I

106TH CONGRESS

2D SESSION H. R. 5660

To reauthorize and amend the Commodity Exchange Act to promote legal

certainty, enhance competition, and reduce systemic risk in markets

for futures and over-the-counter derivatives, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

DECEMBER 14, 2000

Mr. EWING (for himself, Mr. COMBEST, Mr. LEACH, Mr. LAFALCE, and Mr.

BLILEY) introduced the following bill; which was referred to the Committee on Agriculture, and in addition to the Committees on Banking and

Financial Services, Commerce, and the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of

such provisions as fall within the jurisdiction of the committee concerned

A BILL

To reauthorize and amend the Commodity Exchange Act

to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and over-thecounter derivatives, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Commodity Futures Modernization Act of 2000’’.
2

•HR 5660 IH

1 (b) TABLE OF CONTENTS.—The table of contents of

2 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Purposes.

TITLE I—COMMODITY FUTURES MODERNIZATION

Sec. 101. Definitions.

Sec. 102. Agreements, contracts, and transactions in foreign currency, government securities, and certain other commodities.

Sec. 103. Legal certainty for excluded derivative transactions.

Sec. 104. Excluded electronic trading facilities.

Sec. 105. Hybrid instruments; swap transactions.

Sec. 106. Transactions in exempt commodities.

Sec. 107. Application of commodity futures laws.

Sec. 108. Protection of the public interest.

Sec. 109. Prohibited transactions.

Sec. 110. Designation of boards of trade as contract markets.

Sec. 111. Derivatives transaction execution facilities.

Sec. 112. Derivatives clearing.

Sec. 113. Common provisions applicable to registered entities.

Sec. 114. Exempt boards of trade.

Sec. 115. Suspension or revocation of designation as contract market.

Sec. 116. Authorization of appropriations.

Sec. 117. Preemption.

Sec. 118. Predispute resolution agreements for institutional customers.

Sec. 119. Consideration of costs and benefits and antitrust laws.

Sec. 120. Contract enforcement between eligible counterparties.

Sec. 121. Special procedures to encourage and facilitate bona fide hedging by

agricultural producers.

Sec. 122. Rule of construction.

Sec. 123. Technical and conforming amendments.

Sec. 124. Privacy.

Sec. 125. Report to Congress.

Sec. 126. International activities of the Commodity Futures Trading Commission.

TITLE II—COORDINATED REGULATION OF SECURITY FUTURES

PRODUCTS

Subtitle A—Securities Law Amendments

Sec. 201. Definitions under the Securities Exchange Act of 1934.

Sec. 202. Regulatory relief for markets trading security futures products.

Sec. 203. Regulatory relief for intermediaries trading security futures products.

Sec. 204. Special provisions for interagency cooperation.

Sec. 205. Maintenance of market integrity for security futures products.

Sec. 206. Special provisions for the trading of security futures products.

Sec. 207. Clearance and settlement.

Sec. 208. Amendments relating to registration and disclosure issues under the

Securities Act of 1933 and the Securities Exchange Act of

1934.

Sec. 209. Amendments to the Investment Company Act of 1940 and the Investment Advisers Act of 1940.
3

•HR 5660 IH

Sec. 210. Preemption of State laws.

Subtitle B—Amendments to the Commodity Exchange Act

Sec. 251. Jurisdiction of Securities and Exchange Commission; other provisions.

Sec. 252. Application of the Commodity Exchange Act to national securities exchanges and national securities associations that trade security

futures.

Sec. 253. Notification of investigations and enforcement actions.

TITLE III—LEGAL CERTAINTY FOR SWAP AGREEMENTS

Sec. 301. Swap agreement.

Sec. 302. Amendments to the Securities Act of 1933.

Sec. 303. Amendments to the Securities Exchange Act of 1934.

Sec. 304. Savings provision.

TITLE IV—REGULATORY RESPONSIBILITY FOR BANK PRODUCTS

Sec. 401. Short title.

Sec. 402. Definitions.

Sec. 403. Exclusion of identified banking products commonly offered on or before December 5, 2000.

Sec. 404. Exclusion of certain identified banking products offered by banks

after December 5, 2000.

Sec. 405. Exclusion of certain other identified banking products.

Sec. 406. Administration of the predominance test.

Sec. 407. Exclusion of covered swap agreements.

Sec. 408. Contract enforcement.

1 SEC. 2. PURPOSES.

2 The purposes of this Act are—

3 (1) to reauthorize the appropriation for the

4 Commodity Futures Trading Commission;

5 (2) to streamline and eliminate unnecessary

6 regulation for the commodity futures exchanges and

7 other entities regulated under the Commodity Ex8 change Act;

9 (3) to transform the role of the Commodity Fu10 tures Trading Commission to oversight of the fu11 tures markets;
4

•HR 5660 IH

1 (4) to provide a statutory and regulatory frame2 work for allowing the trading of futures on securi3 ties;

4 (5) to clarify the jurisdiction of the Commodity

5 Futures Trading Commission over certain retail for6 eign exchange transactions and bucket shops that

7 may not be otherwise regulated;

8 (6) to promote innovation for futures and de9 rivatives and to reduce systemic risk by enhancing

10 legal certainty in the markets for certain futures and

11 derivatives transactions;

12 (7) to reduce systemic risk and provide greater

13 stability to markets during times of market disorder

14 by allowing the clearing of transactions in over-the15 counter derivatives through appropriately regulated

16 clearing organizations; and

17 (8) to enhance the competitive position of

18 United States financial institutions and financial

19 markets.

20 TITLE I—COMMODITY FUTURES

21 MODERNIZATION

22 SEC. 101. DEFINITIONS.

23 Section 1a of the Commodity Exchange Act (7 U.S.C.

24 1a) is amended—
5

•HR 5660 IH

1 (1) by redesignating paragraphs (1) through

2 (7), (8) through (12), (13) through (15), and (16)

3 as paragraphs (2) through (8), (16) through (20),

4 (22) through (24), and (28), respectively;

5 (2) by inserting before paragraph (2) (as redes6 ignated by paragraph (1)) the following:

7 ‘‘(1) ALTERNATIVE TRADING SYSTEM.—The

8 term ‘alternative trading system’ means an organiza9 tion, association, or group of persons that—

10 ‘‘(A) is registered as a broker or dealer

11 pursuant to section 15(b) of the Securities Ex12 change Act of 1934 (except paragraph (11)

13 thereof );

14 ‘‘(B) performs the functions commonly

15 performed by an exchange (as defined in section

16 3(a)(1) of the Securities Exchange Act of

17 1934);

18 ‘‘(C) does not—

19 ‘‘(i) set rules governing the conduct of

20 subscribers other than the conduct of such

21 subscribers’ trading on the alternative

22 trading system; or

23 ‘‘(ii) discipline subscribers other than

24 by exclusion from trading; and
6

•HR 5660 IH

1 ‘‘(D) is exempt from the definition of the

2 term ‘exchange’ under such section 3(a)(1) by

3 rule or regulation of the Securities and Ex4 change Commission on terms that require com5 pliance with regulations of its trading func6 tions.’’;

7 (3) by striking paragraph (2) (as redesignated

8 by paragraph (1)) and inserting the following:

9 ‘‘(2) BOARD OF TRADE.—The term ‘board of

10 trade’ means any organized exchange or other trad11 ing facility.’’;

12 (4) by inserting after paragraph (8) (as redesig13 nated by paragraph (1)) the following:

14 ‘‘(9) DERIVATIVES CLEARING ORGANIZATION.—

15 ‘‘(A) IN GENERAL.—The term ‘derivatives

16 clearing organization’ means a clearinghouse,

17 clearing association, clearing corporation, or

18 similar entity, facility, system, or organization

19 that, with respect to an agreement, contract, or

20 transaction—

21 ‘‘(i) enables each party to the agree22 ment, contract, or transaction to sub23 stitute, through novation or otherwise, the

24 credit of the derivatives clearing organiza25 tion for the credit of the parties;
7

•HR 5660 IH

1 ‘‘(ii) arranges or provides, on a multi2 lateral basis, for the settlement or netting

3 of obligations resulting from such agree4 ments, contracts, or transactions executed

5 by participants in the derivatives clearing

6 organization; or

7 ‘‘(iii) otherwise provides clearing serv8 ices or arrangements that mutualize or

9 transfer among participants in the deriva10 tives clearing organization the credit risk

11 arising from such agreements, contracts,

12 or transactions executed by the partici13 pants.

14 ‘‘(B) EXCLUSIONS.—The term ‘derivatives

15 clearing organization’ does not include an enti16 ty, facility, system, or organization solely be17 cause it arranges or provides for—

18 ‘‘(i) settlement, netting, or novation of

19 obligations resulting from agreements, con20 tracts, or transactions, on a bilateral basis

21 and without a central counterparty;

22 ‘‘(ii) settlement or netting of cash

23 payments through an interbank payment

24 system; or
8

•HR 5660 IH

1 ‘‘(iii) settlement, netting, or novation

2 of obligations resulting from a sale of a

3 commodity in a transaction in the spot

4 market for the commodity.

5 ‘‘(10) ELECTRONIC TRADING FACILITY.—The

6 term ‘electronic trading facility’ means a trading fa7 cility that—

8 ‘‘(A) operates by means of an electronic or

9 telecommunications network; and

10 ‘‘(B) maintains an automated audit trail of

11 bids, offers, and the matching of orders or the

12 execution of transactions on the facility.

13 ‘‘(11) ELIGIBLE COMMERCIAL ENTITY.—The

14 term ‘eligible commercial entity’ means, with respect

15 to an agreement, contract or transaction in a

16 commodity—

17 ‘‘(A) an eligible contract participant de18 scribed in clause (i), (ii), (v), (vii), (viii), or (ix)

19 of paragraph (12)(A) that, in connection with

20 its business—

21 ‘‘(i) has a demonstrable ability, di22 rectly or through separate contractual ar23 rangements, to make or take delivery of

24 the underlying commodity;
9

•HR 5660 IH

1 ‘‘(ii) incurs risks, in addition to price

2 risk, related to the commodity; or

3 ‘‘(iii) is a dealer that regularly pro4 vides risk management or hedging services

5 to, or engages in market-making activities

6 with, the foregoing entities involving trans7 actions to purchase or sell the commodity

8 or derivative agreements, contracts, or

9 transactions in the commodity;

10 ‘‘(B) an eligible contract participant, other

11 than a natural person or an instrumentality, de12 partment, or agency of a State or local govern13 mental entity, that—

14 ‘‘(i) regularly enters into transactions

15 to purchase or sell the commodity or deriv16 ative agreements, contracts, or trans17 actions in the commodity; and

18 ‘‘(ii) either—

19 ‘‘(I) in the case of a collective in20 vestment vehicle whose participants

21 include persons other than—

22 ‘‘(aa) qualified eligible per23 sons, as defined in Commission

24 rule 4.7(a) (17 CFR 4.7(a));
10

•HR 5660 IH

1 ‘‘(bb) accredited investors,

2 as defined in Regulation D of the

3 Securities and Exchange Com4 mission under the Securities Act

5 of 1933 (17 CFR 230.501(a)),

6 with total assets of $2,000,000;

7 or

8 ‘‘(cc) qualified purchasers,

9 as defined in section 2(a)(51)(A)

10 of the Investment Company Act

11 of 1940;

12 in each case as in effect on the date

13 of the enactment of the Commodity

14 Futures Modernization Act of 2000,

15 has, or is one of a group of vehicles

16 under common control or management

17 having in the aggregate,

18 $1,000,000,000 in total assets; or

19 ‘‘(II) in the case of other per20 sons, has, or is one of a group of per21 sons under common control or man22 agement having in the aggregate,

23 $100,000,000 in total assets; or
11

•HR 5660 IH

1 ‘‘(C) such other persons as the Commis2 sion shall determine appropriate and shall des3 ignate by rule, regulation, or order.

4 ‘‘(12) ELIGIBLE CONTRACT PARTICIPANT.—The

5 term ‘eligible contract participant’ means—

6 ‘‘(A) acting for its own account—

7 ‘‘(i) a financial institution;

8 ‘‘(ii) an insurance company that is

9 regulated by a State, or that is regulated

10 by a foreign government and is subject to

11 comparable regulation as determined by

12 the Commission, including a regulated sub13 sidiary or affiliate of such an insurance

14 company;

15 ‘‘(iii) an investment company subject

16 to regulation under the Investment Com17 pany Act of 1940 (15 U.S.C. 80a–1 et

18 seq.) or a foreign person performing a

19 similar role or function subject as such to

20 foreign regulation (regardless of whether

21 each investor in the investment company or

22 the foreign person is itself an eligible con23 tract participant);

24 ‘‘(iv) a commodity pool that—
12

•HR 5660 IH

1 ‘‘(I) has total assets exceeding

2 $5,000,000; and

3 ‘‘(II) is formed and operated by a

4 person subject to regulation under

5 this Act or a foreign person per6 forming a similar role or function sub7 ject as such to foreign regulation (re8 gardless of whether each investor in

9 the commodity pool or the foreign per10 son is itself an eligible contract partic11 ipant);

12 ‘‘(v) a corporation, partnership, pro13 prietorship, organization, trust, or other

14 entity—

15 ‘‘(I) that has total assets exceed16 ing $10,000,000;

17 ‘‘(II) the obligations of which

18 under an agreement, contract, or

19 transaction are guaranteed or other20 wise supported by a letter of credit or

21 keepwell, support, or other agreement

22 by an entity described in subclause

23 (I), in clause (i), (ii), (iii), (iv), or

24 (vii), or in subparagraph (C); or

25 ‘‘(III) that—
13

•HR 5660 IH

1 ‘‘(aa) has a net worth ex2 ceeding $1,000,000; and

3 ‘‘(bb) enters into an agree4 ment, contract, or transaction in

5 connection with the conduct of

6 the entity’s business or to man7 age the risk associated with an

8 asset or liability owned or in9 curred or reasonably likely to be

10 owned or incurred by the entity

11 in the conduct of the entity’s

12 business;

13 ‘‘(vi) an employee benefit plan subject

14 to the Employee Retirement Income Secu15 rity Act of 1974 (29 U.S.C. 1001 et seq.),

16 a governmental employee benefit plan, or a

17 foreign person performing a similar role or

18 function subject as such to foreign

19 regulation—

20 ‘‘(I) that has total assets exceed21 ing $5,000,000; or

22 ‘‘(II) the investment decisions of

23 which are made by—

24 ‘‘(aa) an investment adviser

25 or commodity trading advisor
14

•HR 5660 IH

1 subject to regulation under the

2 Investment Advisers Act of 1940

3 (15 U.S.C. 80b–1 et seq.) or this

4 Act;

5 ‘‘(bb) a foreign person per6 forming a similar role or function

7 subject as such to foreign regula8 tion;

9 ‘‘(cc) a financial institution;

10 or

11 ‘‘(dd) an insurance company

12 described in clause (ii), or a reg13 ulated subsidiary or affiliate of

14 such an insurance company;

15 ‘‘(vii)(I) a governmental entity (in16 cluding the United States, a State, or a

17 foreign government) or political subdivision

18 of a governmental entity;

19 ‘‘(II) a multinational or supranational

20 government entity; or

21 ‘‘(III) an instrumentality, agency, or

22 department of an entity described in sub23 clause (I) or (II);

24 except that such term does not include an

25 entity, instrumentality, agency, or depart-
15

•HR 5660 IH

1 ment referred to in subclause (I) or (III)

2 of this clause unless (aa) the entity, instru3 mentality, agency, or department is a per4 son described in clause (i), (ii), or (iii) of

5 section 1a(11)(A); (bb) the entity, instru6 mentality, agency, or department owns and

7 invests on a discretionary basis

8 $25,000,000 or more in investments; or

9 (cc) the agreement, contract, or trans10 action is offered by, and entered into with,

11 an entity that is listed in any of subclauses

12 (I) through (VI) of section 2(c)(2)(B)(ii);

13 ‘‘(viii)(I) a broker or dealer subject to

14 regulation under the Securities Exchange

15 Act of 1934 (15 U.S.C. 78a et seq.) or a

16 foreign person performing a similar role or

17 function subject as such to foreign regula18 tion, except that, if the broker or dealer or

19 foreign person is a natural person or pro20 prietorship, the broker or dealer or foreign

21 person shall not be considered to be an eli22 gible contract participant unless the broker

23 or dealer or foreign person also meets the

24 requirements of clause (v) or (xi);
16

•HR 5660 IH

1 ‘‘(II) an associated person of a reg2 istered broker or dealer concerning the fi3 nancial or securities activities of which the

4 registered person makes and keeps records

5 under section 15C(b) or 17(h) of the Secu6 rities Exchange Act of 1934 (15 U.S.C.

7 78o–5(b), 78q(h));

8 ‘‘(III) an investment bank holding

9 company (as defined in section 17(i) of the

10 Securities Exchange Act of 1934 (15

11 U.S.C. 78q(i));

12 ‘‘(ix) a futures commission merchant

13 subject to regulation under this Act or a

14 foreign person performing a similar role or

15 function subject as such to foreign regula16 tion, except that, if the futures commission

17 merchant or foreign person is a natural

18 person or proprietorship, the futures com19 mission merchant or foreign person shall

20 not be considered to be an eligible contract

21 participant unless the futures commission

22 merchant or foreign person also meets the

23 requirements of clause (v) or (xi);

24 ‘‘(x) a floor broker or floor trader sub25 ject to regulation under this Act in connec-
17

•HR 5660 IH

1 tion with any transaction that takes place

2 on or through the facilities of a registered

3 entity or an exempt board of trade, or any

4 affiliate thereof, on which such person reg5 ularly trades; or

6 ‘‘(xi) an individual who has total as7 sets in an amount in excess of—

8 ‘‘(I) $10,000,000; or

9 ‘‘(II) $5,000,000 and who enters

10 into the agreement, contract, or trans11 action in order to manage the risk as12 sociated with an asset owned or liabil13 ity incurred, or reasonably likely to be

14 owned or incurred, by the individual;

15 ‘‘(B)(i) a person described in clause (i),

16 (ii), (iv), (v), (viii), (ix), or (x) of subparagraph

17 (A) or in subparagraph (C), acting as broker or

18 performing an equivalent agency function on

19 behalf of another person described in subpara20 graph (A) or (C); or

21 ‘‘(ii) an investment adviser subject to regu22 lation under the Investment Advisers Act of

23 1940, a commodity trading advisor subject to

24 regulation under this Act, a foreign person per25 forming a similar role or function subject as
18

•HR 5660 IH

1 such to foreign regulation, or a person de2 scribed in clause (i), (ii), (iv), (v), (viii), (ix), or

3 (x) of subparagraph (A) or in subparagraph

4 (C), in any such case acting as investment man5 ager or fiduciary (but excluding a person acting

6 as broker or performing an equivalent agency

7 function) for another person described in sub8 paragraph (A) or (C) and who is authorized by

9 such person to commit such person to the

10 transaction; or

11 ‘‘(C) any other person that the Commis12 sion determines to be eligible in light of the fi13 nancial or other qualifications of the person.

14 ‘‘(13) EXCLUDED COMMODITY.—The term ‘ex15 cluded commodity’ means—

16 ‘‘(i) an interest rate, exchange rate,

17 currency, security, security index, credit

18 risk or measure, debt or equity instrument,

19 index or measure of inflation, or other

20 macroeconomic index or measure;

21 ‘‘(ii) any other rate, differential,

22 index, or measure of economic or commer23 cial risk, return, or value that is—

24 ‘‘(I) not based in substantial part

25 on the value of a narrow group of
19

•HR 5660 IH

1 commodities not described in clause

2 (i); or

3 ‘‘(II) based solely on one or more

4 commodities that have no cash mar5 ket;

6 ‘‘(iii) any economic or commercial

7 index based on prices, rates, values, or lev8 els that are not within the control of any

9 party to the relevant contract, agreement,

10 or transaction; or

11 ‘‘(iv) an occurrence, extent of an oc12 currence, or contingency (other than a

13 change in the price, rate, value, or level of

14 a commodity not described in clause (i))

15 that is—

16 ‘‘(I) beyond the control of the

17 parties to the relevant contract, agree18 ment, or transaction; and

19 ‘‘(II) associated with a financial,

20 commercial, or economic consequence.

21 ‘‘(14) EXEMPT COMMODITY.—The term ‘exempt

22 commodity’ means a commodity that is not an ex23 cluded commodity or an agricultural commodity.

24 ‘‘(15) FINANCIAL INSTITUTION.—The term ‘fi25 nancial institution’ means—
20

•HR 5660 IH

1 ‘‘(A) a corporation operating under the

2 fifth undesignated paragraph of section 25 of

3 the Federal Reserve Act (12 U.S.C. 603), com4 monly known as ‘an agreement corporation’;

5 ‘‘(B) a corporation organized under section

6 25A of the Federal Reserve Act (12 U.S.C. 611

7 et seq.), commonly known as an ‘Edge Act cor8 poration’;

9 ‘‘(C) an institution that is regulated by the

10 Farm Credit Administration;

11 ‘‘(D) a Federal credit union or State credit

12 union (as defined in section 101 of the Federal

13 Credit Union Act (12 U.S.C. 1752));

14 ‘‘(E) a depository institution (as defined in

15 section 3 of the Federal Deposit Insurance Act

16 (12 U.S.C. 1813));

17 ‘‘(F) a foreign bank or a branch or agency

18 of a foreign bank (each as defined in section

19 1(b) of the International Banking Act of 1978

20 (12 U.S.C. 3101(b)));

21 ‘‘(G) any financial holding company (as de22 fined in section 2 of the Bank Holding Com23 pany Act of 1956);

24 ‘‘(H) a trust company; or
21

•HR 5660 IH

1 ‘‘(I) a similarly regulated subsidiary or af2 filiate of an entity described in any of subpara3 graphs (A) through (H).’’;

4 (5) by inserting after paragraph (20) (as redes5 ignated by paragraph (1)) the following:

6 ‘‘(21) HYBRID INSTRUMENT.—The term ‘hybrid

7 instrument’ means a security having one or more

8 payments indexed to the value, level, or rate of, or

9 providing for the delivery of, one or more commod10 ities.’’;

11 (6) by striking paragraph (24) (as redesignated

12 by paragraph (1)) and inserting the following:

13 ‘‘(24) MEMBER OF A CONTRACT MARKET; MEM14 BER OF A DERIVATIVES TRANSACTION EXECUTION

15 FACILITY.—The term ‘member’ means, with respect

16 to a contract market or derivatives transaction exe17 cution facility, an individual, association, partner18 ship, corporation, or trust—

19 ‘‘(A) owning or holding membership in, or

20 admitted to membership representation on, the

21 contract market or derivatives transaction exe22 cution facility; or

23 ‘‘(B) having trading privileges on the con24 tract market or derivatives transaction execu25 tion facility.
22

•HR 5660 IH

1 ‘‘(25) NARROW-BASED SECURITY INDEX.—

2 ‘‘(A) The term ‘narrow-based security

3 index’ means an index—

4 ‘‘(i) that has 9 or fewer component se5 curities;

6 ‘‘(ii) in which a component security

7 comprises more than 30 percent of the

8 index’s weighting;

9 ‘‘(iii) in which the five highest weight10 ed component securities in the aggregate

11 comprise more than 60 percent of the

12 index’s weighting; or

13 ‘‘(iv) in which the lowest weighted

14 component securities comprising, in the ag15 gregate, 25 percent of the index’s

16 weighting have an aggregate dollar value

17 of average daily trading volume of less

18 than $50,000,000 (or in the case of an

19 index with 15 or more component securi20 ties, $30,000,000), except that if there are

21 two or more securities with equal

22 weighting that could be included in the cal23 culation of the lowest weighted component

24 securities comprising, in the aggregate, 25

25 percent of the index’s weighting, such se-
23

•HR 5660 IH

1 curities shall be ranked from lowest to

2 highest dollar value of average daily trad3 ing volume and shall be included in the

4 calculation based on their ranking starting

5 with the lowest ranked security.

6 ‘‘(B) Notwithstanding subparagraph (A),

7 an index is not a narrow-based security index

8 if—

9 ‘‘(i)(I) it has at least 9 component se10 curities;

11 ‘‘(II) no component security comprises

12 more than 30 percent of the index’s

13 weighting; and

14 ‘‘(III) each component security is—

15 ‘‘(aa) registered pursuant to sec16 tion 12 of the Securities Exchange

17 Act of 1934;

18 ‘‘(bb) one of 750 securities with

19 the largest market capitalization; and

20 ‘‘(cc) one of 675 securities with

21 the largest dollar value of average

22 daily trading volume;

23 ‘‘(ii) a board of trade was designated

24 as a contract market by the Commodity

25 Futures Trading Commission with respect
24

•HR 5660 IH

1 to a contract of sale for future delivery on

2 the index, before the date of the enactment

3 of the Commodity Futures Modernization

4 Act of 2000;

5 ‘‘(iii)(I) a contract of sale for future

6 delivery on the index traded on a des7 ignated contract market or registered de8 rivatives transaction execution facility for

9 at least 30 days as a contract of sale for

10 future delivery on an index that was not a

11 narrow-based security index; and

12 ‘‘(II) it has been a narrow-based secu13 rity index for no more than 45 business

14 days over 3 consecutive calendar months;

15 ‘‘(iv) a contract of sale for future de16 livery on the index is traded on or subject

17 to the rules of a foreign board of trade and

18 meets such requirements as are jointly es19 tablished by rule or regulation by the Com20 mission and the Securities and Exchange

21 Commission;

22 ‘‘(v) no more than 18 months have

23 passed since the date of the enactment of

24 the Commodity Futures Modernization Act

25 of 2000 and—
25

•HR 5660 IH

1 ‘‘(I) it is traded on or subject to

2 the rules of a foreign board of trade;

3 ‘‘(II) the offer and sale in the

4 United States of a contract of sale for

5 future delivery on the index was au6 thorized before the date of the enact7 ment of the Commodity Futures Mod8 ernization Act of 2000; and

9 ‘‘(III) the conditions of such au10 thorization continue to be met; or

11 ‘‘(vi) a contract of sale for future de12 livery on the index is traded on or subject

13 to the rules of a board of trade and meets

14 such requirements as are jointly estab15 lished by rule, regulation, or order by the

16 Commission and the Securities and Ex17 change Commission.

18 ‘‘(C) Within 1 year after the date of the

19 enactment of the Commodity Futures Mod20 ernization Act of 2000, the Commission and the

21 Securities and Exchange Commission jointly

22 shall adopt rules or regulations that set forth

23 the requirements under subparagraph (B)(iv).

24 ‘‘(D) An index that is a narrow-based se25 curity index solely because it was a narrow-
26

•HR 5660 IH

1 based security index for more than 45 business

2 days over 3 consecutive calendar months pursu3 ant to clause (iii) of subparagraph (B) shall not

4 be a narrow-based security index for the 3 fol5 lowing calendar months.

6 ‘‘(E) For purposes of subparagraphs (A)

7 and (B)—

8 ‘‘(i) the dollar value of average daily

9 trading volume and the market capitaliza10 tion shall be calculated as of the preceding

11 6 full calendar months; and

12 ‘‘(ii) the Commission and the Securi13 ties and Exchange Commission shall, by

14 rule or regulation, jointly specify the meth15 od to be used to determine market capital16 ization and dollar value of average daily

17 trading volume.

18 ‘‘(26) OPTION.—The term ‘option’ means an

19 agreement, contract, or transaction that is of the

20 character of, or is commonly known to the trade as,

21 an ‘option’, ‘privilege’, ‘indemnity’, ‘bid’, ‘offer’,

22 ‘put’, ‘call’, ‘advance guaranty’, or ‘decline guar23 anty’.

24 ‘‘(27) ORGANIZED EXCHANGE.—The term ‘or25 ganized exchange’ means a trading facility that—
27

•HR 5660 IH

1 ‘‘(A) permits trading—

2 ‘‘(i) by or on behalf of a person that

3 is not an eligible contract participant; or

4 ‘‘(ii) by persons other than on a prin5 cipal-to-principal basis; or

6 ‘‘(B) has adopted (directly or through an7 other nongovernmental entity) rules that—

8 ‘‘(i) govern the conduct of partici9 pants, other than rules that govern the

10 submission of orders or execution of trans11 actions on the trading facility; and

12 ‘‘(ii) include disciplinary sanctions

13 other than the exclusion of participants

14 from trading.’’; and

15 (7) by adding at the end the following:

16 ‘‘(29) REGISTERED ENTITY.—The term ‘reg17 istered entity’ means—

18 ‘‘(A) a board of trade designated as a con19 tract market under section 5;

20 ‘‘(B) a derivatives transaction execution fa21 cility registered under section 5a;

22 ‘‘(C) a derivatives clearing organization

23 registered under section 5b; and

24 ‘‘(D) a board of trade designated as a con25 tract market under section 5f.
28

•HR 5660 IH

1 ‘‘(30) SECURITY.—The term ‘security’ means a

2 security as defined in section 2(a)(1) of the Securi3 ties Act of 1933 (15 U.S.C. 77b(a)(1)) or section

4 3(a)(10) of the Securities Exchange Act of 1934 (15

5 U.S.C. 78c(a)(10)).

6 ‘‘(31) SECURITY FUTURE.—The term ‘security

7 future’ means a contract of sale for future delivery

8 of a single security or of a narrow-based security

9 index, including any interest therein or based on the

10 value thereof, except an exempted security under

11 section 3(a)(12) of the Securities Exchange Act of

12 1934 as in effect on the date of the enactment of

13 the Futures Trading Act of 1982 (other than any

14 municipal security as defined in section 3(a)(29) of

15 the Securities Exchange Act of 1934 as in effect on

16 the date of the enactment of the Futures Trading

17 Act of 1982). The term ‘security future’ does not in18 clude any agreement, contract, or transaction ex19 cluded from this Act under section 2(c), 2(d), 2(f ),

20 or 2(g) of this Act (as in effect on the date of the

21 enactment of the Commodity Futures Modernization

22 Act of 2000) or title IV of the Commodity Futures

23 Modernization Act of 2000.

24 ‘‘(32) SECURITY FUTURES PRODUCT.—The

25 term ‘security futures product’ means a security fu-
29

•HR 5660 IH

1 ture or any put, call, straddle, option, or privilege on

2 any security future.

3 ‘‘(33) TRADING FACILITY.—

4 ‘‘(A) IN GENERAL.—The term ‘trading fa5 cility’ means a person or group of persons that

6 constitutes, maintains, or provides a physical or

7 electronic facility or system in which multiple

8 participants have the ability to execute or trade

9 agreements, contracts, or transactions by ac10 cepting bids and offers made by other partici11 pants that are open to multiple participants in

12 the facility or system.

13 ‘‘(B) EXCLUSIONS.—The term ‘trading fa14 cility’ does not include—

15 ‘‘(i) a person or group of persons sole16 ly because the person or group of persons

17 constitutes, maintains, or provides an elec18 tronic facility or system that enables par19 ticipants to negotiate the terms of and

20 enter into bilateral transactions as a result

21 of communications exchanged by the par22 ties and not from interaction of multiple

23 bids and multiple offers within a predeter24 mined, nondiscretionary automated trade

25 matching and execution algorithm;
30

•HR 5660 IH

1 ‘‘(ii) a government securities dealer or

2 government securities broker, to the extent

3 that the dealer or broker executes or

4 trades agreements, contracts, or trans5 actions in government securities, or assists

6 persons in communicating about, negoti7 ating, entering into, executing, or trading

8 an agreement, contract, or transaction in

9 government securities (as the terms ‘gov10 ernment securities dealer’, ‘government se11 curities broker’, and ‘government securi12 ties’ are defined in section 3(a) of the Se13 curities Exchange Act of 1934 (15 U.S.C.

14 78c(a))); or

15 ‘‘(iii) facilities on which bids and of16 fers, and acceptances of bids and offers ef17 fected on the facility, are not binding.

18 Any person, group of persons, dealer, broker, or

19 facility described in clause (i) or (ii) is excluded

20 from the meaning of the term ‘trading facility’

21 for the purposes of this Act without any prior

22 specific approval, certification, or other action

23 by the Commission.

24 ‘‘(C) SPECIAL RULE.—A person or group

25 of persons that would not otherwise constitute
31

•HR 5660 IH

1 a trading facility shall not be considered to be

2 a trading facility solely as a result of the sub3 mission to a derivatives clearing organization of

4 transactions executed on or through the person

5 or group of persons.’’.

6 SEC. 102. AGREEMENTS, CONTRACTS, AND TRANSACTIONS

7 IN FOREIGN CURRENCY, GOVERNMENT SECU8 RITIES, AND CERTAIN OTHER COMMODITIES.

9 Section 2 of the Commodity Exchange Act (7 U.S.C.

10 2, 2a, 3, 4, 4a) is amended by adding at the end the fol11 lowing:

12 ‘‘(c) AGREEMENTS, CONTRACTS, AND TRANSACTIONS

13 IN FOREIGN CURRENCY, GOVERNMENT SECURITIES, AND

14 CERTAIN OTHER COMMODITIES.—

15 ‘‘(1) IN GENERAL.—Except as provided in para16 graph (2), nothing in this Act (other than section 5a

17 (to the extent provided in section 5a(g)), 5b, 5d, or

18 12(e)(2)(B)) governs or applies to an agreement,

19 contract, or transaction in—

20 ‘‘(A) foreign currency;

21 ‘‘(B) government securities;

22 ‘‘(C) security warrants;

23 ‘‘(D) security rights;

24 ‘‘(E) resales of installment loan contracts;
32

•HR 5660 IH

1 ‘‘(F) repurchase transactions in an ex2 cluded commodity; or

3 ‘‘(G) mortgages or mortgage purchase

4 commitments.

5 ‘‘(2) COMMISSION JURISDICTION.—

6 ‘‘(A) AGREEMENTS, CONTRACTS, AND

7 TRANSACTIONS TRADED ON AN ORGANIZED EX8 CHANGE.—This Act applies to, and the Com9 mission shall have jurisdiction over, an agree10 ment, contract, or transaction described in

11 paragraph (1) that is—

12 ‘‘(i) a contract of sale of a commodity

13 for future delivery (or an option on such a

14 contract), or an option on a commodity

15 (other than foreign currency or a security

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

17 executed or traded on an organized ex18 change; or

19 ‘‘(ii) an option on foreign currency ex20 ecuted or traded on an organized exchange

21 that is not a national securities exchange

22 registered pursuant to section 6(a) of the

23 Securities Exchange Act of 1934.

24 ‘‘(B) AGREEMENTS, CONTRACTS, AND

25 TRANSACTIONS IN RETAIL FOREIGN CUR-
33

•HR 5660 IH

1 RENCY.—This Act applies to, and the Commis2 sion shall have jurisdiction over, an agreement,

3 contract, or transaction in foreign currency

4 that—

5 ‘‘(i) is a contract of sale of a com6 modity for future delivery (or an option on

7 such a contract) or an option (other than

8 an option executed or traded on a national

9 securities exchange registered pursuant to

10 section 6(a) of the Securities Exchange Act

11 of 1934); and

12 ‘‘(ii) is offered to, or entered into

13 with, a person that is not an eligible con14 tract participant, unless the counterparty,

15 or the person offering to be the

16 counterparty, of the person is—

17 ‘‘(I) a financial institution;

18 ‘‘(II) a broker or dealer reg19 istered under section 15(b) or 15C of

20 the Securities Exchange Act of 1934

21 (15 U.S.C. 78o(b), 78o–5) or a fu22 tures commission merchant registered

23 under this Act;

24 ‘‘(III) an associated person of a

25 broker or dealer registered under sec-
34

•HR 5660 IH

1 tion 15(b) or 15C of the Securities

2 Exchange Act of 1934 (15 U.S.C.

3 78o(b), 78o–5), or an affiliated person

4 of a futures commission merchant

5 registered under this Act, concerning

6 the financial or securities activities of

7 which the registered person makes

8 and keeps records under section

9 15C(b) or 17(h) of the Securities Ex10 change Act of 1934 (15 U.S.C. 78o–

11 5(b), 78q(h)) or section 4f(c)(2)(B) of

12 this Act;

13 ‘‘(IV) an insurance company de14 scribed in section 1a(12)(A)(ii) of this

15 Act, or a regulated subsidiary or affil16 iate of such an insurance company;

17 ‘‘(V) a financial holding company

18 (as defined in section 2 of the Bank

19 Holding Company Act of 1956); or

20 ‘‘(VI) an investment bank hold21 ing company (as defined in section

22 17(i) of the Securities Exchange Act

23 of 1934).

24 ‘‘(C) Notwithstanding subclauses (II) and

25 (III) of subparagraph (B)(ii), agreements, con-
35

•HR 5660 IH

1 tracts, or transactions described in subpara2 graph (B) shall be subject to sections 4b, 4c(b),

3 6(c) and 6(d) (to the extent that sections 6(c)

4 and 6(d) prohibit manipulation of the market

5 price of any commodity, in interstate commerce,

6 or for future delivery on or subject to the rules

7 of any market), 6c, 6d, and 8(a) if they are en8 tered into by a futures commission merchant or

9 an affiliate of a futures commission merchant

10 that is not also an entity described in subpara11 graph (B)(ii) of this paragraph.’’.

12 SEC. 103. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE

13 TRANSACTIONS.

14 Section 2 of the Commodity Exchange Act (7 U.S.C.

15 2, 2a, 3, 4, 4a) is further amended by adding at the end

16 the following:

17 ‘‘(d) EXCLUDED DERIVATIVE TRANSACTIONS.—

18 ‘‘(1) IN GENERAL.—Nothing in this Act (other

19 than section 5b or 12(e)(2)(B) governs or applies to

20 an agreement, contract, or transaction in an ex21 cluded commodity if—

22 ‘‘(A) the agreement, contract, or trans23 action is entered into only between persons that

24 are eligible contract participants at the time at
36

•HR 5660 IH

1 which the persons enter into the agreement,

2 contract, or transaction; and

3 ‘‘(B) the agreement, contract, or trans4 action is not executed or traded on a trading fa5 cility.

6 ‘‘(2) ELECTRONIC TRADING FACILITY EXCLU7 SION.—Nothing in this Act (other than section 5a

8 (to the extent provided in section 5a(g)), 5b, 5d, or

9 12(e)(2)(B)) governs or applies to an agreement,

10 contract, or transaction in an excluded commodity

11 if—

12 ‘‘(A) the agreement, contract, or trans13 action is entered into on a principal-to-principal

14 basis between parties trading for their own ac15 counts or as described in section 1a(12)(B)(ii);

16 ‘‘(B) the agreement, contract, or trans17 action is entered into only between persons that

18 are eligible contract participants described in

19 subparagraph (A), (B)(ii), or (C) of section

20 1a(12)) at the time at which the persons enter

21 into the agreement, contract, or transaction;

22 and

23 ‘‘(C) the agreement, contract, or trans24 action is executed or traded on an electronic

25 trading facility.’’.
37

•HR 5660 IH

1 SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.

2 Section 2 of the Commodity Exchange Act (7 U.S.C.

3 2, 2a, 3, 4, 4a) is further amended by adding at the end

4 the following:

5 ‘‘(e) EXCLUDED ELECTRONIC TRADING FACILI6 TIES.—

7 ‘‘(1) IN GENERAL.—Nothing in this Act (other

8 than section 12(e)(2)(B)) governs or is applicable to

9 an electronic trading facility that limits transactions

10 authorized to be conducted on its facilities to those

11 satisfying the requirements of section 2(d)(2), 2(g),

12 or 2(h)(3).

13 ‘‘(2) EFFECT ON AUTHORITY TO ESTABLISH

14 AND OPERATE.—Nothing in this Act shall prohibit a

15 board of trade designated by the Commission as a

16 contract market or derivatives transaction execution

17 facility, or operating as an exempt board of trade

18 from establishing and operating an electronic trad19 ing facility excluded under this Act pursuant to

20 paragraph (1).

21 ‘‘(3) EFFECT ON TRANSACTIONS.—No failure

22 by an electronic trading facility to limit transactions

23 as required by paragraph (1) of this subsection or

24 to comply with section 2(h)(5) shall in itself affect

25 the legality, validity, or enforceability of an agree26 ment, contract, or transaction entered into or traded
38

•HR 5660 IH

1 on the electronic trading facility or cause a partici2 pant on the system to be in violation of this Act.

3 ‘‘(4) SPECIAL RULE.—A person or group of

4 persons that would not otherwise constitute a trad5 ing facility shall not be considered to be a trading

6 facility solely as a result of the submission to a de7 rivatives clearing organization of transactions exe8 cuted on or through the person or group of per9 sons.’’.

10 SEC. 105. HYBRID INSTRUMENTS; SWAP TRANSACTIONS.

11 (a) HYBRID INSTRUMENTS.—Section 2 of the Com12 modity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) is further

13 amended by adding at the end the following:

14 ‘‘(f ) EXCLUSION FOR QUALIFYING HYBRID INSTRU15 MENTS.—

16 ‘‘(1) IN GENERAL.—Nothing in this Act (other

17 than section 12(e)(2)(B)) governs or is applicable to

18 a hybrid instrument that is predominantly a secu19 rity.

20 ‘‘(2) PREDOMINANCE.—A hybrid instrument

21 shall be considered to be predominantly a security

22 if—

23 ‘‘(A) the issuer of the hybrid instrument

24 receives payment in full of the purchase price of

25 the hybrid instrument, substantially contem-
39

•HR 5660 IH

1 poraneously with delivery of the hybrid instru2 ment;

3 ‘‘(B) the purchaser or holder of the hybrid

4 instrument is not required to make any pay5 ment to the issuer in addition to the purchase

6 price paid under subparagraph (A), whether as

7 margin, settlement payment, or otherwise, dur8 ing the life of the hybrid instrument or at ma9 turity;

10 ‘‘(C) the issuer of the hybrid instrument is

11 not subject by the terms of the instrument to

12 mark-to-market margining requirements; and

13 ‘‘(D) the hybrid instrument is not mar14 keted as a contract of sale of a commodity for

15 future delivery (or option on such a contract)

16 subject to this Act.

17 ‘‘(3) MARK-TO-MARKET MARGINING REQUIRE18 MENTS.—For the purposes of paragraph (2)(C),

19 mark-to-market margining requirements do not in20 clude the obligation of an issuer of a secured debt

21 instrument to increase the amount of collateral held

22 in pledge for the benefit of the purchaser of the se23 cured debt instrument to secure the repayment obli24 gations of the issuer under the secured debt instru25 ment.’’.
40

•HR 5660 IH

1 (b) SWAP TRANSACTIONS.—Section 2 of the Com2 modity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) is further

3 amended by adding at the end the following:

4 ‘‘(g) EXCLUDED SWAP TRANSACTIONS.—No provi5 sion of this Act (other than section 5a (to the extent pro6 vided in section 5a(g)), 5b, 5d, or 12(e)(2)) shall apply

7 to or govern any agreement, contract, or transaction in

8 a commodity other than an agricultural commodity if the

9 agreement, contract, or transaction is—

10 ‘‘(1) entered into only between persons that are

11 eligible contract participants at the time they enter

12 into the agreement, contract, or transaction;

13 ‘‘(2) subject to individual negotiation by the

14 parties; and

15 ‘‘(3) not executed or traded on a trading facil16 ity.’’.

17 (c) STUDY REGARDING RETAIL SWAPS.—

18 (1) IN GENERAL.—The Board of Governors of

19 the Federal Reserve System, the Secretary of the

20 Treasury, the Commodity Futures Trading Commis21 sion, and the Securities and Exchange Commission

22 shall conduct a study of issues involving the offering

23 of swap agreements to persons other than eligible

24 contract participants (as defined in section 1a of the

25 Commodity Exchange Act).
41

•HR 5660 IH

1 (2) MATTERS TO BE ADDRESSED.—The study

2 shall address—

3 (A) the potential uses of swap agreements

4 by persons other than eligible contract partici5 pants;

6 (B) the extent to which financial institu7 tions are willing to offer swap agreements to

8 persons other than eligible contract partici9 pants;

10 (C) the appropriate regulatory structure to

11 address customer protection issues that may

12 arise in connection with the offer of swap agree13 ments to persons other than eligible contract

14 participants; and

15 (D) such other relevant matters deemed

16 necessary or appropriate to address.

17 (3) REPORT.—Before the end of the 1-year pe18 riod beginning on the date of the enactment of this

19 Act, a report on the findings and conclusions of the

20 study required by paragraph (1) shall be submitted

21 to Congress, together with such recommendations

22 for legislative action as are deemed necessary and

23 appropriate.
42

•HR 5660 IH

1 SEC. 106. TRANSACTIONS IN EXEMPT COMMODITIES.

2 Section 2 of the Commodity Exchange Act (7 U.S.C.

3 2, 2a, 3, 4, 4a) is further amended by adding at the end

4 the following:

5 ‘‘(h) LEGAL CERTAINTY FOR CERTAIN TRANS6 ACTIONS IN EXEMPT COMMODITIES.—

7 ‘‘(1) Except as provided in paragraph (2), noth8 ing in this Act shall apply to a contract, agreement,

9 or transaction in an exempt commodity which—

10 ‘‘(A) is entered into solely between persons

11 that are eligible contract participants at the

12 time the persons enter into the agreement, con13 tract, or transaction; and

14 ‘‘(B) is not entered into on a trading facil15 ity.

16 ‘‘(2) An agreement, contract, or transaction de17 scribed in paragraph (1) of this subsection shall be

18 subject to—

19 ‘‘(A) sections 5b and 12(e)(2)(B);

20 ‘‘(B) sections 4b, 4o, 6(c), 6(d), 6c, 6d,

21 and 8a, and the regulations of the Commission

22 pursuant to section 4c(b) proscribing fraud in

23 connection with commodity option transactions,

24 to the extent the agreement, contract, or trans25 action is not between eligible commercial enti26 ties (unless one of the entities is an instrumen-
43

•HR 5660 IH

1 tality, department, or agency of a State or local

2 governmental entity) and would otherwise be

3 subject to such sections and regulations; and

4 ‘‘(C) sections 6(c), 6(d), 6c, 6d, 8a, and

5 9(a)(2), to the extent such sections prohibit ma6 nipulation of the market price of any com7 modity in interstate commerce and the agree8 ment, contract, or transaction would otherwise

9 be subject to such sections.

10 ‘‘(3) Except as provided in paragraph (4), noth11 ing in this Act shall apply to an agreement, contract,

12 or transaction in an exempt commodity which is—

13 ‘‘(A) entered into on a principal-to-prin14 cipal basis solely between persons that are eligi15 ble commercial entities at the time the persons

16 enter into the agreement, contract, or trans17 action; and

18 ‘‘(B) executed or traded on an electronic

19 trading facility.

20 ‘‘(4) An agreement, contract, or transaction de21 scribed in paragraph (3) of this subsection shall be

22 subject to—

23 ‘‘(A) sections 5a (to the extent provided in

24 section 5a(g)), 5b, 5d, and 12(e)(2)(B);
44

•HR 5660 IH

1 ‘‘(B) sections 4b and 4o and the regula2 tions of the Commission pursuant to section

3 4c(b) proscribing fraud in connection with com4 modity option transactions to the extent the

5 agreement, contract, or transaction would oth6 erwise be subject to such sections and regula7 tions;

8 ‘‘(C) sections 6(c) and 9(a)(2), to the ex9 tent such sections prohibit manipulation of the

10 market price of any commodity in interstate

11 commerce and to the extent the agreement, con12 tract, or transaction would otherwise be subject

13 to such sections; and

14 ‘‘(D) such rules and regulations as the

15 Commission may prescribe if necessary to en16 sure timely dissemination by the electronic trad17 ing facility of price, trading volume, and other

18 trading data to the extent appropriate, if the

19 Commission determines that the electronic trad20 ing facility performs a significant price dis21 covery function for transactions in the cash

22 market for the commodity underlying any

23 agreement, contract, or transaction executed or

24 traded on the electronic trading facility.
45

•HR 5660 IH

1 ‘‘(5) An electronic trading facility relying on the

2 exemption provided in paragraph (3) shall—

3 ‘‘(A) notify the Commission of its intention

4 to operate an electronic trading facility in reli5 ance on the exemption set forth in paragraph

6 (3), which notice shall include—

7 ‘‘(i) the name and address of the facil8 ity and a person designated to receive com9 munications from the Commission;

10 ‘‘(ii) the commodity categories that

11 the facility intends to list or otherwise

12 make available for trading on the facility

13 in reliance on the exemption set forth in

14 paragraph (3);

15 ‘‘(iii) certifications that—

16 ‘‘(I) no executive officer or mem17 ber of the governing board of, or any

18 holder of a 10 percent or greater eq19 uity interest in, the facility is a person

20 described in any of subparagraphs (A)

21 through (H) of section 8a(2);

22 ‘‘(II) the facility will comply with

23 the conditions for exemption under

24 this paragraph; and
46

•HR 5660 IH

1 ‘‘(III) the facility will notify the

2 Commission of any material change in

3 the information previously provided by

4 the facility to the Commission pursu5 ant to this paragraph; and

6 ‘‘(iv) the identity of any derivatives

7 clearing organization to which the facility

8 transmits or intends to transmit trans9 action data for the purpose of facilitating

10 the clearance and settlement of trans11 actions conducted on the facility in reliance

12 on the exemption set forth in paragraph

13 (3);

14 ‘‘(B)(i)(I) provide the Commission with ac15 cess to the facility’s trading protocols and elec16 tronic access to the facility with respect to

17 transactions conducted in reliance on the ex18 emption set forth in paragraph (3); or

19 ‘‘(II) provide such reports to the Commis20 sion regarding transactions executed on the fa21 cility in reliance on the exemption set forth in

22 paragraph (3) as the Commission may from

23 time to time request to enable the Commission

24 to satisfy its obligations under this Act;
47

•HR 5660 IH

1 ‘‘(ii) maintain for 5 years, and make avail2 able for inspection by the Commission upon re3 quest, records of activities related to its busi4 ness as an electronic trading facility exempt

5 under paragraph (3), including—

6 ‘‘(I) information relating to data entry

7 and transaction details sufficient to enable

8 the Commission to reconstruct trading ac9 tivity on the facility conducted in reliance

10 on the exemption set forth in paragraph

11 (3); and

12 ‘‘(II) the name and address of each

13 participant on the facility authorized to

14 enter into transactions in reliance on the

15 exemption set forth in paragraph (3); and

16 ‘‘(iii) upon special call by the Commission,

17 provide to the Commission, in a form and man18 ner and within the period specified in the spe19 cial call, such information related to its busi20 ness as an electronic trading facility exempt

21 under paragraph (3), including information re22 lating to data entry and transaction details in

23 respect of transactions entered into in reliance

24 on the exemption set forth in paragraph (3), as

25 the Commission may determine appropriate—
48

•HR 5660 IH

1 ‘‘(I) to enforce the provisions specified

2 in subparagraphs (B) and (C) of para3 graph (4);

4 ‘‘(II) to evaluate a systemic market

5 event; or

6 ‘‘(III) to obtain information requested

7 by a Federal financial regulatory authority

8 in order to enable the regulator to fulfill

9 its regulatory or supervisory responsibil10 ities;

11 ‘‘(C)(i) upon receipt of any subpoena

12 issued by or on behalf of the Commission to any

13 foreign person who the Commission believes is

14 conducting or has conducted transactions in re15 liance on the exemption set forth in paragraph

16 (3) on or through the electronic trading facility

17 relating to the transactions, promptly notify the

18 foreign person of, and transmit to the foreign

19 person, the subpoena in a manner reasonable

20 under the circumstances, or as specified by the

21 Commission; and

22 ‘‘(ii) if the Commission has reason to be23 lieve that a person has not timely complied with

24 a subpoena issued by or on behalf of the Com25 mission pursuant to clause (i), and the Commis-
49

•HR 5660 IH

1 sion in writing has directed that a facility rely2 ing on the exemption set forth in paragraph (3)

3 deny or limit further transactions by the per4 son, the facility shall deny that person further

5 trading access to the facility or, as applicable,

6 limit that person’s access to the facility for liq7 uidation trading only;

8 ‘‘(D) comply with the requirements of this

9 paragraph applicable to the facility and require

10 that each participant, as a condition of trading

11 on the facility in reliance on the exemption set

12 forth in paragraph (3), agree to comply with all

13 applicable law;

14 ‘‘(E) have a reasonable basis for believing

15 that participants authorized to conduct trans16 actions on the facility in reliance on the exemp17 tion set forth in paragraph (3) are eligible com18 mercial entities; and

19 ‘‘(F) not represent to any person that the

20 facility is registered with, or designated, recog21 nized, licensed, or approved by the Commission.

22 ‘‘(6) A person named in a subpoena referred to

23 in paragraph (5)(C) that believes the person is or

24 may be adversely affected or aggrieved by action

25 taken by the Commission under this section, shall
50

•HR 5660 IH

1 have the opportunity for a prompt hearing after the

2 Commission acts under procedures that the Commis3 sion shall establish by rule, regulation, or order.’’.

4 SEC. 107. APPLICATION OF COMMODITY FUTURES LAWS.

5 Section 2 of the Commodity Exchange Act (7 U.S.C.

6 2, 2a, 3, 4, 4a) is further amended by adding at the end

7 the following:

8 ‘‘(i) APPLICATION OF COMMODITY FUTURES

9 LAWS.—

10 ‘‘(1) No provision of this Act shall be construed

11 as implying or creating any presumption that—

12 ‘‘(A) any agreement, contract, or trans13 action that is excluded from this Act under sec14 tion 2(c), 2(d), 2(e), 2(f ), or 2(g) of this Act

15 or title IV of the Commodity Futures Mod16 ernization Act of 2000, or exempted under sec17 tion 2(h) or 4(c) of this Act; or

18 ‘‘(B) any agreement, contract, or trans19 action, not otherwise subject to this Act, that is

20 not so excluded or exempted,

21 is or would otherwise be subject to this Act.

22 ‘‘(2) No provision of, or amendment made by,

23 the Commodity Futures Modernization Act of 2000

24 shall be construed as conferring jurisdiction on the

25 Commission with respect to any such agreement,
51

•HR 5660 IH

1 contract, or transaction, except as expressly provided

2 in section 5a of this Act (to the extent provided in

3 section 5a(g) of this Act), 5b of this Act, or 5d of

4 this Act.’’.

5 SEC. 108. PROTECTION OF THE PUBLIC INTEREST.

6 The Commodity Exchange Act is amended by striking

7 section 3 (7 U.S.C. 5) and inserting the following:

8 ‘‘SEC. 3. FINDINGS AND PURPOSE.

9 ‘‘(a) FINDINGS.—The transactions subject to this Act

10 are entered into regularly in interstate and international

11 commerce and are affected with a national public interest

12 by providing a means for managing and assuming price

13 risks, discovering prices, or disseminating pricing informa14 tion through trading in liquid, fair and financially secure

15 trading facilities.

16 ‘‘(b) PURPOSE.—It is the purpose of this Act to serve

17 the public interests described in subsection (a) through a

18 system of effective self-regulation of trading facilities,

19 clearing systems, market participants and market profes20 sionals under the oversight of the Commission. To foster

21 these public interests, it is further the purpose of this Act

22 to deter and prevent price manipulation or any other dis23 ruptions to market integrity; to ensure the financial integ24 rity of all transactions subject to this Act and the avoid25 ance of systemic risk; to protect all market participants
52

•HR 5660 IH

1 from fraudulent or other abusive sales practices and mis2 uses of customer assets; and to promote responsible inno3 vation and fair competition among boards of trade, other

4 markets and market participants.’’.

5 SEC. 109. PROHIBITED TRANSACTIONS.

6 Section 4c of the Commodity Exchange Act (7 U.S.C.

7 6c) is amended by striking ‘‘SEC. 4c.’’ and all that follows

8 through subsection (a) and inserting the following:

9 ‘‘SEC. 4c. PROHIBITED TRANSACTIONS.

10 ‘‘(a) IN GENERAL.—

11 ‘‘(1) PROHIBITION.—It shall be unlawful for

12 any person to offer to enter into, enter into, or con13 firm the execution of a transaction described in

14 paragraph (2) involving the purchase or sale of any

15 commodity for future delivery (or any option on such

16 a transaction or option on a commodity) if the

17 transaction is used or may be used to—

18 ‘‘(A) hedge any transaction in interstate

19 commerce in the commodity or the product or

20 byproduct of the commodity;

21 ‘‘(B) determine the price basis of any such

22 transaction in interstate commerce in the com23 modity; or
53

•HR 5660 IH

1 ‘‘(C) deliver any such commodity sold,

2 shipped, or received in interstate commerce for

3 the execution of the transaction.

4 ‘‘(2) TRANSACTION.—A transaction referred to

5 in paragraph (1) is a transaction that—

6 ‘‘(A)(i) is, of the character of, or is com7 monly known to the trade as, a ‘wash sale’ or

8 ‘accommodation trade’; or

9 ‘‘(ii) is a fictitious sale; or

10 ‘‘(B) is used to cause any price to be re11 ported, registered, or recorded that is not a

12 true and bona fide price.’’.

13 SEC. 110. DESIGNATION OF BOARDS OF TRADE AS CON14 TRACT MARKETS.

15 The Commodity Exchange Act is amended—

16 (1) by redesignating section 5b (7 U.S.C. 7b)

17 as section 5e; and

18 (2) by striking sections 5 and 5a (7 U.S.C. 7,

19 7a) and inserting the following:

20 ‘‘SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CON21 TRACT MARKETS.

22 ‘‘(a) APPLICATIONS.—A board of trade applying to

23 the Commission for designation as a contract market shall

24 submit an application to the Commission that includes any
54

•HR 5660 IH

1 relevant materials and records the Commission may re2 quire consistent with this Act.

3 ‘‘(b) CRITERIA FOR DESIGNATION.—

4 ‘‘(1) IN GENERAL.—To be designated as a con5 tract market, the board of trade shall demonstrate

6 to the Commission that the board of trade meets the

7 criteria specified in this subsection.

8 ‘‘(2) PREVENTION OF MARKET MANIPULA9 TION.—The board of trade shall have the capacity to

10 prevent market manipulation through market sur11 veillance, compliance, and enforcement practices and

12 procedures, including methods for conducting real13 time monitoring of trading and comprehensive and

14 accurate trade reconstructions.

15 ‘‘(3) FAIR AND EQUITABLE TRADING.—The

16 board of trade shall establish and enforce trading

17 rules to ensure fair and equitable trading through

18 the facilities of the contract market, and the capac19 ity to detect, investigate, and discipline any person

20 that violates the rules. The rules may authorize—

21 ‘‘(A) transfer trades or office trades;

22 ‘‘(B) an exchange of—

23 ‘‘(i) futures in connection with a cash

24 commodity transaction;

25 ‘‘(ii) futures for cash commodities; or
55

•HR 5660 IH

1 ‘‘(iii) futures for swaps; or

2 ‘‘(C) a futures commission merchant, act3 ing as principal or agent, to enter into or con4 firm the execution of a contract for the pur5 chase or sale of a commodity for future delivery

6 if the contract is reported, recorded, or cleared

7 in accordance with the rules of the contract

8 market or a derivatives clearing organization.

9 ‘‘(4) TRADE EXECUTION FACILITY.—The board

10 of trade shall—

11 ‘‘(A) establish and enforce rules defining,

12 or specifications detailing, the manner of oper13 ation of the trade execution facility maintained

14 by the board of trade, including rules or speci15 fications describing the operation of any elec16 tronic matching platform; and

17 ‘‘(B) demonstrate that the trade execution

18 facility operates in accordance with the rules or

19 specifications.

20 ‘‘(5) FINANCIAL INTEGRITY OF TRANS21 ACTIONS.—The board of trade shall establish and

22 enforce rules and procedures for ensuring the finan23 cial integrity of transactions entered into by or

24 through the facilities of the contract market, includ-
56

•HR 5660 IH

1 ing the clearance and settlement of the transactions

2 with a derivatives clearing organization.

3 ‘‘(6) DISCIPLINARY PROCEDURES.—The board

4 of trade shall establish and enforce disciplinary pro5 cedures that authorize the board of trade to dis6 cipline, suspend, or expel members or market par7 ticipants that violate the rules of the board of trade,

8 or similar methods for performing the same func9 tions, including delegation of the functions to third

10 parties.

11 ‘‘(7) PUBLIC ACCESS.—The board of trade shall

12 provide the public with access to the rules, regula13 tions, and contract specifications of the board of

14 trade.

15 ‘‘(8) ABILITY TO OBTAIN INFORMATION.—The

16 board of trade shall establish and enforce rules that

17 will allow the board of trade to obtain any necessary

18 information to perform any of the functions de19 scribed in this subsection, including the capacity to

20 carry out such international information-sharing

21 agreements as the Commission may require.

22 ‘‘(c) EXISTING CONTRACT MARKETS.—A board of

23 trade that is designated as a contract market on the date

24 of the enactment of the Commodity Futures Moderniza-
57

•HR 5660 IH

1 tion Act of 2000 shall be considered to be a designated

2 contract market under this section.

3 ‘‘(d) CORE PRINCIPLES FOR CONTRACT MARKETS.—

4 ‘‘(1) IN GENERAL.—To maintain the designa5 tion of a board of trade as a contract market, the

6 board of trade shall comply with the core principles

7 specified in this subsection. The board of trade shall

8 have reasonable discretion in establishing the man9 ner in which it complies with the core principles.

10 ‘‘(2) COMPLIANCE WITH RULES.—The board of

11 trade shall monitor and enforce compliance with the

12 rules of the contract market, including the terms

13 and conditions of any contracts to be traded and any

14 limitations on access to the contract market.

15 ‘‘(3) CONTRACTS NOT READILY SUBJECT TO

16 MANIPULATION.—The board of trade shall list on

17 the contract market only contracts that are not

18 readily susceptible to manipulation.

19 ‘‘(4) MONITORING OF TRADING.—The board of

20 trade shall monitor trading to prevent manipulation,

21 price distortion, and disruptions of the delivery or

22 cash-settlement process.

23 ‘‘(5) POSITION LIMITATIONS OR ACCOUNT24 ABILITY.—To reduce the potential threat of market

25 manipulation or congestion, especially during trading
58

•HR 5660 IH

1 in the delivery month, the board of trade shall adopt

2 position limitations or position accountability for

3 speculators, where necessary and appropriate.

4 ‘‘(6) EMERGENCY AUTHORITY.—The board of

5 trade shall adopt rules to provide for the exercise of

6 emergency authority, in consultation or cooperation

7 with the Commission, where necessary and appro8 priate, including the authority to—

9 ‘‘(A) liquidate or transfer open positions in

10 any contract;

11 ‘‘(B) suspend or curtail trading in any con12 tract; and

13 ‘‘(C) require market participants in any

14 contract to meet special margin requirements.

15 ‘‘(7) AVAILABILITY OF GENERAL INFORMA16 TION.—The board of trade shall make available to

17 market authorities, market participants, and the

18 public information concerning—

19 ‘‘(A) the terms and conditions of the con20 tracts of the contract market; and

21 ‘‘(B) the mechanisms for executing trans22 actions on or through the facilities of the con23 tract market.

24 ‘‘(8) DAILY PUBLICATION OF TRADING INFOR25 MATION.—The board of trade shall make public
59

•HR 5660 IH

1 daily information on settlement prices, volume, open

2 interest, and opening and closing ranges for actively

3 traded contracts on the contract market.

4 ‘‘(9) EXECUTION OF TRANSACTIONS.—The

5 board of trade shall provide a competitive, open, and

6 efficient market and mechanism for executing trans7 actions.

8 ‘‘(10) TRADE INFORMATION.—The board of

9 trade shall maintain rules and procedures to provide

10 for the recording and safe storage of all identifying

11 trade information in a manner that enables the con12 tract market to use the information for purposes of

13 assisting in the prevention of customer and market

14 abuses and providing evidence of any violations of

15 the rules of the contract market.

16 ‘‘(11) FINANCIAL INTEGRITY OF CONTRACTS.—

17 The board of trade shall establish and enforce rules

18 providing for the financial integrity of any contracts

19 traded on the contract market (including the clear20 ance and settlement of the transactions with a de21 rivatives clearing organization), and rules to ensure

22 the financial integrity of any futures commission

23 merchants and introducing brokers and the protec24 tion of customer funds.
60

•HR 5660 IH

1 ‘‘(12) PROTECTION OF MARKET PARTICI2 PANTS.—The board of trade shall establish and en3 force rules to protect market participants from abu4 sive practices committed by any party acting as an

5 agent for the participants.

6 ‘‘(13) DISPUTE RESOLUTION.—The board of

7 trade shall establish and enforce rules regarding and

8 provide facilities for alternative dispute resolution as

9 appropriate for market participants and any market

10 intermediaries.

11 ‘‘(14) GOVERNANCE FITNESS STANDARDS.—

12 The board of trade shall establish and enforce ap13 propriate fitness standards for directors, members of

14 any disciplinary committee, members of the contract

15 market, and any other persons with direct access to

16 the facility (including any parties affiliated with any

17 of the persons described in this paragraph).

18 ‘‘(15) CONFLICTS OF INTEREST.—The board of

19 trade shall establish and enforce rules to minimize

20 conflicts of interest in the decisionmaking process of

21 the contract market and establish a process for re22 solving such conflicts of interest.

23 ‘‘(16) COMPOSITION OF BOARDS OF MUTUALLY

24 OWNED CONTRACT MARKETS.—In the case of a mu25 tually owned contract market, the board of trade
61

•HR 5660 IH

1 shall ensure that the composition of the governing

2 board reflects market participants.

3 ‘‘(17) RECORDKEEPING.—The board of trade

4 shall maintain records of all activities related to the

5 business of the contract market in a form and man6 ner acceptable to the Commission for a period of 5

7 years.

8 ‘‘(18) ANTITRUST CONSIDERATIONS.—Unless

9 necessary or appropriate to achieve the purposes of

10 this Act, the board of trade shall endeavor to

11 avoid—

12 ‘‘(A) adopting any rules or taking any ac13 tions that result in any unreasonable restraints

14 of trade; or

15 ‘‘(B) imposing any material anticompeti16 tive burden on trading on the contract market.

17 ‘‘(e) CURRENT AGRICULTURAL COMMODITIES.—

18 ‘‘(1) Subject to paragraph (2) of this sub19 section, a contract for purchase or sale for future

20 delivery of an agricultural commodity enumerated in

21 section 1a(4) that is available for trade on a con22 tract market, as of the date of the enactment of this

23 subsection, may be traded only on a contract market

24 designated under this section.
62

•HR 5660 IH

1 ‘‘(2) In order to promote responsible economic

2 or financial innovation and fair competition, the

3 Commission, on application by any person, after no4 tice and public comment and opportunity for hear5 ing, may prescribe rules and regulations to provide

6 for the offer and sale of contracts for future delivery

7 or options on such contracts to be conducted on a

8 derivatives transaction execution facility.’’.

9 SEC. 111. DERIVATIVES TRANSACTION EXECUTION FACILI10 TIES.

11 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

12 is amended by inserting after section 5 (as amended by

13 section 110(2)) the following:

14 ‘‘SEC. 5a. DERIVATIVES TRANSACTION EXECUTION FACILI15 TIES.

16 ‘‘(a) IN GENERAL.—In lieu of compliance with the

17 contract market designation requirements of sections 4(a)

18 and 5, a board of trade may elect to operate as a reg19 istered derivatives transaction execution facility if the fa20 cility is—

21 ‘‘(1) designated as a contract market and meets

22 the requirements of this section; or

23 ‘‘(2) registered as a derivatives transaction exe24 cution facility under subsection (c) of this section.

25 ‘‘(b) REQUIREMENTS FOR TRADING.—
63

•HR 5660 IH

1 ‘‘(1) IN GENERAL.—A registered derivatives

2 transaction execution facility under subsection (a)

3 may trade any contract of sale of a commodity for

4 future delivery (or option on such a contract) on or

5 through the facility only by satisfying the require6 ments of this section.

7 ‘‘(2) REQUIREMENTS FOR UNDERLYING COM8 MODITIES.—A registered derivatives transaction exe9 cution facility may trade any contract of sale of a

10 commodity for future delivery (or option on such a

11 contract) only if—

12 ‘‘(A) the underlying commodity has a near13 ly inexhaustible deliverable supply;

14 ‘‘(B) the underlying commodity has a de15 liverable supply that is sufficiently large that

16 the contract is highly unlikely to be susceptible

17 to the threat of manipulation;

18 ‘‘(C) the underlying commodity has no

19 cash market;

20 ‘‘(D)(i) the contract is a security futures

21 product, and (ii) the registered derivatives

22 transaction execution facility is a national secu23 rities exchange registered under the Securities

24 Exchange Act of 1934;
64

•HR 5660 IH

1 ‘‘(E) the Commission determines, based on

2 the market characteristics, surveillance history,

3 self-regulatory record, and capacity of the facil4 ity that trading in the contract (or option) is

5 highly unlikely to be susceptible to the threat of

6 manipulation; or

7 ‘‘(F) except as provided in section 5(e)(2),

8 the underlying commodity is a commodity other

9 than an agricultural commodity enumerated in

10 section 1a(4), and trading access to the facility

11 is limited to eligible commercial entities trading

12 for their own account.

13 ‘‘(3) ELIGIBLE TRADERS.—To trade on a reg14 istered derivatives transaction execution facility, a

15 person shall—

16 ‘‘(A) be an eligible contract participant; or

17 ‘‘(B) be a person trading through a futures

18 commission merchant that—

19 ‘‘(i) is registered with the Commis20 sion;

21 ‘‘(ii) is a member of a futures self-reg22 ulatory organization or, if the person

23 trades only security futures products on

24 the facility, a national securities associa-
65

•HR 5660 IH

1 tion registered under section 15A(a) of the

2 Securities Exchange Act of 1934;

3 ‘‘(iii) is a clearing member of a de4 rivatives clearing organization; and

5 ‘‘(iv) has net capital of at least

6 $20,000,000.

7 ‘‘(4) TRADING BY CONTRACT MARKETS.—A

8 board of trade that is designated as a contract mar9 ket shall, to the extent that the contract market also

10 operates a registered derivatives transaction execu11 tion facility—

12 ‘‘(A) provide a physical location for the

13 contract market trading of the board of trade

14 that is separate from trading on the derivatives

15 transaction execution facility of the board of

16 trade; or

17 ‘‘(B) if the board of trade uses the same

18 electronic trading system for trading on the

19 contract market and derivatives transaction

20 execution facility of the board of trade, identify

21 whether the electronic trading is taking place

22 on the contract market or the derivatives trans23 action execution facility.

24 ‘‘(c) CRITERIA FOR REGISTRATION.—
66

•HR 5660 IH

1 ‘‘(1) IN GENERAL.—To be registered as a reg2 istered derivatives transaction execution facility, the

3 board of trade shall be required to demonstrate to

4 the Commission only that the board of trade meets

5 the criteria specified in subsection (b) and this sub6 section.

7 ‘‘(2) DETERRENCE OF ABUSES.—The board of

8 trade shall establish and enforce trading and partici9 pation rules that will deter abuses and has the ca10 pacity to detect, investigate, and enforce those rules,

11 including means to—

12 ‘‘(A) obtain information necessary to per13 form the functions required under this section;

14 or

15 ‘‘(B) use technological means to—

16 ‘‘(i) provide market participants with

17 impartial access to the market; and

18 ‘‘(ii) capture information that may be

19 used in establishing whether rule violations

20 have occurred.

21 ‘‘(3) TRADING PROCEDURES.—The board of

22 trade shall establish and enforce rules or terms and

23 conditions defining, or specifications detailing, trad24 ing procedures to be used in entering and executing
67

•HR 5660 IH

1 orders traded on the facilities of the board of trade.

2 The rules may authorize—

3 ‘‘(A) transfer trades or office trades;

4 ‘‘(B) an exchange of—

5 ‘‘(i) futures in connection with a cash

6 commodity transaction;

7 ‘‘(ii) futures for cash commodities; or

8 ‘‘(iii) futures for swaps; or

9 ‘‘(C) a futures commission merchant, act10 ing as principal or agent, to enter into or con11 firm the execution of a contract for the pur12 chase or sale of a commodity for future delivery

13 if the contract is reported, recorded, or cleared

14 in accordance with the rules of the registered

15 derivatives transaction execution facility or a

16 derivatives clearing organization.

17 ‘‘(4) FINANCIAL INTEGRITY OF TRANS18 ACTIONS.—The board of trade shall establish and

19 enforce rules or terms and conditions providing for

20 the financial integrity of transactions entered on or

21 through the facilities of the board of trade, and rules

22 or terms and conditions to ensure the financial in23 tegrity of any futures commission merchants and in24 troducing brokers and the protection of customer

25 funds.
68

•HR 5660 IH

1 ‘‘(d) CORE PRINCIPLES FOR REGISTERED DERIVA2 TIVES TRANSACTION EXECUTION FACILITIES.—

3 ‘‘(1) IN GENERAL.—To maintain the registra4 tion of a board of trade as a derivatives transaction

5 execution facility, a board of trade shall comply with

6 the core principles specified in this subsection. The

7 board of trade shall have reasonable discretion in es8 tablishing the manner in which the board of trade

9 complies with the core principles.

10 ‘‘(2) COMPLIANCE WITH RULES.—The board of

11 trade shall monitor and enforce the rules of the fa12 cility, including any terms and conditions of any

13 contracts traded on or through the facility and any

14 limitations on access to the facility.

15 ‘‘(3) MONITORING OF TRADING.—The board of

16 trade shall monitor trading in the contracts of the

17 facility to ensure orderly trading in the contract and

18 to maintain an orderly market while providing any

19 necessary trading information to the Commission to

20 allow the Commission to discharge the responsibil21 ities of the Commission under the Act.

22 ‘‘(4) DISCLOSURE OF GENERAL INFORMA23 TION.—The board of trade shall disclose publicly

24 and to the Commission information concerning—

25 ‘‘(A) contract terms and conditions;
69

•HR 5660 IH

1 ‘‘(B) trading conventions, mechanisms, and

2 practices;

3 ‘‘(C) financial integrity protections; and

4 ‘‘(D) other information relevant to partici5 pation in trading on the facility.

6 ‘‘(5) DAILY PUBLICATION OF TRADING INFOR7 MATION.—The board of trade shall make public

8 daily information on settlement prices, volume, open

9 interest, and opening and closing ranges for con10 tracts traded on the facility if the Commission deter11 mines that the contracts perform a significant price

12 discovery function for transactions in the cash mar13 ket for the commodity underlying the contracts.

14 ‘‘(6) FITNESS STANDARDS.—The board of trade

15 shall establish and enforce appropriate fitness stand16 ards for directors, members of any disciplinary com17 mittee, members, and any other persons with direct

18 access to the facility, including any parties affiliated

19 with any of the persons described in this paragraph.

20 ‘‘(7) CONFLICTS OF INTEREST.—The board of

21 trade shall establish and enforce rules to minimize

22 conflicts of interest in the decision making process

23 of the derivatives transaction execution facility and

24 establish a process for resolving such conflicts of in25 terest.
70

•HR 5660 IH

1 ‘‘(8) RECORDKEEPING.—The board of trade

2 shall maintain records of all activities related to the

3 business of the derivatives transaction execution fa4 cility in a form and manner acceptable to the Com5 mission for a period of 5 years.

6 ‘‘(9) ANTITRUST CONSIDERATIONS.—Unless

7 necessary or appropriate to achieve the purposes of

8 this Act, the board of trade shall endeavor to

9 avoid—

10 ‘‘(A) adopting any rules or taking any ac11 tions that result in any unreasonable restraint

12 of trade; or

13 ‘‘(B) imposing any material anticompeti14 tive burden on trading on the derivatives trans15 action execution facility.

16 ‘‘(e) USE OF BROKER-DEALERS, DEPOSITORY INSTI17 TUTIONS, AND FARM CREDIT SYSTEM INSTITUTIONS AS

18 INTERMEDIARIES.—

19 ‘‘(1) IN GENERAL.—With respect to trans20 actions other than transactions in security futures

21 products, a registered derivatives transaction execu22 tion facility may by rule allow a broker-dealer, de23 pository institution, or institution of the Farm Cred24 it System that meets the requirements of paragraph

25 (2) to—
71

•HR 5660 IH

1 ‘‘(A) act as an intermediary in trans2 actions executed on the facility on behalf of cus3 tomers of the broker-dealer, depository institu4 tion, or institution of the Farm Credit System;

5 and

6 ‘‘(B) receive funds of customers to serve as

7 margin or security for the transactions.

8 ‘‘(2) REQUIREMENTS.—The requirements re9 ferred to in paragraph (1) are that—

10 ‘‘(A) the broker-dealer be in good standing

11 with the Securities and Exchange Commission,

12 or the depository institution or institution of

13 the Farm Credit System be in good standing

14 with Federal bank regulatory agencies (includ15 ing the Farm Credit Administration), as appli16 cable; and

17 ‘‘(B) if the broker-dealer, depository insti18 tution, or institution of the Farm Credit Sys19 tem carries or holds customer accounts or funds

20 for transactions on the derivatives transaction

21 execution facility for more than 1 business day,

22 the broker-dealer, depository institution, or in23 stitution of the Farm Credit System is reg24 istered as a futures commission merchant and

25 is a member of a registered futures association.
72

•HR 5660 IH

1 ‘‘(3) IMPLEMENTATION.—The Commission shall

2 cooperate and coordinate with the Securities and Ex3 change Commission, the Secretary of the Treasury,

4 and Federal banking regulatory agencies (including

5 the Farm Credit Administration) in adopting rules

6 and taking any other appropriate action to facilitate

7 the implementation of this subsection.

8 ‘‘(f ) SEGREGATION OF CUSTOMER FUNDS.—Not

9 later than 180 days after the date of the enactment of

10 the Commodity Futures Modernization Act of 2000, con11 sistent with regulations adopted by the Commission, a reg12 istered derivatives transaction execution facility may au13 thorize a futures commission merchant to offer any cus14 tomer of the futures commission merchant that is an eligi15 ble contract participant the right to not segregate the cus16 tomer funds of the customer that are carried with the fu17 tures commission merchant for purposes of trading on or

18 through the facilities of the registered derivatives trans19 action execution facility.

20 ‘‘(g) ELECTION TO TRADE EXCLUDED AND EXEMPT

21 COMMODITIES.—

22 ‘‘(1) IN GENERAL.—Notwithstanding subsection

23 (b)(2) of this section, a board of trade that is or

24 elects to become a registered derivatives transaction

25 execution facility may trade on the facility any
73

•HR 5660 IH

1 agreements, contracts, or transactions involving ex2 cluded or exempt commodities other than securities,

3 except contracts of sale for future delivery of exempt

4 securities under section 3(a)(12) of the Securities

5 Exchange Act of 1934 as in effect on the date of the

6 enactment of the Futures Trading Act of 1982, that

7 are otherwise excluded from this Act under section

8 2(c), 2(d), or 2(g) of this Act, or exempt under sec9 tion 2(h) of this Act.

10 ‘‘(2) EXCLUSIVE JURISDICTION OF THE COM11 MISSION.—The Commission shall have exclusive ju12 risdiction over agreements, contracts, or transactions

13 described in paragraph (1) to the extent that the

14 agreements, contracts, or transactions are traded on

15 a derivatives transaction execution facility.’’.

16 SEC. 112. DERIVATIVES CLEARING.

17 (a) IN GENERAL.—Subtitle A of title IV of the Fed18 eral Deposit Insurance Corporation Improvement Act of

19 1991 is amended—

20 (1) by inserting before the section heading for

21 section 401, the following new heading:

22 ‘‘CHAPTER 1—BILATERAL AND CLEARING

23 ORGANIZATION NETTING’’;

24 (2) in section 402, by striking ‘‘this subtitle’’

25 and inserting ‘‘this chapter’’; and
74

•HR 5660 IH

1 (3) by inserting after section 407, the following

2 new chapter:

3 ‘‘CHAPTER 2—MULTILATERAL CLEARING

4 ORGANIZATIONS

5 ‘‘SEC. 408. DEFINITIONS.

6 For purposes of this chapter, the following definitions

7 shall apply:

8 ‘‘(1) MULTILATERAL CLEARING ORGANIZA9 TION.—The term ‘multilateral clearing organization’

10 means a system utilized by more than two partici11 pants in which the bilateral credit exposures of par12 ticipants arising from the transactions cleared are

13 effectively eliminated and replaced by a system of

14 guarantees, insurance, or mutualized risk of loss.

15 ‘‘(2) OVER-THE-COUNTER DERIVATIVE INSTRU16 MENT.—The term ‘over-the-counter derivative in17 strument’ includes—

18 ‘‘(A) any agreement, contract, or trans19 action, including the terms and conditions in20 corporated by reference in any such agreement,

21 contract, or transaction, which is an interest

22 rate swap, option, or forward agreement, in23 cluding a rate floor, rate cap, rate collar, cross24 currency rate swap, basis swap, and forward

25 rate agreement; a same day-tomorrow, tomor-
75

•HR 5660 IH

1 row-next, forward, or other foreign exchange or

2 precious metals agreement; a currency swap,

3 option, or forward agreement; an equity index

4 or equity swap, option, or forward agreement; a

5 debt index or debt swap, option, or forward

6 agreement; a credit spread or credit swap, op7 tion, or forward agreement; a commodity index

8 or commodity swap, option, or forward agree9 ment; and a weather swap, weather derivative,

10 or weather option;

11 ‘‘(B) any agreement, contract or trans12 action similar to any other agreement, contract,

13 or transaction referred to in this clause that is

14 presently, or in the future becomes, regularly

15 entered into by parties that participate in swap

16 transactions (including terms and conditions in17 corporated by reference in the agreement) and

18 that is a forward, swap, or option on one or

19 more occurrences of any event, rates, cur20 rencies, commodities, equity securities or other

21 equity instruments, debt securities or other debt

22 instruments, economic or other indices or meas23 ures of economic or other risk or value;

24 ‘‘(C) any agreement, contract, or trans25 action excluded from the Commodity Exchange
76

•HR 5660 IH

1 Act under section 2(c), 2(d), 2(f ), or 2(g) of

2 such Act, or exempted under section 2(h) or

3 4(c) of such Act; and

4 ‘‘(D) any option to enter into any, or any

5 combination of, agreements, contracts or trans6 actions referred to in this subparagraph.

7 ‘‘(3) OTHER DEFINITIONS.—The terms ‘insured

8 State nonmember bank’, ‘State member bank’, and

9 ‘affiliate’ have the same meanings as in section 3 of

10 the Federal Deposit Insurance Act.

11 ‘‘SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.

12 ‘‘(a) IN GENERAL.—Except with respect to clearing

13 organizations described in subsection (b), no person may

14 operate a multilateral clearing organization for over-the15 counter derivative instruments, or otherwise engage in ac16 tivities that constitute such a multilateral clearing organi17 zation unless the person is a national bank, a State mem18 ber bank, an insured State nonmember bank, an affiliate

19 of a national bank, a State member bank, or an insured

20 State nonmember bank, or a corporation chartered under

21 section 25A of the Federal Reserve Act.

22 ‘‘(b) CLEARING ORGANIZATIONS.—Subsection (a)

23 shall not apply to any clearing organization that—

24 ‘‘(1) is registered as a clearing agency under

25 the Securities Exchange Act of 1934;
77

•HR 5660 IH

1 ‘‘(2) is registered as a derivatives clearing orga2 nization under the Commodity Exchange Act; or

3 ‘‘(3) is supervised by a foreign financial regu4 lator that the Comptroller of the Currency, the

5 Board of Governors of the Federal Reserve System,

6 the Federal Deposit Insurance Corporation, the Se7 curities and Exchange Commission, or the Com8 modity Futures Trading Commission, as applicable,

9 has determined satisfies appropriate standards.’’.

10 (b) RESOLUTION OF CLEARING BANKS.—The Fed11 eral Reserve Act (12 U.S.C. 221 et seq.) is amended by

12 inserting after section 9A the following new section:

13 ‘‘SEC. 9B. RESOLUTION OF CLEARING BANKS.

14 ‘‘(a) CONSERVATORSHIP OR RECEIVERSHIP.—

15 ‘‘(1) APPOINTMENT.—The Board may appoint

16 a conservator or receiver to take possession and con17 trol of any uninsured State member bank which op18 erates, or operates as, a multilateral clearing organi19 zation pursuant to section 409 of the Federal De20 posit Insurance Corporation Improvement Act of

21 1991 to the same extent and in the same manner as

22 the Comptroller of the Currency may appoint a con23 servator or receiver for a national bank.

24 ‘‘(2) POWERS.—The conservator or receiver for

25 an uninsured State member bank referred to in
78

•HR 5660 IH

1 paragraph (1) shall exercise the same powers, func2 tions, and duties, subject to the same limitations, as

3 a conservator or receiver for a national bank.

4 ‘‘(b) BOARD AUTHORITY.—The Board shall have the

5 same authority with respect to any conservator or receiver

6 appointed under subsection (a), and the uninsured State

7 member bank for which the conservator or receiver has

8 been appointed, as the Comptroller of the Currency has

9 with respect to a conservator or receiver for a national

10 bank and the national bank for which the conservator or

11 receiver has been appointed.

12 ‘‘(c) BANKRUPTCY PROCEEDINGS.—The Board (in

13 the case of an uninsured State member bank which oper14 ates, or operates as, such a multilateral clearing organiza15 tion) may direct a conservator or receiver appointed for

16 the bank to file a petition pursuant to title 11, United

17 States Code, in which case, title 11, United States Code,

18 shall apply to the bank in lieu of otherwise applicable Fed19 eral or State insolvency law.’’.

20 (c) TECHNICAL AND CONFORMING AMENDMENTS TO

21 TITLE 11, UNITED STATES CODE.—

22 (1) BANKRUPTCY CODE DEBTORS.—Section

23 109(b)(2) of title 11, United States Code, is amend24 ed by striking ‘‘; or’’ and inserting the following: ‘‘,

25 except that an uninsured State member bank, or a
79

•HR 5660 IH

1 corporation organized under section 25A of the Fed2 eral Reserve Act, which operates, or operates as, a

3 multilateral clearing organization pursuant to sec4 tion 409 of the Federal Deposit Insurance Corpora5 tion Improvement Act of 1991 may be a debtor if

6 a petition is filed at the direction of the Board of

7 Governors of the Federal Reserve System; or’’.

8 (2) CHAPTER 7 DEBTORS.—Section 109(d) of

9 title 11, United States Code, is amended to read as

10 follows:

11 ‘‘(d) Only a railroad, a person that may be a debtor

12 under chapter 7 of this title (except a stockbroker or a

13 commodity broker), and an uninsured State member bank,

14 or a corporation organized under section 25A of the Fed15 eral Reserve Act, which operates, or operates as, a multi16 lateral clearing organization pursuant to section 409 of

17 the Federal Deposit Insurance Corporation Improvement

18 Act of 1991 may be a debtor under chapter 11 of this

19 title.’’.

20 (3) DEFINITION OF FINANCIAL INSTITUTION.—

21 Section 101(22) of title 11, United States Code, is

22 amended to read as follows:

23 ‘‘(22) the term ‘financial institution’—

24 ‘‘(A) means—
80

•HR 5660 IH

1 ‘‘(i) a Federal reserve bank or an en2 tity (domestic or foreign) that is a com3 mercial or savings bank, industrial savings

4 bank, savings and loan association, trust

5 company, or receiver or conservator for

6 such entity and, when any such Federal re7 serve bank, receiver, conservator, or entity

8 is acting as agent or custodian for a cus9 tomer in connection with a securities con10 tract, as defined in section 741 of this

11 title, the customer; or

12 ‘‘(ii) in connection with a securities

13 contract, as defined in section 741 of this

14 title, an investment company registered

15 under the Investment Company Act of

16 1940; and

17 ‘‘(B) includes any person described in sub18 paragraph (A) which operates, or operates as, a

19 multilateral clearing organization pursuant to

20 section 409 of the Federal Deposit Insurance

21 Corporation Improvement Act of 1991;’’.

22 (4) DEFINITION OF UNINSURED STATE MEM23 BER BANK.—Section 101 of title 11, United States

24 Code, is amended by inserting after paragraph (54)

25 the following new paragraph—
81

•HR 5660 IH

1 ‘‘(54A) the term ‘uninsured State member bank’

2 means a State member bank (as defined in section 3 of

3 the Federal Deposit Insurance Act) the deposits of which

4 are not insured by the Federal Deposit Insurance Cor5 poration; and’’.

6 (5) SUBCHAPTER V OF CHAPTER 7.—

7 (A) IN GENERAL.—Section 103 of title 11,

8 United States Code, is amended—

9 (i) by redesignating subsections (e)

10 through (i) as subsections (f ) through ( j),

11 respectively; and

12 (ii) by inserting after subsection (d)

13 the following new subsection:

14 ‘‘(e) SCOPE OF APPLICATION.—Subchapter V of

15 chapter 7 of this title shall apply only in a case under

16 such chapter concerning the liquidation of an uninsured

17 State member bank, or a corporation organized under sec18 tion 25A of the Federal Reserve Act, which operates, or

19 operates as, a multilateral clearing organization pursuant

20 to section 409 of the Federal Deposit Insurance Corpora21 tion Improvement Act of 1991.’’.

22 (B) CLEARING BANK LIQUIDATION.—

23 Chapter 7 of title 11, United States Code, is

24 amended by adding at the end the following

25 new subchapter:
82

•HR 5660 IH

1 ‘‘SUBCHAPTER V—CLEARING BANK

2 LIQUIDATION

3 ‘‘§ 781. Definitions

4 ‘‘For purposes of this subchapter, the following defi5 nitions shall apply:

6 ‘‘(1) BOARD.—The term ‘Board’ means the

7 Board of Governors of the Federal Reserve System.

8 ‘‘(2) DEPOSITORY INSTITUTION.—The term ‘de9 pository institution’ has the same meaning as in sec10 tion 3 of the Federal Deposit Insurance Act.

11 ‘‘(3) CLEARING BANK.—The term ‘clearing

12 bank’ means an uninsured State member bank, or a

13 corporation organized under section 25A of the Fed14 eral Reserve Act, which operates, or operates as, a

15 multilateral clearing organization pursuant to sec16 tion 409 of the Federal Deposit Insurance Corpora17 tion Improvement Act of 1991.

18 ‘‘§ 782. Selection of trustee

19 ‘‘(a) IN GENERAL.—

20 ‘‘(1) APPOINTMENT.—Notwithstanding any

21 other provision of this title, the conservator or re22 ceiver who files the petition shall be the trustee

23 under this chapter, unless the Board designates an

24 alternative trustee.
83

•HR 5660 IH

1 ‘‘(2) SUCCESSOR.—The Board may designate a

2 successor trustee if required.

3 ‘‘(b) AUTHORITY OF TRUSTEE.—Whenever the

4 Board appoints or designates a trustee, chapter 3 and sec5 tions 704 and 705 of this title shall apply to the Board

6 in the same way and to the same extent that they apply

7 to a United States trustee.

8 ‘‘§ 783. Additional powers of trustee

9 ‘‘(a) DISTRIBUTION OF PROPERTY NOT OF THE ES10 TATE.—The trustee under this subchapter has power to

11 distribute property not of the estate, including distribu12 tions to customers that are mandated by subchapters III

13 and IV of this chapter.

14 ‘‘(b) DISPOSITION OF INSTITUTION.—The trustee

15 under this subchapter may, after notice and a hearing—

16 ‘‘(1) sell the clearing bank to a depository insti17 tution or consortium of depository institutions

18 (which consortium may agree on the allocation of

19 the clearing bank among the consortium);

20 ‘‘(2) merge the clearing bank with a depository

21 institution;

22 ‘‘(3) transfer contracts to the same extent as

23 could a receiver for a depository institution under

24 paragraphs (9) and (10) of section 11(e) of the Fed25 eral Deposit Insurance Act;
84

•HR 5660 IH

1 ‘‘(4) transfer assets or liabilities to a depository

2 institution; and

3 ‘‘(5) transfer assets and liabilities to a bridge

4 bank as provided in paragraphs (1), (3)(A), (5), and

5 (6) of section 11(n) of the Federal Deposit Insur6 ance Act, paragraphs (9) through (13) of such sec7 tion, and subparagraphs (A) through (H) and sub8 paragraph (K) of paragraph (4) of such section

9 11(n), except that—

10 ‘‘(A) the bridge bank to which such assets

11 or liabilities are transferred shall be treated as

12 a clearing bank for the purpose of this sub13 section; and

14 ‘‘(B) any references in any such provision

15 of law to the Federal Deposit Insurance Cor16 poration shall be construed to be references to

17 the appointing agency and that references to

18 deposit insurance shall be omitted.

19 ‘‘(c) CERTAIN TRANSFERS INCLUDED.—Any ref20 erence in this section to transfers of liabilities includes a

21 ratable transfer of liabilities within a priority class.

22 ‘‘§ 784. Right to be heard

23 ‘‘The Board or a Federal reserve bank (in the case

24 of a clearing bank that is a member of that bank) may
85

•HR 5660 IH

1 raise and may appear and be heard on any issue in a case

2 under this subchapter.’’.

3 (6) DEFINITIONS OF CLEARING ORGANIZATION,

4 CONTRACT MARKET, AND RELATED DEFINITIONS.—

5 (A) Section 761(2) of title 11, United

6 States Code, is amended to read as follows:

7 ‘‘(2) ‘clearing organization’ means a derivatives

8 clearing organization registered under the Act;’’.

9 (B) Section 761(7) of title 11, United

10 States Code, is amended to read as follows:

11 ‘‘(7) ‘contract market’ means a registered enti12 ty;’’.

13 (C) Section 761(8) of title 11, United

14 States Code, is amended to read as follows:

15 ‘‘(8) ‘contract of sale’, ‘commodity’, ‘derivatives

16 clearing organization’, ‘future delivery’, ‘board of

17 trade’, ‘registered entity’, and ‘futures commission

18 merchant’ have the meanings assigned to those

19 terms in the Act;’’.

20 (d) CLERICAL AMENDMENT.—The table of sections

21 for chapter 7 of title 11, United States Code, is amended

22 by adding at the end the following new items:

23 ‘‘SUBCHAPTER V—CLEARING BANK

24 LIQUIDATION

‘‘Sec.

‘‘781. Definitions.
86

•HR 5660 IH

‘‘782. Selection of trustee.

‘‘783. Additional powers of trustee.

‘‘784. Right to be heard.’’.

1 (e) RESOLUTION OF EDGE ACT CORPORATIONS.—

2 The 16th undesignated paragraph of section 25A of the

3 Federal Reserve Act (12 U.S.C. 624) is amended to read

4 as follows:

5 ‘‘(16) APPOINTMENT OF RECEIVER OR CONSER6 VATOR.—

7 ‘‘(A) IN GENERAL.—The Board may ap8 point a conservator or receiver for a corporation

9 organized under the provisions of this section to

10 the same extent and in the same manner as the

11 Comptroller of the Currency may appoint a con12 servator or receiver for a national bank, and the

13 conservator or receiver for such corporation

14 shall exercise the same powers, functions, and

15 duties, subject to the same limitations, as a

16 conservator or receiver for a national bank.

17 ‘‘(B) EQUIVALENT AUTHORITY.—The

18 Board shall have the same authority with re19 spect to any conservator or receiver appointed

20 for a corporation organized under the provisions

21 of this section under this paragraph and any

22 such corporation as the Comptroller of the Cur23 rency has with respect to a conservator or re24 ceiver of a national bank and the national bank
87

•HR 5660 IH

1 for which a conservator or receiver has been ap2 pointed.

3 ‘‘(C) TITLE 11 PETITIONS.—The Board

4 may direct the conservator or receiver of a cor5 poration organized under the provisions of this

6 section to file a petition pursuant to title 11,

7 United States Code, in which case, title 11,

8 United States Code, shall apply to the corpora9 tion in lieu of otherwise applicable Federal or

10 State insolvency law.’’.

11 (f ) DERIVATIVES CLEARING ORGANIZATIONS.—The

12 Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended

13 by inserting after section 5a, as added by section 111 of

14 this Act, the following:

15 ‘‘SEC. 5b. DERIVATIVES CLEARING ORGANIZATIONS.

16 ‘‘(a) REGISTRATION REQUIREMENT.—It shall be un17 lawful for a derivatives clearing organization, unless reg18 istered with the Commission, directly or indirectly to make

19 use of the mails or any means or instrumentality of inter20 state commerce to perform the functions of a derivatives

21 clearing organization described in section 1a(9) of this Act

22 with respect to a contract of sale of a commodity for fu23 ture delivery (or option on such a contract) or option on

24 a commodity, in each case unless the contract or option—
88

•HR 5660 IH

1 ‘‘(1) is excluded from this Act by section

2 2(a)(1)(C)(i), 2(c), 2(d), 2(f ), or 2(g) of this Act or

3 title IV of the Commodity Futures Modernization

4 Act of 2000, or exempted under section 2(h) or 4(c)

5 of this Act; or

6 ‘‘(2) is a security futures product cleared by a

7 clearing agency registered under the Securities Ex8 change Act of 1934.

9 ‘‘(b) VOLUNTARY REGISTRATION.—A derivatives

10 clearing organization that clears agreements, contracts, or

11 transactions excluded from this Act by section 2(c), 2(d),

12 2(f ), or 2(g) of this Act or title IV of the Commodity Fu13 tures Modernization Act of 2000, or exempted under sec14 tion 2(h) or 4(c) of this Act, or other over-the-counter de15 rivative instruments (as defined in the Federal Deposit In16 surance Corporation Improvement Act of 1991) may reg17 ister with the Commission as a derivatives clearing organi18 zation.

19 ‘‘(c) REGISTRATION OF DERIVATIVES CLEARING OR20 GANIZATIONS.—

21 ‘‘(1) APPLICATION.—A person desiring to reg22 ister as a derivatives clearing organization shall sub23 mit to the Commission an application in such form

24 and containing such information as the Commission

25 may require for the purpose of making the deter-
89

•HR 5660 IH

1 minations required for approval under paragraph

2 (2).

3 ‘‘(2) CORE PRINCIPLES.—

4 ‘‘(A) IN GENERAL.—To be registered and

5 to maintain registration as a derivatives clear6 ing organization, an applicant shall demonstrate

7 to the Commission that the applicant complies

8 with the core principles specified in this para9 graph. The applicant shall have reasonable dis10 cretion in establishing the manner in which it

11 complies with the core principles.

12 ‘‘(B) FINANCIAL RESOURCES.—The appli13 cant shall demonstrate that the applicant has

14 adequate financial, operational, and managerial

15 resources to discharge the responsibilities of a

16 derivatives clearing organization.

17 ‘‘(C) PARTICIPANT AND PRODUCT ELIGI18 BILITY.—The applicant shall establish—

19 ‘‘(i) appropriate admission and con20 tinuing eligibility standards (including ap21 propriate minimum financial requirements)

22 for members of and participants in the or23 ganization; and
90

•HR 5660 IH

1 ‘‘(ii) appropriate standards for deter2 mining eligibility of agreements, contracts,

3 or transactions submitted to the applicant.

4 ‘‘(D) RISK MANAGEMENT.—The applicant

5 shall have the ability to manage the risks asso6 ciated with discharging the responsibilities of a

7 derivatives clearing organization through the

8 use of appropriate tools and procedures.

9 ‘‘(E) SETTLEMENT PROCEDURES.—The

10 applicant shall have the ability to—

11 ‘‘(i) complete settlements on a timely

12 basis under varying circumstances;

13 ‘‘(ii) maintain an adequate record of

14 the flow of funds associated with each

15 transaction that the applicant clears; and

16 ‘‘(iii) comply with the terms and con17 ditions of any permitted netting or offset

18 arrangements with other clearing organiza19 tions.

20 ‘‘(F) TREATMENT OF FUNDS.—The appli21 cant shall have standards and procedures de22 signed to protect and ensure the safety of mem23 ber and participant funds.

24 ‘‘(G) DEFAULT RULES AND PROCE25 DURES.—The applicant shall have rules and
91

•HR 5660 IH

1 procedures designed to allow for efficient, fair,

2 and safe management of events when members

3 or participants become insolvent or otherwise

4 default on their obligations to the derivatives

5 clearing organization.

6 ‘‘(H) RULE ENFORCEMENT.—The appli7 cant shall—

8 ‘‘(i) maintain adequate arrangements

9 and resources for the effective monitoring

10 and enforcement of compliance with rules

11 of the applicant and for resolution of dis12 putes; and

13 ‘‘(ii) have the authority and ability to

14 discipline, limit, suspend, or terminate a

15 member’s or participant’s activities for vio16 lations of rules of the applicant.

17 ‘‘(I) SYSTEM SAFEGUARDS.—The applicant

18 shall demonstrate that the applicant—

19 ‘‘(i) has established and will maintain

20 a program of oversight and risk analysis to

21 ensure that the automated systems of the

22 applicant function properly and have ade23 quate capacity and security; and

24 ‘‘(ii) has established and will maintain

25 emergency procedures and a plan for dis-
92

•HR 5660 IH

1 aster recovery, and will periodically test

2 backup facilities sufficient to ensure daily

3 processing, clearing, and settlement of

4 transactions.

5 ‘‘(J) REPORTING.—The applicant shall

6 provide to the Commission all information nec7 essary for the Commission to conduct the over8 sight function of the applicant with respect to

9 the activities of the derivatives clearing organi10 zation.

11 ‘‘(K) RECORDKEEPING.—The applicant

12 shall maintain records of all activities related to

13 the business of the applicant as a derivatives

14 clearing organization in a form and manner ac15 ceptable to the Commission for a period of 5

16 years.

17 ‘‘(L) PUBLIC INFORMATION.—The appli18 cant shall make information concerning the

19 rules and operating procedures governing the

20 clearing and settlement systems (including de21 fault procedures) available to market partici22 pants.

23 ‘‘(M) INFORMATION-SHARING.—The appli24 cant shall—
93

•HR 5660 IH

1 ‘‘(i) enter into and abide by the terms

2 of all appropriate and applicable domestic

3 and international information-sharing

4 agreements; and

5 ‘‘(ii) use relevant information obtained

6 from the agreements in carrying out the

7 clearing organization’s risk management

8 program.

9 ‘‘(N) ANTITRUST CONSIDERATIONS.—Un10 less appropriate to achieve the purposes of this

11 Act, the derivatives clearing organization shall

12 avoid—

13 ‘‘(i) adopting any rule or taking any

14 action that results in any unreasonable re15 straint of trade; or

16 ‘‘(ii) imposing any material anti17 competitive burden on trading on the con18 tract market.

19 ‘‘(3) ORDERS CONCERNING COMPETITION.—A

20 derivatives clearing organization may request the

21 Commission to issue an order concerning whether a

22 rule or practice of the applicant is the least anti23 competitive means of achieving the objectives, pur24 poses, and policies of this Act.
94

•HR 5660 IH

1 ‘‘(d) EXISTING DERIVATIVES CLEARING ORGANIZA2 TIONS.—A derivatives clearing organization shall be

3 deemed to be registered under this section to the extent

4 that the derivatives clearing organization clears agree5 ments, contracts, or transactions for a board of trade that

6 has been designated by the Commission as a contract mar7 ket for such agreements, contracts, or transactions before

8 the date of the enactment of this section.

9 ‘‘(e) APPOINTMENT OF TRUSTEE.—

10 ‘‘(1) IN GENERAL.—If a proceeding under sec11 tion 5e results in the suspension or revocation of the

12 registration of a derivatives clearing organization, or

13 if a derivatives clearing organization withdraws from

14 registration, the Commission, on notice to the de15 rivatives clearing organization, may apply to the ap16 propriate United States district court where the de17 rivatives clearing organization is located for the ap18 pointment of a trustee.

19 ‘‘(2) ASSUMPTION OF JURISDICTION.—If the

20 Commission applies for appointment of a trustee

21 under paragraph (1)—

22 ‘‘(A) the court may take exclusive jurisdic23 tion over the derivatives clearing organization

24 and the records and assets of the derivatives

25 clearing organization, wherever located; and
95

•HR 5660 IH

1 ‘‘(B) if the court takes jurisdiction under

2 subparagraph (A), the court shall appoint the

3 Commission, or a person designated by the

4 Commission, as trustee with power to take pos5 session and continue to operate or terminate

6 the operations of the derivatives clearing orga7 nization in an orderly manner for the protection

8 of participants, subject to such terms and con9 ditions as the court may prescribe.

10 ‘‘(f ) LINKING OF REGULATED CLEARING FACILI11 TIES.—

12 ‘‘(1) IN GENERAL.—The Commission shall fa13 cilitate the linking or coordination of derivatives

14 clearing organizations registered under this Act with

15 other regulated clearance facilities for the coordi16 nated settlement of cleared transactions.

17 ‘‘(2) COORDINATION.—In carrying out para18 graph (1), the Commission shall coordinate with the

19 Federal banking agencies and the Securities and Ex20 change Commission.’’.

21 SEC. 113. COMMON PROVISIONS APPLICABLE TO REG22 ISTERED ENTITIES.

23 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

24 is amended by inserting after section 5b (as added by sec25 tion 112(f )) the following:
96

•HR 5660 IH

1 ‘‘SEC. 5c. COMMON PROVISIONS APPLICABLE TO REG2 ISTERED ENTITIES.

3 ‘‘(a) ACCEPTABLE BUSINESS PRACTICES UNDER

4 CORE PRINCIPLES.—

5 ‘‘(1) IN GENERAL.—Consistent with the pur6 poses of this Act, the Commission may issue inter7 pretations, or approve interpretations submitted to

8 the Commission, of sections 5(d), 5a(d), and

9 5b(d)(2) to describe what would constitute an ac10 ceptable business practice under such sections.

11 ‘‘(2) EFFECT OF INTERPRETATION.—An inter12 pretation issued under paragraph (1) shall not pro13 vide the exclusive means for complying with such

14 sections.

15 ‘‘(b) DELEGATION OF FUNCTIONS UNDER CORE

16 PRINCIPLES.—

17 ‘‘(1) IN GENERAL.—A contract market or de18 rivatives transaction execution facility may comply

19 with any applicable core principle through delegation

20 of any relevant function to a registered futures asso21 ciation or another registered entity.

22 ‘‘(2) RESPONSIBILITY.—A contract market or

23 derivatives transaction execution facility that dele24 gates a function under paragraph (1) shall remain

25 responsible for carrying out the function.
97

•HR 5660 IH

1 ‘‘(3) NONCOMPLIANCE.—If a contract market

2 or derivatives transaction execution facility that del3 egates a function under paragraph (1) becomes

4 aware that a delegated function is not being per5 formed as required under this Act, the contract mar6 ket or derivatives transaction execution facility shall

7 promptly take steps to address the noncompliance.

8 ‘‘(c) NEW CONTRACTS, NEW RULES, AND RULE

9 AMENDMENTS.—

10 ‘‘(1) IN GENERAL.—Subject to paragraph (2), a

11 registered entity may elect to list for trading or ac12 cept for clearing any new contract or other instru13 ment, or may elect to approve and implement any

14 new rule or rule amendment, by providing to the

15 Commission (and the Secretary of the Treasury, in

16 the case of a contract of sale of a government secu17 rity for future delivery (or option on such a con18 tract) or a rule or rule amendment specifically re19 lated to such a contract) a written certification that

20 the new contract or instrument or clearing of the

21 new contract or instrument, new rule, or rule

22 amendment complies with this Act (including regula23 tions under this Act).

24 ‘‘(2) PRIOR APPROVAL.—
98

•HR 5660 IH

1 ‘‘(A) IN GENERAL.—A registered entity

2 may request that the Commission grant prior

3 approval to any new contract or other instru4 ment, new rule, or rule amendment.

5 ‘‘(B) PRIOR APPROVAL REQUIRED.—Not6 withstanding any other provision of this section,

7 a designated contract market shall submit to

8 the Commission for prior approval each rule

9 amendment that materially changes the terms

10 and conditions, as determined by the Commis11 sion, in any contract of sale for future delivery

12 of a commodity specifically enumerated in sec13 tion 1a(4) (or any option thereon) traded

14 through its facilities if the rule amendment ap15 plies to contracts and delivery months which

16 have already been listed for trading and have

17 open interest.

18 ‘‘(C) DEADLINE.—If prior approval is re19 quested under subparagraph (A), the Commis20 sion shall take final action on the request not

21 later than 90 days after submission of the re22 quest, unless the person submitting the request

23 agrees to an extension of the time limitation es24 tablished under this subparagraph.
99

•HR 5660 IH

1 ‘‘(3) APPROVAL.—The Commission shall ap2 prove any such new contract or instrument, new

3 rule, or rule amendment unless the Commission

4 finds that the new contract or instrument, new rule,

5 or rule amendment would violate this Act.

6 ‘‘(d) VIOLATION OF CORE PRINCIPLES.—

7 ‘‘(1) IN GENERAL.—If the Commission deter8 mines, on the basis of substantial evidence, that a

9 registered entity is violating any applicable core

10 principle specified in section 5(d), 5a(d), or

11 5b(d)(2), the Commission shall—

12 ‘‘(A) notify the registered entity in writing

13 of the determination; and

14 ‘‘(B) afford the registered entity an oppor15 tunity to make appropriate changes to bring the

16 registered entity into compliance with the core

17 principles.

18 ‘‘(2) FAILURE TO MAKE CHANGES.—If, not

19 later than 30 days after receiving a notification

20 under paragraph (1), a registered entity fails to

21 make changes that, in the opinion of the Commis22 sion, are necessary to comply with the core prin23 ciples, the Commission may take further action in

24 accordance with this Act.
100

•HR 5660 IH

1 ‘‘(e) RESERVATION OF EMERGENCY AUTHORITY.—

2 Nothing in this section shall limit or in any way affect

3 the emergency powers of the Commission provided in sec4 tion 8a(9).’’.

5 SEC. 114. EXEMPT BOARDS OF TRADE.

6 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

7 is amended by inserting after section 5c (as added by sec8 tion 113) the following:

9 ‘‘SEC. 5d. EXEMPT BOARDS OF TRADE.

10 ‘‘(a) ELECTION TO REGISTER WITH THE COMMIS11 SION.—A board of trade that meets the requirements of

12 subsection (b) of this section may operate as an exempt

13 board of trade on receipt from the board of trade of a

14 notice, provided in such manner as the Commission may

15 by rule or regulation prescribe, that the board of trade

16 elects to operate as an exempt board of trade. Except as

17 otherwise provided in this section, no provision of this Act

18 (other than subparagraphs (C) and (D) of sections 2(a)(1)

19 and 12(e)(2)(B)) shall apply with respect to a contract

20 of sale of a commodity for future delivery (or option on

21 such a contract) traded on or through the facilities of an

22 exempt board of trade.

23 ‘‘(b) CRITERIA FOR EXEMPTION.—To qualify for an

24 exemption under subsection (a), a board of trade shall

25 limit trading on or through the facilities of the board of
101

•HR 5660 IH

1 trade to contracts of sale of a commodity for future deliv2 ery (or options on such contracts or on a commodity)—

3 ‘‘(1) for which the underlying commodity has—

4 ‘‘(A) a nearly inexhaustible deliverable sup5 ply;

6 ‘‘(B) a deliverable supply that is suffi7 ciently large, and a cash market sufficiently liq8 uid, to render any contract traded on the com9 modity highly unlikely to be susceptible to the

10 threat of manipulation; or

11 ‘‘(C) no cash market;

12 ‘‘(2) that are entered into only between persons

13 that are eligible contract participants at the time at

14 which the persons enter into the contract; and

15 ‘‘(3) that are not contracts of sale (or options

16 on such a contract or on a commodity) for future

17 delivery of any security, including any group or

18 index of securities or any interest in, or based on the

19 value of, any security or any group or index of secu20 rities.

21 ‘‘(c) ANTIMANIPULATION REQUIREMENTS.—A party

22 to a contract of sale of a commodity for future delivery

23 (or option on such a contract or on a commodity) that

24 is traded on an exempt board of trade shall be subject

25 to sections 4b, 4c(b), 4o, 6(c), and 9(a)(2), and the Com-
102

•HR 5660 IH

1 mission shall enforce those provisions with respect to any

2 such trading.

3 ‘‘(d) PRICE DISCOVERY.—If the Commission finds

4 that an exempt board of trade is a significant source of

5 price discovery for transactions in the cash market for the

6 commodity underlying any contract, agreement, or trans7 action traded on or through the facilities of the board of

8 trade, the board of trade shall disseminate publicly on a

9 daily basis trading volume, opening and closing price

10 ranges, open interest, and other trading data as appro11 priate to the market.

12 ‘‘(e) JURISDICTION.—The Commission shall have ex13 clusive jurisdiction over any account, agreement, contract,

14 or transaction involving a contract of sale of a commodity

15 for future delivery, or option on such a contract or on a

16 commodity, to the extent that the account, agreement,

17 contract, or transaction is traded on an exempt board of

18 trade.

19 ‘‘(f ) SUBSIDIARIES.—A board of trade that is des20 ignated as a contract market or registered as a derivatives

21 transaction execution facility may operate an exempt

22 board of trade by establishing a separate subsidiary or

23 other legal entity and otherwise satisfying the require24 ments of this section.
103

•HR 5660 IH

1 ‘‘(g) An exempt board of trade that meets the re2 quirements of subsection (b) shall not represent to any

3 person that the board of trade is registered with, or des4 ignated, recognized, licensed, or approved by the Commis5 sion.’’.

6 SEC. 115. SUSPENSION OR REVOCATION OF DESIGNATION

7 AS CONTRACT MARKET.

8 Section 5e of the Commodity Exchange Act (7 U.S.C.

9 7b) (as redesignated by section 20(1)) is amended to read

10 as follows:

11 ‘‘SEC. 5e. SUSPENSION OR REVOCATION OF DESIGNATION

12 AS REGISTERED ENTITY.

13 ‘‘The failure of a registered entity to comply with any

14 provision of this Act, or any regulation or order of the

15 Commission under this Act, shall be cause for the suspen16 sion of the registered entity for a period not to exceed 180

17 days, or revocation of designation as a registered entity

18 in accordance with the procedures and subject to the judi19 cial review provided in section 6(b).’’.

20 SEC. 116. AUTHORIZATION OF APPROPRIATIONS.

21 Section 12(d) of the Commodity Exchange Act (7

22 U.S.C. 16(d)) is amended by striking ‘‘2000’’ and insert23 ing ‘‘2005’’.
104

•HR 5660 IH

1 SEC. 117. PREEMPTION.

2 Section 12 of the Commodity Exchange Act (7 U.S.C.

3 16(e)) is amended by striking subsection (e) and inserting

4 the following:

5 ‘‘(e) RELATION TO OTHER LAW, DEPARTMENTS, OR

6 AGENCIES.—

7 ‘‘(1) Nothing in this Act shall supersede or

8 preempt—

9 ‘‘(A) criminal prosecution under any Fed10 eral criminal statute;

11 ‘‘(B) the application of any Federal or

12 State statute (except as provided in paragraph

13 (2)), including any rule or regulation there14 under, to any transaction in or involving any

15 commodity, product, right, service, or interest—

16 ‘‘(i) that is not conducted on or sub17 ject to the rules of a registered entity or

18 exempt board of trade;

19 ‘‘(ii) (except as otherwise specified by

20 the Commission by rule or regulation) that

21 is not conducted on or subject to the rules

22 of any board of trade, exchange, or market

23 located outside the United States, its terri24 tories or possessions; or
105

•HR 5660 IH

1 ‘‘(iii) that is not subject to regulation

2 by the Commission under section 4c or 19;

3 or

4 ‘‘(C) the application of any Federal or

5 State statute, including any rule or regulation

6 thereunder, to any person required to be reg7 istered or designated under this Act who shall

8 fail or refuse to obtain such registration or des9 ignation.

10 ‘‘(2) This Act shall supersede and preempt the

11 application of any State or local law that prohibits

12 or regulates gaming or the operation of bucket shops

13 (other than antifraud provisions of general applica14 bility) in the case of—

15 ‘‘(A) an electronic trading facility excluded

16 under section 2(e) of this Act; and

17 ‘‘(B) an agreement, contract, or trans18 action that is excluded from this Act under sec19 tion 2(c), 2(d), 2(f ), or 2(g) of this Act or title

20 IV of the Commodity Futures Modernization

21 Act of 2000, or exempted under section 2(h) or

22 4(c) of this Act (regardless of whether any such

23 agreement, contract, or transaction is otherwise

24 subject to this Act).’’.
106

•HR 5660 IH

1 SEC. 118. PREDISPUTE RESOLUTION AGREEMENTS FOR IN2 STITUTIONAL CUSTOMERS.

3 Section 14 of the Commodity Exchange Act (7 U.S.C.

4 18) is amended by striking subsection (g) and inserting

5 the following:

6 ‘‘(g) PREDISPUTE RESOLUTION AGREEMENTS FOR

7 INSTITUTIONAL CUSTOMERS.—Nothing in this section

8 prohibits a registered futures commission merchant from

9 requiring a customer that is an eligible contract partici10 pant, as a condition to the commission merchant’s con11 ducting a transaction for the customer, to enter into an

12 agreement waiving the right to file a claim under this sec13 tion.’’.

14 SEC. 119. CONSIDERATION OF COSTS AND BENEFITS AND

15 ANTITRUST LAWS.

16 Section 15 of the Commodity Exchange Act (7 U.S.C.

17 19) is amended by striking ‘‘SEC. 15. The Commission’’

18 and inserting the following:

19 ‘‘SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND

20 ANTITRUST LAWS.

21 ‘‘(a) COSTS AND BENEFITS.—

22 ‘‘(1) IN GENERAL.—Before promulgating a reg23 ulation under this Act or issuing an order (except as

24 provided in paragraph (3)), the Commission shall

25 consider the costs and benefits of the action of the

26 Commission.
107

•HR 5660 IH

1 ‘‘(2) CONSIDERATIONS.—The costs and benefits

2 of the proposed Commission action shall be evalu3 ated in light of—

4 ‘‘(A) considerations of protection of market

5 participants and the public;

6 ‘‘(B) considerations of the efficiency, com7 petitiveness, and financial integrity of futures

8 markets;

9 ‘‘(C) considerations of price discovery;

10 ‘‘(D) considerations of sound risk manage11 ment practices; and

12 ‘‘(E) other public interest considerations.

13 ‘‘(3) APPLICABILITY.—This subsection does not

14 apply to the following actions of the Commission:

15 ‘‘(A) An order that initiates, is part of, or

16 is the result of an adjudicatory or investigative

17 process of the Commission.

18 ‘‘(B) An emergency action.

19 ‘‘(C) A finding of fact regarding compli20 ance with a requirement of the Commission.

21 ‘‘(b) ANTITRUST LAWS.—The Commission’’.
108

•HR 5660 IH

1 SEC. 120. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE

2 COUNTERPARTIES.

3 Section 22(a) of the Commodity Exchange Act (7

4 U.S.C. 25(a)) is amended by adding at the end the fol5 lowing:

6 ‘‘(4) CONTRACT ENFORCEMENT BETWEEN ELI7 GIBLE COUNTERPARTIES.—No agreement, contract,

8 or transaction between eligible contract participants

9 or persons reasonably believed to be eligible contract

10 participants, and no hybrid instrument sold to any

11 investor, shall be void, voidable, or unenforceable,

12 and no such party shall be entitled to rescind, or re13 cover any payment made with respect to, such an

14 agreement, contract, transaction, or instrument

15 under this section or any other provision of Federal

16 or State law, based solely on the failure of the agree17 ment, contract, transaction, or instrument to comply

18 with the terms or conditions of an exemption or ex19 clusion from any provision of this Act or regulations

20 of the Commission.’’.

21 SEC. 121. SPECIAL PROCEDURES TO ENCOURAGE AND FA22 CILITATE BONA FIDE HEDGING BY AGRICUL23 TURAL PRODUCERS.

24 The Commodity Exchange Act, as otherwise amended

25 by this Act, is amended by inserting after section 4o the

26 following:
109

•HR 5660 IH

1 ‘‘SEC. 4p. SPECIAL PROCEDURES TO ENCOURAGE AND FA2 CILITATE BONA FIDE HEDGING BY AGRICUL3 TURAL PRODUCERS.

4 ‘‘(a) AUTHORITY.—The Commission shall consider

5 issuing rules or orders which—

6 ‘‘(1) prescribe procedures under which each

7 contract market is to provide for orderly delivery, in8 cluding temporary storage costs, of any agricultural

9 commodity enumerated in section 1a(4) which is the

10 subject of a contract for purchase or sale for future

11 delivery;

12 ‘‘(2) increase the ease with which domestic agri13 cultural producers may participate in contract mar14 kets, including by addressing cost and margin re15 quirements, so as to better enable the producers to

16 hedge price risk associated with their production;

17 ‘‘(3) provide flexibility in the minimum quan18 tities of such agricultural commodities that may be

19 the subject of a contract for purchase or sale for fu20 ture delivery that is traded on a contract market, to

21 better allow domestic agricultural producers to hedge

22 such price risk; and

23 ‘‘(4) encourage contract markets to provide in24 formation and otherwise facilitate the participation

25 of domestic agricultural producers in contract mar26 kets.
110

•HR 5660 IH

1 ‘‘(b) REPORT.—Within 1 year after the date of the

2 enactment of this section, the Commission shall submit to

3 the Committee on Agriculture of the House of Representa4 tives and the Committee on Agriculture, Nutrition, and

5 Forestry of the Senate a report on the steps it has taken

6 to implement this section and on the activities of contract

7 markets pursuant to this section.’’.

8 SEC. 122. RULE OF CONSTRUCTION.

9 Except as expressly provided in this Act or an amend10 ment made by this Act, nothing in this Act or an amend11 ment made by this Act supersedes, affects, or otherwise

12 limits or expands the scope and applicability of laws gov13 erning the Securities and Exchange Commission.

14 SEC. 123. TECHNICAL AND CONFORMING AMENDMENTS.

15 (a) COMMODITY EXCHANGE ACT.—

16 (1) Section 1a of the Commodity Exchange Act

17 (7 U.S.C. 1a) (as amended by section 101) is

18 amended—

19 (A) in paragraphs (5), (6), (16), (17),

20 (20), and (23), by inserting ‘‘or derivatives

21 transaction execution facility’’ after ‘‘contract

22 market’’ each place it appears; and

23 (B) in paragraph (24)—
111

•HR 5660 IH

1 (i) in the paragraph heading, by strik2 ing ‘‘CONTRACT MARKET’’ and inserting

3 ‘‘REGISTERED ENTITY’’;

4 (ii) by striking ‘‘contract market’’

5 each place it appears and inserting ‘‘reg6 istered entity’’; and

7 (iii) by adding at the end the fol8 lowing:

9 ‘‘A participant in an alternative trading system that

10 is designated as a contract market pursuant to sec11 tion 5f is deemed a member of the contract market

12 for purposes of transactions in security futures prod13 ucts through the contract market.’’.

14 (2) Section 2 of the Commodity Exchange Act

15 (7 U.S.C. 2, 2a, 4, 4a, 3) is amended—

16 (A) by striking ‘‘SEC. 2. (a)(1)(A)(i) The’’

17 and inserting the following:

18 ‘‘SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF

19 PRINCIPAL FOR ACT OF AGENT; COMMODITY

20 FUTURES TRADING COMMISSION; TRANS21 ACTION IN INTERSTATE COMMERCE.

22 ‘‘(a) JURISDICTION OF COMMISSION; COMMODITY

23 FUTURES TRADING COMMISSION.—

24 ‘‘(1) JURISDICTION OF COMMISSION.—

25 ‘‘(A) IN GENERAL.—The’’; and
112

•HR 5660 IH

1 (B) in subsection (a)(1)—

2 (i) in subparagraph (A) (as amended

3 by subparagraph (A) of this paragraph)—

4 (I) by striking ‘‘subparagraph

5 (B) of this subparagraph’’ and insert6 ing ‘‘subparagraphs (C) and (D) of

7 this paragraph and subsections (c)

8 through (i) of this section’’;

9 (II) by striking ‘‘contract market

10 designated pursuant to section 5 of

11 this Act’’ and inserting ‘‘contract

12 market designated or derivatives

13 transaction execution facility reg14 istered pursuant to section 5 or 5a’’;

15 (III) by striking clause (ii); and

16 (IV) in clause (iii), by striking

17 ‘‘(iii) The’’ and inserting the fol18 lowing:

19 ‘‘(B) LIABILITY OF PRINCIPAL FOR ACT OF

20 AGENT.—The’’; and

21 (ii) in subparagraph (B)—

22 (I) by striking ‘‘(B)’’ and insert23 ing ‘‘(C)’’;

24 (II) in clause (v)—
113

•HR 5660 IH

1 (aa) by striking ‘‘section 3

2 of the Securities Act of 1933’’;

3 and

4 (bb) by inserting ‘‘or sub5 paragraph (D)’’ after ‘‘subpara6 graph’’; and

7 (III) by moving clauses (i)

8 through (v) 4 ems to the right;

9 (C) in subsection (a)(7), by striking ‘‘con10 tract market’’ and inserting ‘‘registered entity’’;

11 (D) in subsection (a)(8)(B)(ii)—

12 (i) in the first sentence, by striking

13 ‘‘designation as a contract market’’ and in14 serting ‘‘designation or registration as a

15 contract market or derivatives transaction

16 execution facility’’;

17 (ii) in the second sentence, by striking

18 ‘‘designate a board of trade as a contract

19 market’’ and inserting ‘‘designate or reg20 ister a board of trade as a contract market

21 or derivatives transaction execution facil22 ity’’; and

23 (iii) in the fourth sentence, by striking

24 ‘‘designating, or refusing, suspending, or

25 revoking the designation of, a board of
114

•HR 5660 IH

1 trade as a contract market involving trans2 actions for future delivery referred to in

3 this clause or in considering possible emer4 gency action under section 8a(9) of this

5 Act’’ and inserting ‘‘designating, reg6 istering, or refusing, suspending, or revok7 ing the designation or registration of, a

8 board of trade as a contract market or de9 rivatives transaction execution facility in10 volving transactions for future delivery re11 ferred to in this clause or in considering

12 any possible action under this Act (includ13 ing without limitation emergency action

14 under section 8a(9))’’, and by striking

15 ‘‘designation, suspension, revocation, or

16 emergency action’’ and inserting ‘‘designa17 tion, registration, suspension, revocation,

18 or action’’; and

19 (E) in subsection (a), by moving para20 graphs (2) through (9) 2 ems to the right.

21 (3) Section 4 of the Commodity Exchange Act

22 (7 U.S.C. 6) is amended—

23 (A) in subsection (a)—

24 (i) in paragraph (1), by striking ‘‘des25 ignated by the Commission as a ‘contract
115

•HR 5660 IH

1 market’ for’’ and inserting ‘‘designated or

2 registered by the Commission as a contract

3 market or derivatives transaction execution

4 facility for’’;

5 (ii) in paragraph (2), by striking

6 ‘‘member of such’’; and

7 (iii) in paragraph (3), by inserting ‘‘or

8 derivatives transaction execution facility’’

9 after ‘‘contract market’’; and

10 (B) in subsection (c)—

11 (i) in paragraph (1)—

12 (I) by striking ‘‘designated as a

13 contract market’’ and inserting ‘‘des14 ignated or registered as a contract

15 market or derivatives transaction exe16 cution facility’’; and

17 (II) by striking ‘‘section

18 2(a)(1)(B)’’ and inserting ‘‘subpara19 graphs (C)(ii) and (D) of section

20 2(a)(1), except that the Commission

21 and the Securities and Exchange

22 Commission may by rule, regulation,

23 or order jointly exclude any agree24 ment, contract, or transaction from

25 section 2(a)(1)(D)’’; and
116

•HR 5660 IH

1 (ii) in paragraph (2)(B)(ii), by insert2 ing ‘‘or derivatives transaction execution

3 facility’’ after ‘‘contract market’’.

4 (4) Section 4a of the Commodity Exchange Act

5 (7 U.S.C. 6a) is amended—

6 (A) in subsection (a)—

7 (i) in the first sentence, by inserting

8 ‘‘or derivatives transaction execution facili9 ties’’ after ‘‘contract markets’’; and

10 (ii) in the second sentence, by insert11 ing ‘‘or derivatives transaction execution

12 facility’’ after ‘‘contract market’’;

13 (B) in subsection (b)—

14 (i) in paragraph (1), by inserting ‘‘, or

15 derivatives transaction execution facility or

16 facilities,’’ after ‘‘markets’’; and

17 (ii) in paragraph (2), by inserting ‘‘or

18 derivatives transaction execution facility’’

19 after ‘‘contract market’’; and

20 (C) in subsection (e)—

21 (i) by striking ‘‘contract market or’’

22 each place it appears and inserting ‘‘con23 tract market, derivatives transaction execu24 tion facility, or’’;
117

•HR 5660 IH

1 (ii) by striking ‘‘licensed or des2 ignated’’ each place it appears and insert3 ing ‘‘licensed, designated, or registered’’;

4 and

5 (iii) by striking ‘‘contract market, or’’

6 and inserting ‘‘contract market or deriva7 tives transaction execution facility, or’’.

8 (5) Section 4b(a) of the Commodity Exchange

9 Act (7 U.S.C. 6b(a)) is amended by striking ‘‘con10 tract market’’ each place it appears and inserting

11 ‘‘registered entity’’.

12 (6) Sections 4c(g), 4d, 4e, and 4f of the Com13 modity Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f )

14 are amended by inserting ‘‘or derivatives transaction

15 execution facility’’ after ‘‘contract market’’ each

16 place it appears.

17 (7) Section 4g of the Commodity Exchange Act

18 (7 U.S.C. 6g) is amended—

19 (A) in subsection (b), by striking ‘‘clear20 inghouse and contract market’’ and inserting

21 ‘‘registered entity’’; and

22 (B) in subsection (f ), by striking ‘‘clear23 inghouses, contract markets, and exchanges’’

24 and inserting ‘‘registered entities’’.
118

•HR 5660 IH

1 (8) Section 4h of the Commodity Exchange Act

2 (7 U.S.C. 6h) is amended by striking ‘‘contract mar3 ket’’ each place it appears and inserting ‘‘registered

4 entity’’.

5 (9) Section 4i of the Commodity Exchange Act

6 (7 U.S.C. 6i) is amended in the first sentence by in7 serting ‘‘or derivatives transaction execution facility’’

8 after ‘‘contract market’’.

9 (10) Section 4l of the Commodity Exchange Act

10 (7 U.S.C. 6l) is amended by inserting ‘‘or derivatives

11 transaction execution facilities’’ after ‘‘contract mar12 kets’’ each place it appears.

13 (11) Section 4p of the Commodity Exchange

14 Act (7 U.S.C. 6p) is amended—

15 (A) in the third sentence of subsection (a),

16 by striking ‘‘Act or contract markets’’ and in17 serting ‘‘Act, contract markets, or derivatives

18 transaction execution facilities’’; and

19 (B) in subsection (b), by inserting ‘‘deriva20 tives transaction execution facility,’’ after ‘‘con21 tract market,’’.

22 (12) Section 6 of the Commodity Exchange Act

23 (7 U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended—

24 (A) in subsection (a)—

25 (i) in the first sentence—
119

•HR 5660 IH

1 (I) by striking ‘‘board of trade

2 desiring to be designated a ‘contract

3 market’ shall make application to the

4 Commission for such designation’’ and

5 inserting ‘‘person desiring to be des6 ignated or registered as a contract

7 market or derivatives transaction exe8 cution facility shall make application

9 to the Commission for the designation

10 or registration’’;

11 (II) by striking ‘‘above condi12 tions’’ and inserting ‘‘conditions set

13 forth in this Act’’; and

14 (III) by striking ‘‘above require15 ments’’ and inserting ‘‘the require16 ments of this Act’’;

17 (ii) in the second sentence, by striking

18 ‘‘designation as a contract market within

19 one year’’ and inserting ‘‘designation or

20 registration as a contract market or de21 rivatives transaction execution facility

22 within 180 days’’;

23 (iii) in the third sentence—

24 (I) by striking ‘‘board of trade’’

25 and inserting ‘‘person’’; and
120

•HR 5660 IH

1 (II) by striking ‘‘one-year period’’

2 and inserting ‘‘180-day period’’; and

3 (iv) in the last sentence, by striking

4 ‘‘designate as a ‘contract market’ any

5 board of trade that has made application

6 therefor, such board of trade’’ and insert7 ing ‘‘designate or register as a contract

8 market or derivatives transaction execution

9 facility any person that has made applica10 tion therefor, the person’’;

11 (B) in subsection (b)—

12 (i) in the first sentence—

13 (I) by striking ‘‘designation of

14 any board of trade as a ‘contract mar15 ket’ upon’’ and inserting ‘‘designation

16 or registration of any contract market

17 or derivatives transaction execution

18 facility on’’;

19 (II) by striking ‘‘board of trade’’

20 each place it appears and inserting

21 ‘‘contract market or derivatives trans22 action execution facility’’; and

23 (III) by striking ‘‘designation as

24 set forth in section 5 of this Act’’ and

25 inserting ‘‘designation or registration
121

•HR 5660 IH

1 as set forth in sections 5 through 5b

2 or section 5f’’;

3 (ii) in the second sentence—

4 (I) by striking ‘‘board of trade’’

5 the first place it appears and inserting

6 ‘‘contract market or derivatives trans7 action execution facility’’; and

8 (II) by striking ‘‘board of trade’’

9 the second and third places it appears

10 and inserting ‘‘person’’; and

11 (iii) in the last sentence, by striking

12 ‘‘board of trade’’ each place it appears and

13 inserting ‘‘person’’;

14 (C) in subsection (c)—

15 (i) by striking ‘‘contract market’’ each

16 place it appears and inserting ‘‘registered

17 entity’’;

18 (ii) by striking ‘‘contract markets’’

19 each place it appears and inserting ‘‘reg20 istered entities’’; and

21 (iii) by striking ‘‘trading privileges’’

22 each place it appears and inserting ‘‘privi23 leges’’;
122

•HR 5660 IH

1 (D) in subsection (d), by striking ‘‘contract

2 market’’ each place it appears and inserting

3 ‘‘registered entity’’; and

4 (E) in subsection (e), by striking ‘‘trading

5 on all contract markets’’ each place it appears

6 and inserting ‘‘the privileges of all registered

7 entities’’.

8 (13) Section 6a of the Commodity Exchange

9 Act (7 U.S.C. 10a) is amended—

10 (A) in the first sentence of subsection (a),

11 by striking ‘‘designated as a ‘contract market’

12 shall’’ and inserting ‘‘designated or registered

13 as a contract market or a derivatives trans14 action execution facility’’; and

15 (B) in subsection (b), by striking ‘‘des16 ignated as a contract market’’ and inserting

17 ‘‘designated or registered as a contract market

18 or a derivatives transaction execution facility’’.

19 (14) Section 6b of the Commodity Exchange

20 Act (7 U.S.C. 13a) is amended—

21 (A) by striking ‘‘contract market’’ each

22 place it appears and inserting ‘‘registered enti23 ty’’;

24 (B) in the first sentence, by striking ‘‘des25 ignation as set forth in section 5 of this Act’’
123

•HR 5660 IH

1 and inserting ‘‘designation or registration as set

2 forth in sections 5 through 5c’’; and

3 (C) in the last sentence, by striking ‘‘the

4 contract market’s ability’’ and inserting ‘‘the

5 ability of the registered entity’’.

6 (15) Section 6c(a) of the Commodity Exchange

7 Act (7 U.S.C. 13a–1(a)) by striking ‘‘contract mar8 ket’’ and inserting ‘‘registered entity’’.

9 (16) Section 6d(1) of the Commodity Exchange

10 Act (7 U.S.C. 13a–2(1)) is amended by inserting

11 ‘‘derivatives transaction execution facility,’’ after

12 ‘‘contract market,’’.

13 (17) Section 7 of the Commodity Exchange Act

14 (7 U.S.C. 11) is amended—

15 (A) in the first sentence—

16 (i) by striking ‘‘board of trade’’ and

17 inserting ‘‘person’’;

18 (ii) by inserting ‘‘or registered’’ after

19 ‘‘designated’’;

20 (iii) by inserting ‘‘or registration’’

21 after ‘‘designation’’ each place it appears;

22 and

23 (iv) by striking ‘‘contract market’’

24 each place it appears and inserting ‘‘reg25 istered entity’’;
124

•HR 5660 IH

1 (B) in the second sentence—

2 (i) by striking ‘‘designation of such

3 board of trade as a contract market’’ and

4 inserting ‘‘designation or registration of

5 the registered entity’’; and

6 (ii) by striking ‘‘contract markets’’

7 and inserting ‘‘registered entities’’; and

8 (C) in the last sentence—

9 (i) by striking ‘‘board of trade’’ and

10 inserting ‘‘person’’; and

11 (ii) by striking ‘‘designated again a

12 contract market’’ and inserting ‘‘des13 ignated or registered again a registered en14 tity’’.

15 (18) Section 8(c) of the Commodity Exchange

16 Act (7 U.S.C. 12(c)) is amended in the first sen17 tence by striking ‘‘board of trade’’ and inserting

18 ‘‘registered entity’’.

19 (19) Section 8a of the Commodity Exchange

20 Act (7 U.S.C. 12a) is amended—

21 (A) by striking ‘‘contract market’’ each

22 place it appears and inserting ‘‘registered enti23 ty’’; and

24 (B) in paragraph (2)(F), by striking ‘‘trad25 ing privileges’’ and inserting ‘‘privileges’’.
125

•HR 5660 IH

1 (20) Sections 8b and 8c(e) of the Commodity

2 Exchange Act (7 U.S.C. 12b, 12c(e)) are amended

3 by striking ‘‘contract market’’ each place it appears

4 and inserting ‘‘registered entity’’.

5 (21) Section 8e of the Commodity Exchange

6 Act (7 U.S.C. 12e) is repealed.

7 (22) Section 9 of the Commodity Exchange Act

8 (7 U.S.C. 13) is amended by striking ‘‘contract mar9 ket’’ each place it appears and inserting ‘‘registered

10 entity’’.

11 (23) Section 14 of the Commodity Exchange

12 Act (7 U.S.C. 18) is amended—

13 (A) in subsection (a)(1)(B), by striking

14 ‘‘contract market’’ and inserting ‘‘registered en15 tity’’; and

16 (B) in subsection (f ), by striking ‘‘contract

17 markets’’ and inserting ‘‘registered entities’’.

18 (24) Section 17 of the Commodity Exchange

19 Act (7 U.S.C. 21) is amended by striking ‘‘contract

20 market’’ each place it appears and inserting ‘‘reg21 istered entity’’.

22 (25) Section 22 of the Commodity Exchange

23 Act (7 U.S.C. 25) is amended—

24 (A) in subsection (a)—

25 (i) in paragraph (1)—
126

•HR 5660 IH

1 (I) by striking ‘‘contract market,

2 clearing organization of a contract

3 market, licensed board of trade,’’ and

4 inserting ‘‘registered entity’’; and

5 (II) in subparagraph (C)(i), by

6 striking ‘‘contract market’’ and insert7 ing ‘‘registered entity’’;

8 (ii) in paragraph (2), by striking ‘‘sec9 tions 5a(11),’’ and inserting ‘‘sections

10 5(d)(13), 5b(b)(1)(E),’’; and

11 (iii) in paragraph (3), by striking

12 ‘‘contract market’’ and inserting ‘‘reg13 istered entity’’; and

14 (B) in subsection (b)—

15 (i) in paragraph (1)—

16 (I) by striking ‘‘contract market

17 or clearing organization of a contract

18 market’’ and inserting ‘‘registered en19 tity’’;

20 (II) by striking ‘‘section 5a(8)

21 and section 5a(9) of this Act’’ and in22 serting ‘‘sections 5 through 5c’’;

23 (III) by striking ‘‘contract mar24 ket, clearing organization of a con25 tract market, or licensed board of
127

•HR 5660 IH

1 trade’’ and inserting ‘‘registered enti2 ty’’; and

3 (IV) by striking ‘‘contract market

4 or licensed board of trade’’ and insert5 ing ‘‘registered entity’’;

6 (ii) in paragraph (3)—

7 (I) by striking ‘‘a contract mar8 ket, clearing organization, licensed

9 board of trade,’’ and inserting ‘‘reg10 istered entity’’; and

11 (II) by striking ‘‘contract market,

12 licensed board of trade’’ and inserting

13 ‘‘registered entity’’;

14 (iii) in paragraph (4), by striking

15 ‘‘contract market, licensed board of trade,

16 clearing organization,’’ and inserting ‘‘reg17 istered entity’’; and

18 (iv) in paragraph (5), by striking

19 ‘‘contract market, licensed board of trade,

20 clearing organization,’’ and inserting ‘‘reg21 istered entity’’.

22 (b) FEDERAL DEPOSIT INSURANCE CORPORATION

23 IMPROVEMENT ACT OF 1991.—Section 402(2) of the Fed24 eral Deposit Insurance Corporation Improvement Act of
128

•HR 5660 IH

1 1991 (12 U.S.C. 4402(2)) is amended by striking sub2 paragraph (B) and inserting the following:

3 ‘‘(B) that is registered as a derivatives

4 clearing organization under section 5b of the

5 Commodity Exchange Act.’’.

6 SEC. 124. PRIVACY.

7 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

8 is amended by inserting after section 5f (as added by sec9 tion 252) the following:

10 ‘‘SEC. 5g. PRIVACY.

11 ‘‘(a) TREATMENT AS FINANCIAL INSTITUTIONS.—

12 Notwithstanding section 509(3)(B) of the Gramm-Leach13 Bliley Act, any futures commission merchant, commodity

14 trading advisor, commodity pool operator, or introducing

15 broker that is subject to the jurisdiction of the Commis16 sion under this Act with respect to any financial activity

17 shall be treated as a financial institution for purposes of

18 title V of such Act with respect to such financial activity.

19 ‘‘(b) TREATMENT OF CFTC AS FEDERAL FUNC20 TIONAL REGULATOR.—For purposes of title V of such

21 Act, the Commission shall be treated as a Federal func22 tional regulator within the meaning of section 509(2) of

23 such Act and shall prescribe regulations under such title

24 within 6 months after the date of the enactment of this

25 section.’’.
129

•HR 5660 IH

1 SEC. 125. REPORT TO CONGRESS.

2 (a) The Commodity Futures Trading Commission (in

3 this section referred to as the ‘‘Commission’’) shall under4 take and complete a study of the Commodity Exchange

5 Act (in this section referred to as ‘‘the Act’’) and the Com6 mission’s rules, regulations and orders governing the con7 duct of persons required to be registered under the Act,

8 not later than 1 year after the date of the enactment of

9 this Act. The study shall identify—

10 (1) the core principles and interpretations of ac11 ceptable business practices that the Commission has

12 adopted or intends to adopt to replace the provisions

13 of the Act and the Commission’s rules and regula14 tions thereunder;

15 (2) the rules and regulations that the Commis16 sion has determined must be retained and the rea17 sons therefor;

18 (3) the extent to which the Commission believes

19 it can effect the changes identified in paragraph (1)

20 of this subsection through its exemptive authority

21 under section 4(c) of the Act; and

22 (4) the regulatory functions the Commission

23 currently performs that can be delegated to a reg24 istered futures association (within the meaning of

25 the Act) and the regulatory functions that the Com-
130

•HR 5660 IH

1 mission has determined must be retained and the

2 reasons therefor.

3 (b) In conducting the study, the Commission shall so4 licit the views of the public as well as Commission reg5 istrants, registered entities, and registered futures asso6 ciations (all within the meaning of the Act).

7 (c) The Commission shall transmit to the Committee

8 on Agriculture of the House of Representatives and the

9 Committee on Agriculture, Nutrition, and Forestry of the

10 Senate a report of the results of its study, which shall

11 include an analysis of comments received.

12 SEC. 126. INTERNATIONAL ACTIVITIES OF THE COMMODITY

13 FUTURES TRADING COMMISSION.

14 (a) FINDINGS.—The Congress finds that—

15 (1) derivatives markets serving United States

16 industry are increasingly global in scope;

17 (2) developments in data processing and com18 munications technologies enable users of risk man19 agement services to analyze and compare those serv20 ices on a worldwide basis;

21 (3) financial services regulatory policy must be

22 flexible to account for rapidly changing derivatives

23 industry business practices;
131

•HR 5660 IH

1 (4) regulatory impediments to the operation of

2 global business interests can compromise the com3 petitiveness of United States businesses;

4 (5) events that disrupt financial markets and

5 economies are often global in scope, require rapid

6 regulatory response, and coordinated regulatory ef7 fort across international jurisdictions;

8 (6) through its membership in the International

9 Organisation of Securities Commissions, the Com10 modity Futures Trading Commission has promoted

11 beneficial communication among market regulators

12 and international regulatory cooperation; and

13 (7) the Commodity Futures Trading Commis14 sion and other United States financial regulators

15 and self-regulatory organizations should continue to

16 foster productive and cooperative working relation17 ships with their counterparts in foreign jurisdictions.

18 (b) SENSE OF THE CONGRESS.—It is the sense of

19 the Congress that, consistent with its responsibilities

20 under the Commodity Exchange Act, the Commodity Fu21 tures Trading Commission should, as part of its inter22 national activities, continue to coordinate with foreign reg23 ulatory authorities, to participate in international regu24 latory organizations and forums, and to provide technical
132

•HR 5660 IH

1 assistance to foreign government authorities, in order to

2 encourage—

3 (1) the facilitation of cross-border transactions

4 through the removal or lessening of any unnecessary

5 legal or practical obstacles;

6 (2) the development of internationally accepted

7 regulatory standards of best practice;

8 (3) the enhancement of international super9 visory cooperation and emergency procedures;

10 (4) the strengthening of international coopera11 tion for customer and market protection; and

12 (5) improvements in the quality and timeliness

13 of international information sharing.

14 TITLE II—COORDINATED REGU15 LATION OF SECURITY FU16 TURES PRODUCTS

17 Subtitle A—Securities Law

18 Amendments

19 SEC. 201. DEFINITIONS UNDER THE SECURITIES EX20 CHANGE ACT OF 1934.

21 Section 3(a) of the Securities Exchange Act of 1934

22 (15 U.S.C. 78c(a)) is amended—

23 (1) in paragraph (10), by inserting ‘‘security

24 future,’’ after ‘‘treasury stock,’’;
133

•HR 5660 IH

1 (2) by striking paragraph (11) and inserting

2 the following:

3 ‘‘(11) The term ‘equity security’ means any

4 stock or similar security; or any security future on

5 any such security; or any security convertible, with

6 or without consideration, into such a security, or

7 carrying any warrant or right to subscribe to or pur8 chase such a security; or any such warrant or right;

9 or any other security which the Commission shall

10 deem to be of similar nature and consider necessary

11 or appropriate, by such rules and regulations as it

12 may prescribe in the public interest or for the pro13 tection of investors, to treat as an equity security.’’;

14 (3) in paragraph (13), by adding at the end the

15 following: ‘‘For security futures products, such term

16 includes any contract, agreement, or transaction for

17 future delivery.’’;

18 (4) in paragraph (14), by adding at the end the

19 following: ‘‘For security futures products, such term

20 includes any contract, agreement, or transaction for

21 future delivery.’’; and

22 (5) by adding at the end the following:

23 ‘‘(55)(A) The term ‘security future’ means a

24 contract of sale for future delivery of a single secu25 rity or of a narrow-based security index, including
134

•HR 5660 IH

1 any interest therein or based on the value thereof,

2 except an exempted security under section 3(a)(12)

3 of the Securities Exchange Act of 1934 as in effect

4 on the date of the enactment of the Futures Trading

5 Act of 1982 (other than any municipal security as

6 defined in section 3(a)(29) as in effect on the date

7 of the enactment of the Futures Trading Act of

8 1982). The term ‘security future’ does not include

9 any agreement, contract, or transaction excluded

10 from the Commodity Exchange Act under section

11 2(c), 2(d), 2(f ), or 2(g) of the Commodity Exchange

12 Act (as in effect on the date of the enactment of the

13 Commodity Futures Modernization Act of 2000) or

14 title IV of the Commodity Futures Modernization

15 Act of 2000.

16 ‘‘(B) The term ‘narrow-based security index’

17 means an index—

18 ‘‘(i) that has 9 or fewer component securi19 ties;

20 ‘‘(ii) in which a component security com21 prises more than 30 percent of the index’s

22 weighting;

23 ‘‘(iii) in which the five highest weighted

24 component securities in the aggregate comprise
135

•HR 5660 IH

1 more than 60 percent of the index’s weighting;

2 or

3 ‘‘(iv) in which the lowest weighted compo4 nent securities comprising, in the aggregate, 25

5 percent of the index’s weighting have an aggre6 gate dollar value of average daily trading vol7 ume of less than $50,000,000 (or in the case of

8 an index with 15 or more component securities,

9 $30,000,000), except that if there are two or

10 more securities with equal weighting that could

11 be included in the calculation of the lowest

12 weighted component securities comprising, in

13 the aggregate, 25 percent of the index’s

14 weighting, such securities shall be ranked from

15 lowest to highest dollar value of average daily

16 trading volume and shall be included in the cal17 culation based on their ranking starting with

18 the lowest ranked security.

19 ‘‘(C) Notwithstanding subparagraph (B), an

20 index is not a narrow-based security index if—

21 ‘‘(i)(I) it has at least nine component secu22 rities;

23 ‘‘(II) no component security comprises

24 more than 30 percent of the index’s weighting;

25 and
136

•HR 5660 IH

1 ‘‘(III) each component security is—

2 ‘‘(aa) registered pursuant to section

3 12 of the Securities Exchange Act of 1934;

4 ‘‘(bb) one of 750 securities with the

5 largest market capitalization; and

6 ‘‘(cc) one of 675 securities with the

7 largest dollar value of average daily trad8 ing volume;

9 ‘‘(ii) a board of trade was designated as a

10 contract market by the Commodity Futures

11 Trading Commission with respect to a contract

12 of sale for future delivery on the index, before

13 the date of the enactment of the Commodity

14 Futures Modernization Act of 2000;

15 ‘‘(iii)(I) a contract of sale for future deliv16 ery on the index traded on a designated con17 tract market or registered derivatives trans18 action execution facility for at least 30 days as

19 a contract of sale for future delivery on an

20 index that was not a narrow-based security

21 index; and

22 ‘‘(II) it has been a narrow-based security

23 index for no more than 45 business days over

24 3 consecutive calendar months;
137

•HR 5660 IH

1 ‘‘(iv) a contract of sale for future delivery

2 on the index is traded on or subject to the rules

3 of a foreign board of trade and meets such re4 quirements as are jointly established by rule or

5 regulation by the Commission and the Com6 modity Futures Trading Commission;

7 ‘‘(v) no more than 18 months have passed

8 since the date of the enactment of the Com9 modity Futures Modernization Act of 2000

10 and—

11 ‘‘(I) it is traded on or subject to the

12 rules of a foreign board of trade;

13 ‘‘(II) the offer and sale in the United

14 States of a contract of sale for future de15 livery on the index was authorized before

16 the date of the enactment of the Com17 modity Futures Modernization Act of

18 2000; and

19 ‘‘(III) the conditions of such author20 ization continue to be met; or

21 ‘‘(vi) a contract of sale for future delivery

22 on the index is traded on or subject to the rules

23 of a board of trade and meets such require24 ments as are jointly established by rule, regula-
138

•HR 5660 IH

1 tion, or order by the Commission and the Com2 modity Futures Trading Commission.

3 ‘‘(D) Within 1 year after the enactment of the

4 Commodity Futures Modernization Act of 2000, the

5 Commission and the Commodity Futures Trading

6 Commission jointly shall adopt rules or regulations

7 that set forth the requirements under clause (iv) of

8 subparagraph (C).

9 ‘‘(E) An index that is a narrow-based security

10 index solely because it was a narrow-based security

11 index for more than 45 business days over 3 con12 secutive calendar months pursuant to clause (iii) of

13 subparagraph (C) shall not be a narrow-based secu14 rity index for the 3 following calendar months.

15 ‘‘(F) For purposes of subparagraphs (B) and

16 (C) of this paragraph—

17 ‘‘(i) the dollar value of average daily trad18 ing volume and the market capitalization shall

19 be calculated as of the preceding 6 full calendar

20 months; and

21 ‘‘(ii) the Commission and the Commodity

22 Futures Trading Commission shall, by rule or

23 regulation, jointly specify the method to be used

24 to determine market capitalization and dollar

25 value of average daily trading volume.
139

•HR 5660 IH

1 ‘‘(56) The term ‘security futures product’

2 means a security future or any put, call, straddle,

3 option, or privilege on any security future.

4 ‘‘(57)(A) The term ‘margin’, when used with

5 respect to a security futures product, means the

6 amount, type, and form of collateral required to se7 cure any extension or maintenance of credit, or the

8 amount, type, and form of collateral required as a

9 performance bond related to the purchase, sale, or

10 carrying of a security futures product.

11 ‘‘(B) The terms ‘margin level’ and ‘level of mar12 gin’, when used with respect to a security futures

13 product, mean the amount of margin required to se14 cure any extension or maintenance of credit, or the

15 amount of margin required as a performance bond

16 related to the purchase, sale, or carrying of a secu17 rity futures product.

18 ‘‘(C) The terms ‘higher margin level’ and ‘high19 er level of margin’, when used with respect to a se20 curity futures product, mean a margin level estab21 lished by a national securities exchange registered

22 pursuant to section 6(g) that is higher than the min23 imum amount established and in effect pursuant to

24 section 7(c)(2)(B).’’.
140

•HR 5660 IH

1 SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING

2 SECURITY FUTURES PRODUCTS.

3 (a) EXPEDITED REGISTRATION AND EXEMPTION.—

4 Section 6 of the Securities Exchange Act of 1934 (15

5 U.S.C. 78f ) is amended by adding at the end the fol6 lowing:

7 ‘‘(g) NOTICE REGISTRATION OF SECURITY FUTURES

8 PRODUCT EXCHANGES.—

9 ‘‘(1) REGISTRATION REQUIRED.—An exchange

10 that lists or trades security futures products may

11 register as a national securities exchange solely for

12 the purposes of trading security futures products

13 if—

14 ‘‘(A) the exchange is a board of trade, as

15 that term is defined by the Commodity Ex16 change Act (7 U.S.C. 1a(2)), that—

17 ‘‘(i) has been designated a contract

18 market by the Commodity Futures Trad19 ing Commission and such designation is

20 not suspended by order of the Commodity

21 Futures Trading Commission; or

22 ‘‘(ii) is registered as a derivative

23 transaction execution facility under section

24 5a of the Commodity Exchange Act and

25 such registration is not suspended by the
141

•HR 5660 IH

1 Commodity Futures Trading Commission;

2 and

3 ‘‘(B) such exchange does not serve as a

4 market place for transactions in securities other

5 than—

6 ‘‘(i) security futures products; or

7 ‘‘(ii) futures on exempted securities or

8 groups or indexes of securities or options

9 thereon that have been authorized under

10 section 2(a)(1)(C) of the Commodity Ex11 change Act.

12 ‘‘(2) REGISTRATION BY NOTICE FILING.—

13 ‘‘(A) FORM AND CONTENT.—An exchange

14 required to register only because such exchange

15 lists or trades security futures products may

16 register for purposes of this section by filing

17 with the Commission a written notice in such

18 form as the Commission, by rule, may prescribe

19 containing the rules of the exchange and such

20 other information and documents concerning

21 such exchange, comparable to the information

22 and documents required for national securities

23 exchanges under section 6(a), as the Commis24 sion, by rule, may prescribe as necessary or ap25 propriate in the public interest or for the pro-
142

•HR 5660 IH

1 tection of investors. If such exchange has filed

2 documents with the Commodity Futures Trad3 ing Commission, to the extent that such docu4 ments contain information satisfying the Com5 mission’s informational requirements, copies of

6 such documents may be filed with the Commis7 sion in lieu of the required written notice.

8 ‘‘(B) IMMEDIATE EFFECTIVENESS.—Such

9 registration shall be effective contempora10 neously with the submission of notice, in writ11 ten or electronic form, to the Commission, ex12 cept that such registration shall not be effective

13 if such registration would be subject to suspen14 sion or revocation.

15 ‘‘(C) TERMINATION.—Such registration

16 shall be terminated immediately if any of the

17 conditions for registration set forth in this sub18 section are no longer satisfied.

19 ‘‘(3) PUBLIC AVAILABILITY.—The Commission

20 shall promptly publish in the Federal Register an ac21 knowledgment of receipt of all notices the Commis22 sion receives under this subsection and shall make

23 all such notices available to the public.

24 ‘‘(4) EXEMPTION OF EXCHANGES FROM SPECI25 FIED PROVISIONS.—
143

•HR 5660 IH

1 ‘‘(A) TRANSACTION EXEMPTIONS.—An ex2 change that is registered under paragraph (1)

3 of this subsection shall be exempt from, and

4 shall not be required to enforce compliance by

5 its members with, and its members shall not,

6 solely with respect to those transactions effected

7 on such exchange in security futures products,

8 be required to comply with, the following provi9 sions of this title and the rules thereunder:

10 ‘‘(i) Subsections (b)(2), (b)(3), (b)(4),

11 (b)(7), (b)(9), (c), (d), and (e) of this sec12 tion.

13 ‘‘(ii) Section 8.

14 ‘‘(iii) Section 11.

15 ‘‘(iv) Subsections (d), (f ), and (k) of

16 section 17.

17 ‘‘(v) Subsections (a), (f ), and (h) of

18 section 19.

19 ‘‘(B) RULE CHANGE EXEMPTIONS.—An ex20 change that registered under paragraph (1) of

21 this subsection shall also be exempt from sub22 mitting proposed rule changes pursuant to sec23 tion 19(b) of this title, except that—

24 ‘‘(i) such exchange shall file proposed

25 rule changes related to higher margin lev-
144

•HR 5660 IH

1 els, fraud or manipulation, recordkeeping,

2 reporting, listing standards, or decimal

3 pricing for security futures products, sales

4 practices for security futures products for

5 persons who effect transactions in security

6 futures products, or rules effectuating such

7 exchange’s obligation to enforce the securi8 ties laws pursuant to section 19(b)(7);

9 ‘‘(ii) such exchange shall file pursuant

10 to sections 19(b)(1) and 19(b)(2) proposed

11 rule changes related to margin, except for

12 changes resulting in higher margin levels;

13 and

14 ‘‘(iii) such exchange shall file pursu15 ant to section 19(b)(1) proposed rule

16 changes that have been abrogated by the

17 Commission pursuant to section

18 19(b)(7)(C).

19 ‘‘(5) TRADING IN SECURITY FUTURES PROD20 UCTS.—

21 ‘‘(A) IN GENERAL.—Subject to subpara22 graph (B), it shall be unlawful for any person

23 to execute or trade a security futures product

24 until the later of—
145

•HR 5660 IH

1 ‘‘(i) 1 year after the date of the enact2 ment of the Commodity Futures Mod3 ernization Act of 2000; or

4 ‘‘(ii) such date that a futures associa5 tion registered under section 17 of the

6 Commodity Exchange Act has met the re7 quirements set forth in section 15A(k)(2)

8 of this title.

9 ‘‘(B) PRINCIPAL-TO-PRINCIPAL TRANS10 ACTIONS.—Notwithstanding subparagraph (A),

11 a person may execute or trade a security fu12 tures product transaction if—

13 ‘‘(i) the transaction is entered into—

14 ‘‘(I) on a principal-to-principal

15 basis between parties trading for their

16 own accounts or as described in sec17 tion 1a(12)(B)(ii) of the Commodity

18 Exchange Act; and

19 ‘‘(II) only between eligible con20 tract participants (as defined in sub21 paragraphs (A), (B)(ii), and (C) of

22 such section 1a(12)) at the time at

23 which the persons enter into the

24 agreement, contract, or transaction;

25 and
146

•HR 5660 IH

1 ‘‘(ii) the transaction is entered into on

2 or after the later of—

3 ‘‘(I) 8 months after the date of

4 the enactment of the Commodity Fu5 tures Modernization Act of 2000; or

6 ‘‘(II) such date that a futures as7 sociation registered under section 17

8 of the Commodity Exchange Act has

9 met the requirements set forth in sec10 tion 15A(k)(2) of this title.’’.

11 (b) COMMISSION REVIEW OF PROPOSED RULE

12 CHANGES.—

13 (1) EXPEDITED REVIEW.—Section 19(b) of the

14 Securities Exchange Act of 1934 (15 U.S.C. 78s(b))

15 is amended by adding at the end the following:

16 ‘‘(7) SECURITY FUTURES PRODUCT RULE

17 CHANGES.—

18 ‘‘(A) FILING REQUIRED.—A self-regulatory

19 organization that is an exchange registered with

20 the Commission pursuant to section 6(g) of this

21 title or that is a national securities association

22 registered pursuant to section 15A(k) of this

23 title shall file with the Commission, in accord24 ance with such rules as the Commission may

25 prescribe, copies of any proposed rule change or
147

•HR 5660 IH

1 any proposed change in, addition to, or deletion

2 from the rules of such self-regulatory organiza3 tion (hereinafter in this paragraph collectively

4 referred to as a ‘proposed rule change’) that re5 lates to higher margin levels, fraud or manipu6 lation, recordkeeping, reporting, listing stand7 ards, or decimal pricing for security futures

8 products, sales practices for security futures

9 products for persons who effect transactions in

10 security futures products, or rules effectuating

11 such self-regulatory organization’s obligation to

12 enforce the securities laws. Such proposed rule

13 change shall be accompanied by a concise gen14 eral statement of the basis and purpose of such

15 proposed rule change. The Commission shall,

16 upon the filing of any proposed rule change,

17 promptly publish notice thereof together with

18 the terms of substance of the proposed rule

19 change or a description of the subjects and

20 issues involved. The Commission shall give in21 terested persons an opportunity to submit data,

22 views, and arguments concerning such proposed

23 rule change.

24 ‘‘(B) FILING WITH CFTC.—A proposed rule

25 change filed with the Commission pursuant to
148

•HR 5660 IH

1 subparagraph (A) shall be filed concurrently

2 with the Commodity Futures Trading Commis3 sion. Such proposed rule change may take ef4 fect upon filing of a written certification with

5 the Commodity Futures Trading Commission

6 under section 5c(c) of the Commodity Exchange

7 Act, upon a determination by the Commodity

8 Futures Trading Commission that review of the

9 proposed rule change is not necessary, or upon

10 approval of the proposed rule change by the

11 Commodity Futures Trading Commission.

12 ‘‘(C) ABROGATION OF RULE CHANGES.—

13 Any proposed rule change of a self-regulatory

14 organization that has taken effect pursuant to

15 subparagraph (B) may be enforced by such self16 regulatory organization to the extent such rule

17 is not inconsistent with the provisions of this

18 title, the rules and regulations thereunder, and

19 applicable Federal law. At any time within 60

20 days of the date of the filing of a written cer21 tification with the Commodity Futures Trading

22 Commission under section 5c(c) of the Com23 modity Exchange Act, the date the Commodity

24 Futures Trading Commission determines that

25 review of such proposed rule change is not nec-
149

•HR 5660 IH

1 essary, or the date the Commodity Futures

2 Trading Commission approves such proposed

3 rule change, the Commission, after consultation

4 with the Commodity Futures Trading Commis5 sion, may summarily abrogate the proposed rule

6 change and require that the proposed rule

7 change be refiled in accordance with the provi8 sions of paragraph (1), if it appears to the

9 Commission that such proposed rule change un10 duly burdens competition or efficiency, conflicts

11 with the securities laws, or is inconsistent with

12 the public interest and the protection of inves13 tors. Commission action pursuant to the pre14 ceding sentence shall not affect the validity or

15 force of the rule change during the period it

16 was in effect and shall not be reviewable under

17 section 25 of this title nor deemed to be a final

18 agency action for purposes of section 704 of

19 title 5, United States Code.

20 ‘‘(D) REVIEW OF RESUBMITTED ABRO21 GATED RULES.—

22 ‘‘(i) PROCEEDINGS.—Within 35 days

23 of the date of publication of notice of the

24 filing of a proposed rule change that is ab25 rogated in accordance with subparagraph
150

•HR 5660 IH

1 (C) and refiled in accordance with para2 graph (1), or within such longer period as

3 the Commission may designate up to 90

4 days after such date if the Commission

5 finds such longer period to be appropriate

6 and publishes its reasons for so finding or

7 as to which the self-regulatory organization

8 consents, the Commission shall—

9 ‘‘(I) by order approve such pro10 posed rule change; or

11 ‘‘(II) after consultation with the

12 Commodity Futures Trading Commis13 sion, institute proceedings to deter14 mine whether the proposed rule

15 change should be disapproved. Pro16 ceedings under subclause (II) shall in17 clude notice of the grounds for dis18 approval under consideration and op19 portunity for hearing and be con20 cluded within 180 days after the date

21 of publication of notice of the filing of

22 the proposed rule change. At the con23 clusion of such proceedings, the Com24 mission, by order, shall approve or

25 disapprove such proposed rule change.
151

•HR 5660 IH

1 The Commission may extend the time

2 for conclusion of such proceedings for

3 up to 60 days if the Commission finds

4 good cause for such extension and

5 publishes its reasons for so finding or

6 for such longer period as to which the

7 self-regulatory organization consents.

8 ‘‘(ii) GROUNDS FOR APPROVAL.—The

9 Commission shall approve a proposed rule

10 change of a self-regulatory organization

11 under this subparagraph if the Commission

12 finds that such proposed rule change does

13 not unduly burden competition or effi14 ciency, does not conflict with the securities

15 laws, and is not inconsistent with the pub16 lic interest or the protection of investors.

17 The Commission shall disapprove such a

18 proposed rule change of a self-regulatory

19 organization if it does not make such find20 ing. The Commission shall not approve any

21 proposed rule change prior to the 30th day

22 after the date of publication of notice of

23 the filing thereof, unless the Commission

24 finds good cause for so doing and pub25 lishes its reasons for so finding.’’.
152

•HR 5660 IH

1 (2) DECIMAL PRICING PROVISIONS.—Section

2 19(b) of the Securities Exchange Act of 1934 (15

3 U.S.C. 78s(b)) is amended by inserting after para4 graph (7), as added by paragraph (1), the following:

5 ‘‘(8) DECIMAL PRICING.—Not later than 9

6 months after the date on which trading in any secu7 rity futures product commences under this title, all

8 self-regulatory organizations listing or trading secu9 rity futures products shall file proposed rule changes

10 necessary to implement decimal pricing of security

11 futures products. The Commission may not require

12 such rules to contain equal minimum increments in

13 such decimal pricing.’’.

14 (3) CONSULTATION PROVISIONS.—Section 19(b)

15 of the Securities Exchange Act of 1934 (15 U.S.C.

16 78s(b)) is amended by inserting after paragraph (8),

17 as added by paragraph (2), the following:

18 ‘‘(9) CONSULTATION WITH CFTC.—

19 ‘‘(A) CONSULTATION REQUIRED.—The

20 Commission shall consult with and consider the

21 views of the Commodity Futures Trading Com22 mission prior to approving or disapproving a

23 proposed rule change filed by a national securi24 ties association registered pursuant to section

25 15A(a) or a national securities exchange subject
153

•HR 5660 IH

1 to the provisions of subsection (a) that pri2 marily concerns conduct related to transactions

3 in security futures products, except where the

4 Commission determines that an emergency ex5 ists requiring expeditious or summary action

6 and publishes its reasons therefor.

7 ‘‘(B) RESPONSES TO CFTC COMMENTS AND

8 FINDINGS.—If the Commodity Futures Trading

9 Commission comments in writing to the Com10 mission on a proposed rule that has been pub11 lished for comment, the Commission shall re12 spond in writing to such written comment be13 fore approving or disapproving the proposed

14 rule. If the Commodity Futures Trading Com15 mission determines, and notifies the Commis16 sion, that such rule, if implemented or as ap17 plied, would—

18 ‘‘(i) adversely affect the liquidity or

19 efficiency of the market for security fu20 tures products; or

21 ‘‘(ii) impose any burden on competi22 tion not necessary or appropriate in fur23 therance of the purposes of this section,

24 the Commission shall, prior to approving or dis25 approving the proposed rule, find that such rule
154

•HR 5660 IH

1 is necessary and appropriate in furtherance of

2 the purposes of this section notwithstanding the

3 Commodity Futures Trading Commission’s de4 termination.’’.

5 (c) REVIEW OF DISCIPLINARY PROCEEDINGS.—Sec6 tion 19(d) of the Securities Exchange Act of 1934 (15

7 U.S.C. 78s(d)) is amended by adding at the end the fol8 lowing:

9 ‘‘(3) The provisions of this subsection shall apply to

10 an exchange registered pursuant to section 6(g) of this

11 title or a national securities association registered pursu12 ant to section 15A(k) of this title only to the extent that

13 such exchange or association imposes any final discipli14 nary sanction for—

15 ‘‘(A) a violation of the Federal securities laws

16 or the rules and regulations thereunder; or

17 ‘‘(B) a violation of a rule of such exchange or

18 association, as to which a proposed change would be

19 required to be filed under section 19 of this title, ex20 cept that, to the extent that the exchange or associa21 tion rule violation relates to any account, agreement,

22 contract, or transaction, this subsection shall apply

23 only to the extent such violation involves a security

24 futures product.’’.
155

•HR 5660 IH

1 SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES

2 TRADING SECURITY FUTURES PRODUCTS.

3 (a) EXPEDITED REGISTRATION AND EXEMPTIONS.—

4 (1) AMENDMENT.—Section 15(b) of the Securi5 ties Exchange Act of 1934 (15 U.S.C. 78o(b)) is

6 amended by adding at the end the following:

7 ‘‘(11) BROKER/DEALER REGISTRATION WITH

8 RESPECT TO TRANSACTIONS IN SECURITY FUTURES

9 PRODUCTS.—

10 ‘‘(A) NOTICE REGISTRATION.—

11 ‘‘(i) CONTENTS OF NOTICE.—Not12 withstanding paragraphs (1) and (2), a

13 broker or dealer required to register only

14 because it effects transactions in security

15 futures products on an exchange registered

16 pursuant to section 6(g) may register for

17 purposes of this section by filing with the

18 Commission a written notice in such form

19 and containing such information con20 cerning such broker or dealer and any per21 sons associated with such broker or dealer

22 as the Commission, by rule, may prescribe

23 as necessary or appropriate in the public

24 interest or for the protection of investors.

25 A broker or dealer may not register under

26 this paragraph unless that broker or dealer
156

•HR 5660 IH

1 is a member of a national securities asso2 ciation registered under section 15A(k).

3 ‘‘(ii) IMMEDIATE EFFECTIVENESS.—

4 Such registration shall be effective contem5 poraneously with the submission of notice,

6 in written or electronic form, to the Com7 mission, except that such registration shall

8 not be effective if the registration would be

9 subject to suspension or revocation under

10 paragraph (4).

11 ‘‘(iii) SUSPENSION.—Such registration

12 shall be suspended immediately if a na13 tional securities association registered pur14 suant to section 15A(k) of this title sus15 pends the membership of that broker or

16 dealer.

17 ‘‘(iv) TERMINATION.—Such registra18 tion shall be terminated immediately if any

19 of the above stated conditions for registra20 tion set forth in this paragraph are no

21 longer satisfied.

22 ‘‘(B) EXEMPTIONS FOR REGISTERED BRO23 KERS AND DEALERS.—A broker or dealer reg24 istered pursuant to the requirements of sub25 paragraph (A) shall be exempt from the fol-
157

•HR 5660 IH

1 lowing provisions of this title and the rules

2 thereunder with respect to transactions in secu3 rity futures products:

4 ‘‘(i) Section 8.

5 ‘‘(ii) Section 11.

6 ‘‘(iii) Subsections (c)(3) and (c)(5) of

7 this section.

8 ‘‘(iv) Section 15B.

9 ‘‘(v) Section 15C.

10 ‘‘(vi) Subsections (d), (e), (f ), (g),

11 (h), and (i) of section 17.’’.

12 (2) CONFORMING AMENDMENT.—Section 28(e)

13 of the Securities Exchange Act of 1934 (15 U.S.C.

14 78bb(e)) is amended by adding at the end the fol15 lowing:

16 ‘‘(4) The provisions of this subsection shall not apply

17 with regard to securities that are security futures prod18 ucts.’’.

19 (b) FLOOR BROKERS AND FLOOR TRADERS.—Sec20 tion 15(b) of the Securities Exchange Act of 1934 (15

21 U.S.C. 78o(b)) is amended by inserting after paragraph

22 (11), as added by subsection (a), the following:

23 ‘‘(12) EXEMPTION FOR SECURITY FUTURES

24 PRODUCT EXCHANGE MEMBERS.—
158

•HR 5660 IH

1 ‘‘(A) REGISTRATION EXEMPTION.—A nat2 ural person shall be exempt from the registra3 tion requirements of this section if such

4 person—

5 ‘‘(i) is a member of a designated con6 tract market registered with the Commis7 sion as an exchange pursuant to section

8 6(g);

9 ‘‘(ii) effects transactions only in secu10 rities on the exchange of which such per11 son is a member; and

12 ‘‘(iii) does not directly accept or solicit

13 orders from public customers or provide

14 advice to public customers in connection

15 with the trading of security futures prod16 ucts.

17 ‘‘(B) OTHER EXEMPTIONS.—A natural

18 person exempt from registration pursuant to

19 subparagraph (A) shall also be exempt from the

20 following provisions of this title and the rules

21 thereunder:

22 ‘‘(i) Section 8.

23 ‘‘(ii) Section 11.

24 ‘‘(iii) Subsections (c)(3), (c)(5), and

25 (e) of this section.
159

•HR 5660 IH

1 ‘‘(iv) Section 15B.

2 ‘‘(v) Section 15C.

3 ‘‘(vi) Subsections (d), (e), (f ), (g),

4 (h), and (i) of section 17.’’.

5 (c) LIMITED PURPOSE NATIONAL SECURITIES ASSO6 CIATION.—Section 15A of the Securities Exchange Act of

7 1934 (15 U.S.C. 78o–3) is amended by adding at the end

8 the following:

9 ‘‘(k) LIMITED PURPOSE NATIONAL SECURITIES AS10 SOCIATION.—

11 ‘‘(1) REGULATION OF MEMBERS WITH RESPECT

12 TO SECURITY FUTURES PRODUCTS.—A futures asso13 ciation registered under section 17 of the Com14 modity Exchange Act shall be a registered national

15 securities association for the limited purpose of reg16 ulating the activities of members who are registered

17 as brokers or dealers in security futures products

18 pursuant to section 15(b)(11).

19 ‘‘(2) REQUIREMENTS FOR REGISTRATION.—

20 Such a securities association shall—

21 ‘‘(A) be so organized and have the capacity

22 to carry out the purposes of the securities laws

23 applicable to security futures products and to

24 comply, and (subject to any rule or order of the

25 Commission pursuant to section 19(g)(2)) to
160

•HR 5660 IH

1 enforce compliance by its members and persons

2 associated with its members, with the provisions

3 of the securities laws applicable to security fu4 tures products, the rules and regulations there5 under, and its rules;

6 ‘‘(B) have rules that—

7 ‘‘(i) are designed to prevent fraudu8 lent and manipulative acts and practices,

9 to promote just and equitable principles of

10 trade, and, in general, to protect investors

11 and the public interest, including rules

12 governing sales practices and the adver13 tising of security futures products reason14 ably comparable to those of other national

15 securities associations registered pursuant

16 to subsection (a) that are applicable to se17 curity futures products; and

18 ‘‘(ii) are not designed to regulate by

19 virtue of any authority conferred by this

20 title matters not related to the purposes of

21 this title or the administration of the asso22 ciation;

23 ‘‘(C) have rules that provide that (subject

24 to any rule or order of the Commission pursu25 ant to section 19(g)(2)) its members and per-
161

•HR 5660 IH

1 sons associated with its members shall be ap2 propriately disciplined for violation of any provi3 sion of the securities laws applicable to security

4 futures products, the rules or regulations there5 under, or the rules of the association, by expul6 sion, suspension, limitation of activities, func7 tions, and operations, fine, censure, being sus8 pended or barred from being associated with a

9 member, or any other fitting sanction; and

10 ‘‘(D) have rules that ensure that members

11 and natural persons associated with members

12 meet such standards of training, experience,

13 and competence necessary to effect transactions

14 in security futures products and are tested for

15 their knowledge of securities and security fu16 tures products.

17 ‘‘(3) EXEMPTION FROM RULE CHANGE SUBMIS18 SION.—Such a securities association shall be exempt

19 from submitting proposed rule changes pursuant to

20 section 19(b) of this title, except that—

21 ‘‘(A) the association shall file proposed

22 rule changes related to higher margin levels,

23 fraud or manipulation, recordkeeping, report24 ing, listing standards, or decimal pricing for se25 curity futures products, sales practices for, ad-
162

•HR 5660 IH

1 vertising of, or standards of training, experi2 ence, competence, or other qualifications for se3 curity futures products for persons who effect

4 transactions in security futures products, or

5 rules effectuating the association’s obligation to

6 enforce the securities laws pursuant to section

7 19(b)(7);

8 ‘‘(B) the association shall file pursuant to

9 sections 19(b)(1) and 19(b)(2) proposed rule

10 changes related to margin, except for changes

11 resulting in higher margin levels; and

12 ‘‘(C) the association shall file pursuant to

13 section 19(b)(1) proposed rule changes that

14 have been abrogated by the Commission pursu15 ant to section 19(b)(7)(C).

16 ‘‘(4) OTHER EXEMPTIONS.—Such a securities

17 association shall be exempt from and shall not be re18 quired to enforce compliance by its members, and its

19 members shall not, solely with respect to their trans20 actions effected in security futures products, be re21 quired to comply, with the following provisions of

22 this title and the rules thereunder:

23 ‘‘(A) Section 8.
163

•HR 5660 IH

1 ‘‘(B) Subsections (b)(1), (b)(3), (b)(4),

2 (b)(5), (b)(8), (b)(10), (b)(11), (b)(12), (b)(13),

3 (c), (d), (e), (f ), (g), (h), and (i) of this section.

4 ‘‘(C) Subsections (d), (f ), and (k) of sec5 tion 17.

6 ‘‘(D) Subsections (a), (f ), and (h) of sec7 tion 19.’’.

8 (d) EXEMPTION UNDER THE SECURITIES INVESTOR

9 PROTECTION ACT OF 1970.—

10 (1) Section 16(14) of the Securities Investor

11 Protection Act of 1970 (15 U.S.C. 78lll(14)) is

12 amended by inserting ‘‘or any security future as that

13 term is defined in section 3(a)(55)(A) of the Securi14 ties Exchange Act of 1934,’’ after ‘‘certificate of de15 posit for a security,’’.

16 (2) Section 3(a)(2)(A) of the Securities Investor

17 Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)(A))

18 is amended—

19 (A) in clause (i), by striking ‘‘and’’ after

20 the semicolon;

21 (B) in clause (ii), by striking the period

22 and inserting ‘‘; and’’; and

23 (C) by adding at the end the following:

24 ‘‘(iii) persons who are registered as a

25 broker or dealer pursuant to section
164

•HR 5660 IH

1 15(b)(11)(A) of the Securities Exchange

2 Act of 1934.’’.

3 SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY CO4 OPERATION.

5 Section 17(b) of the Securities Exchange Act of 1934

6 (15 U.S.C. 78q(b)) is amended—

7 (1) by striking ‘‘(b) All’’ and inserting the fol8 lowing:

9 ‘‘(b) RECORDS SUBJECT TO EXAMINATION.—

10 ‘‘(1) PROCEDURES FOR COOPERATION WITH

11 OTHER AGENCIES.—All’’;

12 (2) by striking ‘‘prior to conducting any such

13 examination of a registered clearing’’ and inserting

14 the following: ‘‘prior to conducting any such exam15 ination of a—

16 ‘‘(A) registered clearing’’;

17 (3) by redesignating the last sentence as para18 graph (4)(C);

19 (4) by striking the period at the end of the first

20 sentence and inserting the following: ‘‘; or

21 ‘‘(B) broker or dealer registered pursuant

22 to section 15(b)(11), exchange registered pursu23 ant to section 6(g), or national securities asso24 ciation registered pursuant to section 15A(k)

25 gives notice to the Commodity Futures Trading
165

•HR 5660 IH

1 Commission of such proposed examination and

2 consults with the Commodity Futures Trading

3 Commission concerning the feasibility and de4 sirability of coordinating such examination with

5 examinations conducted by the Commodity Fu6 tures Trading Commission in order to avoid un7 necessary regulatory duplication or undue regu8 latory burdens for such broker or dealer or ex9 change.’’;

10 (5) by adding at the end the following new

11 paragraphs:

12 ‘‘(2) FURNISHING DATA AND REPORTS TO

13 CFTC.—The Commission shall notify the Commodity

14 Futures Trading Commission of any examination

15 conducted of any broker or dealer registered pursu16 ant to section 15(b)(11), exchange registered pursu17 ant to section 6(g), or national securities association

18 registered pursuant to section 15A(k) and, upon re19 quest, furnish to the Commodity Futures Trading

20 Commission any examination report and data sup21 plied to, or prepared by, the Commission in connec22 tion with such examination.

23 ‘‘(3) USE OF CFTC REPORTS.—Prior to con24 ducting an examination under paragraph (1), the

25 Commission shall use the reports of examinations, if
166

•HR 5660 IH

1 the information available therein is sufficient for the

2 purposes of the examination, of—

3 ‘‘(A) any broker or dealer registered pursu4 ant to section 15(b)(11);

5 ‘‘(B) exchange registered pursuant to sec6 tion 6(g); or

7 ‘‘(C) national securities association reg8 istered pursuant to section 15A(k);

9 that is made by the Commodity Futures Trading

10 Commission, a national securities association reg11 istered pursuant to section 15A(k), or an exchange

12 registered pursuant to section 6(g).

13 ‘‘(4) RULES OF CONSTRUCTION.—

14 ‘‘(A) Notwithstanding any other provision

15 of this subsection, the records of a broker or

16 dealer registered pursuant to section 15(b)(11),

17 an exchange registered pursuant to section

18 6(g), or a national securities association reg19 istered pursuant to section 15A(k) described in

20 this subparagraph shall not be subject to rou21 tine periodic examinations by the Commission.

22 ‘‘(B) Any recordkeeping rules adopted

23 under this subsection for a broker or dealer reg24 istered pursuant to section 15(b)(11), an ex25 change registered pursuant to section 6(g), or a
167

•HR 5660 IH

1 national securities association registered pursu2 ant to section 15A(k) shall be limited to records

3 with respect to persons, accounts, agreements,

4 contracts, and transactions involving security

5 futures products.’’; and

6 (6) in paragraph (4)(C) (as redesignated by

7 paragraph (3) of this section), by striking ‘‘Nothing

8 in the proviso to the preceding sentence’’ and insert9 ing ‘‘Nothing in the proviso in paragraph (1)’’.

10 SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SE11 CURITY FUTURES PRODUCTS.

12 (a) ADDITION OF SECURITY FUTURES PRODUCTS TO

13 OPTION-SPECIFIC ENFORCEMENT PROVISIONS.—

14 (1) PROHIBITION AGAINST MANIPULATION.—

15 Section 9(b) of the Securities Exchange Act of 1934

16 (15 U.S.C. 78i(b)) is amended—

17 (A) in paragraph (1)—

18 (i) by inserting ‘‘(A)’’ after ‘‘ac19 quires’’; and

20 (ii) by striking ‘‘; or’’ and inserting ‘‘;

21 or (B) any security futures product on the

22 security; or’’;

23 (B) in paragraph (2)—

24 (i) by inserting ‘‘(A)’’ after ‘‘interest

25 in any’’; and
168

•HR 5660 IH

1 (ii) by striking ‘‘; or’’ and inserting ‘‘;

2 or (B) such security futures product; or’’;

3 and

4 (C) in paragraph (3)—

5 (i) by inserting ‘‘(A)’’ after ‘‘interest

6 in any’’; and

7 (ii) by inserting ‘‘; or (B) such secu8 rity futures product’’ after ‘‘privilege’’.

9 (2) MANIPULATION IN OPTIONS AND OTHER

10 DERIVATIVE PRODUCTS.—Section 9(g) of the Securi11 ties Exchange Act of 1934 (15 U.S.C. 78i(g)) is

12 amended—

13 (A) by inserting ‘‘(1)’’ after ‘‘(g)’’;

14 (B) by inserting ‘‘other than a security fu15 tures product’’ after ‘‘future delivery’’; and

16 (C) by adding at the end the following:

17 ‘‘(2) Notwithstanding the Commodity Exchange Act,

18 the Commission shall have the authority to regulate the

19 trading of any security futures product to the extent pro20 vided in the securities laws.’’.

21 (3) LIABILITY OF CONTROLLING PERSONS AND

22 PERSONS WHO AID AND ABET VIOLATIONS.—Section

23 20(d) of the Securities Exchange Act of 1934 (15

24 U.S.C. 78t(d)) is amended by striking ‘‘or privilege’’
169

•HR 5660 IH

1 and inserting ‘‘, privilege, or security futures prod2 uct’’.

3 (4) LIABILITY TO CONTEMPORANEOUS TRADERS

4 FOR INSIDER TRADING.—Section 21A(a)(1) of the

5 Securities Exchange Act of 1934 (15 U.S.C. 78u–

6 1(a)(1)) is amended by striking ‘‘standardized op7 tions, the Commission—’’ and inserting ‘‘standard8 ized options or security futures products, the Com9 mission—’’.

10 (5) ENFORCEMENT CONSULTATION.—Section

11 21 of the Securities Exchange Act of 1934 (15

12 U.S.C. 78u) is amended by adding at the end the

13 following:

14 ‘‘(i) INFORMATION TO CFTC.—The Commission

15 shall provide the Commodity Futures Trading Commission

16 with notice of the commencement of any proceeding and

17 a copy of any order entered by the Commission against

18 any broker or dealer registered pursuant to section

19 15(b)(11), any exchange registered pursuant to section

20 6(g), or any national securities association registered pur21 suant to section 15A(k).’’.

22 SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SE23 CURITY FUTURES PRODUCTS.

24 (a) LISTING STANDARDS AND CONDITIONS FOR

25 TRADING.—Section 6 of the Securities Exchange Act of
170

•HR 5660 IH

1 1934 (15 U.S.C. 78f ) is amended by inserting after sub2 section (g), as added by section 202, the following:

3 ‘‘(h) TRADING IN SECURITY FUTURES PRODUCTS.—

4 ‘‘(1) TRADING ON EXCHANGE OR ASSOCIATION

5 REQUIRED.—It shall be unlawful for any person to

6 effect transactions in security futures products that

7 are not listed on a national securities exchange or a

8 national securities association registered pursuant to

9 section 15A(a).

10 ‘‘(2) LISTING STANDARDS REQUIRED.—Except

11 as otherwise provided in paragraph (7), a national

12 securities exchange or a national securities associa13 tion registered pursuant to section 15A(a) may trade

14 only security futures products that (A) conform with

15 listing standards that such exchange or association

16 files with the Commission under section 19(b) and

17 (B) meet the criteria specified in section

18 2(a)(1)(D)(i) of the Commodity Exchange Act.

19 ‘‘(3) REQUIREMENTS FOR LISTING STANDARDS

20 AND CONDITIONS FOR TRADING.—Such listing

21 standards shall—

22 ‘‘(A) except as otherwise provided in a

23 rule, regulation, or order issued pursuant to

24 paragraph (4), require that any security under25 lying the security future, including each compo-
171

•HR 5660 IH

1 nent security of a narrow-based security index,

2 be registered pursuant to section 12 of this

3 title;

4 ‘‘(B) require that if the security futures

5 product is not cash settled, the market on

6 which the security futures product is traded

7 have arrangements in place with a registered

8 clearing agency for the payment and delivery of

9 the securities underlying the security futures

10 product;

11 ‘‘(C) be no less restrictive than comparable

12 listing standards for options traded on a na13 tional securities exchange or national securities

14 association registered pursuant to section

15 15A(a) of this title;

16 ‘‘(D) except as otherwise provided in a

17 rule, regulation, or order issued pursuant to

18 paragraph (4), require that the security future

19 be based upon common stock and such other

20 equity securities as the Commission and the

21 Commodity Futures Trading Commission joint22 ly determine appropriate;

23 ‘‘(E) require that the security futures

24 product is cleared by a clearing agency that has

25 in place provisions for linked and coordinated
172

•HR 5660 IH

1 clearing with other clearing agencies that clear

2 security futures products, which permits the se3 curity futures product to be purchased on one

4 market and offset on another market that

5 trades such product;

6 ‘‘(F) require that only a broker or dealer

7 subject to suitability rules comparable to those

8 of a national securities association registered

9 pursuant to section 15A(a) effect transactions

10 in the security futures product;

11 ‘‘(G) require that the security futures

12 product be subject to the prohibition against

13 dual trading in section 4j of the Commodity Ex14 change Act (7 U.S.C. 6j) and the rules and reg15 ulations thereunder or the provisions of section

16 11(a) of this title and the rules and regulations

17 thereunder, except to the extent otherwise per18 mitted under this title and the rules and regula19 tions thereunder;

20 ‘‘(H) require that trading in the security

21 futures product not be readily susceptible to

22 manipulation of the price of such security fu23 tures product, nor to causing or being used in

24 the manipulation of the price of any underlying
173

•HR 5660 IH

1 security, option on such security, or option on

2 a group or index including such securities;

3 ‘‘(I) require that procedures be in place for

4 coordinated surveillance among the market on

5 which the security futures product is traded,

6 any market on which any security underlying

7 the security futures product is traded, and

8 other markets on which any related security is

9 traded to detect manipulation and insider trad10 ing;

11 ‘‘(J) require that the market on which the

12 security futures product is traded has in place

13 audit trails necessary or appropriate to facili14 tate the coordinated surveillance required in

15 subparagraph (I);

16 ‘‘(K) require that the market on which the

17 security futures product is traded has in place

18 procedures to coordinate trading halts between

19 such market and any market on which any se20 curity underlying the security futures product is

21 traded and other markets on which any related

22 security is traded; and

23 ‘‘(L) require that the margin requirements

24 for a security futures product comply with the

25 regulations prescribed pursuant to section
174

•HR 5660 IH

1 7(c)(2)(B), except that nothing in this subpara2 graph shall be construed to prevent a national

3 securities exchange or national securities asso4 ciation from requiring higher margin levels for

5 a security futures product when it deems such

6 action to be necessary or appropriate.

7 ‘‘(4) AUTHORITY TO MODIFY CERTAIN LISTING

8 STANDARD REQUIREMENTS.—

9 ‘‘(A) AUTHORITY TO MODIFY.—The Com10 mission and the Commodity Futures Trading

11 Commission, by rule, regulation, or order, may

12 jointly modify the listing standard requirements

13 specified in subparagraph (A) or (D) of para14 graph (3) to the extent such modification fos15 ters the development of fair and orderly mar16 kets in security futures products, is necessary

17 or appropriate in the public interest, and is con18 sistent with the protection of investors.

19 ‘‘(B) AUTHORITY TO GRANT EXEMP20 TIONS.—The Commission and the Commodity

21 Futures Trading Commission, by order, may

22 jointly exempt any person from compliance with

23 the listing standard requirement specified in

24 subparagraph (E) of paragraph (3) to the ex25 tent such exemption fosters the development of
175

•HR 5660 IH

1 fair and orderly markets in security futures

2 products, is necessary or appropriate in the

3 public interest, and is consistent with the pro4 tection of investors.

5 ‘‘(5) REQUIREMENTS FOR OTHER PERSONS

6 TRADING SECURITY FUTURE PRODUCTS.—It shall be

7 unlawful for any person (other than a national secu8 rities exchange or a national securities association

9 registered pursuant to section 15A(a)) to constitute,

10 maintain, or provide a marketplace or facilities for

11 bringing together purchasers and sellers of security

12 future products or to otherwise perform with respect

13 to security future products the functions commonly

14 performed by a stock exchange as that term is gen15 erally understood, unless a national securities asso16 ciation registered pursuant to section 15A(a) or a

17 national securities exchange of which such person is

18 a member—

19 ‘‘(A) has in place procedures for coordi20 nated surveillance among such person, the mar21 ket trading the securities underlying the secu22 rity future products, and other markets trading

23 related securities to detect manipulation and in24 sider trading;
176

•HR 5660 IH

1 ‘‘(B) has rules to require audit trails nec2 essary or appropriate to facilitate the coordi3 nated surveillance required in subparagraph

4 (A); and

5 ‘‘(C) has rules to require such person to

6 coordinate trading halts with markets trading

7 the securities underlying the security future

8 products and other markets trading related se9 curities.

10 ‘‘(6) DEFERRAL OF OPTIONS ON SECURITY FU11 TURES TRADING.—No person shall offer to enter

12 into, enter into, or confirm the execution of any put,

13 call, straddle, option, or privilege on a security fu14 ture, except that, after 3 years after the date of the

15 enactment of this subsection, the Commission and

16 the Commodity Futures Trading Commission may

17 by order jointly determine to permit trading of puts,

18 calls, straddles, options, or privileges on any security

19 future authorized to be traded under the provisions

20 of this Act and the Commodity Exchange Act.

21 ‘‘(7) DEFERRAL OF LINKED AND COORDINATED

22 CLEARING.—

23 ‘‘(A) Notwithstanding paragraph (2), until

24 the compliance date, a national securities ex25 change or national securities association reg-
177

•HR 5660 IH

1 istered pursuant to section 15A(a) may trade a

2 security futures product that does not—

3 ‘‘(i) conform with any listing standard

4 promulgated to meet the requirement spec5 ified in subparagraph (E) of paragraph

6 (3); or

7 ‘‘(ii) meet the criterion specified in

8 section 2(a)(1)(D)(i)(IV) of the Com9 modity Exchange Act.

10 ‘‘(B) The Commission and the Commodity

11 Futures Trading Commission shall jointly pub12 lish in the Federal Register a notice of the com13 pliance date no later than 165 days before the

14 compliance date.

15 ‘‘(C) For purposes of this paragraph, the

16 term ‘compliance date’ means the later of—

17 ‘‘(i) 180 days after the end of the

18 first full calendar month period in which

19 the average aggregate comparable share

20 volume for all security futures products

21 based on single equity securities traded on

22 all national securities exchanges, any na23 tional securities associations registered

24 pursuant to section 15A(a), and all other

25 persons equals or exceeds 10 percent of the
178

•HR 5660 IH

1 average aggregate comparable share vol2 ume of options on single equity securities

3 traded on all national securities exchanges

4 and any national securities associations

5 registered pursuant to section 15A(a); or

6 ‘‘(ii) 2 years after the date on which

7 trading in any security futures product

8 commences under this title.’’.

9 (b) MARGIN.—Section 7 of the Securities Exchange

10 Act of 1934 (15 U.S.C. 78g) is amended—

11 (1) in subsection (a), by inserting ‘‘or a security

12 futures product’’ after ‘‘exempted security’’;

13 (2) in subsection (c)(1)(A), by inserting ‘‘except

14 as provided in paragraph (2),’’ after ‘‘security),’’;

15 (3) by redesignating paragraph (2) of sub16 section (c) as paragraph (3) of such subsection; and

17 (4) by inserting after paragraph (1) of such

18 subsection the following:

19 ‘‘(2) MARGIN REGULATIONS.—

20 ‘‘(A) COMPLIANCE WITH MARGIN RULES

21 REQUIRED.—It shall be unlawful for any

22 broker, dealer, or member of a national securi23 ties exchange to, directly or indirectly, extend

24 or maintain credit to or for, or collect margin

25 from any customer on, any security futures
179

•HR 5660 IH

1 product unless such activities comply with the

2 regulations—

3 ‘‘(i) which the Board shall prescribe

4 pursuant to subparagraph (B); or

5 ‘‘(ii) if the Board determines to dele6 gate the authority to prescribe such regula7 tions, which the Commission and the Com8 modity Futures Trading Commission shall

9 jointly prescribe pursuant to subparagraph

10 (B).

11 If the Board delegates the authority to pre12 scribe such regulations under clause (ii) and the

13 Commission and the Commodity Futures Trad14 ing Commission have not jointly prescribed such

15 regulations within a reasonable period of time

16 after the date of such delegation, the Board

17 shall prescribe such regulations pursuant to

18 subparagraph (B).

19 ‘‘(B) CRITERIA FOR ISSUANCE OF

20 RULES.—The Board shall prescribe, or, if the

21 authority is delegated pursuant to subpara22 graph (A)(ii), the Commission and the Com23 modity Futures Trading Commission shall

24 jointly prescribe, such regulations to establish

25 margin requirements, including the establish-
180

•HR 5660 IH

1 ment of levels of margin (initial and mainte2 nance) for security futures products under such

3 terms, and at such levels, as the Board deems

4 appropriate, or as the Commission and the

5 Commodity Futures Trading Commission joint6 ly deem appropriate—

7 ‘‘(i) to preserve the financial integrity

8 of markets trading security futures prod9 ucts;

10 ‘‘(ii) to prevent systemic risk;

11 ‘‘(iii) to require that—

12 ‘‘(I) the margin requirements for

13 a security future product be con14 sistent with the margin requirements

15 for comparable option contracts trad16 ed on any exchange registered pursu17 ant to section 6(a) of this title; and

18 ‘‘(II) initial and maintenance

19 margin levels for a security future

20 product not be lower than the lowest

21 level of margin, exclusive of premium,

22 required for any comparable option

23 contract traded on any exchange reg24 istered pursuant to section 6(a) of
181

•HR 5660 IH

1 this title, other than an option on a

2 security future;

3 except that nothing in this subparagraph

4 shall be construed to prevent a national se5 curities exchange or national securities as6 sociation from requiring higher margin lev7 els for a security future product when it

8 deems such action to be necessary or ap9 propriate; and

10 ‘‘(iv) to ensure that the margin re11 quirements (other than levels of margin),

12 including the type, form, and use of collat13 eral for security futures products, are and

14 remain consistent with the requirements

15 established by the Board, pursuant to sub16 paragraphs (A) and (B) of paragraph

17 (1).’’.

18 (c) INCORPORATION OF SECURITY FUTURES PROD19 UCTS INTO THE NATIONAL MARKET SYSTEM.—Section

20 11A of the Securities Exchange Act of 1934 (15 U.S.C.

21 78k–1) is amended by adding at the end the following:

22 ‘‘(e) NATIONAL MARKETS SYSTEM FOR SECURITY

23 FUTURES PRODUCTS.—

24 ‘‘(1) CONSULTATION AND COOPERATION RE25 QUIRED.—With respect to security futures products,
182

•HR 5660 IH

1 the Commission and the Commodity Futures Trad2 ing Commission shall consult and cooperate so that,

3 to the maximum extent practicable, their respective

4 regulatory responsibilities may be fulfilled and the

5 rules and regulations applicable to security futures

6 products may foster a national market system for

7 security futures products if the Commission and the

8 Commodity Futures Trading Commission jointly de9 termine that such a system would be consistent with

10 the congressional findings in subsection (a)(1). In

11 accordance with this objective, the Commission shall,

12 at least 15 days prior to the issuance for public com13 ment of any proposed rule or regulation under this

14 section concerning security futures products, consult

15 and request the views of the Commodity Futures

16 Trading Commission.

17 ‘‘(2) APPLICATION OF RULES BY ORDER OF

18 CFTC.—No rule adopted pursuant to this section

19 shall be applied to any person with respect to the

20 trading of security futures products on an exchange

21 that is registered under section 6(g) unless the Com22 modity Futures Trading Commission has issued an

23 order directing that such rule is applicable to such

24 persons.’’.
183

•HR 5660 IH

1 (d) INCORPORATION OF SECURITY FUTURES PROD2 UCTS INTO THE NATIONAL SYSTEM FOR CLEARANCE AND

3 SETTLEMENT.—Section 17A(b) of the Securities Ex4 change Act of 1934 (15 U.S.C. 78q–1(b)) is amended by

5 adding at the end the following:

6 ‘‘(7)(A) A clearing agency that is regulated directly

7 or indirectly by the Commodity Futures Trading Commis8 sion through its association with a designated contract

9 market for security futures products that is a national se10 curities exchange registered pursuant to section 6(g), and

11 that would be required to register pursuant to paragraph

12 (1) of this subsection only because it performs the func13 tions of a clearing agency with respect to security futures

14 products effected pursuant to the rules of the designated

15 contract market with which such agency is associated, is

16 exempted from the provisions of this section and the rules

17 and regulations thereunder, except that if such a clearing

18 agency performs the functions of a clearing agency with

19 respect to a security futures product that is not cash set20 tled, it must have arrangements in place with a registered

21 clearing agency to effect the payment and delivery of the

22 securities underlying the security futures product.

23 ‘‘(B) Any clearing agency that performs the functions

24 of a clearing agency with respect to security futures prod25 ucts must coordinate with and develop fair and reasonable
184

•HR 5660 IH

1 links with any and all other clearing agencies that perform

2 the functions of a clearing agency with respect to security

3 futures products, in order to permit, as of the compliance

4 date (as defined in section 6(h)(6)(C)), security futures

5 products to be purchased on one market and offset on an6 other market that trades such products.’’.

7 (e) MARKET EMERGENCY POWERS AND CIRCUIT

8 BREAKERS.—Section 12(k) of the Securities Exchange

9 Act of 1934 (15 U.S.C. 78l(k)) is amended—

10 (1) in paragraph (1), by adding at the end the

11 following: ‘‘If the actions described in subparagraph

12 (A) or (B) involve a security futures product, the

13 Commission shall consult with and consider the

14 views of the Commodity Futures Trading Commis15 sion.’’; and

16 (2) in paragraph (2)(B), by inserting after the

17 first sentence the following: ‘‘If the actions described

18 in subparagraph (A) involve a security futures prod19 uct, the Commission shall consult with and consider

20 the views of the Commodity Futures Trading Com21 mission.’’.

22 (f ) TRANSACTION FEES.—Section 31 of the Securi23 ties Exchange Act of 1934 (15 U.S.C. 78ee) is amended—

24 (1) in subsection (a), by inserting ‘‘and assess25 ments’’ after ‘‘fees’’;
185

•HR 5660 IH

1 (2) in subsections (b), (c), and (d)(1), by strik2 ing ‘‘and other evidences of indebtedness’’ and in3 serting ‘‘other evidences of indebtedness, and secu4 rity futures products’’;

5 (3) in subsection (f ), by inserting ‘‘or assess6 ment’’ after ‘‘fee’’;

7 (4) in subsection (g), by inserting ‘‘and assess8 ment’’ after ‘‘fee’’;

9 (5) by redesignating subsections (e), (f ), and

10 (g) as subsections (f ), (g), and (h), respectively; and

11 (6) by inserting after subsection (d) the fol12 lowing new subsection:

13 ‘‘(e) ASSESSMENTS ON SECURITY FUTURES TRANS14 ACTIONS.—Each national securities exchange and national

15 securities association shall pay to the Commission an as16 sessment equal to $0.02 for each round turn transaction

17 (treated as including one purchase and one sale of a con18 tract of sale for future delivery) on a security future trad19 ed on such national securities exchange or by or through

20 any member of such association otherwise than on a na21 tional securities exchange, except that for fiscal year 2007

22 or any succeeding fiscal year such assessment shall be

23 equal to $0.0075 for each such transaction. Assessments

24 collected pursuant to this subsection shall be deposited

25 and collected as general revenue of the Treasury.’’.
186

•HR 5660 IH

1 (g) EXEMPTION FROM SHORT SALE PROVISIONS.—

2 Section 10(a) of the Securities Exchange Act of 1934 (15

3 U.S.C 78j(a)) is amended—

4 (1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and

5 (2) by adding at the end the following:

6 ‘‘(2) Paragraph (1) of this subsection shall not apply

7 to security futures products.’’.

8 (h) RULEMAKING AUTHORITY TO ADDRESS DUPLI9 CATIVE REGULATION OF DUAL REGISTRANTS.—Section

10 15(c)(3) of the Securities Exchange Act of 1934 (15

11 U.S.C. 78o(c)(3)) is amended—

12 (1) by inserting ‘‘(A)’’ after ‘‘(3)’’; and

13 (2) by adding at the end the following:

14 ‘‘(B) Consistent with this title, the Commission, in

15 consultation with the Commodity Futures Trading Com16 mission, shall issue such rules, regulations, or orders as

17 are necessary to avoid duplicative or conflicting regula18 tions applicable to any broker or dealer registered with

19 the Commission pursuant to section 15(b) (except para20 graph (11) thereof ), that is also registered with the Com21 modity Futures Trading Commission pursuant to section

22 4f(a) of the Commodity Exchange Act (except paragraph

23 (2) thereof ), with respect to the application of: (i) the pro24 visions of section 8, section 15(c)(3), and section 17 of

25 this title and the rules and regulations thereunder related
187

•HR 5660 IH

1 to the treatment of customer funds, securities, or prop2 erty, maintenance of books and records, financial report3 ing, or other financial responsibility rules, involving secu4 rity futures products; and (ii) similar provisions of the

5 Commodity Exchange Act and rules and regulations there6 under involving security futures products.’’.

7 (i) OBLIGATION TO ADDRESS DUPLICATIVE REGU8 LATION OF DUAL REGISTRANTS.—Section 6 of the Securi9 ties Exchange Act of 1934 (15 U.S.C. 78f ) is amended

10 by inserting after subsection (h), as added by subsection

11 (a) of this section, the following:

12 ‘‘(i) Consistent with this title, each national securities

13 exchange registered pursuant to subsection (a) of this sec14 tion shall issue such rules as are necessary to avoid dupli15 cative or conflicting rules applicable to any broker or deal16 er registered with the Commission pursuant to section

17 15(b) (except paragraph (11) thereof ), that is also reg18 istered with the Commodity Futures Trading Commission

19 pursuant to section 4f(a) of the Commodity Exchange Act

20 (except paragraph (2) thereof ), with respect to the appli21 cation of—

22 (1) rules of such national securities exchange of

23 the type specified in section 15(c)(3)(B) involving

24 security futures products; and
188

•HR 5660 IH

1 (2) similar rules of national securities ex2 changes registered pursuant to section 6(g) and na3 tional securities associations registered pursuant to

4 section 15A(k) involving security futures products.’’.

5 ( j) OBLIGATION TO ADDRESS DUPLICATIVE REGU6 LATION OF DUAL REGISTRANTS.—Section 15A of the Se7 curities Exchange Act of 1934 (15 U.S.C. 78o–3) is

8 amended by inserting after subsection (k), as added by

9 section 203, the following:

10 ‘‘(l) Consistent with this title, each national securities

11 association registered pursuant to subsection (a) of this

12 section shall issue such rules as are necessary to avoid du13 plicative or conflicting rules applicable to any broker or

14 dealer registered with the Commission pursuant to section

15 15(b) (except paragraph (11) thereof ), that is also reg16 istered with the Commodity Futures Trading Commission

17 pursuant to section 4f(a) of the Commodity Exchange Act

18 (except paragraph (2) thereof ), with respect to the appli19 cation of—

20 ‘‘(1) rules of such national securities association

21 of the type specified in section 15(c)(3)(B) involving

22 security futures products; and

23 ‘‘(2) similar rules of national securities associa24 tions registered pursuant to subsection (k) of this

25 section and national securities exchanges registered
189

•HR 5660 IH

1 pursuant to section 6(g) involving security futures

2 products.’’.

3 (k) OBLIGATION TO PUT IN PLACE PROCEDURES

4 AND ADOPT RULES.—

5 (1) NATIONAL SECURITIES ASSOCIATIONS.—

6 Section 15A of the Securities Exchange Act of 1934

7 (15 U.S.C. 78o–3) is amended by inserting after

8 subsection (l), as added by subsection ( j) of this sec9 tion, the following new subsection:

10 ‘‘(m) PROCEDURES AND RULES FOR SECURITY FU11 TURE PRODUCTS.—A national securities association reg12 istered pursuant to subsection (a) shall, not later than 8

13 months after the date of the enactment of the Commodity

14 Futures Modernization Act of 2000, implement the proce15 dures specified in section 6(h)(5)(A) of this title and adopt

16 the rules specified in subparagraphs (B) and (C) of section

17 6(h)(5) of this title.’’.

18 (2) NATIONAL SECURITIES EXCHANGES.—Sec19 tion 6 of the Securities Exchange Act of 1934 (15

20 U.S.C. 78f ) is amended by inserting after subsection

21 (i), as added by subsection (i) of this section, the fol22 lowing new subsection:

23 ‘‘( j) PROCEDURES AND RULES FOR SECURITY FU24 TURE PRODUCTS.—A national securities exchange reg25 istered pursuant to subsection (a) shall implement the pro-
190

•HR 5660 IH

1 cedures specified in section 6(h)(5)(A) of this title and

2 adopt the rules specified in subparagraphs (B) and (C)

3 of section 6(h)(5) of this title not later than 8 months

4 after the date of receipt of a request from an alternative

5 trading system for such implementation and rules.’’.

6 (l) OBLIGATION TO ADDRESS SECURITY FUTURES

7 PRODUCTS TRADED ON FOREIGN EXCHANGES.—Section

8 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f )

9 is amended by adding after subsection ( j), as added by

10 subsection (k) of this section, the following:

11 ‘‘(k)(1) To the extent necessary or appropriate in the

12 public interest, to promote fair competition, and consistent

13 with the promotion of market efficiency, innovation, and

14 expansion of investment opportunities, the protection of

15 investors, and the maintenance of fair and orderly mar16 kets, the Commission and the Commodity Futures Trad17 ing Commission shall jointly issue such rules, regulations,

18 or orders as are necessary and appropriate to permit the

19 offer and sale of a security futures product traded on or

20 subject to the rules of a foreign board of trade to United

21 States persons.

22 ‘‘(2) The rules, regulations, or orders adopted under

23 paragraph (1) shall take into account, as appropriate, the

24 nature and size of the markets that the securities under25 lying the security futures product reflect.’’.
191

•HR 5660 IH

1 SEC. 207. CLEARANCE AND SETTLEMENT.

2 Section 17A(b) of the Securities Exchange Act of

3 1934 (15 U.S.C. 78q–1(b)) is amended—

4 (1) in paragraph (3)(A), by inserting ‘‘and de5 rivative agreements, contracts, and transactions’’

6 after ‘‘prompt and accurate clearance and settlement

7 of securities transactions’’;

8 (2) in paragraph (3)(F), by inserting ‘‘and, to

9 the extent applicable, derivative agreements, con10 tracts, and transactions’’ after ‘‘designed to promote

11 the prompt and accurate clearance and settlement of

12 securities transactions’’; and

13 (3) by inserting after paragraph (7), as added

14 by section 206(d), the following:

15 ‘‘(8) A registered clearing agency shall be permitted

16 to provide facilities for the clearance and settlement of any

17 derivative agreements, contracts, or transactions that are

18 excluded from the Commodity Exchange Act, subject to

19 the requirements of this section and to such rules and reg20 ulations as the Commission may prescribe as necessary or

21 appropriate in the public interest, for the protection of in22 vestors, or otherwise in furtherance of the purposes of this

23 title.’’.
192

•HR 5660 IH

1 SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND

2 DISCLOSURE ISSUES UNDER THE SECURI3 TIES ACT OF 1933 AND THE SECURITIES EX4 CHANGE ACT OF 1934.

5 (a) AMENDMENTS TO THE SECURITIES ACT OF

6 1933.—

7 (1) TREATMENT OF SECURITY FUTURES PROD8 UCTS.—Section 2(a) of the Securities Act of 1933

9 (15 U.S.C. 77b(a)) is amended—

10 (A) in paragraph (1), by inserting ‘‘secu11 rity future,’’ after ‘‘treasury stock,’’;

12 (B) in paragraph (3), by adding at the end

13 the following: ‘‘Any offer or sale of a security

14 futures product by or on behalf of the issuer of

15 the securities underlying the security futures

16 product, an affiliate of the issuer, or an under17 writer, shall constitute a contract for sale of,

18 sale of, offer for sale, or offer to sell the under19 lying securities.’’; and

20 (C) by adding at the end the following:

21 ‘‘(16) The terms ‘security future’, ‘narrow22 based security index’, and ‘security futures product’

23 have the same meanings as provided in section

24 3(a)(55) of the Securities Exchange Act of 1934.’’.

25 (2) EXEMPTION FROM REGISTRATION.—Section

26 3(a) of the Securities Act of 1933 (15 U.S.C.
193

•HR 5660 IH

1 77c(a)) is amended by adding at the end the fol2 lowing:

3 ‘‘(14) Any security futures product that is—

4 ‘‘(A) cleared by a clearing agency reg5 istered under section 17A of the Securities Ex6 change Act of 1934 or exempt from registration

7 under subsection (b)(7) of such section 17A;

8 and

9 ‘‘(B) traded on a national securities ex10 change or a national securities association reg11 istered pursuant to section 15A(a) of the Secu12 rities Exchange Act of 1934.’’.

13 (3) CONFORMING AMENDMENT.—Section

14 12(a)(2) of the Securities Act of 1933 (15 U.S.C.

15 77l(a)(2)) is amended by striking ‘‘paragraph (2)’’

16 and inserting ‘‘paragraphs (2) and (14)’’.

17 (b) AMENDMENTS TO THE SECURITIES EXCHANGE

18 ACT OF 1934.—

19 (1) EXEMPTION FROM REGISTRATION.—Section

20 12(a) of the Securities Exchange Act of 1934 (15

21 U.S.C. 78l(a)) is amended by adding at the end the

22 following: ‘‘The provisions of this subsection shall

23 not apply in respect of a security futures product

24 traded on a national securities exchange.’’.
194

•HR 5660 IH

1 (2) EXEMPTIONS FROM REPORTING REQUIRE2 MENT.—Section 12(g)(5) of the Securities Exchange

3 Act of 1934 (15 U.S.C. 78l(g)(5)) is amended by

4 adding at the end the following: ‘‘For purposes of

5 this subsection, a security futures product shall not

6 be considered a class of equity security of the issuer

7 of the securities underlying the security futures

8 product.’’.

9 (3) TRANSACTIONS BY CORPORATE INSIDERS.—

10 Section 16 of the Securities Exchange Act of 1934

11 (15 U.S.C. 78p) is amended by adding at the end

12 the following:

13 ‘‘(f ) TREATMENT OF TRANSACTIONS IN SECURITY

14 FUTURES PRODUCTS.—The provisions of this section

15 shall apply to ownership of and transactions in security

16 futures products.’’.

17 SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY

18 ACT OF 1940 AND THE INVESTMENT ADVIS19 ERS ACT OF 1940.

20 (a) DEFINITIONS UNDER THE INVESTMENT COM21 PANY ACT OF 1940 AND THE INVESTMENT ADVISERS ACT

22 OF 1940.—

23 (1) Section 2(a)(36) of the Investment Com24 pany Act of 1940 (15 U.S.C. 80a–2(a)(36)) is
195

•HR 5660 IH

1 amended by inserting ‘‘security future,’’ after

2 ‘‘treasury stock,’’.

3 (2) Section 202(a)(18) of the Investment Advis4 ers Act of 1940 (15 U.S.C. 80b–2(a)(18)) is amend5 ed by inserting ‘‘security future,’’ after ‘‘treasury

6 stock,’’.

7 (3) Section 2(a) of the Investment Company

8 Act of 1940 (15 U.S.C. 80a–2(a)) is amended by

9 adding at the end the following:

10 ‘‘(52) The terms ‘security future’ and ‘narrow11 based security index’ have the same meanings as

12 provided in section 3(a)(55) of the Securities Ex13 change Act of 1934.’’.

14 (4) Section 202(a) of the Investment Advisers

15 Act of 1940 (15 U.S.C. 80b–2(a)) is amended by

16 adding at the end the following:

17 ‘‘(27) The terms ‘security future’ and ‘narrow18 based security index’ have the same meanings as

19 provided in section 3(a)(55) of the Securities Ex20 change Act of 1934.’’.

21 (b) OTHER PROVISION.—Section 203(b) of the In22 vestment Advisers Act of 1940 (15 U.S.C. 80b–3(b)) is

23 amended—

24 (1) by striking ‘‘or’’ at the end of paragraph

25 (4);
196

•HR 5660 IH

1 (2) by striking the period at the end of para2 graph (5) and inserting ‘‘; or’’; and

3 (3) by adding at the end the following:

4 ‘‘(6) any investment adviser that is registered

5 with the Commodity Futures Trading Commission

6 as a commodity trading advisor whose business does

7 not consist primarily of acting as an investment ad8 viser, as defined in section 202(a)(11) of this title,

9 and that does not act as an investment adviser to—

10 ‘‘(A) an investment company registered

11 under title I of this Act; or

12 ‘‘(B) a company which has elected to be a

13 business development company pursuant to sec14 tion 54 of title I of this Act and has not with15 drawn its election.’’.

16 SEC. 210. PREEMPTION OF STATE LAWS.

17 Section 28(a) of the Securities Exchange Act of 1934

18 (15 U.S.C. 78bb(a)) is amended—

19 (1) in the last sentence—

20 (A) by inserting ‘‘subject to this title’’

21 after ‘‘privilege, or other security’’; and

22 (B) by striking ‘‘any such instrument, if

23 such instrument is traded pursuant to rules and

24 regulations of a self-regulatory organization

25 that are filed with the Commission pursuant to
197

•HR 5660 IH

1 section 19(b) of this Act’’ and inserting ‘‘any

2 such security’’; and

3 (2) by adding at the end the following new sen4 tence: ‘‘No provision of State law regarding the

5 offer, sale, or distribution of securities shall apply to

6 any transaction in a security futures product, except

7 that this sentence shall not be construed as limiting

8 any State antifraud law of general applicability.’’.

9 Subtitle B—Amendments to the

10 Commodity Exchange Act

11 SEC. 251. JURISDICTION OF SECURITIES AND EXCHANGE

12 COMMISSION; OTHER PROVISIONS.

13 (a) JURISDICTION OF SECURITIES AND EXCHANGE

14 COMMISSION.—

15 (1) Section 2(a)(1)(C) of the Commodity Ex16 change Act (7 U.S.C. 2a) (as redesignated by sec17 tion 34(a)(2)(C)) is amended—

18 (A) in clause (ii)—

19 (i) by inserting ‘‘or register a deriva20 tives transaction execution facility that

21 trades or executes,’’ after ‘‘contract market

22 in,’’;

23 (ii) by inserting after ‘‘contracts) for

24 future delivery’’ the following: ‘‘, and no

25 derivatives transaction execution facility
198

•HR 5660 IH

1 shall trade or execute such contracts of

2 sale (or options on such contracts) for fu3 ture delivery,’’;

4 (iii) by striking ‘‘making such applica5 tion demonstrates and the Commission ex6 pressly finds that the specific contract (or

7 option on such contract) with respect to

8 which the application has been made

9 meets’’ and inserting ‘‘or the derivatives

10 transaction execution facility, and the ap11 plicable contract, meet’’; and

12 (iv) by striking subclause (III) of

13 clause (ii) and inserting the following:

14 ‘‘(III) Such group or index of securities

15 shall not constitute a narrow-based security

16 index.’’;

17 (B) by striking clause (iii);

18 (C) by striking clause (iv) and inserting

19 the following:

20 ‘‘(iii) If, in its discretion, the Commission deter21 mines that a stock index futures contract, notwith22 standing its conformance with the requirements in

23 clause (ii) of this subparagraph, can reasonably be

24 used as a surrogate for trading a security (including

25 a security futures product), it may, by order, require
199

•HR 5660 IH

1 such contract and any option thereon be traded and

2 regulated as security futures products as defined in

3 section 3(a)(56) of the Securities Exchange Act of

4 1934 and section 1a of this Act subject to all rules

5 and regulations applicable to security futures prod6 ucts under this Act and the securities laws as de7 fined in section 3(a)(47) of the Securities Exchange

8 Act of 1934.’’; and

9 (D) by redesignating clause (v) as clause

10 (iv).

11 (2) Section 2(a)(1) of the Commodity Exchange

12 Act (7 U.S.C. 2, 2a, 4) is amended by adding at the

13 end the following:

14 ‘‘(D)(i) Notwithstanding any other provision of this

15 Act, the Securities and Exchange Commission shall have

16 jurisdiction and authority over security futures as defined

17 in section 3(a)(55) of the Securities Exchange Act of

18 1934, section 2(a)(16) of the Securities Act of 1933, sec19 tion 2(a)(52) of the Investment Company Act of 1940,

20 and section 202(a)(27) of the Investment Advisers Act of

21 1940, options on security futures, and persons effecting

22 transactions in security futures and options thereon, and

23 this Act shall apply to and the Commission shall have ju24 risdiction with respect to accounts, agreements (including

25 any transaction which is of the character of, or is com-
200

•HR 5660 IH

1 monly known to the trade as, an ‘option’, ‘privilege’, ‘in2 demnity’, ‘bid’, ‘offer’, ‘put’, ‘call’, ‘advance guaranty’, or

3 ‘decline guaranty’), contracts, and transactions involving,

4 and may designate a board of trade as a contract market

5 in, or register a derivatives transaction execution facility

6 that trades or executes, a security futures product as de7 fined in section 1a of this Act: Provided, however, That,

8 except as provided in clause (vi) of this subparagraph, no

9 board of trade shall be designated as a contract market

10 with respect to, or registered as a derivatives transaction

11 execution facility for, any such contracts of sale for future

12 delivery unless the board of trade and the applicable con13 tract meet the following criteria:

14 ‘‘(I) Except as otherwise provided in a rule,

15 regulation, or order issued pursuant to clause (v) of

16 this subparagraph, any security underlying the secu17 rity future, including each component security of a

18 narrow-based security index, is registered pursuant

19 to section 12 of the Securities Exchange Act of

20 1934.

21 ‘‘(II) If the security futures product is not cash

22 settled, the board of trade on which the security fu23 tures product is traded has arrangements in place

24 with a clearing agency registered pursuant to section

25 17A of the Securities Exchange Act of 1934 for the
201

•HR 5660 IH

1 payment and delivery of the securities underlying the

2 security futures product.

3 ‘‘(III) Except as otherwise provided in a rule,

4 regulation, or order issued pursuant to clause (v) of

5 this subparagraph, the security future is based upon

6 common stock and such other equity securities as

7 the Commission and the Securities and Exchange

8 Commission jointly determine appropriate.

9 ‘‘(IV) The security futures product is cleared by

10 a clearing agency that has in place provisions for

11 linked and coordinated clearing with other clearing

12 agencies that clear security futures products, which

13 permits the security futures product to be purchased

14 on a designated contract market, registered deriva15 tives transaction execution facility, national securi16 ties exchange registered under section 6(a) of the

17 Securities Exchange Act of 1934, or national securi18 ties association registered pursuant to section

19 15A(a) of the Securities Exchange Act of 1934 and

20 offset on another designated contract market, reg21 istered derivatives transaction execution facility, na22 tional securities exchange registered under section

23 6(a) of the Securities Exchange Act of 1934, or na24 tional securities association registered pursuant to
202

•HR 5660 IH

1 section 15A(a) of the Securities Exchange Act of

2 1934.

3 ‘‘(V) Only futures commission merchants, intro4 ducing brokers, commodity trading advisors, com5 modity pool operators or associated persons subject

6 to suitability rules comparable to those of a national

7 securities association registered pursuant to section

8 15A(a) of the Securities Exchange Act of 1934 so9 licit, accept any order for, or otherwise deal in any

10 transaction in or in connection with the security fu11 tures product.

12 ‘‘(VI) The security futures product is subject to

13 a prohibition against dual trading in section 4j of

14 this Act and the rules and regulations thereunder or

15 the provisions of section 11(a) of the Securities Ex16 change Act of 1934 and the rules and regulations

17 thereunder, except to the extent otherwise permitted

18 under the Securities Exchange Act of 1934 and the

19 rules and regulations thereunder.

20 ‘‘(VII) Trading in the security futures product

21 is not readily susceptible to manipulation of the

22 price of such security futures product, nor to caus23 ing or being used in the manipulation of the price

24 of any underlying security, option on such security,
203

•HR 5660 IH

1 or option on a group or index including such securi2 ties;

3 ‘‘(VIII) The board of trade on which the secu4 rity futures product is traded has procedures in

5 place for coordinated surveillance among such board

6 of trade, any market on which any security under7 lying the security futures product is traded, and

8 other markets on which any related security is trad9 ed to detect manipulation and insider trading, except

10 that, if the board of trade is an alternative trading

11 system, a national securities association registered

12 pursuant to section 15A(a) of the Securities Ex13 change Act of 1934 or national securities exchange

14 registered pursuant to section 6(a) of the Securities

15 Exchange Act of 1934 of which such alternative

16 trading system is a member has in place such proce17 dures.

18 ‘‘(IX) The board of trade on which the security

19 futures product is traded has in place audit trails

20 necessary or appropriate to facilitate the coordinated

21 surveillance required in subclause (VIII), except

22 that, if the board of trade is an alternative trading

23 system, a national securities association registered

24 pursuant to section 15A(a) of the Securities Ex25 change Act of 1934 or national securities exchange
204

•HR 5660 IH

1 registered pursuant to section 6(a) of the Securities

2 Exchange Act of 1934 of which such alternative

3 trading system is a member has rules to require

4 such audit trails.

5 ‘‘(X) The board of trade on which the security

6 futures product is traded has in place procedures to

7 coordinate trading halts between such board of trade

8 and markets on which any security underlying the

9 security futures product is traded and other markets

10 on which any related security is traded, except that,

11 if the board of trade is an alternative trading sys12 tem, a national securities association registered pur13 suant to section 15A(a) of the Securities Exchange

14 Act of 1934 or national securities exchange reg15 istered pursuant to section 6(a) of the Securities Ex16 change Act of 1934 of which such alternative trad17 ing system is a member has rules to require such co18 ordinated trading halts.

19 ‘‘(XI) The margin requirements for a security

20 futures product comply with the regulations pre21 scribed pursuant to section 7(c)(2)(B) of the Securi22 ties Exchange Act of 1934, except that nothing in

23 this subclause shall be construed to prevent a board

24 of trade from requiring higher margin levels for a
205

•HR 5660 IH

1 security futures product when it deems such action

2 to be necessary or appropriate.

3 ‘‘(ii) It shall be unlawful for any person to offer, to

4 enter into, to execute, to confirm the execution of, or to

5 conduct any office or business anywhere in the United

6 States, its territories or possessions, for the purpose of

7 soliciting, or accepting any order for, or otherwise dealing

8 in, any transaction in, or in connection with, a security

9 futures product unless—

10 ‘‘(I) the transaction is conducted on or subject

11 to the rules of a board of trade that—

12 ‘‘(aa) has been designated by the Commis13 sion as a contract market in such security fu14 tures product; or

15 ‘‘(bb) is a registered derivatives trans16 action execution facility for the security futures

17 product that has provided a certification with

18 respect to the security futures product pursuant

19 to clause (vii);

20 ‘‘(II) the contract is executed or consummated

21 by, through, or with a member of the contract mar22 ket or registered derivatives transaction execution

23 facility; and

24 ‘‘(III) the security futures product is evidenced

25 by a record in writing which shows the date, the
206

•HR 5660 IH

1 parties to such security futures product and their

2 addresses, the property covered, and its price, and

3 each contract market member or registered deriva4 tives transaction execution facility member shall

5 keep the record for a period of 3 years from the date

6 of the transaction, or for a longer period if the Com7 mission so directs, which record shall at all times be

8 open to the inspection of any duly authorized rep9 resentative of the Commission.

10 ‘‘(iii)(I) Except as provided in subclause (II) but not11 withstanding any other provision of this Act, no person

12 shall offer to enter into, enter into, or confirm the execu13 tion of any option on a security future.

14 ‘‘(II) After 3 years after the date of the enactment

15 of the Commodity Futures Modernization Act of 2000, the

16 Commission and the Securities and Exchange Commission

17 may by order jointly determine to permit trading of op18 tions on any security future authorized to be traded under

19 the provisions of this Act and the Securities Exchange Act

20 of 1934.

21 ‘‘(iv)(I) All relevant records of a futures commission

22 merchant or introducing broker registered pursuant to

23 section 4f(a)(2), floor broker or floor trader exempt from

24 registration pursuant to section 4f(a)(3), associated per25 son exempt from registration pursuant to section 4k(6),
207

•HR 5660 IH

1 or board of trade designated as a contract market in a

2 security futures product pursuant to section 5f shall be

3 subject to such reasonable periodic or special examinations

4 by representatives of the Commission as the Commission

5 deems necessary or appropriate in the public interest, for

6 the protection of investors, or otherwise in furtherance of

7 the purposes of this Act, and the Commission, before con8 ducting any such examination, shall give notice to the Se9 curities and Exchange Commission of the proposed exam10 ination and consult with the Securities and Exchange

11 Commission concerning the feasibility and desirability of

12 coordinating the examination with examinations conducted

13 by the Securities and Exchange Commission in order to

14 avoid unnecessary regulatory duplication or undue regu15 latory burdens for the registrant or board of trade.

16 ‘‘(II) The Commission shall notify the Securities and

17 Exchange Commission of any examination conducted of

18 any futures commission merchant or introducing broker

19 registered pursuant to section 4f(a)(2), floor broker or

20 floor trader exempt from registration pursuant to section

21 4f(a)(3), associated person exempt from registration pur22 suant to section 4k(6), or board of trade designated as

23 a contract market in a security futures product pursuant

24 to section 5f, and, upon request, furnish to the Securities

25 and Exchange Commission any examination report and
208

•HR 5660 IH

1 data supplied to or prepared by the Commission in connec2 tion with the examination.

3 ‘‘(III) Before conducting an examination under sub4 clause (I), the Commission shall use the reports of exami5 nations, unless the information sought is unavailable in

6 the reports, of any futures commission merchant or intro7 ducing broker registered pursuant to section 4f(a)(2),

8 floor broker or floor trader exempt from registration pur9 suant to section 4f(a)(3), associated person exempt from

10 registration pursuant to section 4k(6), or board of trade

11 designated as a contract market in a security futures

12 product pursuant to section 5f that is made by the Securi13 ties and Exchange Commission, a national securities asso14 ciation registered pursuant to section 15A(a) of the Secu15 rities Exchange Act of 1934 (15 U.S.C. 78o–3(a)), or a

16 national securities exchange registered pursuant to section

17 6(a) of the Securities Exchange Act of 1934 (15 U.S.C.

18 78f(a)).

19 ‘‘(IV) Any records required under this subsection for

20 a futures commission merchant or introducing broker reg21 istered pursuant to section 4f(a)(2), floor broker or floor

22 trader exempt from registration pursuant to section

23 4f(a)(3), associated person exempt from registration pur24 suant to section 4k(6), or board of trade designated as

25 a contract market in a security futures product pursuant
209

•HR 5660 IH

1 to section 5f, shall be limited to records with respect to

2 accounts, agreements, contracts, and transactions involv3 ing security futures products.

4 ‘‘(v)(I) The Commission and the Securities and Ex5 change Commission, by rule, regulation, or order, may

6 jointly modify the criteria specified in subclause (I) or

7 (III) of clause (i), including the trading of security futures

8 based on securities other than equity securities, to the ex9 tent such modification fosters the development of fair and

10 orderly markets in security futures products, is necessary

11 or appropriate in the public interest, and is consistent with

12 the protection of investors.

13 ‘‘(II) The Commission and the Securities and Ex14 change Commission, by order, may jointly exempt any per15 son from compliance with the criterion specified in clause

16 (i)(IV) to the extent such exemption fosters the develop17 ment of fair and orderly markets in security futures prod18 ucts, is necessary or appropriate in the public interest, and

19 is consistent with the protection of investors.

20 ‘‘(vi)(I) Notwithstanding clauses (i) and (vii), until

21 the compliance date, a board of trade shall not be required

22 to meet the criterion specified in clause (i)(IV).

23 ‘‘(II) The Commission and the Securities and Ex24 change Commission shall jointly publish in the Federal
210

•HR 5660 IH

1 Register a notice of the compliance date no later than 165

2 days before the compliance date.

3 ‘‘(III) For purposes of this clause, the term ‘compli4 ance date’ means the later of—

5 ‘‘(aa) 180 days after the end of the first full

6 calendar month period in which the average aggre7 gate comparable share volume for all security fu8 tures products based on single equity securities trad9 ed on all designated contract markets and registered

10 derivatives transaction execution facilities equals or

11 exceeds 10 percent of the average aggregate com12 parable share volume of options on single equity se13 curities traded on all national securities exchanges

14 registered pursuant to section 6(a) of the Securities

15 Exchange Act of 1934 and any national securities

16 associations registered pursuant to section 15A(a) of

17 such Act; or

18 ‘‘(bb) 2 years after the date on which trading

19 in any security futures product commences under

20 this Act.

21 ‘‘(vii) It shall be unlawful for a board of trade to

22 trade or execute a security futures product unless the

23 board of trade has provided the Commission with a certifi24 cation that the specific security futures product and the

25 board of trade, as applicable, meet the criteria specified
211

•HR 5660 IH

1 in subclauses (I) through (XI) of clause (i), except as oth2 erwise provided in clause (vi).’’.

3 (b) MARGIN ON SECURITY FUTURES.—Section

4 2(a)(1)(C)(vi) of the Commodity Exchange Act (7 U.S.C.

5 2a(vi)) (as redesignated by section 34) is amended—

6 (1) by redesignating subclause (V) as subclause

7 (VI); and

8 (2) by striking ‘‘(vi)(I)’’ and all that follows

9 through subclause (IV) and inserting the following:

10 ‘‘(v)(I) Notwithstanding any other provision of

11 this Act, any contract market in a stock index fu12 tures contract (or option thereon) other than a secu13 rity futures product, or any derivatives transaction

14 execution facility on which such contract or option

15 is traded, shall file with the Board of Governors of

16 the Federal Reserve System any rule establishing or

17 changing the levels of margin (initial and mainte18 nance) for such stock index futures contract (or op19 tion thereon) other than security futures products.

20 ‘‘(II) The Board may at any time request any

21 contract market or derivatives transaction execution

22 facility to set the margin for any stock index futures

23 contract (or option thereon), other than for any se24 curity futures product, at such levels as the Board

25 in its judgment determines are appropriate to pre-
212

•HR 5660 IH

1 serve the financial integrity of the contract market

2 or derivatives transaction execution facility, or its

3 clearing system, or to prevent systemic risk. If the

4 contract market or derivatives transaction execution

5 facility fails to do so within the time specified by the

6 Board in its request, the Board may direct the con7 tract market or derivatives transaction execution fa8 cility to alter or supplement the rules of the contract

9 market or derivatives transaction execution facility

10 as specified in the request.

11 ‘‘(III) Subject to such conditions as the Board

12 may determine, the Board may delegate any or all

13 of its authority, relating to margin for any stock

14 index futures contract (or option thereon), other

15 than security futures products, under this clause to

16 the Commission.

17 ‘‘(IV) It shall be unlawful for any futures com18 mission merchant to, directly or indirectly, extend or

19 maintain credit to or for, or collect margin from any

20 customer on any security futures product unless

21 such activities comply with the regulations pre22 scribed pursuant to section 7(c)(2)(B) of the Securi23 ties Exchange Act of 1934.

24 ‘‘(V) Nothing in this clause shall supersede or

25 limit the authority granted to the Commission in
213

•HR 5660 IH

1 section 8a(9) to direct a contract market or reg2 istered derivatives transaction execution facility, on

3 finding an emergency to exist, to raise temporary

4 margin levels on any futures contract, or option on

5 the contract covered by this clause, or on any secu6 rity futures product.’’.

7 (c) DUAL TRADING.—Section 4j of the Commodity

8 Exchange Act (7 U.S.C. 6j) is amended to read as follows:

9 ‘‘SEC. 4j. RESTRICTIONS ON DUAL TRADING IN SECURITY

10 FUTURES PRODUCTS ON DESIGNATED CON11 TRACT MARKETS AND REGISTERED DERIVA12 TIVES TRANSACTION EXECUTION FACILITIES.

13 ‘‘(a) The Commission shall issue regulations to pro14 hibit the privilege of dual trading in security futures prod15 ucts on each contract market and registered derivatives

16 transaction execution facility. The regulations issued by

17 the Commission under this section—

18 ‘‘(1) shall provide that the prohibition of dual

19 trading thereunder shall take effect upon issuance of

20 the regulations; and

21 ‘‘(2) shall provide exceptions, as the Commis22 sion determines appropriate, to ensure fairness and

23 orderly trading in security futures product markets,

24 including—
214

•HR 5660 IH

1 ‘‘(A) exceptions for spread transactions

2 and the correction of trading errors;

3 ‘‘(B) allowance for a customer to designate

4 in writing not less than once annually a named

5 floor broker to execute orders for such cus6 tomer, notwithstanding the regulations to pro7 hibit the privilege of dual trading required

8 under this section; and

9 ‘‘(C) other measures reasonably designed

10 to accommodate unique or special characteris11 tics of individual boards of trade or contract

12 markets, to address emergency or unusual mar13 ket conditions, or otherwise to further the pub14 lic interest consistent with the promotion of

15 market efficiency, innovation, and expansion of

16 investment opportunities, the protection of in17 vestors, and with the purposes of this section.

18 ‘‘(b) As used in this section, the term ‘dual trading’

19 means the execution of customer orders by a floor broker

20 during the same trading session in which the floor broker

21 executes any trade in the same contract market or reg22 istered derivatives transaction execution facility for—

23 ‘‘(1) the account of such floor broker;

24 ‘‘(2) an account for which such floor broker has

25 trading discretion; or
215

•HR 5660 IH

1 ‘‘(3) an account controlled by a person with

2 whom such floor broker has a relationship through

3 membership in a broker association.

4 ‘‘(c) As used in this section, the term ‘broker associa5 tion’ shall include two or more contract market members

6 or registered derivatives transaction execution facility

7 members with floor trading privileges of whom at least one

8 is acting as a floor broker, who—

9 ‘‘(1) engage in floor brokerage activity on be10 half of the same employer,

11 ‘‘(2) have an employer and employee relation12 ship which relates to floor brokerage activity,

13 ‘‘(3) share profits and losses associated with

14 their brokerage or trading activity, or

15 ‘‘(4) regularly share a deck of orders.’’.

16 (d) EXEMPTION FROM REGISTRATION FOR INVEST17 MENT ADVISERS.—Section 4m of the Commodity Ex18 change Act (7 U.S.C. 6m) is amended by adding at the

19 end the following:

20 ‘‘(3) Subsection (1) of this section shall not apply to

21 any commodity trading advisor that is registered with the

22 Securities and Exchange Commission as an investment ad23 viser whose business does not consist primarily of acting

24 as a commodity trading advisor, as defined in section

25 1a(6), and that does not act as a commodity trading advi-
216

•HR 5660 IH

1 sor to any investment trust, syndicate, or similar form of

2 enterprise that is engaged primarily in trading in any com3 modity for future delivery on or subject to the rules of

4 any contract market or registered derivatives transaction

5 execution facility.’’.

6 (e) EXEMPTION FROM INVESTIGATIONS OF MARKETS

7 IN UNDERLYING SECURITIES.—Section 16 of the Com8 modity Exchange Act (7 U.S.C. 20) is amended by adding

9 at the end the following:

10 ‘‘(e) This section shall not apply to investigations in11 volving any security underlying a security futures prod12 uct.’’.

13 (f ) RULEMAKING AUTHORITY TO ADDRESS DUPLI14 CATIVE REGULATION OF DUAL REGISTRANTS.—Section

15 4d of the Commodity Exchange Act (7 U.S.C. 6d) is

16 amended—

17 (1) by inserting ‘‘(a)’’ before the first undesig18 nated paragraph;

19 (2) by inserting ‘‘(b)’’ before the second undes20 ignated paragraph; and

21 (3) by adding at the end the following:

22 ‘‘(c) Consistent with this Act, the Commission, in

23 consultation with the Securities and Exchange Commis24 sion, shall issue such rules, regulations, or orders as are

25 necessary to avoid duplicative or conflicting regulations
217

•HR 5660 IH

1 applicable to any futures commission merchant registered

2 with the Commission pursuant to section 4f(a) (except

3 paragraph (2) thereof ), that is also registered with the

4 Securities and Exchange Commission pursuant to section

5 15(b) of the Securities Exchange Act (except paragraph

6 (11) thereof ), involving the application of—

7 ‘‘(1) section 8, section 15(c)(3), and section 17

8 of the Securities Exchange Act of 1934 and the

9 rules and regulations thereunder related to the treat10 ment of customer funds, securities, or property,

11 maintenance of books and records, financial report12 ing or other financial responsibility rules (as defined

13 in section 3(a)(40) of the Securities Exchange Act

14 of 1934), involving security futures products; and

15 ‘‘(2) similar provisions of this Act and the rules

16 and regulations thereunder involving security futures

17 products.’’.

18 (g) OBLIGATION TO ADDRESS DUPLICATIVE REGU19 LATION OF DUAL REGISTRANTS.—Section 17 of the Com20 modity Exchange Act (7 U.S.C. 21) is amended by adding

21 at the end the following:

22 ‘‘(r) Consistent with this Act, each futures associa23 tion registered under this section shall issue such rules

24 as are necessary to avoid duplicative or conflicting rules

25 applicable to any futures commission merchant registered
218

•HR 5660 IH

1 with the Commission pursuant to section 4f(a) of this Act

2 (except paragraph (2) thereof ), that is also registered with

3 the Securities and Exchange Commission pursuant to sec4 tion 15(b) of the Securities and Exchange Act of 1934

5 (except paragraph (11) thereof ), with respect to the appli6 cation of—

7 ‘‘(1) rules of such futures association of the

8 type specified in section 4d(3) of this Act involving

9 security futures products; and

10 ‘‘(2) similar rules of national securities associa11 tions registered pursuant to section 15A(a) of the

12 Securities and Exchange Act of 1934 involving secu13 rity futures products.’’.

14 (h) OBLIGATION TO ADDRESS DUPLICATIVE REGU15 LATION OF DUAL REGISTRANTS.—Section 5c of the Com16 modity Exchange Act (as added by section 114) is amend17 ed by adding at the end the following:

18 ‘‘(f ) Consistent with this Act, each designated con19 tract market and registered derivatives transaction execu20 tion facility shall issue such rules as are necessary to avoid

21 duplicative or conflicting rules applicable to any futures

22 commission merchant registered with the Commission pur23 suant to section 4f(a) of this Act (except paragraph (2)

24 thereof ), that is also registered with the Securities and

25 Exchange Commission pursuant to section 15(b) of the
219

•HR 5660 IH

1 Securities Exchange Act of 1934 (except paragraph (11)

2 thereof ) with respect to the application of—

3 ‘‘(1) rules of such designated contract market

4 or registered derivatives transaction execution facil5 ity of the type specified in section 4d(3) of this Act

6 involving security futures products; and

7 ‘‘(2) similar rules of national securities associa8 tions registered pursuant to section 15A(a) of the

9 Securities Exchange Act of 1934 and national secu10 rities exchanges registered pursuant to section 6(g)

11 of such Act involving security futures products.’’.

12 (i) OBLIGATION TO ADDRESS SECURITY FUTURES

13 PRODUCTS TRADED ON FOREIGN EXCHANGES.—Section

14 2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2, 2a,

15 and 4) is amended by adding at the end the following:

16 ‘‘(E)(i) To the extent necessary or appropriate in the

17 public interest, to promote fair competition, and consistent

18 with promotion of market efficiency, innovation, and ex19 pansion of investment opportunities, the protection of in20 vestors, and the maintenance of fair and orderly markets,

21 the Commission and the Securities and Exchange Com22 mission shall jointly issue such rules, regulations, or or23 ders as are necessary and appropriate to permit the offer

24 and sale of a security futures product traded on or subject
220

•HR 5660 IH

1 to the rules of a foreign board of trade to United States

2 persons.

3 ‘‘(ii) The rules, regulations, or orders adopted under

4 clause (i) shall take into account, as appropriate, the na5 ture and size of the markets that the securities underlying

6 the security futures product reflects.’’.

7 ( j) SECURITY FUTURES PRODUCTS TRADED ON

8 FOREIGN BOARDS OF TRADE.—Section 2(a)(1) of the

9 Commodity Exchange Act (7 U.S.C. 2, 2a, and 4) is

10 amended by adding at the end the following:

11 ‘‘(F)(i) Nothing in this Act is intended to prohibit

12 a futures commission merchant from carrying security fu13 tures products traded on or subject to the rules of a for14 eign board of trade in the accounts of persons located out15 side of the United States.

16 ‘‘(ii) Nothing in this Act is intended to prohibit any

17 eligible contract participant located in the United States

18 from purchasing or carrying securities futures products

19 traded on or subject to the rules of a foreign board of

20 trade, exchange, or market to the same extent such person

21 may be authorized to purchase or carry other securities

22 traded on a foreign board of trade, exchange, or market

23 so long as any underlying security for such security fu24 tures products is traded principally on, by, or through any

25 exchange or market located outside the United States.’’.
221

•HR 5660 IH

1 SEC. 252. APPLICATION OF THE COMMODITY EXCHANGE

2 ACT TO NATIONAL SECURITIES EXCHANGES

3 AND NATIONAL SECURITIES ASSOCIATIONS

4 THAT TRADE SECURITY FUTURES.

5 (a) NOTICE DESIGNATION OF NATIONAL SECURITIES

6 EXCHANGES AND NATIONAL SECURITIES ASSOCIA7 TIONS.—The Commodity Exchange Act is amended by in8 serting after section 5e (7 U.S.C. 7b), as redesignated by

9 section 21(1), the following:

10 ‘‘SEC. 5f. DESIGNATION OF SECURITIES EXCHANGES AND

11 ASSOCIATIONS AS CONTRACT MARKETS.

12 ‘‘(a) Any board of trade that is registered with the

13 Securities and Exchange Commission as a national securi14 ties exchange, is a national securities association reg15 istered pursuant to section 15A(a) of the Securities Ex16 change Act of 1934, or is an alternative trading system

17 shall be a designated contract market in security futures

18 products if—

19 ‘‘(1) such national securities exchange, national

20 securities association, or alternative trading system

21 lists or trades no other contracts of sale for future

22 delivery, except for security futures products;

23 ‘‘(2) such national securities exchange, national

24 securities association, or alternative trading system

25 files written notice with the Commission in such

26 form as the Commission, by rule, may prescribe con-
222

•HR 5660 IH

1 taining such information as the Commission, by rule,

2 may prescribe as necessary or appropriate in the

3 public interest or for the protection of customers;

4 and

5 ‘‘(3) the registration of such national securities

6 exchange, national securities association, or alter7 native trading system is not suspended pursuant to

8 an order by the Securities and Exchange Commis9 sion.

10 Such designation shall be effective contemporaneously

11 with the submission of notice, in written or electronic

12 form, to the Commission.

13 ‘‘(b)(1) A national securities exchange, national secu14 rities association, or alternative trading system that is des15 ignated as a contract market pursuant to section 5f shall

16 be exempt from the following provisions of this Act and

17 the rules thereunder:

18 ‘‘(A) Subsections (c), (e), and (g) of section 4c.

19 ‘‘(B) Section 4j.

20 ‘‘(C) Section 5.

21 ‘‘(D) Section 5c.

22 ‘‘(E) Section 6a.

23 ‘‘(F) Section 8(d).

24 ‘‘(G) Section 9(f ).

25 ‘‘(H) Section 16.
223

•HR 5660 IH

1 ‘‘(2) An alternative trading system that is a des2 ignated contract market under this section shall be re3 quired to be a member of a futures association registered

4 under section 17 and shall be exempt from any provision

5 of this Act that would require such alternative trading sys6 tem to—

7 ‘‘(A) set rules governing the conduct of sub8 scribers other than the conduct of such subscribers’

9 trading on such alternative trading system; or

10 ‘‘(B) discipline subscribers other than by exclu11 sion from trading.

12 ‘‘(3) To the extent that an alternative trading system

13 is exempt from any provision of this Act pursuant to para14 graph (2) of this subsection, the futures association reg15 istered under section 17 of which the alternative trading

16 system is a member shall set rules governing the conduct

17 of subscribers to the alternative trading system and dis18 cipline the subscribers.

19 ‘‘(4)(A) Except as provided in subparagraph (B), but

20 notwithstanding any other provision of this Act, the Com21 mission, by rule, regulation, or order, may conditionally

22 or unconditionally exempt any designated contract market

23 in security futures subject to the designation requirement

24 of this section from any provision of this Act or of any

25 rule or regulation thereunder, to the extent such exemp-
224

•HR 5660 IH

1 tion is necessary or appropriate in the public interest and

2 is consistent with the protection of investors.

3 ‘‘(B) The Commission shall, by rule or regulation, de4 termine the procedures under which an exemptive order

5 under this section is granted and may, in its sole discre6 tion, decline to entertain any application for an order of

7 exemption under this section.

8 ‘‘(C) An alternative trading system shall not be

9 deemed to be an exchange for any purpose as a result of

10 the designation of such alternative trading system as a

11 contract market under this section.’’.

12 (b) NOTICE REGISTRATION OF CERTAIN SECURITIES

13 BROKER-DEALERS; EXEMPTION FROM REGISTRATION

14 FOR CERTAIN SECURITIES BROKER-DEALERS.—Section

15 4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a))

16 is amended—

17 (1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and

18 (2) by adding at the end the following:

19 ‘‘(2) Notwithstanding paragraph (1), and except as

20 provided in paragraph (3), any broker or dealer that is

21 registered with the Securities and Exchange Commission

22 shall be registered as a futures commission merchant or

23 introducing broker, as applicable, if—

24 ‘‘(A) the broker or dealer limits its solicitation

25 of orders, acceptance of orders, or execution of or-
225

•HR 5660 IH

1 ders, or placing of orders on behalf of others involv2 ing any contracts of sale of any commodity for fu3 ture delivery, on or subject to the rules of any con4 tract market or registered derivatives transaction

5 execution facility to security futures products;

6 ‘‘(B) the broker or dealer files written notice

7 with the Commission in such form as the Commis8 sion, by rule, may prescribe containing such infor9 mation as the Commission, by rule, may prescribe as

10 necessary or appropriate in the public interest or for

11 the protection of investors;

12 ‘‘(C) the registration of the broker or dealer is

13 not suspended pursuant to an order of the Securities

14 and Exchange Commission; and

15 ‘‘(D) the broker or dealer is a member of a na16 tional securities association registered pursuant to

17 section 15A(a) of the Securities Exchange Act of

18 1934.

19 The registration shall be effective contemporaneously with

20 the submission of notice, in written or electronic form, to

21 the Commission.

22 ‘‘(3) A floor broker or floor trader shall be exempt

23 from the registration requirements of section 4e and para24 graph (1) of this subsection if—
226

•HR 5660 IH

1 ‘‘(A) the floor broker or floor trader is a broker

2 or dealer registered with the Securities and Ex3 change Commission;

4 ‘‘(B) the floor broker or floor trader limits its

5 solicitation of orders, acceptance of orders, or execu6 tion of orders, or placing of orders on behalf of oth7 ers involving any contracts of sale of any commodity

8 for future delivery, on or subject to the rules of any

9 contract market to security futures products; and

10 ‘‘(C) the registration of the floor broker or floor

11 trader is not suspended pursuant to an order of the

12 Securities and Exchange Commission.’’.

13 (c) EXEMPTION FOR SECURITIES BROKER-DEALERS

14 FROM CERTAIN PROVISIONS OF THE COMMODITY EX15 CHANGE ACT.—Section 4f(a) of the Commodity Exchange

16 Act (7 U.S.C. 6f(a)) is amended by inserting after para17 graph (3), as added by subsection (b) of this section, the

18 following:

19 ‘‘(4)(A) A broker or dealer that is registered as a fu20 tures commission merchant or introducing broker pursu21 ant to paragraph (2), or that is a floor broker or floor

22 trader exempt from registration pursuant to paragraph

23 (3), shall be exempt from the following provisions of this

24 Act and the rules thereunder:
227

•HR 5660 IH

1 ‘‘(i) Subsections (b), (d), (e), and (g) of section

2 4c.

3 ‘‘(ii) Sections 4d, 4e, and 4h.

4 ‘‘(iii) Subsections (b) and (c) of this section.

5 ‘‘(iv) Section 4j.

6 ‘‘(v) Section 4k(1).

7 ‘‘(vi) Section 4p.

8 ‘‘(vii) Section 6d.

9 ‘‘(viii) Subsections (d) and (g) of section 8.

10 ‘‘(ix) Section 16.

11 ‘‘(B)(i) Except as provided in clause (ii) of this sub12 paragraph, but notwithstanding any other provision of this

13 Act, the Commission, by rule, regulation, or order, may

14 conditionally or unconditionally exempt any broker or

15 dealer subject to the registration requirement of para16 graph (2), or any broker or dealer exempt from registra17 tion pursuant to paragraph (3), from any provision of this

18 Act or of any rule or regulation thereunder, to the extent

19 the exemption is necessary or appropriate in the public

20 interest and is consistent with the protection of investors.

21 ‘‘(ii) The Commission shall, by rule or regulation, de22 termine the procedures under which an exemptive order

23 under this section shall be granted and may, in its sole

24 discretion, decline to entertain any application for an

25 order of exemption under this section.
228

•HR 5660 IH

1 ‘‘(C)(i) A broker or dealer that is registered as a fu2 tures commission merchant or introducing broker pursu3 ant to paragraph (2) or an associated person thereof, or

4 that is a floor broker or floor trader exempt from registra5 tion pursuant to paragraph (3), shall not be required to

6 become a member of any futures association registered

7 under section 17.

8 ‘‘(ii) No futures association registered under section

9 17 shall limit its members from carrying an account, ac10 cepting an order, or transacting business with a broker

11 or dealer that is registered as a futures commission mer12 chant or introducing broker pursuant to paragraph (2) or

13 an associated person thereof, or that is a floor broker or

14 floor trader exempt from registration pursuant to para15 graph (3).’’.

16 (d) EXEMPTIONS FOR ASSOCIATED PERSONS OF SE17 CURITIES BROKER-DEALERS.—Section 4k of the Com18 modity Exchange Act (7 U.S.C. 6k), is amended by insert19 ing after paragraph (4), as added by subsection (c) of this

20 section, the following:

21 ‘‘(5) Any associated person of a broker or dealer that

22 is registered with the Securities and Exchange Commis23 sion, and who limits its solicitation of orders, acceptance

24 of orders, or execution of orders, or placing of orders on

25 behalf of others involving any contracts of sale of any com-
229

•HR 5660 IH

1 modity for future delivery or any option on such a con2 tract, on or subject to the rules of any contract market

3 or registered derivatives transaction execution facility to

4 security futures products, shall be exempt from the fol5 lowing provisions of this Act and the rules thereunder:

6 ‘‘(A) Subsections (b), (d), (e), and (g) of section

7 4c.

8 ‘‘(B) Sections 4d, 4e, and 4h.

9 ‘‘(C) Subsections (b) and (c) of section 4f.

10 ‘‘(D) Section 4j.

11 ‘‘(E) Paragraph (1) of this section.

12 ‘‘(F) Section 4p.

13 ‘‘(G) Section 6d.

14 ‘‘(H) Subsections (d) and (g) of section 8.

15 ‘‘(I) Section 16.’’.

16 SEC. 253. NOTIFICATION OF INVESTIGATIONS AND EN17 FORCEMENT ACTIONS.

18 (a) Section 8(a) of the Commodity Exchange Act (7

19 U.S.C. 12(a)) is amended by adding at the end the fol20 lowing:

21 ‘‘(3) The Commission shall provide the Securities and

22 Exchange Commission with notice of the commencement

23 of any proceeding and a copy of any order entered by the

24 Commission against any futures commission merchant or

25 introducing broker registered pursuant to section 4f(a)(2),
230

•HR 5660 IH

1 any floor broker or floor trader exempt from registration

2 pursuant to section 4f(a)(3), any associated person exempt

3 from registration pursuant to section 4k(6), or any board

4 of trade designated as a contract market pursuant to sec5 tion 5f.’’.

6 (b) Section 6 of the Commodity Exchange Act (7

7 U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended by adding at

8 the end the following:

9 ‘‘(g) The Commission shall provide the Securities and

10 Exchange Commission with notice of the commencement

11 of any proceeding and a copy of any order entered by the

12 Commission pursuant to subsections (c) and (d) of this

13 section against any futures commission merchant or intro14 ducing broker registered pursuant to section 4f(a)(2), any

15 floor broker or floor trader exempt from registration pur16 suant to section 4f(a)(3), any associated person exempt

17 from registration pursuant to section 4k(6), or any board

18 of trade designated as a contract market pursuant to sec19 tion 5f.’’.

20 (c) Section 6c of the Commodity Exchange Act (7

21 U.S.C. 13a–1) is amended by adding at the end the fol22 lowing:

23 ‘‘(h) The Commission shall provide the Securities and

24 Exchange Commission with notice of the commencement

25 of any proceeding and a copy of any order entered by the
231

•HR 5660 IH

1 Commission against any futures commission merchant or

2 introducing broker registered pursuant to section 4f(a)(2),

3 any floor broker or floor trader exempt from registration

4 pursuant to section 4f(a)(3), any associated person exempt

5 from registration pursuant to section 4k(6), or any board

6 of trade designated as a contract market pursuant to sec7 tion 5f.’’.

8 TITLE III—LEGAL CERTAINTY

9 FOR SWAP AGREEMENTS

10 SEC. 301. SWAP AGREEMENT.

11 (a) AMENDMENT.—Title II of the Gramm-Leach-Bli12 ley Act (Public Law 106–102) is amended by inserting

13 after section 206 the following new sections:

14 ‘‘SEC. 206A. SWAP AGREEMENT.

15 ‘‘(a) IN GENERAL.—Except as provided in subsection

16 (b), as used in this section, the term ‘swap agreement’

17 means any agreement, contract, or transaction between el18 igible contract participants (as defined in section 1a(12)

19 of the Commodity Exchange Act as in effect on the date

20 of the enactment of this section), other than a person that

21 is an eligible contract participant under section 1a(12)(C)

22 of the Commodity Exchange Act, the material terms of

23 which (other than price and quantity) are subject to indi24 vidual negotiation, and that—
232

•HR 5660 IH

1 ‘‘(1) is a put, call, cap, floor, collar, or similar

2 option of any kind for the purchase or sale of, or

3 based on the value of, one or more interest or other

4 rates, currencies, commodities, indices, quantitative

5 measures, or other financial or economic interests or

6 property of any kind;

7 ‘‘(2) provides for any purchase, sale, payment

8 or delivery (other than a dividend on an equity secu9 rity) that is dependent on the occurrence, non-occur10 rence, or the extent of the occurrence of an event or

11 contingency associated with a potential financial,

12 economic, or commercial consequence;

13 ‘‘(3) provides on an executory basis for the ex14 change, on a fixed or contingent basis, of one or

15 more payments based on the value or level of one or

16 more interest or other rates, currencies, commod17 ities, securities, instruments of indebtedness, indices,

18 quantitative measures, or other financial or eco19 nomic interests or property of any kind, or any in20 terest therein or based on the value thereof, and

21 that transfers, as between the parties to the trans22 action, in whole or in part, the financial risk associ23 ated with a future change in any such value or level

24 without also conveying a current or future direct or

25 indirect ownership interest in an asset (including
233

•HR 5660 IH

1 any enterprise or investment pool) or liability that

2 incorporates the financial risk so transferred, includ3 ing any such agreement, contract, or transaction

4 commonly known as an interest rate swap, including

5 a rate floor, rate cap, rate collar, cross-currency rate

6 swap, basis swap, currency swap, equity index swap,

7 equity swap, debt index swap, debt swap, credit

8 spread, credit default swap, credit swap, weather

9 swap, or commodity swap;

10 ‘‘(4) provides for the purchase or sale, on a

11 fixed or contingent basis, of any commodity, cur12 rency, instrument, interest, right, service, good, arti13 cle, or property of any kind; or

14 ‘‘(5) is any combination or permutation of, or

15 option on, any agreement, contract, or transaction

16 described in any of paragraphs (1) through (4).

17 ‘‘(b) EXCLUSIONS.—The term ‘swap agreement’ does

18 not include—

19 ‘‘(1) any put, call, straddle, option, or privilege

20 on any security, certificate of deposit, or group or

21 index of securities, including any interest therein or

22 based on the value thereof;

23 ‘‘(2) any put, call, straddle, option, or privilege

24 entered into on a national securities exchange reg-
234

•HR 5660 IH

1 istered pursuant to section 6(a) of the Securities Ex2 change Act of 1934 relating to foreign currency;

3 ‘‘(3) any agreement, contract, or transaction

4 providing for the purchase or sale of one or more se5 curities on a fixed basis;

6 ‘‘(4) any agreement, contract, or transaction

7 providing for the purchase or sale of one or more se8 curities on a contingent basis, unless such agree9 ment, contract, or transaction predicates such pur10 chase or sale on the occurrence of a bona fide con11 tingency that might reasonably be expected to affect

12 or be affected by the creditworthiness of a party

13 other than a party to the agreement, contract, or

14 transaction;

15 ‘‘(5) any note, bond, or evidence of indebted16 ness that is a security as defined in section 2(a)(1)

17 of the Securities Act of 1933 or section 3(a)(10) of

18 the Securities Exchange Act of 1934; or

19 ‘‘(6) any agreement, contract, or transaction

20 that is—

21 ‘‘(A) based on a security; and

22 ‘‘(B) entered into directly or through an

23 underwriter (as defined in section 2(a) of the

24 Securities Act of 1933) by the issuer of such se25 curity for the purposes of raising capital, unless
235

•HR 5660 IH

1 such agreement, contract, or transaction is en2 tered into to manage a risk associated with cap3 ital raising.

4 ‘‘(c) RULE OF CONSTRUCTION REGARDING MASTER

5 AGREEMENTS.—As used in this section, the term ‘swap

6 agreement’ shall be construed to include a master agree7 ment that provides for an agreement, contract, or trans8 action that is a swap agreement pursuant to subsections

9 (a) and (b), together with all supplements to any such

10 master agreement, without regard to whether the master

11 agreement contains an agreement, contract, or transaction

12 that is not a swap agreement pursuant to subsections (a)

13 and (b), except that the master agreement shall be consid14 ered to be a swap agreement only with respect to each

15 agreement, contract, or transaction under the master

16 agreement that is a swap agreement pursuant to sub17 sections (a) and (b).

18 ‘‘SEC. 206B. SECURITY-BASED SWAP AGREEMENT.

19 ‘‘As used in this section, the term ‘security-based

20 swap agreement’ means a swap agreement (as defined in

21 section 206A) of which a material term is based on the

22 price, yield, value, or volatility of any security or any

23 group or index of securities, or any interest therein.
236

•HR 5660 IH

1 ‘‘SEC. 206C. NON-SECURITY-BASED SWAP AGREEMENT.

2 ‘‘As used in this section, the term ‘non-security-based

3 swap agreement’ means any swap agreement (as defined

4 in section 206A) that is not a security-based swap agree5 ment (as defined in section 206B).’’.

6 (b) SECURITY DEFINITION.—As used in the amend7 ment made by subsection (a), the term ‘‘security’’ has the

8 same meaning as in section 2(a)(1) of the Securities Act

9 of 1933 or section 3(a)(10) of the Securities Exchange

10 Act of 1934.

11 SEC. 302. AMENDMENTS TO THE SECURITIES ACT OF 1933.

12 (a) ENFORCEMENT FOCUS.—The Securities Act of

13 1933 is amended by inserting after section 2 (15 U.S.C.

14 77b) the following new section:

15 ‘‘SEC. 2A. SWAP AGREEMENTS.

16 ‘‘(a) NON-SECURITY-BASED SWAP AGREEMENTS.—

17 The definition of ‘security’ in section 2(a)(1) of this title

18 does not include any non-security-based swap agreement

19 (as defined in section 206C of the Gramm-Leach-Bliley

20 Act).

21 ‘‘(b) SECURITY-BASED SWAP AGREEMENTS.—

22 ‘‘(1) The definition of ‘security’ in section

23 2(a)(1) of this title does not include any security24 based swap agreement (as defined in section 206B

25 of the Gramm-Leach-Bliley Act).
237

•HR 5660 IH

1 ‘‘(2) The Commission is prohibited from reg2 istering, or requiring, recommending, or suggesting,

3 the registration under this title of any security-based

4 swap agreement (as defined in section 206B of the

5 Gramm-Leach-Bliley Act). If the Commission be6 comes aware that a registrant has filed a registra7 tion statement with respect to such a swap agree8 ment, the Commission shall promptly so notify the

9 registrant. Any such registration statement with re10 spect to such a swap agreement shall be void and of

11 no force or effect.

12 ‘‘(3) The Commission is prohibited from—

13 ‘‘(A) promulgating, interpreting, or enforc14 ing rules; or

15 ‘‘(B) issuing orders of general applicability;

16 under this title in a manner that imposes or speci17 fies reporting or recordkeeping requirements, proce18 dures, or standards as prophylactic measures against

19 fraud, manipulation, or insider trading with respect

20 to any security-based swap agreement (as defined in

21 section 206B of the Gramm-Leach-Bliley Act).

22 ‘‘(4) References in this title to the ‘purchase’ or

23 ‘sale’ of a security-based swap agreement shall be

24 deemed to mean the execution, termination (prior to

25 its scheduled maturity date), assignment, exchange,
238

•HR 5660 IH

1 or similar transfer or conveyance of, or extinguishing

2 of rights or obligations under, a security-based swap

3 agreement (as defined in section 206B of the

4 Gramm-Leach-Bliley Act), as the context may re5 quire.’’.

6 (b) ANTI-FRAUD AND ANTI-MANIPULATION EN7 FORCEMENT AUTHORITY.—Section 17(a) of the Securities

8 Act of 1933 (15 U.S.C. 77q(a)) is amended to read as

9 follows:

10 ‘‘(a) It shall be unlawful for any person in the offer

11 or sale of any securities or any security-based swap agree12 ment (as defined in section 206B of the Gramm-Leach13 Bliley Act) by the use of any means or instruments of

14 transportation or communication in interstate commerce

15 or by use of the mails, directly or indirectly—

16 ‘‘(1) to employ any device, scheme, or artifice to

17 defraud, or

18 ‘‘(2) to obtain money or property by means of

19 any untrue statement of a material fact or any omis20 sion to state a material fact necessary in order to

21 make the statements made, in light of the cir22 cumstances under which they were made, not mis23 leading; or
239

•HR 5660 IH

1 ‘‘(3) to engage in any transaction, practice, or

2 course of business which operates or would operate

3 as a fraud or deceit upon the purchaser.’’.

4 (c) LIMITATION.—Section 17 of the Securities Act of

5 1933 is amended by adding at the end the following new

6 subsection:

7 ‘‘(d) The authority of the Commission under this sec8 tion with respect to security-based swap agreements (as

9 defined in section 206B of the Gramm-Leach-Bliley Act)

10 shall be subject to the restrictions and limitations of sec11 tion 2A(b) of this title.’’.

12 SEC. 303. AMENDMENTS TO THE SECURITIES EXCHANGE

13 ACT OF 1934.

14 (a) ENFORCEMENT FOCUS.—The Securities Ex15 change Act of 1934 is amended by inserting after section

16 3 (15 U.S.C. 78c) the following new section:

17 ‘‘SEC. 3A. SWAP AGREEMENTS.

18 ‘‘(a) NON-SECURITY-BASED SWAP AGREEMENTS.—

19 The definition of ‘security’ in section 3(a)(10) of this title

20 does not include any non-security-based swap agreement

21 (as defined in section 206C of the Gramm-Leach-Bliley

22 Act).

23 ‘‘(b) SECURITY-BASED SWAP AGREEMENTS.—

24 ‘‘(1) The definition of ‘security’ in section

25 3(a)(10) of this title does not include any security-
240

•HR 5660 IH

1 based swap agreement (as defined in section 206B

2 of the Gramm-Leach-Bliley Act).

3 ‘‘(2) The Commission is prohibited from reg4 istering, or requiring, recommending, or suggesting,

5 the registration under this title of any security-based

6 swap agreement (as defined in section 206B of the

7 Gramm-Leach-Bliley Act). If the Commission be8 comes aware that a registrant has filed a registra9 tion application with respect to such a swap agree10 ment, the Commission shall promptly so notify the

11 registrant. Any such registration with respect to

12 such a swap agreement shall be void and of no force

13 or effect.

14 ‘‘(3) Except as provided in section 16(a) with

15 respect to reporting requirements, the Commission is

16 prohibited from—

17 ‘‘(A) promulgating, interpreting, or enforc18 ing rules; or

19 ‘‘(B) issuing orders of general applicability;

20 under this title in a manner that imposes or speci21 fies reporting or recordkeeping requirements, proce22 dures, or standards as prophylactic measures against

23 fraud, manipulation, or insider trading with respect

24 to any security-based swap agreement (as defined in

25 section 206B of the Gramm-Leach-Bliley Act).
241

•HR 5660 IH

1 ‘‘(4) References in this title to the ‘purchase’ or

2 ‘sale’ of a security-based swap agreement (as defined

3 in section 206B of the Gramm-Leach-Bliley Act)

4 shall be deemed to mean the execution, termination

5 (prior to its scheduled maturity date), assignment,

6 exchange, or similar transfer or conveyance of, or

7 extinguishing of rights or obligations under, a secu8 rity-based swap agreement, as the context may re9 quire.’’.

10 (b) ANTI-FRAUD, ANTI-MANIPULATION ENFORCE11 MENT AUTHORITY.—Paragraphs (2) through (5) of sec12 tion 9(a) of the Securities Exchange Act of 1934 (15

13 U.S.C. 78i(a)(2)–(5)) are amended to read as follows:

14 ‘‘(2) To effect, alone or with one or more other per15 sons, a series of transactions in any security registered

16 on a national securities exchange or in connection with

17 any security-based swap agreement (as defined in section

18 206B of the Gramm-Leach-Bliley Act) with respect to

19 such security creating actual or apparent active trading

20 in such security, or raising or depressing the price of such

21 security, for the purpose of inducing the purchase or sale

22 of such security by others.

23 ‘‘(3) If a dealer or broker, or other person selling or

24 offering for sale or purchasing or offering to purchase the

25 security or a security-based swap agreement (as defined
242

•HR 5660 IH

1 in section 206B of the Gramm-Leach-Bliley Act) with re2 spect to such security, to induce the purchase or sale of

3 any security registered on a national securities exchange

4 or any security-based swap agreement (as defined in sec5 tion 206B of the Gramm-Leach-Bliley Act) with respect

6 to such security by the circulation or dissemination in the

7 ordinary course of business of information to the effect

8 that the price of any such security will or is likely to rise

9 or fall because of market operations of any one or more

10 persons conducted for the purpose of raising or depressing

11 the price of such security.

12 ‘‘(4) If a dealer or broker, or the person selling or

13 offering for sale or purchasing or offering to purchase the

14 security or a security-based swap agreement (as defined

15 in section 206B of the Gramm-Leach-Bliley Act) with re16 spect to such security, to make, regarding any security

17 registered on a national securities exchange or any secu18 rity-based swap agreement (as defined in section 206B of

19 the Gramm-Leach-Bliley Act) with respect to such secu20 rity, for the purpose of inducing the purchase or sale of

21 such security or such security-based swap agreement, any

22 statement which was at the time and in the light of the

23 circumstances under which it was made, false or mis24 leading with respect to any material fact, and which he
243

•HR 5660 IH

1 knew or had reasonable ground to believe was so false or

2 misleading.

3 ‘‘(5) For a consideration, received directly or indi4 rectly from a dealer or broker, or other person selling or

5 offering for sale or purchasing or offering to purchase the

6 security or a security-based swap agreement (as defined

7 in section 206B of the Gramm-Leach-Bliley Act) with re8 spect to such security, to induce the purchase of any secu9 rity registered on a national securities exchange or any

10 security-based swap agreement (as defined in section

11 206B of the Gramm-Leach-Bliley Act) with respect to

12 such security by the circulation or dissemination of infor13 mation to the effect that the price of any such security

14 will or is likely to rise or fall because of the market oper15 ations of any one or more persons conducted for the pur16 pose of raising or depressing the price of such security.’’.

17 (c) LIMITATION.—Section 9 of the Securities Ex18 change Act of 1934 is amended by adding at the end the

19 following new subsection:

20 ‘‘(i) The authority of the Commission under this sec21 tion with respect to security-based swap agreements (as

22 defined in section 206B of the Gramm-Leach-Bliley Act)

23 shall be subject to the restrictions and limitations of sec24 tion 3A(b) of this title.’’.
244

•HR 5660 IH

1 (d) REGULATIONS ON THE USE OF MANIPULATIVE

2 AND DECEPTIVE DEVICES.—Section 10 of the Securities

3 Exchange Act of 1934 (15 U.S.C. 78j) is amended—

4 (1) in subsection (b), by inserting ‘‘or any secu5 rities-based swap agreement (as defined in section

6 206B of the Gramm-Leach-Bliley Act),’’ before ‘‘any

7 manipulative or deceptive device’’; and

8 (2) by adding at the end the following:

9 ‘‘Rules promulgated under subsection (b) that prohibit

10 fraud, manipulation, or insider trading (but not rules im11 posing or specifying reporting or recordkeeping require12 ments, procedures, or standards as prophylactic measures

13 against fraud, manipulation, or insider trading), and judi14 cial precedents decided under subsection (b) and rules pro15 mulgated thereunder that prohibit fraud, manipulation, or

16 insider trading, shall apply to security-based swap agree17 ments (as defined in section 206B of the Gramm-Leach18 Bliley Act) to the same extent as they apply to securities.

19 Judicial precedents decided under section 17(a) of the Se20 curities Act of 1933 and sections 9, 15, 16, 20, and 21A

21 of this title, and judicial precedents decided under applica22 ble rules promulgated under such sections, shall apply to

23 security-based swap agreements (as defined in section

24 206B of the Gramm-Leach-Bliley Act) to the same extent

25 as they apply to securities.’’.
245

•HR 5660 IH

1 (e) BROKER, DEALER ANTI-FRAUD, ANTI-MANIPU2 LATION ENFORCEMENT AUTHORITY.—Section 15(c)(1) of

3 the Securities Exchange Act of 1934 (15 U.S.C.

4 78o(c)(1)) is amended to read as follows:

5 ‘‘(c)(1)(A) No broker or dealer shall make use of the

6 mails or any means or instrumentality of interstate com7 merce to effect any transaction in, or to induce or attempt

8 to induce the purchase or sale of, any security (other than

9 commercial paper, bankers’ acceptances, or commercial

10 bills) otherwise than on a national securities exchange of

11 which it is a member, or any security-based swap agree12 ment (as defined in section 206B of the Gramm-Leach13 Bliley Act), by means of any manipulative, deceptive, or

14 other fraudulent device or contrivance.

15 ‘‘(B) No municipal securities dealer shall make use

16 of the mails or any means or instrumentality of interstate

17 commerce to effect any transaction in, or to induce or at18 tempt to induce the purchase or sale of, any municipal

19 security or any security-based swap agreement (as defined

20 in section 206B of the Gramm-Leach-Bliley Act) involving

21 a municipal security by means of any manipulative, decep22 tive, or other fraudulent device or contrivance.

23 ‘‘(C) No government securities broker or government

24 securities dealer shall make use of the mails or any means

25 or instrumentality of interstate commerce to effect any
246

•HR 5660 IH

1 transaction in, or to induce or to attempt to induce the

2 purchase or sale of, any government security or any secu3 rity-based swap agreement (as defined in section 206B of

4 the Gramm-Leach-Bliley Act) involving a government se5 curity by means of any manipulative, deceptive, or other

6 fraudulent device or contrivance.’’.

7 (f ) LIMITATION.—Section 15 of the Securities Ex8 change Act of 1934 (15 U.S.C. 78o) is amended by adding

9 at the end the following new subsection:

10 ‘‘(i) The authority of the Commission under this sec11 tion with respect to security-based swap agreements (as

12 defined in section 206B of the Gramm-Leach-Bliley Act)

13 shall be subject to the restrictions and limitations of sec14 tion 3A(b) of this title.’’.

15 (g) ANTI-INSIDER TRADING ENFORCEMENT AU16 THORITY.—Subsections (a) and (b) of section 16 (15

17 U.S.C. 78p(a), (b)) of the Securities Exchange of 1934

18 are amended to read as follows:

19 ‘‘(a) Every person who is directly or indirectly the

20 beneficial owner of more than 10 per centum of any class

21 of any equity security (other than an exempted security)

22 which is registered pursuant to section 12 of this title,

23 or who is a director or an officer of the issuer of such

24 security, shall file, at the time of the registration of such

25 security on a national securities exchange or by the effec-
247

•HR 5660 IH

1 tive date of a registration statement filed pursuant to sec2 tion 12(g) of this title, or within ten days after he becomes

3 such beneficial owner, director, or officer, a statement

4 with the Commission (and, if such security is registered

5 on a national securities exchange, also with the exchange)

6 of the amount of all equity securities of such issuer of

7 which he is the beneficial owner, and within ten days after

8 the close of each calendar month thereafter, if there has

9 been a change in such ownership or if such person shall

10 have purchased or sold a security-based swap agreement

11 (as defined in section 206B of the Gramm-Leach-Bliley

12 Act) involving such equity security during such month,

13 shall file with the Commission (and if such security is reg14 istered on a national securities exchange, shall also file

15 with the exchange), a statement indicating his ownership

16 at the close of the calendar month and such changes in

17 his ownership and such purchases and sales of such secu18 rity-based swap agreements as have occurred during such

19 calendar month.

20 ‘‘(b) For the purpose of preventing the unfair use of

21 information which may have been obtained by such bene22 ficial owner, director, or officer by reason of his relation23 ship to the issuer, any profit realized by him from any

24 purchase and sale, or any sale and purchase, of any equity

25 security of such issuer (other than an exempted security)
248

•HR 5660 IH

1 or a security-based swap agreement (as defined in section

2 206B of the Gramm-Leach-Bliley Act) involving any such

3 equity security within any period of less than six months,

4 unless such security or security-based swap agreement was

5 acquired in good faith in connection with a debt previously

6 contracted, shall inure to and be recoverable by the issuer,

7 irrespective of any intention on the part of such beneficial

8 owner, director, or officer in entering into such transaction

9 of holding the security or security-based swap agreement

10 purchased or of not repurchasing the security or security11 based swap agreement sold for a period exceeding six

12 months. Suit to recover such profit may be instituted at

13 law or in equity in any court of competent jurisdiction by

14 the issuer, or by the owner of any security of the issuer

15 in the name and in behalf of the issuer if the issuer shall

16 fail or refuse to bring such suit within sixty days after

17 request or shall fail diligently to prosecute the same there18 after; but no such suit shall be brought more than two

19 years after the date such profit was realized. This sub20 section shall not be construed to cover any transaction

21 where such beneficial owner was not such both at the time

22 of the purchase and sale, or the sale and purchase, of the

23 security or security-based swap agreement (as defined in

24 section 206B of the Gramm-Leach-Bliley Act) involved, or

25 any transaction or transactions which the Commission by
249

•HR 5660 IH

1 rules and regulations may exempt as not comprehended

2 within the purpose of this subsection.’’.

3 (h) LIMITATION.—Section 16 of the Securities Ex4 change Act of 1934 (15 U.S.C. 78p) is amended by adding

5 at the end the following new subsection:

6 ‘‘(g) The authority of the Commission under this sec7 tion with respect to security-based swap agreements (as

8 defined in section 206B of the Gramm-Leach-Bliley Act)

9 shall be subject to the restrictions and limitations of sec10 tion 3A(b) of this title.’’.

11 (i) MATERIAL NONPUBLIC INFORMATION.—Section

12 20(d) of the Securities Exchange Act of 1934 (15 U.S.C.

13 78t(d)) is amended to read as follows:

14 ‘‘(d) Wherever communicating, or purchasing or sell15 ing a security while in possession of, material nonpublic

16 information would violate, or result in liability to any pur17 chaser or seller of the security under any provisions of

18 this title, or any rule or regulation thereunder, such con19 duct in connection with a purchase or sale of a put, call,

20 straddle, option, privilege or security-based swap agree21 ment (as defined in section 206B of the Gramm-Leach22 Bliley Act) with respect to such security or with respect

23 to a group or index of securities including such security,

24 shall also violate and result in comparable liability to any
250

•HR 5660 IH

1 purchaser or seller of that security under such provision,

2 rule, or regulation.’’.

3 ( j) LIMITATION.—Section 20 of the Securities Ex4 change Act of 1934 (15 U.S.C. 78t) is amended by adding

5 at the end the following new subsection:

6 ‘‘(f ) The authority of the Commission under this sec7 tion with respect to security-based swap agreements (as

8 defined in section 206B of the Gramm-Leach-Bliley Act)

9 shall be subject to the restrictions and limitations of sec10 tion 3A(b) of this title.’’.

11 (k) CIVIL PENALTIES.—Section 21A(a)(1) of the Se12 curities Exchange Act of 1934 (15 U.S.C. 78u–1(a)(1))

13 is amended by inserting after ‘‘purchasing or selling a se14 curity’’ the following: ‘‘or security-based swap agreement

15 (as defined in section 206B of the Gramm-Leach-Bliley

16 Act)’’.

17 (l) LIMITATION.—Section 21A of the Securities Ex18 change Act of 1934 (15 U.S.C. 78u–1) is amended by add19 ing at the end the following new subsection:

20 ‘‘(g) The authority of the Commission under this sec21 tion with respect to security-based swap agreements (as

22 defined in section 206B of the Gramm-Leach-Bliley Act)

23 shall be subject to the restrictions and limitations of sec24 tion 3A(b) of this title.’’.
251

•HR 5660 IH

1 SEC. 304. SAVINGS PROVISIONS.

2 Nothing in this Act or the amendments made by this

3 Act shall be construed as finding or implying that any

4 swap agreement is or is not a security for any purpose

5 under the securities laws. Nothing in this Act or the

6 amendments made by this Act shall be construed as find7 ing or implying that any swap agreement is or is not a

8 futures contract or commodity option for any purpose

9 under the Commodity Exchange Act.

10 TITLE IV—REGULATORY RE11 SPONSIBILITY FOR BANK

12 PRODUCTS

13 SEC. 401. SHORT TITLE.

14 This title may be cited as the ‘‘Legal Certainty for

15 Bank Products Act of 2000’’.

16 SEC. 402. DEFINITIONS.

17 (a) BANK.—In this title, the term ‘‘bank’’ means—

18 (1) any depository institution (as defined in sec19 tion 3(c) of the Federal Deposit Insurance Act);

20 (2) any foreign bank or branch or agency of a

21 foreign bank (each as defined in section 1(b) of the

22 International Banking Act of 1978);

23 (3) any Federal or State credit union (as de24 fined in section 101 of the Federal Credit Union

25 Act);
252

•HR 5660 IH

1 (4) any corporation organized under section

2 25A of the Federal Reserve Act;

3 (5) any corporation operating under section 25

4 of the Federal Reserve Act;

5 (6) any trust company; or

6 (7) any subsidiary of any entity described in

7 paragraph (1) through (6) of this subsection, if the

8 subsidiary is regulated as if the subsidiary were part

9 of the entity and is not a broker or dealer (as such

10 terms are defined in section 3 of the Securities Ex11 change Act of 1934) or a futures commission mer12 chant (as defined in section 1a(20) of the Com13 modity Exchange Act).

14 (b) IDENTIFIED BANKING PRODUCT.—In this title,

15 the term ‘‘identified banking product’’ shall have the same

16 meaning as in paragraphs (1) through (5) of section

17 206(a) of the Gramm-Leach-Bliley Act, except that in ap18 plying such section for purposes of this title—

19 (1) the term ‘‘bank’’ shall have the meaning

20 given in subsection (a) of this section; and

21 (2) the term ‘‘qualified investor’’ means eligible

22 contract participant (as defined in section 1a(12) of

23 the Commodity Exchange Act, as in effect on the

24 date of the enactment of the Commodity Futures

25 Modernization Act of 2000).
253

•HR 5660 IH

1 (c) HYBRID INSTRUMENT.—In this title, the term

2 ‘‘hybrid instrument’’ means an identified banking product

3 not excluded by section 403 of this Act, offered by a bank,

4 having one or more payments indexed to the value, level,

5 or rate of, or providing for the delivery of, one or more

6 commodities (as defined in section 1a(4) of the Com7 modity Exchange Act).

8 (d) COVERED SWAP AGREEMENT.—In this title, the

9 term ‘‘covered swap agreement’’ means a swap agreement

10 (as defined in section 206(b) of the Gramm-Leach-Bliley

11 Act), including a credit or equity swap, based on a com12 modity other than an agricultural commodity enumerated

13 in section 1a(4) of the Commodity Exchange Act if—

14 (1) the swap agreement—

15 (A) is entered into only between persons

16 that are eligible contract participants (as de17 fined in section 1a(12) of the Commodity Ex18 change Act, as in effect on the date of the en19 actment of the Commodity Futures Moderniza20 tion Act of 2000) at the time the persons enter

21 into the swap agreement; and

22 (B) is not entered into or executed on a

23 trading facility (as defined in section 1a(33) of

24 the Commodity Exchange Act); or

25 (2) the swap agreement—
254

•HR 5660 IH

1 (A) is entered into or executed on an elec2 tronic trading facility (as defined in section

3 1a(10) of the Commodity Exchange Act);

4 (B) is entered into on a principal-to-prin5 cipal basis between parties trading for their

6 own accounts or as described in section

7 1a(12)(B)(ii) of the Commodity Exchange Act;

8 (C) is entered into only between persons

9 that are eligible contract participants as de10 scribed in subparagraph (A), (B)(ii), or (C) of

11 section 1a(12) of the Commodity Exchange Act,

12 as in effect on the date of the enactment of the

13 Commodity Futures Modernization Act of 2000,

14 at the time the persons enter into the swap

15 agreement; and

16 (D) is an agreement, contract or trans17 action in an excluded commodity (as defined in

18 section 1a(13) of the Commodity Exchange

19 Act).

20 SEC. 403. EXCLUSION OF IDENTIFIED BANKING PRODUCTS

21 COMMONLY OFFERED ON OR BEFORE DE22 CEMBER 5, 2000.

23 No provision of the Commodity Exchange Act shall

24 apply to, and the Commodity Futures Trading Commis-
255

•HR 5660 IH

1 sion shall not exercise regulatory authority with respect

2 to, an identified banking product if—

3 (1) an appropriate banking agency certifies that

4 the product has been commonly offered, entered

5 into, or provided in the United States by any bank

6 on or before December 5, 2000, under applicable

7 banking law; and

8 (2) the product was not prohibited by the Com9 modity Exchange Act and not regulated by the Com10 modity Futures Trading Commission as a contract

11 of sale of a commodity for future delivery (or an op12 tion on such a contract) or an option on a com13 modity, on or before December 5, 2000.

14 SEC. 404. EXCLUSION OF CERTAIN IDENTIFIED BANKING

15 PRODUCTS OFFERED BY BANKS AFTER DE16 CEMBER 5, 2000.

17 No provision of the Commodity Exchange Act shall

18 apply to, and the Commodity Futures Trading Commis19 sion shall not exercise regulatory authority with respect

20 to, an identified banking product which had not been com21 monly offered, entered into, or provided in the United

22 States by any bank on or before December 5, 2000, under

23 applicable banking law if—

24 (1) the product has no payment indexed to the

25 value, level, or rate of, and does not provide for the
256

•HR 5660 IH

1 delivery of, any commodity (as defined in section

2 1a(4) of the Commodity Exchange Act); or

3 (2) the product or commodity is otherwise ex4 cluded from the Commodity Exchange Act.

5 SEC. 405. EXCLUSION OF CERTAIN OTHER IDENTIFIED

6 BANKING PRODUCTS.

7 (a) IN GENERAL.—No provision of the Commodity

8 Exchange Act shall apply to, and the Commodity Futures

9 Trading Commission shall not exercise regulatory author10 ity with respect to, a banking product if the product is

11 a hybrid instrument that is predominantly a banking prod12 uct under the predominance test set forth in subsection

13 (b).

14 (b) PREDOMINANCE TEST.—A hybrid instrument

15 shall be considered to be predominantly a banking product

16 for purposes of this section if—

17 (1) the issuer of the hybrid instrument receives

18 payment in full of the purchase price of the hybrid

19 instrument substantially contemporaneously with de20 livery of the hybrid instrument;

21 (2) the purchaser or holder of the hybrid in22 strument is not required to make under the terms

23 of the instrument, or any arrangement referred to in

24 the instrument, any payment to the issuer in addi25 tion to the purchase price referred to in paragraph
257

•HR 5660 IH

1 (1), whether as margin, settlement payment, or oth2 erwise during the life of the hybrid instrument or at

3 maturity;

4 (3) the issuer of the hybrid instrument is not

5 subject by the terms of the instrument to mark-to6 market margining requirements; and

7 (4) the hybrid instrument is not marketed as a

8 contract of sale of a commodity for future delivery

9 (or option on such a contract) subject to the Com10 modity Exchange Act.

11 (c) MARK-TO-MARKET MARGINING REQUIREMENT.—

12 For purposes of subsection (b)(3), mark-to-market mar13 gining requirements shall not include the obligation of an

14 issuer of a secured debt instrument to increase the amount

15 of collateral held in pledge for the benefit of the purchaser

16 of the secured debt instrument to secure the repayment

17 obligations of the issuer under the secured debt instru18 ment.

19 SEC. 406. ADMINISTRATION OF THE PREDOMINANCE TEST.

20 (a) IN GENERAL.—No provision of the Commodity

21 Exchange Act shall apply to, and the Commodity Futures

22 Trading Commission shall not regulate, a hybrid instru23 ment, unless the Commission determines, by or under a

24 rule issued in accordance with this section, that—
258

•HR 5660 IH

1 (1) the action is necessary and appropriate in

2 the public interest;

3 (2) the action is consistent with the Commodity

4 Exchange Act and the purposes of the Commodity

5 Exchange Act; and

6 (3) the hybrid instrument is not predominantly

7 a banking product under the predominance test set

8 forth in section 405(b) of this Act.

9 (b) CONSULTATION.—Before commencing a rule10 making or making a determination pursuant to a rule

11 issued under this title, the Commodity Futures Trading

12 Commission shall consult with and seek the concurrence

13 of the Board of Governors of the Federal Reserve System

14 concerning—

15 (1) the nature of the hybrid instrument; and

16 (2) the history, purpose, extent, and appro17 priateness of the regulation of the hybrid instrument

18 under the Commodity Exchange Act and under ap19 propriate banking laws.

20 (c) OBJECTION TO COMMISSION REGULATION.—

21 (1) FILING OF PETITION FOR REVIEW.—The

22 Board of Governors of the Federal Reserve System

23 may obtain review of any rule or determination re24 ferred to in subsection (a) in the United States

25 Court of Appeals for the District of Columbia Cir-
259

•HR 5660 IH

1 cuit by filing in the court, not later than 60 days

2 after the date of publication of the rule or deter3 mination, a written petition requesting that the rule

4 or determination be set aside. Any proceeding to

5 challenge any such rule or determination shall be ex6 pedited by the court.

7 (2) TRANSMITTAL OF PETITION AND

8 RECORD.—A copy of a petition described in para9 graph (1) shall be transmitted as soon as possible by

10 the Clerk of the court to an officer or employee of

11 the Commodity Futures Trading Commission des12 ignated for that purpose. Upon receipt of the peti13 tion, the Commission shall file with the court the

14 rule or determination under review and any docu15 ments referred to therein, and any other relevant

16 materials prescribed by the court.

17 (3) EXCLUSIVE JURISDICTION.—On the date of

18 the filing of a petition under paragraph (1), the

19 court shall have jurisdiction, which shall become ex20 clusive on the filing of the materials set forth in

21 paragraph (2), to affirm and enforce or to set aside

22 the rule or determination at issue.

23 (4) STANDARD OF REVIEW.—The court shall

24 determine to affirm and enforce or set aside a rule

25 or determination of the Commodity Futures Trading
260

•HR 5660 IH

1 Commission under this section, based on the deter2 mination of the court as to whether—

3 (A) the subject product is predominantly a

4 banking product; and

5 (B) making the provision or provisions of

6 the Commodity Exchange Act at issue applica7 ble to the subject instrument is appropriate in

8 light of the history, purpose, and extent of reg9 ulation under such Act, this title, and under the

10 appropriate banking laws, giving deference nei11 ther to the views of the Commodity Futures

12 Trading Commission nor the Board of Gov13 ernors of the Federal Reserve System.

14 (5) JUDICIAL STAY.—The filing of a petition by

15 the Board pursuant to paragraph (1) shall operate

16 as a judicial stay, until the date on which the deter17 mination of the court is final (including any appeal

18 of the determination).

19 (6) OTHER AUTHORITY TO CHALLENGE.—Any

20 aggrieved party may seek judicial review pursuant to

21 section 6(c) of the Commodity Exchange Act of a

22 determination or rulemaking by the Commodity Fu23 tures Trading Commission under this section.
261

•HR 5660 IH

1 SEC. 407. EXCLUSION OF COVERED SWAP AGREEMENTS.

2 No provision of the Commodity Exchange Act (other

3 than section 5b of such Act with respect to the clearing

4 of covered swap agreements) shall apply to, and the Com5 modity Futures Trading Commission shall not exercise

6 regulatory authority with respect to, a covered swap agree7 ment offered, entered into, or provided by a bank.

8 SEC. 408. CONTRACT ENFORCEMENT.

9 (a) HYBRID INSTRUMENTS.—No hybrid instrument

10 shall be void, voidable, or unenforceable, and no party to

11 a hybrid instrument shall be entitled to rescind, or recover

12 any payment made with respect to, a hybrid instrument

13 under any provision of Federal or State law, based solely

14 on the failure of the hybrid instrument to satisfy the pre15 dominance test set forth in section 405(b) of this Act or

16 to comply with the terms or conditions of an exemption

17 or exclusion from any provision of the Commodity Ex18 change Act or any regulation of the Commodity Futures

19 Trading Commission.

20 (b) COVERED SWAP AGREEMENTS.—No covered

21 swap agreement shall be void, voidable, or unenforceable,

22 and no party to a covered swap agreement shall be entitled

23 to rescind, or recover any payment made with respect to,

24 a covered swap agreement under any provision of Federal

25 or State law, based solely on the failure of the covered

26 swap agreement to comply with the terms or conditions
262

•HR 5660 IH

1 of an exemption or exclusion from any provision of the

2 Commodity Exchange Act or any regulation of the Com3 modity Futures Trading Commission.

4 (c) PREEMPTION.—This title shall supersede and pre5 empt the application of any State or local law that pro6 hibits or regulates gaming or the operation of bucket

7 shops (other than antifraud provisions of general applica8 bility) in the case of—

9 (1) a hybrid instrument that is predominantly

10 a banking product; or

11 (2) a covered swap agreement.

Æ