGENT; COMMODITY
20
FUTURES
21
ACTION IN INTERSTATE COMMERCE.
22
TRADING
‘‘(a) JURISDICTION
OF
COMMISSION;
COMMISSION; COMMODITY
23 FUTURES TRADING COMMISSION.— 24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
‘‘(1) JURISDICTION ‘‘(A) IN
TRANS-
OF COMMISSION.—
GENERAL.—The’’;
and
F:\M6\EWING\EWING.027
H.L.C.
80 1 2 3
(B) in subsection (a)— (i) in paragraph (1) (as amended by subparagraph (A))—
4
(I) by striking subparagraph (B);
5
(II) by striking ‘‘subparagraph
6
(B) of this subparagraph’’ and insert-
7
ing ‘‘subsection (g)’’;
8
(III) by striking ‘‘contract mar-
9
ket designated pursuant to section 5
10
of this Act’’ and inserting ‘‘contract
11
market
12
transaction
13
istered pursuant to section 5 or 5a’’;
designated execution
or
derivatives facility
reg-
14
(IV) by striking clause (ii); and
15
(V) in clause (iii), by striking
16
‘‘(iii) The’’ and inserting the fol-
17
lowing:
18
‘‘(B) LIABILITY
19
OF PRINCIPAL FOR ACT OF
AGENT.—The’’;
20
(ii) in paragraph (7), by striking
21
‘‘contract market’’ and inserting ‘‘reg-
22
istered entity’’; and
23
(iii) in paragraph (8)(B)(ii)—
24
(I) in the first sentence, by strik-
25
ing ‘‘designation as a contract mar-
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
81 1
ket’’ and inserting ‘‘designation or
2
registration as a contract market or
3
derivatives transaction execution facil-
4
ity’’;
5
(II) in the second sentence, by
6
striking ‘‘designate a board of trade
7
as a contract market’’ and inserting
8
‘‘designate or register a board of
9
trade as a contract market or deriva-
10
tives transaction execution facility’’;
11
and
12
(III) in the fourth sentence, by
13
striking ‘‘designating, or refusing,
14
suspending, or revoking the designa-
15
tion of, a board of trade as a contract
16
market involving transactions for fu-
17
ture delivery referred to in this clause
18
or in considering possible emergency
19
action under section 8a(9) of this
20
Act’’ and inserting ‘‘designating, reg-
21
istering, or refusing, suspending, or
22
revoking the designation or registra-
23
tion of, a board of trade as a contract
24
market or derivatives transaction exe-
25
cution facility involving transactions
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
82 1
for future delivery referred to in this
2
clause or in considering any possible
3
action under this Act (including with-
4
out limitation emergency action under
5
section 8a(9))’’, and by striking ‘‘des-
6
ignation, suspension, revocation, or
7
emergency action’’ and inserting ‘‘des-
8
ignation, registration, suspension, rev-
9
ocation, or action’’.
10 11 12
(3) Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is amended— (A) in subsection (a)—
13
(i) in paragraph (1), by striking ‘‘des-
14
ignated by the Commission as a ‘contract
15
market’ for’’ and inserting ‘‘designated or
16
registered by the Commission as a contract
17
market or derivatives transaction execution
18
facility for’’;
19 20
(ii) in paragraph (2), by striking ‘‘member of such’’; and
21
(iii) in paragraph (3), by inserting ‘‘or
22
derivatives transaction execution facility’’
23
after ‘‘contract market’’; and
24
(B) in subsection (c)—
25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
(i) in paragraph (1)—
F:\M6\EWING\EWING.027
H.L.C.
83 1
(I) by striking ‘‘designated as a
2
contract market’’ and inserting ‘‘des-
3
ignated or registered as a contract
4
market or derivatives transaction exe-
5
cution facility’’; and
6
(II)
by
striking
‘‘section
7
2(a)(1)(B)’’ and inserting ‘‘section
8
2(g)’’; and
9
(ii) in paragraph (2)(B)(ii), by insert-
10
ing ‘‘or derivatives transaction execution
11
facility’’ after ‘‘contract market’’.
12 13 14
(4) Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is amended— (A) in subsection (a)—
15
(i) in the first sentence, by inserting
16
‘‘or derivatives transaction execution facili-
17
ties’’ after ‘‘contract markets’’; and
18
(ii) in the second sentence, by insert-
19
ing ‘‘or derivatives transaction execution
20
facility’’ after ‘‘contract market’’;
21
(B) in subsection (b), by inserting ‘‘or de-
22
rivatives transaction execution facility’’ after
23
‘‘contract market’’ each place it appears; and
24
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
(C) in subsection (e)—
F:\M6\EWING\EWING.027
H.L.C.
84 1
(i) by striking ‘‘contract market or’’
2
each place it appears and inserting ‘‘con-
3
tract market, derivatives transaction execu-
4
tion facility, or’’;
5
(ii) by striking ‘‘licensed or des-
6
ignated’’ each place it appears and insert-
7
ing ‘‘licensed, designated, or registered’’;
8
and
9
(iii) by striking ‘‘contract market, or’’
10
and inserting ‘‘contract market or deriva-
11
tives transaction execution facility, or’’.
12
(5) Section 4b(a) of the Commodity Exchange
13
Act (7 U.S.C. 6b(a)) is amended by striking ‘‘con-
14
tract market’’ each place it appears and inserting
15
‘‘registered entity’’.
16
(6) Sections 4c(g), 4d, 4e, and 4f of the Com-
17
modity Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f)
18
are amended by inserting ‘‘or derivatives transaction
19
execution facility’’ after ‘‘contract market’’ each
20
place it appears.
21 22
(7) Section 4g of the Commodity Exchange Act (7 U.S.C. 6g) is amended—
23
(A) in subsection (b), by striking ‘‘clear-
24
inghouse and contract market’’ and inserting
25
‘‘registered entity’’; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
85 1
(B) in subsection (f), by striking ‘‘clearing-
2
houses, contract markets, and exchanges’’ and
3
inserting ‘‘registered entities’’.
4
(8) Section 4h of the Commodity Exchange Act
5
(7 U.S.C. 6h) is amended by striking ‘‘contract mar-
6
ket’’ each place it appears and inserting ‘‘registered
7
entity’’.
8
(9) Section 4i of the Commodity Exchange Act
9
(7 U.S.C. 6i) is amended in the first sentence by in-
10
serting ‘‘or derivatives transaction execution facility’’
11
after ‘‘contract market’’.
12 13
(10) Section 4j of the Commodity Exchange Act (7 U.S.C. 6j) is repealed.
14
(11) Section 4l of the Commodity Exchange Act
15
(7 U.S.C. 6l) is amended by inserting ‘‘or derivatives
16
transaction execution facilities’’ after ‘‘contract mar-
17
kets’’ each place it appears.
18 19
(12) Section 4p of the Commodity Exchange Act (7 U.S.C. 6p) is amended—
20
(A) in the third sentence of subsection (a),
21
by striking ‘‘Act or contract markets’’ and in-
22
serting ‘‘Act, contract markets, or derivatives
23
transaction execution facilities’’; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
86 1
(B) in subsection (b), by inserting ‘‘deriva-
2
tives transaction execution facility,’’ after ‘‘con-
3
tract market,’’.
4
(13) The Commodity Exchange Act (as amend-
5
ed by paragraphs (10), (11), and (12)) is amended
6
by redesignating section 4k through 4p (7 U.S.C. 6k
7
through 6p) as sections 4j through 4o, respectively.
8
(14) Section 6 of the Commodity Exchange Act
9 10 11
(7 U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended— (A) in subsection (a)— (i) in the first sentence—
12
(I) by striking ‘‘board of trade
13
desiring to be designated a ‘contract
14
market’ shall make application to the
15
Commission for such designation’’ and
16
inserting ‘‘person desiring to be des-
17
ignated or registered as a contract
18
market or derivatives transaction exe-
19
cution facility shall make application
20
to the Commission for such designa-
21
tion or registration’’;
22
(II) by striking ‘‘above condi-
23
tions’’ and inserting ‘‘conditions set
24
forth in this Act’’; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
87 1
(III) by striking ‘‘above require-
2
ments’’ and inserting ‘‘the require-
3
ments of this Act’’;
4
(ii) in the second sentence, by striking
5
‘‘designation as a contract market within
6
one year’’ and inserting ‘‘designation or
7
registration as a contract market or de-
8
rivatives
9
within 180 days’’;
10 11 12 13
transaction
execution
facility
(iii) in the third sentence— (I) by striking ‘‘board of trade’’ and inserting ‘‘person’’; and (II) by striking ‘‘one-year period’’
14
and inserting ‘‘180-day period’’; and
15
(iv) in the last sentence, by striking
16
‘‘designate as a ‘contract market’ any
17
board of trade that has made application
18
therefor, such board of trade’’ and insert-
19
ing ‘‘designate or register as a contract
20
market or derivatives transaction execution
21
facility any person that has made applica-
22
tion therefor, such person’’;
23
(B) in subsection (b)—
24
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
(i) in the first sentence—
F:\M6\EWING\EWING.027
H.L.C.
88 1
(I) by striking ‘‘designation of
2
any board of trade as a ‘contract mar-
3
ket’ upon’’ and inserting ‘‘designation
4
or registration of any contract market
5
or derivatives transaction execution
6
facility on’’;
7
(II) by striking ‘‘board of trade’’
8
each place it appears and inserting
9
‘‘contract market or derivatives trans-
10
action execution facility’’; and
11
(III) by striking ‘‘designation as
12
set forth in section 5 of this Act’’ and
13
inserting ‘‘designation or registration
14
as set forth in sections 5 through 5b’’;
15
(ii) in the second sentence—
16
(I) by striking ‘‘board of trade’’
17
the first place it appears and inserting
18
‘‘contract market or derivatives trans-
19
action execution facility’’; and
20
(II) by striking ‘‘board of trade’’
21
the second and third places it appears
22
and inserting ‘‘person’’; and
23
(iii) in the last sentence, by striking
24
‘‘board of trade’’ each place it appears and
25
inserting ‘‘person’’;
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
89 1
(C) in subsection (c)—
2
(i) by striking ‘‘contract market’’ each
3
place it appears and inserting ‘‘registered
4
entity’’;
5
(ii) by striking ‘‘contract markets’’
6
each place it appears and inserting ‘‘reg-
7
istered entities’’; and
8
(iii) by striking ‘‘trading privileges’’
9
each place it appears and inserting ‘‘privi-
10
leges’’;
11
(D) in subsection (d), by striking ‘‘contract
12
market’’ each place it appears and inserting
13
‘‘registered entity’’; and
14
(E) in subsection (e), by striking ‘‘trading
15
on all contract markets’’ each place it appears
16
and inserting ‘‘the privileges of all registered
17
entities’’.
18
(15) Section 6a of the Commodity Exchange
19
Act (7 U.S.C. 10a) is amended—
20
(A) in the first sentence of subsection (a),
21
by striking ‘‘designated as a ‘contract market’
22
shall’’ and inserting ‘‘designated or registered
23
as a contract market or a derivatives trans-
24
action execution facility’’; and
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
90 1
(B) in subsection (b), by striking ‘‘des-
2
ignated as a contract market’’ and inserting
3
‘‘designated or registered as a contract market
4
or a derivatives transaction execution facility’’.
5
(16) Section 6b of the Commodity Exchange
6
Act (7 U.S.C. 13a) is amended—
7
(A) by striking ‘‘contract market’’ each
8
place it appears and inserting ‘‘registered enti-
9
ty’’;
10
(B) in the first sentence, by striking ‘‘des-
11
ignation as set forth in section 5 of this Act’’
12
and inserting ‘‘designation or registration as set
13
forth in sections 5 through 5c’’; and
14
(C) in the last sentence, by striking ‘‘the
15
contract market’s ability’’ and inserting ‘‘the
16
ability of the registered entity’’.
17
(17) Section 6c(a) of the Commodity Exchange
18
Act (7 U.S.C. 13a–1(a)) by striking ‘‘contract mar-
19
ket’’ and inserting ‘‘registered entity’’.
20
(18) Section 6d(1) of the Commodity Exchange
21
Act (7 U.S.C. 13a–2(1)) is amended by inserting
22
‘‘derivatives transaction execution facility,’’ after
23
‘‘contract market,’’.
24 25
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
(19) Section 7 of the Commodity Exchange Act (7 U.S.C. 11) is amended—
F:\M6\EWING\EWING.027
H.L.C.
91 1
(A) in the first sentence—
2 3
(i) by striking ‘‘board of trade’’ and inserting ‘‘person’’;
4 5
(ii) by inserting ‘‘or registered’’ after ‘‘designated’’;
6
(iii) by inserting ‘‘or registration’’
7
after ‘‘designation’’ each place it appears;
8
and
9
(iv) by striking ‘‘contract market’’
10
each place it appears and inserting ‘‘reg-
11
istered entity’’;
12
(B) in the second sentence—
13
(i) by striking ‘‘designation of such
14
board of trade as a contract market’’ and
15
inserting ‘‘designation or registration of
16
the registered entity’’; and
17
(ii) by striking ‘‘contract markets’’
18
and inserting ‘‘registered entities’’; and
19
(C) in the last sentence—
20 21
(i) by striking ‘‘board of trade’’ and inserting ‘‘person’’; and
22
(ii) by striking ‘‘designated again a
23
contract market’’ and inserting ‘‘des-
24
ignated or registered again a registered en-
25
tity’’.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
92 1
(20) Section 8(c) of the Commodity Exchange
2
Act (7 U.S.C. 12(c)) is amended in the first sen-
3
tence by striking ‘‘board of trade’’ and inserting
4
‘‘registered entity’’.
5 6
(21) Section 8a of the Commodity Exchange Act (7 U.S.C. 12a) is amended—
7
(A) by striking ‘‘contract market’’ each
8
place it appears and inserting ‘‘registered enti-
9
ty’’; and
10
(B) in paragraph (2)(F), by striking ‘‘trad-
11
ing privileges’’ and inserting ‘‘privileges’’.
12
(22) Sections 8b and 8c(e) of the Commodity
13
Exchange Act (7 U.S.C. 12b, 12c(e)) are amended
14
by striking ‘‘contract market’’ each place it appears
15
and inserting ‘‘registered entity’’.
16 17
(23) Section 8e of the Commodity Exchange Act (7 U.S.C. 12e) is amended—
18
(A) by striking ‘‘contract market’’ each
19
place it appears and inserting ‘‘registered enti-
20
ty’’;
21
(B) in subsection (a), by striking ‘‘section
22
5a(b)’’ and inserting ‘‘sections 5 through 5c’’;
23
(C) in subsection (b)—
24
(i) in paragraph (1), by striking ‘‘a
25
contract market’s trade monitoring system
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
93 1
implemented pursuant to section 5a(b)’’
2
and inserting ‘‘the trade monitoring system
3
of a registered entity implemented pursu-
4
ant to sections 5 through 5c’’;
5 6
(ii) by striking paragraph (3) and inserting the following:
7
‘‘(3) REMEDIES.—On becoming final, the Com-
8
mission deficiency order may require the registered
9
entity to—
10
‘‘(A) institute appropriate improvements in
11
its trade monitoring system necessary to correct
12
the deficiencies in the order;
13 14
‘‘(B) satisfy stated objective performance criteria to correct the deficiencies;
15
‘‘(C) upgrade or reconfigure existing sys-
16
tems for collecting or processing relevant data
17
on trading and trader or broker activity, includ-
18
ing, where appropriate, the commitment of ad-
19
ditional resources.’’; and
20
(iii) in paragraph (5)—
21
(I) in the paragraph heading, by
22
striking ‘‘DESIGNATION
23
MARKET’’
24
TION
25
ISTERED ENTITY’’;
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
OR
AS CONTRACT
and inserting ‘‘DESIGNAREGISTRATION
AS
REG-
F:\M6\EWING\EWING.027
H.L.C.
94 1
(II) by inserting ‘‘or registra-
2
tion’’ after ‘‘designation’’; and
3
(III) by striking ‘‘board of trade’’
4 5 6 7
and inserting ‘‘person’’; (D) in subsection (d)(2), by striking ‘‘section 5b’’ and inserting ‘‘section 5e’’; and (E) in the paragraph heading of subsection
8
(e)(2), by striking ‘‘CONTRACT
9
inserting ‘‘REGISTERED
10 11
MARKETS’’
and
ENTITIES’’.
(24) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is amended—
12
(A) by striking ‘‘contract market’’ each
13
place it appears and inserting ‘‘registered enti-
14
ty’’; and
15
(B) in subsection (a)(2), by striking ‘‘sec-
16
tion 4o(1),’’ and inserting ‘‘section 4n(1),’’.
17
(25) Section 14 of the Commodity Exchange
18
Act (7 U.S.C. 18) is amended—
19
(A) in subsection (a)(1)(B), by striking
20
‘‘contract market’’ and inserting ‘‘registered en-
21
tity’’; and
22
(B) in subsection (f), by striking ‘‘contract
23
markets’’ and inserting ‘‘registered entities’’.
24
(26) Section 17 of the Commodity Exchange
25
Act (7 U.S.C. 21) is amended by striking ‘‘contract
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
95 1
market’’ each place it appears and inserting ‘‘reg-
2
istered entity’’.
3
(27) Section 22 of the Commodity Exchange
4
Act (7 U.S.C. 25) is amended—
5
(A) in subsection (a)—
6
(i) in paragraph (1)—
7
(I) by striking ‘‘contract market,
8
clearing organization of a contract
9
market, licensed board of trade,’’ and
10
inserting ‘‘registered entity’’; and
11
(II) in subparagraph (C)(i), by
12
striking ‘‘contract market’’ and insert-
13
ing ‘‘registered entity’’;
14
(ii) in paragraph (2), by striking ‘‘sec-
15
tions 5a(11),’’ and inserting ‘‘sections
16
5(d)(13), 5b(b)(1)(E),’’; and
17
(iii) in paragraph (3), by striking
18
‘‘contract market’’ and inserting ‘‘reg-
19
istered entity’’; and
20
(B) in subsection (b)—
21
(i) in paragraph (1)—
22
(I) by striking ‘‘contract market
23
or clearing organization of a contract
24
market’’ and inserting ‘‘registered en-
25
tity’’;
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
96 1
(II) by striking ‘‘section 5a(8)
2
and section 5a(9) of this Act’’ and in-
3
serting ‘‘sections 5 through 5c’’;
4
(III) by striking ‘‘contract mar-
5
ket, clearing organization of a con-
6
tract market, or licensed board of
7
trade’’ and inserting ‘‘registered enti-
8
ty’’; and
9
(IV) by striking ‘‘contract market
10
or licensed board of trade’’ and insert-
11
ing ‘‘registered entity’’;
12
(ii) in paragraph (3)—
13
(I) by striking ‘‘a contract mar-
14
ket, clearing organization, licensed
15
board of trade,’’ and inserting ‘‘reg-
16
istered entity’’; and
17
(II) by striking ‘‘contract market,
18
licensed board of trade’’ and inserting
19
‘‘registered entity’’;
20
(iii) in paragraph (4), by striking
21
‘‘contract market, licensed board of trade,
22
clearing organization,’’ and inserting ‘‘reg-
23
istered entity’’; and
24
(iv) in paragraph (5), by striking
25
‘‘contract market, licensed board of trade,
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
97 1
clearing organization,’’ and inserting ‘‘reg-
2
istered entity’’.
3
(b) FEDERAL DEPOSIT INSURANCE CORPORATION
4 IMPROVEMENT ACT OF 1991.—Section 402(2) of the Fed5 eral Deposit Insurance Corporation Improvement Act of 6 1991 (12 U.S.C. 4402(2)) is amended by striking sub7 paragraph (B) and inserting the following: 8
‘‘(B) that is registered as a derivatives
9
clearing organization under section 5b of the
10 11
Commodity Exchange Act.’’. SEC. 25. REPORT TO CONGRESS.
12
(a) The Commodity Futures Trading Commission (in
13 this section referred to as the ‘‘Commission’’) shall under14 take and complete a study of the Commodity Exchange 15 Act (in this section referred to as ‘‘the Act’’) and the Com16 mission’s rules, regulations and orders governing the con17 duct of persons required to be registered under the Act, 18 not later than 1 year after the date of the enactment of 19 this Act. The study shall identify— 20
(1) the core principles and interpretations of ac-
21
ceptable business practices that the Commission has
22
adopted or intends to adopt to replace the provisions
23
of the Act and the Commission’s rules and regula-
24
tions thereunder;
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
98 1
(2) the rules and regulations that the Commis-
2
sion has determined must be retained and the rea-
3
sons therefor;
4
(3) the extent to which the Commission believes
5
it can effect the changes identified in paragraph (1)
6
of this subsection through its exemptive authority
7
under section 4(c) of the Act; and
8
(4) the regulatory functions the Commission
9
currently performs that can be delegated to a reg-
10
istered futures association (within the meaning of
11
the Act) and the regulatory functions that the Com-
12
mission has determined must be retained and the
13
reasons therefor.
14
(b) In conducting the study, the Commission shall so-
15 licit the views of the public as well as Commission reg16 istrants, registered entities, and registered futures asso17 ciations (all within the meaning of the Act). 18
(c) The Commission shall transmit to the Committee
19 on Agriculture of the House of Representatives and the 20 Committee on Agriculture, Nutrition, and Forestry of the 21 Senate a report of the results of its study, which shall 22 include an analysis of comments received.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
F:\M6\EWING\EWING.027
H.L.C.
99 1
SEC. 26. EFFECTIVE DATE.
2
(a) IN GENERAL.—Except as provided in subsection
3 (b), this Act takes effect on the date of enactment of this 4 Act. 5
(b) JURISDICTION
OF
COMMISSION.—Section 8, and
6 the amendments made by that section, take effect 1 year 7 after the date of enactment of this Act.
June 21, 2000 (10:09 AM) F:\V6\062100\062100.033
