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[House Report 114-174]
[From the U.S. Government Publishing Office]

 114th Congress    {                                 }       Report
 1st Session       {     HOUSE OF REPRESENTATIVES    }        114-174
======================================================================
 
 TO AMEND THE UNITED STATES COTTON FUTURES ACT TO EXCLUDE CERTAIN COTTON 
             FUTURES CONTRACTS FROM COVERAGE UNDER SUCH ACT

                                _______
                                

 June 23, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Conaway, from the Committee on Agriculture, submitted the following

                              R E P O R T

                        [To accompany H.R. 2620]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Agriculture, to whom was referred the bill 
(H.R. 2620) to amend the United States Cotton Futures Act to 
exclude certain cotton futures contracts from coverage under 
such Act, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. EXCLUDING CERTAIN COTTON FUTURES CONTRACTS FROM COVERAGE 
                    UNDER UNITED STATES COTTON FUTURES ACT.

  (a) In General.--Subsection (c)(1) of the United States Cotton 
Futures Act (7 U.S.C. 15B(c)(1)) is amended--
          (1) by striking ``except that any cotton futures contract'' 
        and inserting the following: ``except that--
                  ``(A) any cotton futures contract'';
          (2) in subparagraph (A) (as designated by paragraph (1)), by 
        striking the period at the end and inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
                  ``(B) any cotton futures contract that permits tender 
                of cotton grown outside of the United States is 
                excluded from the coverage of this paragraph and 
                section to the extent that the cotton grown outside of 
                the United States is tendered for delivery under the 
                cotton futures contract.''.
  (b) Application.--The amendments made by subsection (a) shall apply 
with respect to cotton futures contracts entered into on or after the 
date of the enactment of this Act.

                           Brief Explanation

    H.R. 2620 amends the United States Cotton Futures Act to 
exclude cotton future contracts involving cotton that is grown 
outside of the United States and tendered for delivery from 
coverage under the Act, including the requirement that the 
cotton be classified by the U.S. Department of Agriculture 
(USDA).

                            Purpose and Need

    The U.S. cotton industry relies significantly on the 
futures market--primarily the U.S. Cotton No. 2 futures 
contract traded on the Intercontinental Exchange (ICE)--for 
price discovery, risk management, and other business needs of 
the industry. While continuing to recognize the importance of 
the No. 2 contract to the U.S. cotton industry, some market 
participants are calling for a new ``world cotton contract'' 
that is tailored to address risks faced in the global cotton 
market.
    The Cotton Futures Act of 1916 requires that for any cotton 
futures contract listed on a U.S. futures exchange, every 
cotton bale tendered under the contract must be sampled and 
classed by U.S. Department of Agriculture (USDA) employees. In 
addition to classing by USDA, the No. 2 contract currently 
permits cotton grown within the United States to be delivered 
at only five U.S. cities: Galveston, TX; Houston, TX; Dallas/
Ft. Worth, TX; Greenville, SC; and Memphis, TN. Because its 
delivery points are only in the United States, some argue that 
the No. 2 contract does not adequately reflect price movements 
in foreign markets. In addition, classing and sampling 
requirements of the Cotton Futures Act present a commercial 
challenge for the cotton industry in hedging risk associated 
with the purchase and transport of foreign-grown cotton, as no 
U.S. exchange can accept deliveries of any foreign-grown cotton 
at any delivery point, unless the USDA has classed it.
    The intent of H.R. 2620 is to enable the listing of futures 
contracts on U.S.-based exchanges that allow for the delivery 
of cotton from multiple origins, including the United States, 
and to a variety of global delivery points, also including the 
United States. The legislation would exempt cotton grown 
outside of the U.S. from the classing and sampling requirements 
of the Cotton Futures Act. This would allow such cotton to be 
classed in either a USDA testing lab in the U.S. or an 
international lab recognized and designated by ICE rules and 
policies (such as ICA-Bremen located in Germany) and at a 
designated sampling rate less than 100%, if so approved by ICE.
    The legislation would not change the treatment of U.S.-
origin cotton for delivery on the current No. 2 contract or a 
new world contract, namely that all U.S. cotton would remain 
subject to Cotton Futures Act requirements that all bales to be 
delivered must be sampled 100% and classed by the USDA 
exclusively.
    While this bill clears the way for the development of new 
contracts, the Committee stresses the importance of ensuring 
the No. 2 cotton contract is not changed and continues to serve 
as a means of price discovery and hedging for the U.S. cotton 
industry. The Committee expects USDA and the Commodity Futures 
Trading Commission (CFTC) to monitor the development of any new 
cotton contract and the impact it has on the U.S. cotton 
industry.

               Section-by-Section Analysis of Legislation

Section 1. Excluding certain cotton futures contracts from coverage 
        under such Act

    Subsection (a) amends the Act to exclude any cotton futures 
contract that permits the tender of cotton grown outside of the 
United States from the definition of ``cotton futures 
contract'' to the extent that the cotton grown outside of the 
United States is tendered for delivery under the cotton futures 
contract.
    Subsection (b) amends the Act to provide that the amendment 
in subsection (a) will only apply to cotton futures contracts 
entered into on or after the date of enactment of this 
legislation.

                        Committee Consideration

                              I. HEARINGS

    No hearings were held by the Committee on H.R. 2620, 
legislation to amend the United States Cotton Futures Act.

                           II. FULL COMMITTEE

    The Committee on Agriculture met, pursuant to notice, with 
a quorum present, on June 17, 2015, to consider H.R. 2620, 
legislation to amend the United States Cotton Futures Act.
    H.R. 2620 was placed before the Committee for 
consideration. Without objection, a first reading of the bill 
was waived and it was open for amendment at any point.
    Chairman Conaway, Mr. Peterson, Mr. Austin Scott, and Mr. 
David Scott were recognized for statements. Mr. David Scott 
offered a technical amendment, which passed by a voice vote. 
Mr. Peterson was recognized to offer a motion that the bill 
H.R. 2620, as amended, be reported favorably to the House with 
recommendation that it do pass. The motion was subsequently 
approved by voice vote.
    At the conclusion of the meeting, Chairman Conaway advised 
Members that pursuant to the Rules of the House of 
Representatives Members had until June 19, 2015, to file any 
supplemental, minority, additional, or dissenting views with 
the Committee.
    Without objection, staff was given permission to make any 
necessary clerical, technical or conforming changes to reflect 
the intent of the Committee. Chairman Conaway thanked all the 
Members and adjourned the meeting.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the House of 
Representatives, H.R. 2620 was reported by voice vote with a 
majority quorum present. There was no request for a recorded 
vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee on Agriculture's 
oversight findings and recommendations are reflected in the 
body of this report.

           Budget Act Compliance (Sections 308, 402, and 423)

    The provisions of clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives and section 308(a)(1) of the 
Congressional Budget Act of 1974 (relating to estimates of new 
budget authority, new spending authority, new credit authority, 
or increased or decreased revenues or tax expenditures) are not 
considered applicable. The estimate and comparison required to 
be prepared by the Director of the Congressional Budget Office 
under clause 3(c)(3) of rule XIII of the Rules of the House of 
Representatives and sections 402 and 423 of the Congressional 
Budget Act of 1974 submitted to the Committee prior to the 
filing of this report are as follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 22, 2015.
Hon. K. Michael Conaway,
Chairman, Committee on Agriculture,
U.S. House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2620, a bill to 
amend the United States Cotton Futures Act to exclude certain 
cotton futures contracts from coverage under such Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 2620--A bill to amend the United States Cotton Futures Act to 
        exclude certain cotton futures contracts from coverage under 
        such Act

    Under current law, all cotton tendered for delivery against 
a futures contract traded on an exchange listed in the United 
States must be sampled and graded by the Department of 
Agriculture. As a consequence, nearly all cotton tendered for 
such contracts is domestically grown; cost considerations, 
among other things, limit the amount of foreign-grown cotton 
that is submitted for grading. H.R. 2620 would exempt certain 
futures contracts for cotton from those sampling and grading 
requirements. Specifically, cotton grown outside of the United 
States that is tendered against a futures contract traded on a 
United States exchange would not need to be graded by the 
Agricultural Marketing Service (AMS), the federal agency that 
tests and grades cotton.
    Based on information from the AMS, CBO estimates that 
implementing the bill would not have a significant effect on 
the agency's workload or discretionary costs, because the 
agency does not expect a significant increase in requests to 
grade cotton grown outside of the United States. Further, under 
current law the AMS is authorized to collect fees to cover the 
cost of providing classification services; therefore, assuming 
appropriations action consistent with that authority, CBO 
estimates that the net cost to implement H.R. 2620 would not be 
significant. Enacting H.R. 2620 would not affect direct 
spending or revenues; therefore, pay-as-you-go procedures do 
not apply.
    H.R. 2620 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                    Performance Goals and Objectives

    H.R. 2620 does not authorize funding, therefore, clause 
3(c)(4) of rule XIII of the rules of the House of 
Representatives is inapplicable.

                        Committee Cost Estimate

    Pursuant to clause 3(d)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee report incorporates the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to sections 402 and 423 of the 
Congressional Budget Act of 1974.

                      Advisory Committee Statement

    No advisory committee within the meaning of section 5(b) of 
the Federal Advisory Committee Act was created by this 
legislation.

                Applicability to the Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act (Public Law 
104-1).

                       Federal Mandates Statement

    The Committee adopted as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act (Public Law 104-4).

Earmark Statement Required by Clause 9 of Rule XXI of the Rules of the 
                        House of Representatives

    H.R. 2620 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9(e), 9(f), or 9(g) of rule XXI of the Rules of the 
House of Representatives.

                    Duplication of Federal Programs

    This bill does not establish or reauthorize a program of 
the Federal Government known to be duplicative of another 
Federal program, a program that was included in any report from 
the Government Accountability Office to Congress pursuant to 
section 21 of Public Law 111-139, or a program related to a 
program identified in the most recent Catalog of Federal 
Domestic Assistance.

                  Disclosure of Directed Rule Makings

    The Committee does not believe that the legislation directs 
an executive branch official to conduct any specific rule 
making proceedings within the meaning of 5 U.S.C. 551.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                    UNITED STATES COTTON FUTURES ACT

SEC. 1952. COTTON FUTURES CONTRACTS.

  (a) Short Title.--This section may be cited as the ``United 
States Cotton Futures Act''.
  (b) Repeal of Tax on Cotton Futures.--Subchapter D of chapter 
39 of title 26 (relating to tax on cotton futures) is repealed.
  (c) Definitions.--For purposes of this section--
          (1) Cotton futures contract.--The term ``cotton 
        futures contract'' means any contract of sale of cotton 
        for future delivery made at, on, or in any exchange, 
        board of trade, or similar institution or place of 
        business which has been designated a ``contract 
        market'' by the Commodity Futures Trading Commission 
        pursuant to the Commodity Exchange Act and the term 
        ``contract of sale'' as so used shall be held to 
        include sales, agreements of sale, and agreements to 
        sell, [except that any cotton futures contract] except 
        that--
                  (A) any cotton futures contract that, by its 
                terms, is settled in cash is excluded from the 
                coverage of this paragraph and Act[.]; and
                  (B) any cotton futures contract that permits 
                tender of cotton grown outside of the United 
                States is excluded from the coverage of this 
                paragraph and section to the extent that the 
                cotton grown outside of the United States is 
                tendered for delivery under the cotton futures 
                contract.
          (2) Future delivery.--The term ``future delivery'' 
        shall not include any cash sale of cotton for deferred 
        shipment or delivery.
          (3) Person.--The term ``person'' includes an 
        individual, trust, estate, partnership, association, 
        company, or corporation.
          (4) Secretary.--The term ``Secretary'' means the 
        Secretary of Agriculture of the United States.
          (5) Standards.--The term ``standards'' means the 
        official cotton standards of the United States 
        established by the Secretary pursuant to the United 
        States Cotton Standards Act, as amended.
  (d) Bona Fide Spot Markets and Commercial Differences.--
          (1) Definition.--For purposes of this section, the 
        only markets which shall be considered bona fide spot 
        markets shall be those which the Secretary shall, from 
        time to time, after investigation, determine and 
        designate to be such, and of which he shall give public 
        notice.
          (2) Determination.--In determining, pursuant to the 
        provisions of this section, what markets are bona fide 
        spot markets, the Secretary is directed to consider 
        only markets in which spot cotton is sold in such 
        volume and under such conditions as customarily to 
        reflect accurately the value of middling cotton and the 
        differences between the prices or values of middling 
        cotton and of other grades of cotton for which 
        standards shall have been established by the Secretary; 
        except that if there are not sufficient places, in the 
        markets of which are made bona fide sales of spot 
        cotton of grades for which standards are established by 
        the Secretary, to enable him to designate at least five 
        spot markets in accordance with subsection (f)(3), he 
        shall, from data as to spot sales collected by him, 
        make rules and regulations for determining the actual 
        commercial differences in the value of spot cotton of 
        the grades established by him as reflected by bona fide 
        sales of spot cotton, of the same or different grades, 
        in the market selected and designated by him, from time 
        to time, for that purpose, and in that event 
        differences in value of cotton of various grades 
        involved in contracts made pursuant to subsection 
        (f)(1) and (2) shall be determined in compliance with 
        such rules and regulations. It shall be the duty of any 
        person engaged in the business of dealing in cotton, 
        when requested by the Secretary or any agent acting 
        under his instructions, to answer correctly to the best 
        of his knowledge, under oath or otherwise, all 
        questions touching his knowledge of the number of 
        bales, the classification, the price or bona fide price 
        offered, and other terms of purchase or sale, of any 
        cotton involved in any transaction participated in by 
        him, or to produce all books, letters, papers, or 
        documents in his possession or under his control 
        relating to such matter. A person complying with the 
        preceding sentence shall not be liable for any loss or 
        damage arising or resulting from such compliance.
          (3) Withholding information.--Any person engaged in 
        the business of dealing in cotton who shall, within a 
        reasonable time prescribed by the Secretary or any 
        agent acting under his instructions, willfully fail or 
        refuse to answer questions or to produce books, 
        letters, papers, or documents, as required under 
        paragraph (2) of this subsection, or who shall 
        willfully give any answer that is false or misleading, 
        shall, upon conviction thereof, be fined not more than 
        $500.
  (e) Form and Validity of Cotton Futures Contracts.--Each 
cotton futures contract shall be a basis grade contract, or a 
tendered grade contract, or a specific grade contract as 
specified in subsections (f), (g), or (h) and shall be in 
writing plainly stating, or evidenced by written memorandum 
showing, the terms of such contract, including the quantity of 
the cotton involved and the names and addresses of the seller 
and buyer in such contract, and shall be signed by the party to 
be charged, or by his agent in his behalf. No cotton futures 
contract which does not conform to such requirements shall be 
enforceable by, or on behalf of, any party to such contract or 
his privies.
  (f) Basis Grade Contracts.--
          (1) Conditions.--Each basis grade cotton futures 
        contract shall comply with each of the following 
        conditions:
                  (A) Conformity with regulations.--Conform to 
                the regulations made pursuant to this section.
                  (B) Specification of grade, price, and dates 
                of sale and settlement.--Specify the basis 
                grade for the cotton involved in the contract, 
                which shall be one of the grades for which 
                standards are established by the Secretary, 
                except grades prohibited from being delivered 
                on a contract made under this subsection by 
                subparagraph (E), the price per pound at which 
                the cotton of such basis grade is contracted to 
                be bought or sold, the date when the purchase 
                or sale was made, and the month or months in 
                which the contract is to be fulfilled or 
                settled; except that middling shall be deemed 
                the basis grade incorporated into the contract 
                if no other basis grade be specified either in 
                the contract or in the memorandum evidencing 
                the same.
                  (C) Provision for delivery of standard grades 
                only.--Provide that the cotton dealt with 
                therein or delivered thereunder shall be of or 
                within the grades for which standards are 
                established by the Secretary except grades 
                prohibited from being delivered on a contract 
                made under this subsection by subparagraph (E) 
                and no other grade or grades.
                  (D) Provision for settlement on basis of 
                actual commercial differences.--Provide that in 
                case cotton of grade other than the basis grade 
                be tendered or delivered in settlement of such 
                contract, the differences above or below the 
                contract price which the receiver shall pay for 
                such grades other than the basis grade shall be 
                the actual commercial differences, determined 
                as hereinafter provided.
                  (E) Prohibition of delivery of inferior 
                cotton.--Provide that cotton that, because of 
                the presence of extraneous matter of any 
                character, or irregularities or defects, is 
                reduced in value below that of low middling, or 
                cotton that is below the grade of low middling, 
                or, if tinged, cotton that is below the grade 
                of strict middling, or, if yellow stained, 
                cotton that is below the grade of good 
                middling, the grades mentioned being of the 
                official cotton standards of the United States, 
                or cotton that is less than seven-eighths of an 
                inch in length of staple, or cotton of perished 
                staple, or of immature staple, or cotton that 
                is ``gin cut'' or reginned, or cotton that is 
                ``repacked'' or ``false packed'' or ``mixed 
                packed'' or ``water packed'', shall not be 
                delivered on, under, or in settlement of such 
                contract.
                  (F) Provisions for tender in full, notice of 
                delivery date, and certificate of grade.--
                Provide that all tenders of cotton under such 
                contract shall be the full number of bales 
                involved therein, except that such variations 
                of the number of bales may be permitted as is 
                necessary to bring the total weight of the 
                cotton tendered within the provisions of the 
                contract as to weight; that, on the fifth 
                business day prior to delivery, the person 
                making the tender shall give to the person 
                receiving the same written notice of the date 
                of delivery, and that, on or prior to the date 
                so fixed for delivery, and in advance of final 
                settlement of the contract, the person making 
                the tender shall furnish to the person 
                receiving the same a written notice or 
                certificate stating the grade of each 
                individual bale to be delivered and, by means 
                of marks or numbers, identifying each bale with 
                its grade.
                  (G) Provision for tender and settlement in 
                accordance with government classification.--
                Provide that all tenders of cotton and 
                settlements therefor under such contract shall 
                be in accordance with the classification 
                thereof made under the regulations of the 
                Secretary by such officer or officers of the 
                Government as shall be designated for the 
                purpose, and the costs of such classification 
                shall be fixed, assessed, collected, and paid 
                as provided in such regulations and shall be 
                credited to the account referred to in section 
                55 of this title. The Secretary may provide by 
                regulation conditions under which cotton 
                samples submitted or used in the performance of 
                services authorized by this act shall become 
                the property of the United States and may be 
                sold and the proceeds credited to the foregoing 
                account: Provided, That such cotton samples 
                shall not be subject to the provisions of 
                chapters 1 to 11 of title 40 and division C 
                (except sections 3302, 3307(e), 3501(b), 3509, 
                3906, 4710, and 4711) of subtitle I of title 
                41. The Secretary is authorized to prescribe 
                regulations for carrying out the purposes of 
                this subparagraph and the certificates of the 
                officers of the Government as to the 
                classification of any cotton for the purposes 
                of this subparagraph shall be accepted in the 
                courts of the United States in all suits 
                between the parties to such contract, or their 
                privies, as prima facie evidence of the true 
                classification of the cotton involved.
          (2) Incorporation of conditions in contracts.--The 
        provisions of paragraphs (1)(C), (D), (E), (F), and (G) 
        shall be deemed fully incorporated into any such 
        contract if there be written or printed thereon, or on 
        the memorandums evidencing the same, at or prior to the 
        time the same is signed, the phrase ``Subject to United 
        States Cotton Futures Act, subsection (f).''
          (3) Delivery allowances.--For the purpose of this 
        subsection, the differences above or below the contract 
        price which the receiver shall pay for cotton of grades 
        above or below the basic grade in the settlement of a 
        contract of sale for the future delivery of cotton 
        shall be determined by the actual commercial 
        differences in value thereof upon the sixth business 
        day prior to the day fixed, in accordance with 
        paragraph (1)(F), for the delivery of cotton on the 
        contract, established by the sale of spot cotton in the 
        spot markets of not less than five places designated 
        for the purpose from time to time by the Secretary, as 
        such values were established by the sales of spot 
        cotton, in such designated five or more markets. For 
        purposes of this paragraph, such values in the such 
        spot markets shall be based upon the standards for 
        grades of cotton established by the Secretary. Whenever 
        the value of one grade is to be determined from the 
        sale or sales of spot cotton of another grade or 
        grades, such value shall be fixed in accordance with 
        rules and regulations which shall be prescribed for the 
        purpose by the Secretary.
  (g) Tendered Grade Contracts.--
          (1) Conditions.--Each tendered grade cotton future 
        contract shall comply with each of the following 
        conditions:
                  (A) Compliance with subsection (f).--Comply 
                with all the terms and conditions of subsection 
                (f) not inconsistent with this subsection; and
                  (B) Provision for contingent specific 
                performance.--Provide that, in case cotton of 
                grade or grades other than the basis grade 
                specified in the contract shall be tendered in 
                performance of the contract, the parties to 
                such contract may agree, at the time of the 
                tender, as to the price of the grade or grades 
                so tendered, and that if they shall not then 
                agree as to such price, then, and in that 
                event, the buyer of said contract shall have 
                the right to demand the specific fulfillment of 
                such contract by the actual delivery of cotton 
                of the basis grade named therein and at the 
                price specified for such basis grade in said 
                contract.
          (2) Incorporation of conditions in contract.--
        Contracts made in compliance with this subsection shall 
        be known as ``subsection (g) Contracts''. The 
        provisions of this subsection shall be deemed fully 
        incorporated into any such contract if there be written 
        or printed thereon, or on the memorandum evidencing the 
        same, at or prior to the time the same is signed, the 
        phrase ``Subject to United States Cotton Futures Act, 
        subsection (g)''.
          (3) Application of subsection.--Nothing in this 
        subsection shall be so construed as to authorize any 
        contract in which, or in the settlement of or in 
        respect to which, any device or arrangement whatever is 
        resorted to, or any agreement is made, for the 
        determination or adjustment of the price of the grade 
        or grades tendered other than the basis grade specified 
        in the contract by any ``fixed difference'' system, or 
        by arbitration, or by any other method not provided for 
        by this section.
  (h) Specific Grade Contracts.--
          (1) Conditions.--Each specific grade cotton futures 
        contract shall comply with each of the following 
        conditions:
                  (A) Conformity with rules and regulations.--
                Conform to the rules and regulations made 
                pursuant to this section.
                  (B) Specification of grade, price, dates of 
                sale and delivery.--Specify the grade, type, 
                sample, or description of the cotton involved 
                in the contract, the price per pound at which 
                such cotton is contracted to be bought or sold, 
                the date of the purchase or sale, and the time 
                when shipment or delivery of such cotton is to 
                be made.
                  (C) Prohibition of delivery of other than 
                specified grade.--Provide that cotton of or 
                within the grade or of the type, or according 
                to the sample or description, specified in the 
                contract shall be delivered thereunder, and 
                that no cotton which does not conform to the 
                type, sample, or description, or which is not 
                of or within the grade specified in the 
                contract shall be tendered or delivered 
                thereunder.
                  (D) Provision for specific performance.--
                Provide that the delivery of cotton under the 
                contract shall not be effected by means of 
                ``setoff'' or ``ring'' settlement, but only by 
                the actual transfer of the specified cotton 
                mentioned in the contract.
          (2) Incorporation of conditions in contract The 
        provisions of paragraphs (1)(A), (C), and (D) shall be 
        deemed fully incorporated into any such contract if 
        there be written or printed thereon, or on the document 
        or memorandum evidencing the same, at or prior to the 
        time the same is entered into, the words ``Subject to 
        United States Cotton Futures Act, subsection (h)''.
          (3) Application of subsection.--This subsection shall 
        not be construed to apply to any contract of sale made 
        in compliance with subsection (f) or (g).
  (i) Liability of Principal for Acts of Agent.--When 
construing and enforcing the provisions of this section, the 
act, omission, or failure of any official, agent, or other 
person acting for or employed by any association, partnership, 
or corporation within the scope of his employment or office 
shall, in every case, also be deemed the act, omission, or 
failure of such association, partnership, or corporation, as 
well as that of the person.
  (j) Regulations.--The Secretary is authorized to make such 
regulations with the force and effect of law as he determines 
may be necessary to carry out the provisions of this section 
and the powers vested in him by this section.
  (k) Violations.--Any person who knowingly violates any 
regulation made in pursuance of this section, shall, upon 
conviction thereof, be fined not less than $100 nor more than 
$500, for each violation thereof, in the discretion of the 
court, and, in case of natural persons, may, in addition be 
punished by imprisonment for not less than 30 days nor more 
than 90 days, for each violation, in the discretion of the 
court except that this subsection shall not apply to violations 
subject to subsection (d)(3).
  (l) Applicability to contracts prior to effective date.--The 
provisions of this section shall not apply to any cotton 
futures contract entered into prior to the effective date of 
this section or to any act or failure to act by any person 
prior to such effective date and all such prior contracts, acts 
or failure to act shall continue to be governed by the 
applicable provisions of the Internal Revenue Code of 1954 as 
in effect prior to the enactment of this section. All 
designations of bona fide spot markets and all rules and 
regulations issued by the Secretary pursuant to the applicable 
provisions of the Internal Revenue Code of 1954 which were in 
effect on the effective date of this section, shall remain 
fully effective as designations and regulations under this 
section until superseded, amended, or terminated by the 
Secretary.
  (m) Authorization.--There are authorized to be appropriated 
such sums as may be necessary to carry out this section.
```