39–010 

Calendar No. 191 

109TH CONGRESS REPORT " ! SENATE 1st Session 109–119 

COMMODITY EXCHANGE REAUTHORIZATION ACT OF 2005 

JULY 29, 2005.—Ordered to be printed 

Mr. CHAMBLISS, from the Committee on Agriculture, Nutrition, and 

Forestry, submitted the following 

R E P O R T 

[To accompany S. 1566] 

The Committee on Agriculture, Nutrition, and Forestry, having 

considered the bill (S. 1566) to reauthorize the Commodity Exchange Act, and for other purposes, reports favorably thereon and 

recommends that the bill do pass. 

CONTENTS 

Page 

I. Purpose, need, and background ....................................................................... 1 

II. Legislative history and votes in the committee ............................................. 2 

III. Section-by-section analysis .............................................................................. 5 

IV. Regulatory impact statement .......................................................................... 10 

V. Cost Estimate ................................................................................................... 10 

VI. Changes in existing law ................................................................................... 13 

I. PURPOSE, NEED, AND BACKGROUND

The Commodity Futures Trading Commission (CFTC or the Commission) is due to be reauthorized by September 30, 2005. The 

CFTC is charged with protecting market users and the public from 

fraud and manipulation in the nation’s futures markets while fostering open, competitive, and financially sound markets. The Commodity Exchange Act (CEA) is the basic law that empowers the 

CFTC with the regulatory authority to oversee futures markets. 

Futures contracts for agricultural commodities have been traded 

in the United States for more than 150 years and have been regulated under Federal statutes since the 1920’s. In recent years, trading in futures contracts has expanded rapidly beyond physical commodities into a vast array of financial instruments, including foreign currencies, U.S. and foreign government securities, and U.S. 

2 

and foreign stock indexes. More than one billion futures and option 

contracts were traded on U.S. futures exchanges in 2004. Futures 

and options exchanges play a vital role in the national economy as 

a price discovery mechanism and as risk management tools for individuals, farmers, and businesses throughout the nation. The responsibility of eliminating fraud and manipulation within these 

markets lies with the CFTC. 

The Commodity Exchange Act (CEA) was passed in 1922, marking the beginning of the modern era of government regulation and 

oversight of the U.S. futures markets. The Commodity Futures 

Trading Commission (CFTC) was created in 1974 as the agency of 

the Federal government responsible for oversight and regulation of 

futures markets through the CEA. Landmark changes were made 

to the CEA in the Commodity Futures Modernization Act of 2000 

(CFMA). Since its passage, futures markets have grown dramatically in volume. 

II. LEGISLATIVE HISTORY AND COMMITTEE VOTES

The Committee on Agriculture, Nutrition, and Forestry held two 

full Committee hearings to consider the reauthorization of the 

Commodity Futures Trading Commission (CFTC) prior to its markup of this legislation. 

The first hearing took place on March 8, 2005, and consisted of 

two panels. Sharon Brown-Hruska, Acting Chairman of the CFTC, 

testified before the committee that the CEA, as amended by the 

CFMA, is functioning exceptionally well. However, her testimony 

highlighted three areas of concern that have arisen since Congress 

last reauthorized the CFTC. First, she suggested Congress evaluate 

whether clarifications are necessary to the legal framework provided for exempt markets. Second, she stated Congress may wish 

to examine ways to further reduce the burdens of duplicate market 

regulation by multiple agencies. And third, Ms. Brown-Hruska recognized Congress’s firm commitment to protecting customers from 

fraud and manipulation, and asked that Congress review whether 

CFTC has sufficient authority to police retail fraud. 

Charles P. Carey, Chairman of the Chicago Board of Trade 

(CBOT), shared his views on CFTC reauthorization. Mr. Carey 

commended Congress for the passage of the CFMA, and also called 

attention to several issues he felt deserved discussion. He highlighted the challenges which have been presented from dual regulation by the CFTC and Securities and Exchange Commission (SEC) 

of certain products. Mr. Carey also expressed his concerns on how 

Congress may choose to address a particular court decision, CFTC 

v. Zelener. He stated that the decision held that CFTC has no antifraud jurisdiction over certain retail foreign currency (forex) transactions and could potentially lead to increased opportunities for 

fraud. Mr. Carey also discussed the challenges the futures industry 

has faced with respect to international expansion and cross-border 

business arrangements. 

Terrence A. Duffy, Chairman of the Chicago Mercantile Exchange (CME), testified before the Committee. Mr. Duffy echoed 

the comments of others by applauding the success of the CFMA, 

but suggested some changes based on developments since the 

CFMA was enacted. One problem Mr. Duffy recognized is continuing fraud against retail customers in over-the-counter foreign 

3 

exchange markets. He stated this problem has been compounded by 

the CFTC v. Zelener decision, as the court adopted a narrow definition of a futures contract. Mr. Duffy also pointed out this problem 

extends beyond foreign exchange and could be applied to any commodity. He suggested a compromise be worked out between SEC 

and CFTC’s jurisdiction in reference to single-stock futures products to avoid duplicate regulation. 

James Newsome, President of New York Mercantile Exchange 

(NYMEX), testified on behalf of the exchange. Dr. Newsome spoke 

of the benefits to the market from the passage of the CFMA, and 

noted that the CFMA maintained the CFTC’s exclusive jurisdiction 

over futures and options on futures. He also discussed the role of 

hedge funds in several markets, and explained their importance in 

these markets. Questions were raised regarding CFTC’s anti-fraud 

authority over principal-to-principal transactions involving exempt 

commodities. Dr. Newsome suggested that Congress consider 

whether clarifications or guidance in this area is needed. 

Frederick W. Schoenhut, Chairman of the New York Board of 

Trade (NYBOT), discussed his comments on CFTC reauthorization 

before the Committee. After stating that he believed the CFMA is 

working the way it was intended, Mr. Schoenhut expressed his support for a reauthorization bill that continues this regulatory structure. Three areas of the exchange self-regulatory structure which 

he felt should be maintained were then listed. The first was that 

each exchange should continue to determine the composition of its 

governing board. Second, that the structure for exchange compliance and disciplinary functions should also remain unchanged. And 

third, that exchanges be required to establish and enforce rules 

that minimize conflicts of interest in the decision making process. 

The Chief Executive Officer of Eurex, US, Satish Nandapurker, 

was the next to appear before the Committee. Mr. Nandapurker 

concurred with earlier testimony that the CFMA has been a tremendous success and commended CFTC on an outstanding job with 

implementing the language. 

The final witness of the first hearing was John M. Damgard, 

President of the Futures Industry Association (FIA). Mr. Damgard 

asked that any changes made to the CEA be made by the Senate 

Committee on Agriculture, Nutrition, and Forestry during reauthorization of the CFTC rather than another venue. He agreed that 

the fundamental reforms in the CFMA have worked well, and stated that he favors no change to the basic statutory design. 

On March 10, 2005, the Committee met to hear testimony on 

CFTC reauthorization from representatives of the over-the-counter 

(OTC) markets and other witnesses. 

First to testify was Jeffrey Spreecher, Chairman and Chief Executive Officer of Intercontinental Exchange (ICE). Mr. Spreecher 

thanked the Committee for its work in developing and adopting the 

CFMA, and listed three reasons why the legislation has been a success for his company. First, it provided legal certainty OTC products. Second, the CFMA created a new category of trading facility 

called the exempt commercial market (ECM). Lastly, the CFMA 

permitted the clearing of OTC transactions. 

Robert G. Pickel, Executive Director and Chief Executive Officer 

for the International Swaps and Derivatives Association (ISDA), 

shared his views on CFTC reauthorization with the Committee. 

4 

Mr. Pickel noted that the principal interest of his company in the 

CFMA was and remains those provisions intended to provide legal 

certainty for OTC derivatives. He applauded the CFMA and stated 

that he does not believe there is a fundamental need for Congress 

to make substantive changes to those portions of the legislation 

governing OTC derivatives. 

Oliver Ireland testified before the Committee on behalf of Huntsman Corporation and Industrial Energy Consumers of America 

(IECA). After reiterating that the CEA as amended by the CFMA 

functions exceptionally well, he stated that price volatility in the 

natural gas contracts suggest the market for natural gas may not 

be operating efficiently and the regulatory framework for these contracts should be reviewed. Mr. Ireland provided the Committee 

with several suggestions, some of which included regulating natural gas under the same framework of the CEA applicable to agricultural commodities and providing the CFTC backup authority to 

require large position reporting. 

The second panel of the hearing included the testimony of Daniel 

J. Roth, President and Chief Executive Officer of the National Futures Association (NFA). Mr. Roth stated that although the CFMA 

is successful, it fails to achieve one of its customer protection objectives. He said that that CFTC’s authority to protect retail customers investing in forex may be more uncertain now than before 

passage of the CFMA due to the CFTC v. Zelener court decision. 

Mr. Roth pointed out that the results of this decision are not solely 

a forex problem because nothing in the Zelener decision limited its 

rationale to forex products and that other commodities could be 

sold in the same fraudulent manner. Mr. Roth reiterated that the 

NFA, which is the self-regulatory body of the futures industry, believes this decision has created a customer protection issue, and 

Congress must address it. 

John G. Gaine, President of the Managed Funds Association 

(MFA), provided testimony for the Committee. Mr. Gaine discussed 

the role of hedge funds in the futures markets, and referenced 

studies that concluded hedge funds do not cause volatility in the 

energy markets. He also urged cooperation between the SEC and 

CFTC to avoid duplicative regulation. Mr. Gaine asked that CFTC 

act on petitions from various futures exchanges which would relax 

speculative position limits on a number of agricultural products. 

The final witness was Micah S. Green, President of the Bond 

Market Association (BMA). Mr. Green stated the CFMA is extremely successful, especially since it clarifies the exclusion from 

the CEA of OTC derivatives, swaps, and foreign exchange transactions. Mr. Green urged the Committee to not alter any of the fundamental elements of the CFMA with respect to OTC derivatives 

markets. 

COMMITTEE VOTE

In compliance with paragraph 7 of rule XXVI of the Standing 

Rules of the Senate, the following statements are made concerning 

the votes of the Committee in its consideration of the Committee 

bill: The Committee met to mark up the bill on Thursday, July 21, 

2005. The Committee ordered that the bill be favorably reported by 

a voice vote. 

5 

III. SECTION-BY-SECTION ANALYSIS

Section 1: Short title 

The name of the Act is the ‘‘Commodity Exchange Reauthorization Act of 2005.’’ 

Section 2: Contracts designed to defraud or mislead 

Section 2 of the legislation amends Section 4b of the CEA, the 

CFTC’s main anti-fraud authority. Section 4b is revised to provide 

the CFTC with the authority to bring fraud actions in off-exchange 

principal-to-principal futures transactions. In November 2000, the 

7th Circuit Court of Appeals ruled that the CFTC could only use 

Section 4b in intermediated transactions—those involving a broker, 

Commodity Trend Service, Inc. v. CFTC, 233 F.3d 981, 991–992 

(7th Cir. 2000). As subsequently amended by the CFMA, the CEA 

now permits off-exchange futures and options transactions that are 

done on a principal-to-principal basis, such as energy transactions 

pursuant to CEA Sections 2(h)(1) and 2(h)(3). 

Subsection 4b(a)(2) is amended by adding the words ‘‘or with’’ to 

address the principal-to-principal transactions. This new language 

clarifies that the CFTC has the authority to bring anti-fraud actions in off-exchange principal-to-principal futures transactions, including exempt commodity transactions in energy under Section 

2(h) as well as all transactions conducted on derivatives transaction execution facilities. The new Section 4b clarifies that market 

participants in these transactions are not required to disclose information that may be material to the market price, rate or level of 

the commodity in such off-exchange transactions. It also codifies 

existing law that prohibits market participants from using halftruths in negotiations and solicitations by requiring a person to disclose all necessary information to make any statement they have 

made not misleading in any material respect. The prohibitions in 

subparagraphs (A) through (D) of the new Section 4b(a) would 

apply to all transactions covered by paragraphs (1) and (2). Derivatives clearing organizations (DCOs) are not subject to fraud actions 

under Section 4b in connection with their clearing activities. 

The amendments to Section 4b(a) of the CEA regarding transactions currently prohibited under subparagraph (iv) (found in 

paragraph 2(D) of this bill) are not intended to affect in any way 

the CFTC’s historical ability to prosecute cases of indirect 

bucketing of orders executed on designated contract markets. See, 

e.g., Reddy v. CFTC, 191 F.3d 109 (2nd Cir. 1999); In re 

DeFrancesco, et al., CFTC Docket No. 02–09 (CFTC May 22, 2003) 

(Order Making Findings and Imposing Remedial Sanctions as to 

Respondent Brian Thornton). 

Section 3: Criminal and civil penalties 

Section 3 of the legislation amends CEA Section 9 to double the 

civil and criminal penalties available for certain criminal violations 

of the CEA such as manipulation, false reporting, and conversion. 

The maximum fines for individuals under Section 9 are increased 

from $500,000 to $1 million, and the maximum prison sentence is 

increased from 5 to 10 years. In a similar vein, Section 3 includes 

amendments to the procedural enforcement provisions in Sections 

6(c), 6b, and 6c of the CEA to increase the civil monetary penalties 

6 

to $1 million or triple the monetary gain to the person for each violation of manipulation or attempted manipulation. 

Section 9 of the CEA makes it a felony for any person to knowingly make false, misleading or inaccurate reports regarding the 

price of any commodity, including electricity and natural gas. Most 

of the other provisions of Section 9 similarly identify types of misconduct that constitute felonies. The CFTC lacks criminal powers, 

but it has brought civil enforcement proceedings under Section 9 

throughout its history. In fact, in the last 25 years the CFTC has 

brought over 70 civil injunctive or administrative actions under 

Section 9, so it is well-established that the CFTC has such authority. Recently, the CFTC has used Section 9 to obtain settlements 

totaling nearly $300 million for false reporting violations by energy 

trading firms in connection with natural gas and electricity transactions that were falsely reported in an attempt to manipulate 

prices. These included charges based on the reporting of transactions that arguably were done under Section 2(g) of the CEA. 

The Committee concurs with the CFTC’s consistent position that 

even if a transaction is excluded from CFTC jurisdiction under Section 2(g), the false reporting of such a transaction is a separate act 

and remains a violation of Section 9 so the CFTC has authority to 

prosecute. 

Regarding natural gas markets, the Committee expects the 

CFTC to aggressively oversee those markets to ensure that they 

are free from improper trading practices. The Committee is particularly concerned about the high volatility, but there are varying 

views about its cause. The volatility in prices for natural gas futures trading on the NYMEX has risen significantly since the year 

2000. This price volatility raises costs for participants in the physical market for natural gas. The NYMEX completed a study in 

March, 2005, analyzing, among other issues, volatility in the natural gas markets. The study concluded that divergent trends in 

natural gas supply and demand have led to the tight balance between supply and demand, higher gas prices, and increased gas 

volatility. 

Natural gas is vitally important to the United States economy, 

and businesses that continually need natural gas depend on the futures markets for risk control and price discovery purposes. The 

high price volatility in the natural gas futures markets hurts consumers, farmers, and manufacturers. The Committee will continue 

to monitor the price volatility in the natural gas markets. 

The legislative change to Section 9 clarifies the CFTC’s authority 

to bring civil and administrative actions, and would ensure that 

the CFTC can continue to bring false reporting cases in the energy 

arena for acts or omissions that occurred prior to enactment. The 

bill expressly provides that these amendments simply restate, without substantive change, existing CFTC civil enforcement authority. 

This clarifying change does not grant any new statutory authority, 

and the provisions of this section, as restated, continue to apply to 

any action pending on or commenced after the date of enactment 

for any alleged violation occurring before, on, or after the date of 

enactment. 

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Section 4: Clarification of authority 

The Committee finds that there is a significant customer protection problem with respect to retail forex fraud. Since the clarification of the CFTC’s anti-fraud authority regarding foreign currency 

trading in the Commodity Futures Modernization Act of 2000, the 

CFTC has brought 79 retail forex fraud enforcement actions involving over 23,000 victims and $350 million invested. 

Section 4 of the bill, ‘‘Clarification of Authority,’’ addresses several of the problems in the area of retail forex trading pursuant to 

Section 2(c) of the CEA. This section amends Sections 2(c)(2)(B) 

and (C) of the CEA to address three substantive areas: (i) the 

Zelener decision, CFTC v. Zelener, 373 F.3d 861 (7th Cir. 2004); (ii) 

solicitors; and (iii) affiliates and notice-registered broker-dealers 

(BDs). In addition, the amendments also include a non-substantive, 

structural change to make Section 2(c)(2)(B) easier to explain in 

CFTC enforcement cases, and certain technical amendments to the 

reservation of CFTC anti-fraud authority in Section 2(c)(2)(C) with 

respect to retail forex transactions by registered futures commission merchants (FCMs). 

In Zelener, the 7th Circuit held that the contracts at issue were 

spot contracts, not futures contracts, even though no deliveries of 

foreign currency were ever made. The amendments to Section 

2(c)(2)(B)(i) address the Zelener holding by providing the CFTC 

with clear anti-fraud jurisdiction over forex transactions: (i) offered 

to, or entered into with, a person that is not an eligible contract 

participant (i.e., a retail customer); (ii) offered or entered into on 

a leveraged, margined, or financed on a similar basis; and (iii) offered or entered into for purposes other than commercial or personal use of such foreign currency. Personal use transactions, 

which are outside the CFTC’s jurisdiction under this bill, include 

only situations where a retail customer takes immediate ownership 

and possession of foreign currency. This is the bank, or Thomas 

Cook, exception. 

If the test in Section 2(c)(2)(B)(i) is met, the CEA applies. Courts 

will no longer have to decide whether retail transactions that meet 

these requirements are futures contracts in order to permit the 

CFTC to pursue an action for fraud. But since anti-fraud Section 

4b of the CEA is limited by its terms to futures, a new forex provision (Section 2(c)(2)(D)) is added to ensure that Section 4b applies 

to all covered retail forex transactions—e.g., rolling spot or other 

futures look-alike products. CEA Section 4(b) also is included in 

new Section 2(c)(2)(D) to cover foreign markets. 

In addition, the amendments address the role of individuals who 

solicit or are otherwise engaged in retail forex transactions. For 

FCMs and BDs to qualify for the otherwise regulated exception to 

CFTC jurisdiction of their retail forex activities, each person who 

participates in the solicitation or recommendation of the transaction must register with the CFTC or SEC and be a member or 

associate of NFA or a registered securities association, as applicable. Also, Section 2(c)(2)(B)(i) clarifies that if the CFTC has jurisdiction over the transaction, it also has jurisdiction over individuals 

who engage in any activity in connection with the transaction. 

Similar language is added to the reservation of CFTC anti-fraud 

authority for transactions by registered FCMs in Section 2(c)(2)(C). 

8 

The amendments would no longer permit unregistered affiliates 

of FCMs and BDs to qualify for the otherwise regulated exception 

to CFTC jurisdiction of their retail forex transactions. The result 

is that such affiliates must register or the retail forex business 

must be done within the registered FCM or BD itself. In addition, 

notice-registered BDs will no longer qualify for the otherwise regulated exception to CFTC jurisdiction. The exception is available 

only to fully-registered BDs, not notice-registered BDs who undertake this type of registration with the SEC solely for the purpose 

of trading security futures products. This carve-out addresses the 

possibility that entities could avoid CFTC fraud jurisdiction by notice-registering as BDs with the SEC without a bona fide intention 

to trade security futures products. 

The amendments also make a non-substantive change to the 

structure of Section 2(c)(2)(B) to make it more easily comprehensible by reorganizing Subclauses (II) and (III). As amended, subclause (II) describes BDs, and subclause (III) describes FCMs. 

Finally, the amendments include several changes to Section 

2(c)(2)(C), which reserves CFTC anti-fraud authority for the retail 

forex transactions of registered FCMs. First, the word ‘‘except’’ is 

inserted at the beginning of the parenthetical, as it appears that 

it was inadvertently omitted from the CFMA. Inserting this word 

confirms that the provisions of CEA Sections 6(c) and 6(d), which 

enable CFTC to bring administrative enforcement actions, are 

available for retail forex fraud cases. Second, the amendments clarify that CFTC anti-fraud authority is reserved with respect to the 

retail forex activities of all persons registered as FCMs, even those 

that are dually registered. Third, they reserve CFTC anti-fraud authority for transactions offered by, in addition to those entered into 

by, registered FCMs. Last, the amendments explicitly reserve CEA 

Sections 2(a)(1)(B) (principal-agent liability); 4(b) (foreign markets); 

4(o) (fraud by Commodity Pool Operators and Commodity Trade 

Advisors); 13(a) (aiding and abetting liability); and 13(b) (controlling person liability) with respect to fraudulent forex activities 

where a registered FCM is the counterparty. While the secondary 

liability provisions of principal-agent, aiding-abetting, and controlling-person liability were implied in the CFMA, these amendments 

make that reservation of CFTC anti-fraud authority explicit. The 

amendments are not intended to suggest, nor do they create a negative inference, that these secondary liability provisions are not 

available in actions brought under other sections of the CEA where 

CFTC anti-fraud or anti-manipulation authority is reserved. 

Section 5: Authorization of appropriations 

Section 5 authorizes such sums as are necessary to carry out the 

Commodity Exchange Act through 2010. 

Section 6: Liaison with Department of Justice 

This section requires that CFTC maintain a liaison with the Department of Justice to coordinate civil and criminal investigations 

and prosecutions of violations of the CEA. 

Section 7: Single stock futures margining pilot program 

Following enactment of the CFMA, the CFTC and SEC jointly 

promulgated rules relating to the margining of security futures 

9 

products. With very limited exceptions, however, portfolio margining for these products was not made available, which many 

have argued has contributed to the low volume of trading in securities futures product markets. This section authorizes a two-year 

portfolio margining pilot program for security futures products that 

would be eligible to continue beyond this initial period depending 

upon the conclusions of a report on the pilot program submitted to 

the House and Senate Agriculture Committees by the Board of 

Governors of the Federal Reserve System after consultation with 

the CFTC and the SEC not later than two years after enactment 

of this Act. Accordingly, these amendments are intended to promote innovation and fair competition between economically similar 

markets, and to allow customers to benefit from the use of a riskbased margining system. 

The Committee has heard from several interested parties about 

portfolio margining for security options. These parties have expressed interest in seeing portfolio margining expanded to both security options and security futures products. The Committee looks 

forward to working with all interested parties and the Senate Committee on Banking on this issue. 

Section 8: Broad-based index definitions 

Section 8 of the bill is designed to bring clarity to security futures product (SFPs) definitions, which include both futures on individual securities as well as on narrow-based security indexes. 

SFPs are considered to be both securities and futures. SFPs are 

jointly regulated by the CFTC and the SEC. The CFTC has exclusive jurisdiction over futures on broad-based security indexes. 

The current statutory test for narrow-based security indexes is 

quite detailed. This test, which was established in 2000 through 

the enactment of the CFMA, was tailored to fit the U.S. equity 

markets. The U.S. equity markets are by far the largest, deepest 

and most liquid securities markets in the world. The narrow-based 

security index test was not intended to apply to debt instruments 

or foreign equity markets, and therefore, should not be applied to 

them. 

Section 8 provides clarity in this area by requiring the CFTC and 

the SEC to jointly promulgate final rules within 180 days providing 

criteria which will be used to exclude indexes on U.S. debt instruments, foreign equities, foreign debt instruments and other U.S. securities from the definition of narrow-based security index. The 

Committee believes that the CFTC and SEC should tailor their 

rule for foreign equity markets (which are significantly smaller 

than U.S. equity markets) and debt instruments based on the size 

and nature of those markets, including the potential for insider 

trading and market manipulation. Section 8 sets forth in subsection (b) certain criteria which direct the agencies to use in connection with promulgating their joint rule and is consistent with 

the approach the CFTC has taken over the last twenty years with 

respect to granting no-action letters for the sale of futures on foreign security indexes to U.S. investors. In addition, the Committee 

believes Section 8 is consistent with Congressional intent and language in the CFMA. For these reasons, the Committee would encourage the CFTC and SEC, in the strongest possible terms, to proceed quickly in adopting final rules in this area. 

10 

IV. REGULATORY IMPACT STATEMENT

In compliance with paragraph 11(b) of rule XXVI of the Standing 

Rules of the Senate, the following evaluation is made concerning 

the regulatory impact of carrying out the changes proposed in this 

legislation: 

The Commodity Futures Trading Commission is responsible for 

ensuring the economic utility of futures markets by encouraging 

their competitiveness and efficiency, ensuring their integrity, and 

protecting market participants against manipulation, abusive trading practices, and fraud. Futures and options contracts traded on 

U.S. exchanges regulated by the CFTC totaled nearly 1.5 billion 

contracts traded during fiscal 2004. These transactions occurred on 

the ten futures exchanges designated as contract markets by the 

CFTC and involved transactions on traders’ own accounts and on 

the accounts of their customers. The Commission oversees the activities of more than 2,500 businesses and 50,000 individuals involved in the regulated futures industry taking and executing orders on behalf of customers, advising those customers, managing 

their trading, and/or handling their funds. This bill does not have 

a major impact on this already regulated marketplace. In addition 

to its oversight of the regulated futures markets, the Commission 

has anti-fraud and anti-manipulation authority with respect to certain off-exchange transactions. These contracts are otherwise exempt from most Commission regulation except those provisions directed at prohibiting fraud and manipulation. The sale of forex contracts to the retail public is an area of particular concern addressed 

in this bill. Fraud by firms selling retail forex has been a significant problem that has been of particular concern to the Commission. While the total amount of fraud or firms involved in that 

fraud is not known, the Commission has brought almost 80 cases 

since the CFMA clarified that the CFTC has the authority to bring 

enforcement actions for fraud by firms selling retail forex contracts 

to the public. The total amount of customer losses suffered by over 

23,000 victims in these cases was approximately $350,000,000. 

Under this bill, those persons currently unregistered under the 

CEA who are in the business of selling retail forex contracts, and 

who would like to legitimately remain in that business, would have 

to submit the same sort of information to the NFA as is submitted 

currently by persons in the regulated futures industry. It is not 

known how many persons will choose to register under this bill, if 

enacted; however, current applicants for licenses as commodity brokers, known as associated persons under the CEA, spend approximately thirty minutes completing the application forms, which are 

available on the internet. 

V. COST ESTIMATE

In accordance with paragraph 11(a) of rule XXVI of the Standing 

Rules of the Senate, the following letter has been received from the 

Congressional Budget Office regarding the budgetary impact of the 

bill: 

11 

U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Washington, DC, July 28, 2005. 

Hon. SAXBY CHAMBLISS, 

Chairman, Committee on Agriculture, Nutrition, and Forestry, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for the Commodity Exchange Reauthorization Act of 2005. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Melissa E. Zimmerman. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Enclosure. 

S. 1566—Commodity Exchange Reauthorization Act of 2005 

Summary: The legislation would extend the authority to appropriate funds for the Commodity Futures Trading Commission 

(CFTC) through 2010. The bill also would amend and clarify the 

CFTC’s jurisdiction over certain futures transactions and financial 

products. CBO estimates that implementing the legislation would 

cost $89 million in 2006 and $512 million over the 2006–2010 period, assuming appropriation of the necessary amounts. 

CBO also estimates that enacting the bill would increase revenue 

collections by $30 million in 2006, $150 million over the 2006–2010 

period, and $300 million over the 2006–2015 period because it 

would increase the maximum penalty for price manipulation of 

commodities. (Civil penalties are recorded in the federal budget as 

revenues.) Enacting the bill would not affect direct spending. 

The bill contains no intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA) and would not affect 

the budgets of state, local, or tribal governments. 

The bill would impose private-sector mandates, as defined in 

UMRA, on certain entities involved in retail foreign currency transactions, by changing the criteria to qualify for exclusion from CFTC 

jurisdiction with regard to those transactions. CBO expects that 

the direct cost of those mandates would not exceed the annual 

threshold established by UMRA ($123 million in 2005, adjusted annually for inflation). 

Estimated cost to the Federal Government: The estimated budgetary impact of the bill is shown in the following table. The costs 

of this legislation fall within budget function 370 (commerce and 

housing credit). For this estimate, CBO assumes that the bill will 

be enacted by the end of 2005, that the estimated amounts will be 

appropriated for each fiscal year, and that outlays will follow historical trends for spending by the CFTC. 

By fiscal year, in millions of dollars— 

2005 2006 2007 2008 2009 2010 

SPENDING SUBJECT TO APPROPRIATION 

CFTC Spending Under Current Law: 

Budget Authority a ................................................... 94 0 0 0 0 0 

Estimated Outlays ................................................... 95 11 0 0 0 0 

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By fiscal year, in millions of dollars— 

2005 2006 2007 2008 2009 2010 

Proposed Changes: 

Estimated Authorization Level ................................. 0 100 103 106 110 113 

Estimated Outlays ................................................... 0 89 101 104 107 111 

CFTC Spending Under the Bill: 

Estimated Authorization Level a .............................. 94 100 103 106 110 113 

Estimated Outlays ................................................... 95 100 101 104 107 111 

CHANGES IN REVENUES 

Estimated Revenues ......................................................... 0 30 30 30 30 30 

a The 2005 level is the amount appropriated for that year for the Commodity Futures Trading Commission. 

Basis of estimate: CBO estimates that implementing the bill would cost $89 million in 2006 and $512 million over the 2006– 

2010 period to continue current activities of the CFTC and for new 

tasks specified in the bill. Enacting the legislation would increase 

revenues by $30 million a year, CBO estimates, for increasing civil 

monetary penalties for price manipulation of commodities. 

Spending subject to appropriation 

The legislation would extend the authority to appropriate funds 

for the CFTC through 2010 and would amend and clarify the jurisdiction of the CFTC over certain futures transactions and financial 

products. Finally, the bill would establish a pilot program involving 

changes in margin requirements for certain futures products. For 2005, the CFTC received an appropriation of $94 million. 

Based on the agency’s current budget and adjusting for anticipated 

inflation, CBO estimates that extending the authorization of appropriations for the current functions of the CFTC would require $98 

million in funding for 2006 and $522 million in appropriations over 

the 2006–2010 period. Based on information provided by the CFTC, 

CBO estimates that the agency would require 10 additional personnel to manage the increased workload anticipated because of 

the legislation’s impact on the agency’s jurisdiction over certain future transactions. We estimate that salaries, benefits, and overhead for those additional staff would cost about $2 million in 2006 

and $10 million over the 2006–2010 period. 

Revenues 

The legislation would increase tenfold the maximum penalties for 

manipulation of prices in the commodities market. According to the 

CFTC, collections for these penalties have averaged about $40 million between 2002 and 2004, but were much lower over the previous three-year period. Considering that the CFTC has the authority to assess penalties in amounts less than the maximum penalty 

set in law, the deterrent effect of increased penalties, and the cyclical nature of violations of these laws over the last several years, 

CBO expects that, on average, collections from penalties would increase by about $40 million per year. CBO estimates that, under 

the bill, revenues would increase by $30 million in 2006, $150 million over the 2006–2010 period, and $300 million over the 2006– 

2015 period, net of income and payroll tax offsets. 

Estimated impact on state, local, and tribal governments: The 

bill contains no intergovernmental mandates as defined in UMRA 

and would not affect the budgets of state, local, and tribal governments. 

13 

Estimated impact on the private sector: The CFTC has jurisdiction over certain retail foreign currency agreements, contracts, and 

transactions. The bill may expand the range of such products over 

which the CFTC has jurisdiction. Under current law, some entities 

are excluded from the jurisdiction of the CFTC for such transactions. The bill would impose private-sector mandates, as defined 

in UMRA, on certain entities involved in retail foreign currency 

transactions by changing the criteria to qualify for an exclusion 

from CFTC jurisdiction with regard to those transactions. The bill 

would no longer permit unregistered affiliates of futures commission merchants (FCMs), unregistered affiliates of broker dealers, or 

‘‘notice registered’’ broker dealers to be excluded from the jurisdiction of the CFTC regarding their retail foreign currency transactions. For registered FCMs and registered broker dealers to qualify for exclusion, the bill would require that each person who participates in the solicitation or recommendation of such transactions 

must register with the CFTC or Securities and Exchange Comission and be a member of the National Futures Association or a registered securities association, as applicable. 

Some entities that would no longer qualify for exclusion from 

CFTC jurisdiction under the bill could take certain actions to continue to qualify. For example, unregistered affiliates of broker dealers may move their foreign currency activities into the operations 

of the registered broker dealer. Based on information from government sources, CBO expects that the direct cost of the mandates in 

the bill would not exceed the annual threshold established by 

UMRA ($123 million in 2005, adjusted annually for inflation). 

Estimate prepared by: Federal costs: Melissa E. Zimmerman; 

Federal revenues: Annabelle Bartsch and Melissa E. Zimmerman; 

impact on state, local, and tribal governments: Sarah Puro; impact 

on the private sector: Judith Ruud. 

Estimate approved by: Peter H. Fontaine, Deputy Assistant Director for Budget Analysis. 

VI. CHANGES IN EXISTING LAW

In compliance with paragraph 12 of rule XXVI of the Standing 

Rules of the Senate, changes in existing law made by S. 1566 as 

reported are shown as follows (existing law proposed to be omitted 

is enclosed in brackets, new matter is printed in italic, and existing 

law in which no change is proposed is shown in roman): 

COMMODITY EXCHANGE ACT 

* * * * * * * 

SEC. 2 * * * 

øSec. 2(a)(1)¿(C) Notwithstanding any other provision of law— 

* * * 

(v)(I) Notwithstanding any other provision of this Act, any 

contract market in a stock index futures contract (or option 

thereon) øother than¿ or a security futures product, or any derivatives transaction execution facility on which such øcontract 

or option¿ contract, option, or security futures product is traded, shall file with the Board of Governors of the Federal Reserve System any rule establishing or changing the levels of 

14 

margin (initial and maintenance) for such stock index futures 

contract (or option thereon) øother than¿ or security futures 

products. 

(II) The Board may at any time request any contract market 

or derivatives transaction execution facility to set the margin 

for any stock index futures contract (or option thereon), øother 

than¿ or for any security futures product, at such levels as the 

Board in its judgment determines are appropriate to preserve 

the financial integrity of the contract market or derivatives 

transaction execution facility, or its clearing system, or to prevent systemic risk. If the contract market or derivatives transaction execution facility fails to do so within the time specified 

by the Board in its request, the Board may direct the contract 

market or derivatives transaction execution facility to alter or 

supplement the rules of the contract market or derivatives 

transaction execution facility as specified in the request. 

(III) Subject to such conditions as the Board may determine, 

the Board may delegate any or all of its authority, relating to 

margin for any stock index futures contract (or option thereon), 

øother than¿ or security futures products, under this clause to 

the Commission.* * * 

* * * * * * * 

(D)(i) * * * 

ø(XI) THE MARGIN REQUIREMENTS¿ (XI) MARGIN REQUIRE- MENTS.— 

(aa) IN GENERAL.—The margin requirement for a security futures product comply with the regulations prescribed 

pursuant to section 7(c)(2)(B) of the Securities Exchange 

Act of 1934, except that nothing in this subclause shall be 

construed to prevent a board of trade from requiring higher margin levels for a security futures product when it 

deems such action to be necessary or appropriate. 

(bb) PILOT PROGRAM FOR MARGINING SECURITY FUTURES

PRODUCTS.—Notwithstanding any other provision of law, 

for a period of 2 years beginning on the date of enactment 

of this item, an entity that is designated or registered as a 

contract market or derivatives transaction execution facility 

under section 5 and that is also notice-registered as a national securities exchange under section 6(g) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(g)), and its clearing organization, a futures commission merchant registered 

under this Act, and a broker or dealer registered under section 15(b) of that Act (15 U.S.C. 78o(b)), shall not be required to comply with item (aa) or subparagraph (C)(v)(IV). 

(cc) ACTING IN RELIANCE.—Any entity acting in reliance 

upon item (bb) shall not be required to comply with regulations promulgated under section 7(c)(2)(B) of the Securities 

Exchange Act of 1934 (15 U.S.C. 78g(c)(2)(B)), or with the 

rules of a self-regulatory organization (as defined in section 

3(a)(26) of that Act (15 U.S.C. 78c(a)(26)), pertaining to levels of initial and maintenance margin, or with any regulation that operates to preclude the implementation of riskbased portfolio margining systems. 

(dd) PROMULGATION OF FINAL RULES.—Subject to item 

(ee), an entity designated or registered as a contract market 

15 

or derivatives transaction execution facility under section 5 

and that is notice-registered as a national securities exchange under section 6(g) of the Securities Exchange Act of 

1934 (15 U.S.C. 78f(g)) and its clearing organization shall 

be permitted to promulgate final rules to— 

(AA) set margin requirements for security futures 

products, held in any account, in accordance with subparagraph (C)(v)(I); and 

(BB) permit futures commission merchants registered 

under this Act, and brokers and dealers registered 

under section 15(b) of the Securities Exchange Act of 

1934 (15 U.S.C. 78o(b)), to collect initial and maintenance margin for security futures products, held in any 

account, in accordance with the rules. 

(ee) EFFECTIVE DATE AND REVIEWABILITY OF FINAL

RULES.—Final rules promulgated by any entity under item 

(dd) shall become effective in accordance with section 5c(c), 

and, notwithstanding any other provision of law, shall not 

be subject to any other approval or review requirements. 

(ff) REPORT.—Not later than 2 years after the date of enactment of this item, the Board of Governors of the Federal 

Reserve System, after consultation with the Commission 

and the Securities and Exchange Commission, shall submit 

to the Committee on Agriculture of the House of Representatives and the Committee on Agriculture, Nutrition, and 

Forestry of the Senate a report describing the results of the 

pilot program for margining security futures products. 

(gg) CONTINUATION OF PILOT PROGRAM.—The pilot program for margining security futures products shall continue to apply unless the report under item (ff) concludes 

that the pilot program has resulted in undue risks to the 

financial integrity of the relevant contract markets or derivatives transaction execution facilities, or to their respective clearing systems, or has resulted in systemic risk to financial markets or undue risk to customers. * * * 

øSec. 2(a)¿(2)(A) * * * 

(iii) The provisions of this subparagraph shall not create any 

rights, liabilities, or obligations upon which actions may be 

brought against the Commission. 

(C) LIAISON WITH DEPARTMENT OF JUSTICE.— 

(i) IN GENERAL.—The Commission shall, in cooperation with 

the Attorney General, maintain a liaison between the Commission and the Department of Justice to coordinate civil and 

criminal investigations and prosecutions of violations of this 

Act as appropriate. 

(ii) DESIGNATION.—The Attorney General shall designate a 

person as liaison and take such steps as are necessary to facilitate communications described in clause (i). * * * 

(c) AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN FOREIGN

CURRENCY, GOVERNMENT SECURITIES, AND CERTAIN OTHER COM- MODITIES.—* * * 

(2) COMMISSION JURISDICTION.— (A) AGREEMENTS, CONTRACTS, AND TRANSACTIONS TRADED ON AN ORGANIZED EXCHANGE.—This Act applies to, and 

the Commission shall have jurisdiction over, an agreeVerDate Aug 04 2004 01:57 Aug 09, 2005 Jkt 039010 PO 00000 Frm 00015 Fmt 6659 Sfmt 6602 E:\HR\OC\SR119.XXX SR119
16 

ment, contract, or transaction described in paragraph (1) 

that is— 

(i) a contract of sale of a commodity for future delivery (or an option on such a contract), or an option on 

a commodity (other than foreign currency or a security 

or a group or index of securities), that is executed or 

traded on an organized exchange; or 

ø(ii) an option on foreign currency executed or traded on an organized exchange that is not a national securities exchange registered pursuant to section 6(a) of 

the Securities Exchange Act of 1934. 

ø(B) AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN RETAIL FOREIGN CURRENCY.—This Act applies to, and the 

Commission shall have jurisdiction over, an agreement, 

contract, or transaction in foreign currency that— 

ø(i) is a contract of sale of a commodity for future 

delivery (or an option on such a contract) or an option 

(other than an option executed or traded on a national 

securities exchange registered pursuant to section 6(a) 

of the Securities Exchange Act of 1934); and 

ø(ii) is offered to, or entered into with, a person that 

is not an eligible contract participant, unless the 

counterparty, or the person offering to be the 

counterparty, of the person is— 

ø(I) a financial institution; 

ø(II) a broker or dealer registered under section 

15(b) or 15C of the Securities Exchange Act of 

1934 (15 U.S.C. 78o(b), 78o 095) or a futures commission merchant registered under this Act; 

ø(III) an associated person of a broker or dealer 

registered under section 15(b) or 15C of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b), 78o 

095), or an affiliated person of a futures commission merchant registered under this Act, concerning the financial or securities activities of 

which the registered person makes and keeps 

records under section 15C(b) or 17(h) of the Securities Exchange Act of 1934 (15 U.S.C. 78o 095(b), 

78q(h)) or section 4f(c)(2)(B) of this Act; 

ø(IV) an insurance company described in section 

1a(12)(A)(ii) of this Act, or a regulated subsidiary 

or affiliate of such an insurance company; 

ø(V) a financial holding company (as defined in 

section 2 of the Bank Holding Company Act of 

1956); or 

ø(VI) an investment bank holding company (as 

defined in section 17(i) of the Securities Exchange 

Act of 1934). 

ø(C) Notwithstanding subclauses (II) and (III) of subparagraph (B)(ii), agreements, contracts, or transactions 

described in subparagraph (B) shall be subject to sections 

4b, 4c(b), 6(c) and 6(d) (to the extent that sections 6(c) and 

6(d) prohibit manipulation of the market price of any commodity, in interstate commerce, or for future delivery on or 

subject to the rules of any market), 6c, 6d, and 8(a) if they 

17 

are entered into by a futures commission merchant or an 

affiliate of a futures commission merchant that is not also 

an entity described in subparagraph (B)(ii) of this paragraph.¿ 

(B) AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN RETAIL FOREIGN CURRENCY.— 

(i) IN GENERAL.—This Act applies to, and the Commission shall have jurisdiction over, any agreement, 

contract, or transaction in foreign currency (including 

agreements, contracts, or transactions described in subsection (a)(1)(A)), and any person who engages in any 

activity in connection with any agreement, contract, or 

transaction in foreign currency, that is— 

(I) offered to, or entered into with, a person that 

is not an eligible contract participant; 

(II) offered, or entered into, on a leveraged, margined, or financed on a similar basis; and 

(III) offered, or entered into, for purposes other 

than commercial or personal use of such foreign 

currency, except that personal use shall include 

only those agreements, contracts, or transactions in 

which a person takes immediate ownership and 

possession of foreign currency. 

(ii) EXCLUSIONS.—Subparagraph (B)(i) shall not 

apply if the counterparty, or the person offering to be 

the counterparty, of the person that is not an eligible 

contract participant is— 

(I) a financial institution; 

(II) a broker or dealer registered under section 

15(b) of the Securities Exchange Act of 1934 (15 

U.S.C. 78o(b)) (except notice registration under 

paragraph (11)(A) of that section) or under section 

15C of that Act (15 U.S.C. 78o–5), provided that 

each person who participates in the solicitation or 

recommendation of the agreement, contract, or 

transaction is— 

(aa) registered under section 15(b) or 15C of 

that Act (15 U.S.C. 78o(b), 78o–5); 

(bb) an individual registered with a securities association registered under section 15A(a) 

of that Act (15 U.S.C. 78o–3(a)); and 

(cc) a member or associate of a securities association registered under section 15A(a) of 

that Act (15 U.S.C. 78o–3(a)); 

(III) a person that is registered as a futures commission merchant under this Act, provided that 

each person who participates in the solicitation or 

recommendation of the agreement, contract, or 

transaction is— 

(aa) registered under section 4d, 4k, or 4m; 

and 

(bb) a member or associate of a futures association registered under section 17; 

18 

(IV) an insurance company described in section 

1a(12)(A)(ii), or a regulated subsidiary or affiliate 

of such an insurance company; 

(V) a financial holding company (as defined in 

section 2 of the Bank Holding Company Act of 

1956 (12 U.S.C. 1841)); or 

(VI) an investment bank holding company (as 

defined in section 17(i) of the Securities Exchange 

Act of 1934 (15 U.S.C. 78q)). 

(C) Notwithstanding subclause (III) of subparagraph 

(B)(ii), agreements, contracts, or transactions described in 

subparagraph (B), and persons who engage in any activity 

in connection with agreements, contracts, or transactions 

described in subparagraph (B), shall be subject to subsection (a)(1)(B) and sections 4(b), 4b, 4c(b), 4o, 6(c) and 

6(d) (except to the extent that sections 6(c) and 6(d) prohibit 

manipulation of the market price of any commodity in 

interstate commerce, or for future delivery on or subject to 

the rules of any market), 6c, 6d, 8(a), 13(a), and 13(b) if the 

agreements, contracts, or transactions are offered, or entered into, by a person that is registered as a futures commission merchant under this Act. 

(D) Sections 4(b) and 4b shall apply to any agreement, 

contract, or transaction in foreign currency described in 

subparagraphs (B) and (C) as though the agreement, contract, or transaction were a contract of sale of a commodity 

for future delivery. * * * 

* * * * * * * 

øSEC. 4b * * * 

ø(a) It shall be unlawful (1) for any member of a registered entity, or for any correspondent, agent, or employee of any member, in 

or in connection with any order to make, or the making of, any contract of sale of any commodity in interstate commerce, made, or to 

be made, on or subject to the rules of any registered entity, for or 

on behalf of any other person, or (2) for any person, in or in connection with any order to make, or the making of, any contract of sale 

of any commodity for future delivery, made, or to be made, for or 

on behalf of any other person if such contract for future delivery 

is or may be used for (A) hedging any transaction in interstate 

commerce in such commodity or the products or by products thereof, or (B) determining the price basis of any transaction in interstate commerce in such commodity, or (C) delivering any such commodity sold, shipped, or received in interstate commerce for the fulfillment thereof— 

ø(i) to cheat or defraud or attempt to cheat or defraud such 

other person; 

ø(ii) willfully to make or cause to be made to such other person any false report or statement thereof, or willfully to enter 

or cause to be entered for such person any false record thereof; 

ø(iii) willfully to deceive or attempt to deceive such other 

person by any means whatsoever in regard to any such order 

or contract or the disposition or execution of any such order or 

contract, or in regard to any act of agency performed with respect to such order or contract for such person; or 

19 

ø(iv) to bucket such order, or to fill such order by offset 

against the order or orders of any other person, or willfully and 

knowingly and without the prior consent of such person to become the buyer in respect to any selling order of such person, 

or become the seller in respect to any buying order of such person.¿ 

SEC. 4b. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD. 

(a) UNLAWFUL ACTIONS.—It shall be unlawful— 

(1) for any person, in or in connection with any order to 

make, or the making of, any contract of sale of any commodity 

in interstate commerce or for future delivery that is made, or to 

be made, on or subject to the rules of a designated contract 

market, for or on behalf of any other person; 

(2) for any person, in or in connection with any order to 

make, or the making of, any contract of sale of any commodity 

for future delivery, or other agreement, contract, or transaction 

subject to paragraphs (1) and (2) of section 5a(g), that is made, 

or to be made, for or on behalf of, or with, any other person, 

other than on or subject to the rules of a designated contract 

market— 

(A) to cheat or defraud or attempt to cheat or defraud 

such other person; 

(B) willfully to make or cause to be made to such other 

person any false report or statement or willfully to enter or 

cause to be entered for such other person any false record; 

(C) willfully to deceive or attempt to deceive such other 

person by any means whatsoever in regard to any order or 

contract or the disposition or execution of any order or contract, or in regard to any act of agency performed, with respect to any order or contract for or, in the case of paragraph (2), with such other person; or 

(D)(i) to bucket an order if such order is either represented by such person as an order to be executed, or is required to be executed, on or subject to the rules of a designated contract market; or 

(ii) to fill an order by offset against the order or orders 

of any other person, or willfully and knowingly and without the prior consent of such other person to become the 

buyer in respect to any selling order of such other person, 

or become the seller in respect to any buying order of such 

other person, if such order is either represented by such person as an order to be executed, or is required to be executed, 

on or subject to the rules of a designated contract market 

unless such order is executed in accordance with the rules 

of the designated contract market. 

(b) CLARIFICATION.—Subsection (a)(2) shall not obligate any person, in or in connection with a transaction in a contract of sale of 

a commodity for future delivery, or other agreement, contract or 

transaction subject to paragraphs (1) and (2) of section 5a(g), with 

another person, to disclose to such other person nonpublic information that may be material to the market price, rate or level of such 

commodity or transaction, except as necessary to make any statement made to such other person in or in connection with such transaction, not misleading in any material respect. 

20 

ø(b)¿ (c) Nothing in this section or in any other section of this 

Act shall be construed to prevent a futures commission merchant 

or floor broker who shall have in hand, simultaneously, buying and 

selling orders at the market for different principals for a like quantity of a commodity for future delivery in the same month, from 

executing such buying and selling orders at the market price: Provided, That any such execution shall take place on the floor of the 

exchange where such orders are to be executed at public outcry 

across the ring and shall be duly reported, recorded, and cleared 

in the same manner as other orders executed on such exchange: 

And provided further, That such transactions shall be made in accordance with such rules and regulations as the Commission may 

promulgate regarding the manner of the execution of such transactions. 

ø(c)¿ (d) Nothing in this section shall apply to any activity that 

occurs on a board of trade, exchange, or market, or clearinghouse 

for such board of trade, exchange, or market, located outside the 

United States, or territories or possessions of the United States, involving any contract of sale of a commodity for future delivery that 

is made, or to be made, on or subject to the rules of such board of 

trade, exchange, or market. * * * 

* * * * * * * 

SEC. 6 * * * 

(b) The Commission is authorized to suspend for a period not to 

exceed six months or to revoke the designation or registration of 

any contract market or derivatives transaction execution facility on 

a showing that such contract market or derivatives transaction execution facility is not enforcing or has not enforced its rules of government made a condition of its designation or registration as set 

forth in sections 5 through 5b or section 5f or that such contract 

market or derivatives transaction execution facility, or any director, 

officer, agent, or employee thereof, otherwise is violating or has violated any of the provisions of this Act or any of the rules, regulations, or orders of the Commission or the Commission thereunder, 

or, in any case of manipulation of, or an attempt to manipulate, the 

price of any commodity, a civil penalty of not more than $1,000,000 

for each such violation. Such suspension or revocation shall only be 

after a notice to the officers of the contract market or derivatives 

transaction execution facility affected and upon a hearing on the 

record: Provided, That such suspension or revocation shall be final 

and conclusive, unless within fifteen days after such suspension or 

revocation by the Commission such person appeals to the court of 

appeals for the circuit in which it has its principal place of business, by filing with the clerk of such court a written petition praying that the order of the Commission be set aside or modified in 

the manner stated in the petition, together with a bond in such 

sum as the court may determine, conditioned that such person will 

pay the costs of the proceedings if the court so directs, except that 

if the failure or refusal to obey or comply with the order involved 

any offense under section 9(a)(2), the registered entity, director, officer, agent, or employee shall be guilty of a felony and, on conviction, 

shall be subject to penalties under section 9(a)(2). * * * 

øSec. 6¿(c) * * * Upon evidence received, the Commission may— 

21 

(1) prohibit such person from trading on or subject to the 

rules of any registered entity and require all registered entities 

to refuse such person all privileges thereon for such period as 

may be specified in the order, 

(2) if such person is registered with the Commission in any 

capacity, suspend, for a period not to exceed six months, or revoke, the registration of such person, 

(3) assess such person— 

(A) a civil penalty of not more than the higher of $100,000 or triple the monetary gain to such person for 

each such violation, or 

(B) in any case of manipulation of, or attempt to manipulate, the price of any commodity, a civil penalty of not more 

than the greater of $1,000,000 or triple the monetary gain 

to such person for each such violation, and 

(4) * * * 

SEC. 6c. * * * 

ø(d)(1) In any action brought under this section, the Commission 

may seek and the court shall have jurisdiction to impose, on a 

proper showing, on any person found in the action to have committed any violation a civil penalty in the amount of not more than 

the higher of $100,000 or triple the monetary gain to the person 

for each violation.¿ 

(d) CIVIL PENALTIES.— (1) IN GENERAL.—In any action brought under this section, 

the Commission may seek and the court shall have jurisdiction 

to impose, on a proper showing, on any person found in the action to have committed any violation— 

(A) a civil penalty in the amount of not more than the greater of $100,000 or triple the monetary gain to the person for each violation; or 

(B) in any case of manipulation of, or an attempt to manipulate, the price of any commodity, a civil penalty in the 

amount of not more than the greater of $1,000,000 or triple 

the monetary gain to the person for each violation. 

(2) If a person on whom such a penalty is imposed fails to 

pay the penalty within the time prescribed in the court’s order, 

the Commission may refer the matter to the Attorney General 

who shall recover the penalty by action in the appropriate 

United States district court. * * * 

* * * * * * * 

SEC. 9 * * * 

(a) It shall be a felony punishable by a fine of not more than 

$1,000,000 ø(or $500,000 in the case of a person who is an individual)¿ or imprisonment for not more than øfive years¿ 10 years, 

or both, together with the costs of prosecution, for: * * * 

ø(f)¿ (e) It shall be a felony for any person— 

(1) who is an employee, member of the governing board, or 

member of any committee of a board of trade, registered entity, 

or registered futures association, in violation of a regulation 

issued by the Commission, willfully and knowingly to trade for 

such person’s own account, or for or on behalf of any other account, in contracts for future delivery or options thereon on the 

basis of, or willfully and knowingly to disclose for any purpose 

22 

inconsistent with the performance of such person’s official duties as an employee or member, any material nonpublic information obtained through special access related to the performance of such dutiesø.¿; or 

* * * * * * * 

(f) COMMISSION ADMINISTRATIVE AND CIVIL AUTHORITY.—The 

Commission may bring an administrative or civil action under this 

Act for an alleged violation of any provision of this section. * * * 

* * * * * * * 

SEC. 12 * * * 

(d) There are authorized to be appropriated such sums as are 

necessary to carry out this Act for each of fiscal years 1995 through 

ø2005¿ 2010.* * * 

Æ