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[House Report 106-711]
[From the U.S. Government Publishing Office]

                                                                       
106th Congress                                            Rept. 106-711
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 3

======================================================================

 
              COMMODITY FUTURES MODERNIZATION ACT OF 2000

                                _______
                                

               September 6, 2000.--Ordered to be printed

                                _______
                                

  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                        [To accompany H.R. 4541]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Commerce, to whom was referred the bill 
(H.R. 4541) 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, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     1
Purpose and Summary..............................................    45
Background and Need for Legislation..............................    45
Hearings.........................................................    49
Committtee Consideration.........................................    49
Committee Votes..................................................    49
Committee on Government Reform Oversight Findings................    49
New Budget Authority, Entitlement Authority, and Tax Expenditures    49
Committee Cost Estimate..........................................    50
Congressional Budget Office Estimate.............................    50
Federal Mandates Statement.......................................    52
Advisory Committee Statement.....................................    53
Constitutional Authority Statement...............................    53
Applicability to Legislative Branch..............................    53
Section-by-Section Analysis of the Legislation...................    53
Changes in Existing Law Made by the Bill, as Reported............    67

                               Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Commodity Futures 
Modernization Act of 2000''.
  (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Purposes.

               TITLE I--COMMODITY EXCHANGE ACT AMENDMENTS

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.
Sec. 106. Futures on securities.
Sec. 107. Transactions in exempt commodities and swap transactions.
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 organizations.
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. Consideration of costs and benefits and antitrust laws.
Sec. 119. Contract enforcement between eligible counterparties.
Sec. 120. Special procedures to encourage and facilitate bona fide 
hedging by agricultural producers.
Sec. 121. Rule of construction.
Sec. 122. Technical and conforming amendments.
Sec. 123. Privacy.
Sec. 124. Report to Congress.
Sec. 125. Effective date.
Sec. 126. International activities of the Commodity Futures Trading 
Commission.

                  TITLE II--SECURITIES ACTS AMENDMENTS

                         Subtitle A--Amendments

Sec. 201. Definitions under the Securities Exchange Act of 1934.
Sec. 202. Regulatory relief for markets trading security future 
products.
Sec. 203. Regulatory relief for intermediaries trading security future 
products.
Sec. 204. Special provisions for interagency cooperation.
Sec. 205. Maintenance of market integrity for security future products.
Sec. 206. Special provisions for the trading of security future 
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.
Sec. 210. Preemption of state gaming and bucket shop laws.

    Subtitle B--Conforming Amendments to the Commodity Exchange Act

Sec. 221. Jurisdiction of Securities and Exchange Commission; other 
provisions.
Sec. 222. Application of the Commodity Exchange Act to national 
securities exchanges and national securities associations that trade 
security futures.
Sec. 223. Notification of investigations and enforcement actions.

                       Subtitle C--Effective Date

Sec. 231. Effective date.

SEC. 2. PURPOSES.

  The purposes of this Act are--
          (1) to reauthorize the appropriation for the Commodity 
        Futures Trading Commission;
          (2) to streamline and eliminate unnecessary regulation for 
        the commodity futures exchanges and other entities regulated 
        under the Commodity Exchange Act;
          (3) to transform the role of the Commodity Futures Trading 
        Commission to oversight of the futures markets;
          (4) to provide a statutory and regulatory framework for 
        allowing the trading of futures on individual securities and 
        narrow-based securities indexes in a manner equivalent with the 
        treatment of other similar securities;
          (5) to provide the Commission jurisdiction over certain 
        retail foreign exchange transactions and bucket shops that may 
        not be otherwise regulated;
          (6) to promote innovation for futures and derivatives and to 
        reduce systemic risk by enhancing legal certainty in the 
        markets for certain futures and derivatives transactions;
          (7) to reduce systemic risk and provide greater stability to 
        markets during times of market disorder by allowing the 
        clearing of transactions in over-the-counter derivatives 
        through appropriately regulated clearing organizations; and
          (8) to enhance the competitive position of United States 
        financial institutions and financial markets.

               TITLE I--COMMODITY EXCHANGE ACT AMENDMENTS

SEC. 101. DEFINITIONS.

  Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended--
          (1) by redesignating paragraphs (1) through (7), (8) through 
        (12), (13), (14), (15), and (16) as paragraphs (2) through (8), 
        (16) through (20), (22), (23), (25), and (29), respectively;
          (2) by inserting before paragraph (2) (as redesignated by 
        paragraph (1)) the following:
          ``(1) Alternative trading system.--The term `alternative 
        trading system' means an organization, association, or group of 
        persons that is registered as a broker or dealer pursuant to 
        section 15(b) of the Securities Exchange Act of 1934 (except 
        paragraph (11) thereof) and that performs the functions 
        commonly performed by an exchange (as defined in section 
        3(a)(1) of such Act) but that is exempt from the definition of 
        the term `exchange' under such section 3(a)(1) by rule or 
        regulation of the Securities and Exchange Commission on terms 
        that require compliance with regulations of the trading 
        functions of such organization, association, or group of 
        persons.'';
          (3) by inserting after paragraph (8) (as redesignated by 
        paragraph (1)) the following:
          ``(9) Derivatives clearing organization.--
                  ``(A) In general.--The term `derivatives clearing 
                organization' means a clearinghouse, clearing 
                association, clearing corporation, or similar entity, 
                facility, system, or organization that, with respect to 
                a derivative agreement, contract, or transaction--
                          ``(i) enables each party to the derivative 
                        agreement, contract, or transaction to 
                        substitute, through novation or otherwise, the 
                        credit of the derivatives clearing organization 
                        for the credit of the parties;
                          ``(ii) arranges or provides, on a 
                        multilateral basis, for the settlement or 
                        netting of obligations resulting from such 
                        agreements, contracts, or transactions executed 
                        by parties in the derivatives clearing 
                        organization; or
                          ``(iii) otherwise provides clearing services 
                        or arrangements that mutualize or transfer 
                        among parties in the derivatives clearing 
                        organization the credit risk arising from such 
                        agreements, contracts, or transactions executed 
                        by the parties.
                  ``(B) Exclusions.--The term `derivatives clearing 
                organization' does not include an entity, facility, 
                system, or organization solely because it arranges or 
                provides for--
                          ``(i) settlement, netting, or novation of 
                        obligations resulting from agreements, 
                        contracts, or transactions, on a bilateral 
                        basis and without a centralized counterparty;
                          ``(ii) settlement or netting of cash payments 
                        through an interbank payment system; or
                          ``(iii) settlement, netting, or novation of 
                        obligations resulting from a sale of a 
                        commodity in a transaction in the spot market 
                        for the commodity.
          ``(10) Electronic trading facility.--The term `electronic 
        trading facility' means a trading facility that--
                  ``(A) operates by means of an electronic network; and
                  ``(B) maintains a real-time audit trail of bids, 
                offers, and the matching of orders or the execution of 
                transactions.
          ``(11) Eligible commercial participant.--The term `eligible 
        commercial participant' means a party or entity described in 
        paragraph (11)(A)(i), (ii), (v), or (viii) or paragraph 
        (11)(C), who, in connection with its business--
                  ``(A) has a demonstrable capacity or ability, 
                directly or through separate contractual arrangements, 
                to make or take delivery of the underlying physical 
                commodity;
                  ``(B) incurs risks, in addition to price risk, 
                related to the commodity; or
                  ``(C) is a dealer that regularly provides hedging, 
                risk management, or market-making services to the 
                foregoing entities.
          ``(12) Eligible contract participant.--The term `eligible 
        contract participant' means--
                  ``(A) acting for its own account--
                          ``(i) a financial institution;
                          ``(ii) an insurance company regulated by a 
                        State or a foreign government (including a 
                        regulated subsidiary or affiliate of such an 
                        insurance company);
                          ``(iii) an investment company subject to 
                        regulation under the Investment Company Act of 
                        1940 (15 U.S.C. 80a-1 et seq.) or a foreign 
                        person performing a similar role or function 
                        subject as such to foreign regulation 
                        (regardless of whether each investor in the 
                        investment company or the foreign person is 
                        itself an eligible contract participant);
                          ``(iv) a commodity pool that--
                                  ``(I) has total assets exceeding 
                                $5,000,000; and
                                  ``(II) is formed and operated by a 
                                person subject to regulation under this 
                                Act or a foreign person performing a 
                                similar role or function subject as 
                                such to foreign regulation (regardless 
                                of whether each investor in the 
                                commodity pool or the foreign person is 
                                itself an eligible contract 
                                participant);
                          ``(v) a corporation, partnership, 
                        proprietorship, organization, trust, or other 
                        entity--
                                  ``(I) that has total assets exceeding 
                                $10,000,000;
                                  ``(II) the obligations of which under 
                                an agreement, contract, or transaction 
                                are guaranteed or otherwise supported 
                                by a letter of credit or keepwell, 
                                support, or other agreement by an 
                                entity described in subclause (I), in 
                                clause (i), (ii), (iii), (iv), or 
                                (vii), or in subparagraph (C); or
                                  ``(III) that--
                                          ``(aa) has a net worth 
                                        exceeding $1,000,000; and
                                          ``(bb) enters into an 
                                        agreement, contract, or 
                                        transaction in connection with 
                                        the conduct of the entity's 
                                        business or to manage the risk 
                                        associated with an asset or 
                                        liability owned or incurred or 
                                        reasonably likely to be owned 
                                        or incurred by the entity in 
                                        the conduct of the entity's 
                                        business;
                          ``(vi) an employee benefit plan subject to 
                        the Employee Retirement Income Security Act of 
                        1974 (29 U.S.C. 1001 et seq.) or a foreign 
                        person performing a similar role or function 
                        subject as such to foreign regulation--
                                  ``(I) that has total assets exceeding 
                                $5,000,000; or
                                  ``(II) the investment decisions of 
                                which are made by--
                                          ``(aa) an investment advisor 
                                        or commodity trading advisor 
                                        subject to regulation under the 
                                        Investment Advisers Act of 1940 
                                        (15 U.S.C. 80b-1 et seq.) or 
                                        this Act;
                                          ``(bb) a foreign person 
                                        performing a similar role or 
                                        function subject as such to 
                                        foreign regulation;
                                          ``(cc) a financial 
                                        institution; or
                                          ``(dd) an insurance company 
                                        regulated by a State or a 
                                        foreign government (including a 
                                        regulated subsidiary or 
                                        affiliate of such an insurance 
                                        company);
                          ``(vii)(I) a governmental entity (including 
                        the United States, a State, or a foreign 
                        government) or political subdivision of a 
                        governmental entity;
                          ``(II) a multinational or supranational 
                        government entity; or
                          ``(III) an instrumentality, agency, or 
                        department of an entity described in subclause 
                        (I) or (II);
                          ``(viii)(I) a broker or dealer subject to 
                        regulation under the Securities Exchange Act of 
                        1934 (15 U.S.C. 78a et seq.) or a foreign 
                        person performing a similar role or function 
                        subject as such to foreign regulation, except 
                        that, if the broker or dealer or foreign person 
                        is a natural person or proprietorship, the 
                        broker or dealer or foreign person shall not be 
                        considered to be an eligible contract 
                        participant unless the broker or dealer or 
                        foreign person also meets the requirements of 
                        clause (v) or (xi);
                          ``(II) an associated person of a registered 
                        broker or dealer concerning the financial or 
                        securities activities of which the registered 
                        person makes and keeps records under section 
                        15C(b) or 17(h) of the Securities Exchange Act 
                        of 1934 (15 U.S.C. 78o-5(b), 78q(h));
                          ``(III) an investment bank holding company 
                        (as defined in section 17(i) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78q(i)));
                          ``(ix)(I) a futures commission merchant 
                        subject to regulation under this Act or a 
                        foreign person performing a similar role or 
                        function subject as such to foreign regulation, 
                        except that, if the futures commission merchant 
                        or foreign person is a natural person or 
                        proprietorship, the futures commission merchant 
                        or foreign person shall not be considered to be 
                        an eligible contract participant unless the 
                        futures commission merchant or foreign person 
                        also meets the requirements of clause (v) or 
                        (xi); or
                          ``(II) an affiliate of a registered futures 
                        commission merchant concerning the financial 
                        activities of which the registered person makes 
                        and keeps records under section 4f(c)(2)(B) of 
                        this Act;
                          ``(x) a floor broker or floor trader subject 
                        to regulation under this Act in connection with 
                        any transaction that takes place on or through 
                        the facilities of a registered entity or an 
                        exempt board of trade, or any affiliate 
                        thereof, on which such person regularly trades; 
                        or
                          ``(xi) a natural person with total assets 
                        exceeding $10,000,000;
                  ``(B)(i) a person described in clause (i), (ii), 
                (viii), (ix), or (x) of subparagraph (A) or in 
                subparagraph (C), acting as broker or performing an 
                equivalent agency function on behalf of another person 
                described in subparagraph (A) or (C); or
                  ``(ii) an investment adviser subject to regulation 
                under the Investment Advisers Act of 1940, a commodity 
                trading advisor subject to regulation under this Act, a 
                foreign person performing a similar role or function 
                subject as such to foreign regulation, or a person 
                described in clause (i), (ii), (viii), (ix), or (x) of 
                subparagraph (A) or in subparagraph (C), in any such 
                case acting as investment manager or fiduciary (but 
                excluding a person acting as broker or performing an 
                equivalent agency function) for another person 
                described in subparagraph (A) or (C) and who is 
                authorized by such person to commit such person to the 
                transaction; or
                  ``(C) any other person that the Commission determines 
                to be eligible in light of the financial or other 
                qualifications of the person;
        except that entities that are eligible contract participants 
        under clause (v), (vi), (vii)(I) or (III), or (xi) of 
        subparagraph (A) or subparagraph (C) and own and invest on a 
        discretionary basis less than $50,000,000 in investments, shall 
        only be considered eligible contract participants if the 
        agreement, contract, or transaction is offered by, and entered 
        into with, an entity that is listed in any of subclauses (I) 
        through (VI) of section 2(c)(2)(B)(ii) of this Act.
          ``(13) Excluded commodity.--The term `excluded commodity' 
        means--
                  ``(A) an interest rate, exchange rate, currency, 
                security, security index, credit risk or measure, debt 
                or equity instrument, or index or measure of inflation;
                  ``(B) any other rate, differential, index, or measure 
                of economic or commercial risk, return, or value that--
                          ``(i) is not within the control of any party 
                        to the relevant contract, agreement, or 
                        transaction; and
                          ``(ii) is not based in substantial part on 
                        the value of a limited number of commodities 
                        not described in subparagraph (A) that have a 
                        finite supply; or
                  ``(C) an occurrence, extent of an occurrence, or 
                contingency associated with commercial or economic 
                consequences beyond the control of the parties to the 
                relevant contract, agreement, or transaction.
          ``(14) Exempt commodity.--The term `exempt commodity' means a 
        commodity that is not an excluded commodity and is not an 
        agricultural commodity.
          ``(15) Financial institution.--The term `financial 
        institution' means--
                  ``(A) a corporation operating under the fifth 
                undesignated paragraph of section 25 of the Federal 
                Reserve Act (12 U.S.C. 603), commonly known as `an 
                agreement corporation';
                  ``(B) a corporation organized under section 25A of 
                the Federal Reserve Act (12 U.S.C. 611 et seq.), 
                commonly known as an `Edge Act corporation';
                  ``(C) an institution that is regulated by the Farm 
                Credit Administration;
                  ``(D) a Federal credit union or State credit union 
                (as defined in section 101 of the Federal Credit Union 
                Act (12 U.S.C. 1752));
                  ``(E) a depository institution (as defined in section 
                3 of the Federal Deposit Insurance Act (12 U.S.C. 
                1813));
                  ``(F) a foreign bank or a branch or agency of a 
                foreign bank (each as defined in section 1(b) of the 
                International Banking Act of 1978 (12 U.S.C. 3101(b)));
                  ``(G) a financial holding company (as defined in 
                section 2 of the Bank Holding Company Act of 1956 (12 
                U.S.C. 1841));
                  ``(H) a trust company; or
                  ``(I) a similarly regulated subsidiary or affiliate 
                of an entity described in any of subparagraphs (A) 
                through (H).'';
          (4) by inserting after paragraph (20) (as redesignated by 
        paragraph (1)) the following:
          ``(21) Hybrid instrument.--The term `hybrid instrument' means 
        a deposit (as defined in section 3 of the Federal Deposit 
        Insurance Act (12 U.S.C. 1813)) offered by a financial 
        institution, or a security, having 1 or more payments indexed 
        to the value, level, or rate of 1 or more commodities.'';
          (5) by inserting after paragraph (23) (as redesignated by 
        paragraph (1)) the following:
          ``(24)(A) Margin.--The term `margin', when used with respect 
        to a security future product, means the amount, type, and form 
        of collateral required to secure any extension or maintenance 
        of credit, or the amount, type, and form of collateral required 
        as a performance bond related to the purchase, sale, or 
        carrying of a security future product, and all other uses of 
        collateral related to the purchasing, selling, or carrying of a 
        security future product.
          ``(B) The terms `margin level' and `level of margin', when 
        used with respect to a security future product, mean the amount 
        of margin required to secure any extension or maintenance of 
        credit, or the amount of margin required as a performance bond 
        related to the purchase, sale, or carrying of a security future 
        product.
          ``(C) The terms `higher margin level' and `higher level of 
        margin', when used with respect to a security future product, 
        mean a margin level established by a contract market that is 
        higher than the minimum amount established by the Securities 
        and Exchange Commission pursuant to section 7(c)(2)(B) of the 
        Securities Exchange Act of 1934.'';
          (6) by inserting after paragraph (25) (as redesignated by 
        paragraph (1)) the following:
          ``(26) Narrow-based security index.--The term `narrow-based 
        security index' means an index of securities on which contracts 
        for future delivery are not permitted under section 2(a)(1)(C) 
        of this Act, including any interest therein or based on the 
        value thereof.
          ``(27) Option.--The term `option' means an agreement, 
        contract, or transaction that is of the character of, or is 
        commonly known to the trade as, an `option', `privilege', 
        `indemnity', `bid', `offer', `put', `call', `advance guaranty', 
        or `decline guaranty'.
          ``(28) Organized exchange.--The term `organized exchange' 
        means a trading facility that--
                  ``(A) permits trading--
                          ``(i) by or on behalf of a person that is not 
                        an eligible contract participant; or
                          ``(ii) by persons other than on a principal-
                        to-principal basis; or
                  ``(B) has adopted (directly or through another 
                nongovernmental entity) rules that--
                          ``(i) govern the conduct of participants, 
                        other than rules that govern the submission of 
                        orders or execution of transactions on the 
                        trading facility; or
                          ``(ii) include disciplinary sanctions other 
                        than the exclusion of participants from 
                        trading.''; and
          (7) by adding at the end the following:
          ``(30) Registered entity.--The term `registered entity' 
        means--
                  ``(A) a board of trade designated as a contract 
                market under section 5;
                  ``(B) a derivatives transaction execution facility 
                registered under section 5a;
                  ``(C) a derivatives clearing organization registered 
                under section 5b; or
                  ``(D) a board of trade designated as a contract 
                market under section 5f.
          ``(31) Security.--The term `security' means a security as 
        defined in section 2(a)(1) of the Securities Act of 1933 (15 
        U.S.C. 77b(a)(1)) or section 3(a)(10) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)(10)).
          ``(32) Security future.--The term `security future' means a 
        contract of sale for future delivery of a single security or of 
        a narrow-based security index, including any interest therein 
        or based on the value thereof, except an exempted security 
        under section 3(a)(12) of the Securities Exchange Act of 1934 
        as in effect on the date of enactment of the Futures Trading 
        Act of 1982 (other than any municipal security as defined in 
        section 3(a)(29) of the Securities Exchange Act of 1934 as in 
        effect on the date of enactment of the Futures Trading Act of 
        1982).
          ``(33) Security future product.--The term `security future 
        product' means a security future or any put, call, straddle, 
        option, or privilege on any security future.
          ``(34) Trading facility.--
                  ``(A) In general.--The term `trading facility' means 
                a person or group of persons that constitutes, 
                maintains, or provides a physical or electronic 
                facility or system in which multiple participants have 
                the ability to execute or trade agreements, contracts, 
                or transactions by accepting bids and offers made by 
                other participants that are open to multiple 
                participants in the facility or system.
                  ``(B) Exclusions.--The term `trading facility' does 
                not include--
                          ``(i) a person or group of persons solely 
                        because the person or group of persons--
                                  ``(I) constitutes, maintains, or 
                                provides an electronic facility or 
                                system that enables participants to 
                                negotiate the terms of and enter into 
                                bilateral transactions as a result of 
                                communications exchanged by the parties 
                                and not from interaction of multiple 
                                orders within a predetermined, 
                                nondiscretionary automated trade 
                                matching algorithm; or
                                  ``(II) is a derivatives clearing 
                                organization;
                          ``(ii) a government securities dealer or 
                        government securities broker, to the extent 
                        that the dealer or broker executes or trades 
                        agreements, contracts, or transactions in 
                        government securities, or assists persons in 
                        communicating about, negotiating, entering 
                        into, executing, or trading an agreement, 
                        contract, or transaction in government 
                        securities (as the terms `government securities 
                        dealer', `government securities broker', and 
                        `government securities' are defined in section 
                        3(a) of the Securities Exchange Act of 1934 (15 
                        U.S.C. 78c(a))); or
                          ``(iii) facilities on which bids and offers, 
                        and acceptances of bids and offers effected on 
                        the facility, are not binding.''.

SEC. 102. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN FOREIGN CURRENCY, 
                    GOVERNMENT SECURITIES, AND CERTAIN OTHER 
                    COMMODITIES.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) is 
amended by adding at the end the following:
  ``(c) Agreements, Contracts, and Transactions in Foreign Currency, 
Government Securities, and Certain Other Commodities.--
          ``(1) In general.--Except as provided in paragraph (2), 
        nothing in this Act (other than section 5b or 12(e)(2)(B)) 
        governs or applies to an agreement, contract, or transaction 
        in--
                  ``(A) foreign currency;
                  ``(B) government securities;
                  ``(C) security warrants;
                  ``(D) security rights;
                  ``(E) resales of installment loan contracts;
                  ``(F) repurchase agreements in an excluded commodity; 
                or
                  ``(G) mortgages or mortgage purchase commitments.
          ``(2) Commission jurisdiction.--
                  ``(A) Agreements, contracts, and transactions that 
                are futures traded on an organized exchange.--This Act 
                applies to, and the Commission shall have jurisdiction 
                over, an agreement, contract, or transaction described 
                in paragraph (1) that is--
                          ``(i) a contract of sale of a commodity for 
                        future delivery (or an option thereon), or an 
                        option on a commodity (other than foreign 
                        currency or a security or group or index of 
                        securities), that is executed or traded on an 
                        organized exchange; or
                          ``(ii) an option on foreign currency and is 
                        executed or traded on an organized exchange 
                        that is not a national securities exchange 
                        registered pursuant to section 6(a) of the 
                        Securities Exchange Act of 1934.
                  ``(B) Agreements, contracts, and transactions in 
                retail foreign currency.--This Act applies to, and the 
                Commission shall have jurisdiction over, an agreement, 
                contract, or transaction in foreign currency that--
                          ``(i) is a contract of sale for future 
                        delivery (or an option on such a contract) or 
                        an option; and
                          ``(ii) is offered to, or entered into with, a 
                        person that is not an eligible contract 
                        participant, unless the counterparty, or the 
                        person offering to be the counterparty, of the 
                        person is--
                                  ``(I) a financial institution;
                                  ``(II) a broker or dealer registered 
                                under section 15(b) or 15C of the 
                                Securities Exchange Act of 1934 (15 
                                U.S.C. 78o(b), 78o-5) or a futures 
                                commission merchant registered under 
                                this Act;
                                  ``(III) an associated person of a 
                                broker or dealer registered under 
                                section 15(b) or 15C of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 78o(b), 
                                78o-5), or an affiliated person of a 
                                futures commission merchant registered 
                                under this Act, concerning the 
                                financial or securities activities of 
                                which the registered person makes and 
                                keeps records under section 15C(b) or 
                                17(h) of the Securities Exchange Act of 
                                1934 (15 U.S.C. 78o-5(b), 78q(h)) or 
                                section 4f(c)(2)(B) of this Act;
                                  ``(IV) an insurance company that is 
                                subject to State regulation (including 
                                a subsidiary or affiliate of such an 
                                insurance company);
                                  ``(V) a financial holding company (as 
                                defined in section 2 of the Bank 
                                Holding Company Act of 1956); or
                                  ``(VI) an investment bank holding 
                                company (as defined in section 17(i) of 
                                the Securities Exchange Act of 
                                1934).''.

SEC. 103. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE TRANSACTIONS.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 102) is amended by adding at the end the 
following:
  ``(d) Excluded Derivative Transactions.--
          ``(1) In general.--Nothing in this Act (other than section 5b 
        or 12(e)(2)(B)) governs or applies to an agreement, contract, 
        or transaction in an excluded commodity if--
                  ``(A) the agreement, contract, or transaction is 
                entered into only between persons that are eligible 
                contract participants at the time at which the persons 
                enter into the agreement, contract, or transaction; and
                  ``(B) the agreement, contract, or transaction is not 
                executed or traded on a trading facility.
          ``(2) Electronic trading facility exclusion.--Nothing in this 
        Act (other than section 5a, 5b, or 12(e)(2)(B)) governs or 
        applies to an agreement, contract, or transaction in an 
        excluded commodity if--
                  ``(A) the agreement, contract, or transaction is 
                entered into on a principal-to-principal basis between 
                parties trading for their own accounts or as described 
                in section 1a(12)(B)(ii) of this Act;
                  ``(B) the agreement, contract, or transaction is 
                entered into only between persons that are eligible 
                contract participants (as defined in sections 
                1a(12)(A), (B)(ii), and (C)) at the time at which the 
                persons enter into the agreement, contract, or 
                transaction; and
                  ``(C) the agreement, contract, or transaction is 
                executed or traded on an electronic trading 
                facility.''.

SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 103) is amended by adding at the end the 
following:
  ``(e) Excluded Electronic Trading Facilities.--
          ``(1) In general.--Nothing in this Act (other than section 
        12(e)(2)(B)) governs or is applicable to an electronic trading 
        facility that limits transactions authorized to be conducted on 
        its facilities to those satisfying the requirements of sections 
        2(d)(2) and 2(h)(3) of this Act.
          ``(2) Effect on authority to establish and operate.--Nothing 
        in this Act shall prohibit a board of trade designated by the 
        Commission as a contract market or derivatives transaction 
        execution facility, or an exempt board of trade, from 
        establishing and operating an excluded electronic trading 
        facility excluded under this Act pursuant to paragraph (1).''.

SEC. 105. HYBRID INSTRUMENTS.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 104) is amended by adding at the end the 
following:
  ``(f) Exclusion for Qualifying Hybrid Instruments.--
          ``(1) In general.--Nothing in this Act (other than section 
        12(e)(2)(B)) governs or is applicable to a hybrid instrument 
        that is predominantly a security or depository instrument.
          ``(2) Predominance.--A hybrid instrument shall be considered 
        to be predominantly a security or depository instrument if--
                  ``(A) the issuer of the hybrid instrument receives 
                payment in full of the purchase price of the hybrid 
                instrument, substantially contemporaneously with 
                delivery of the hybrid instrument;
                  ``(B) the purchaser or holder of the hybrid 
                instrument is not required to make any payment to the 
                issuer in addition to the purchase price paid under 
                subparagraph (A), whether as margin, settlement 
                payment, or otherwise, during the life of the hybrid 
                instrument or at maturity;
                  ``(C) the issuer of the hybrid instrument is not 
                subject by the terms of the instrument to mark-to-
                market margining requirements; and
                  ``(D) the hybrid instrument is not marketed as a 
                contract of sale for future delivery of a commodity (or 
                option on such a contract) subject to this Act.
          ``(3) Mark-to-market margining requirements.--For the 
        purposes of paragraph (2)(C), mark-to-market margining 
        requirements do not include the obligation of an issuer of a 
        secured debt instrument to increase the amount of collateral 
        held in pledge for the benefit of the purchaser of the secured 
        debtinstrument to secure the repayment obligations of the 
issuer under the secured debt instrument.''.

SEC. 106. FUTURES ON SECURITIES.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 105) is amended by adding at the end the 
following:
  ``(g) Nothing in subsection (a)(1)(C) or (a)(1)(D) governs or applies 
to--
          ``(1) an agreement, contract, or transaction that is excluded 
        under subsection (c) or (d) (whether or not the agreement, 
        contract, or transaction is otherwise subject to this Act);
          ``(2) an electronic trading facility that is excluded under 
        subsection (e); or
          ``(3) a hybrid instrument that is covered by an exclusion 
        under subsection (f) or an exemption granted by the Commission 
        under section 4(c) (whether or not the hybrid instrument is 
        otherwise subject to this Act).''.

SEC. 107. TRANSACTIONS IN EXEMPT COMMODITIES AND SWAP TRANSACTIONS.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 106) is amended by adding at the end the 
following:
  ``(h) Legal Certainty for Certain Transactions in Exempt 
Commodities.--
          ``(1) Except as provided in paragraph (2) of this subsection, 
        nothing in this Act shall apply to a contract, agreement or 
        transaction in an exempt commodity which--
                  ``(A) is entered into solely between persons that are 
                eligible contract participants at the time they enter 
                into the agreement, contract, or transaction; and
                  ``(B) is not entered into on a trading facility.
          ``(2) An agreement, contract, or transaction described in 
        paragraph (1) of this subsection shall be subject to--
                  ``(A) sections 5b and 12(e)(2)(B) of this Act;
                  ``(B) sections 4b and 4o of this Act and the 
                regulations of the Commission pursuant to section 4c(b) 
                of this Act proscribing fraud in connection with 
                commodity option transactions, to the extent such 
                agreement, contract, or transaction is not between 
                eligible commercial participants and would otherwise be 
                subject to those provisions; and
                  ``(C) sections 6(c) and 9(a)(2) of this Act to the 
                extent they prohibit manipulation of the market price 
                of any commodity in interstate commerce, to the extent 
                such agreement, contract, or transaction would 
                otherwise be subject to those provisions.
          ``(3) Except as provided in paragraph (4) of this subsection, 
        nothing in this Act shall apply to an agreement, contract, or 
        transaction in an exempt commodity which--
                  ``(A) is entered into on a principal-to-principal 
                basis solely between persons that are eligible contract 
                participants at the time at which the persons enter 
                into the agreement, contract, or transaction;
                  ``(B) entered into only between persons that are 
                eligible contract participants (as defined in sections 
                1a(12)(A), (B)(ii), (B)(iii), and (C) at the time at 
                which the persons enter into the agreement, contract, 
                or transaction; and
                  ``(C) is executed or traded on an electronic trading 
                facility.
          ``(4) An agreement, contract, or transaction described in 
        paragraph (3) shall be subject to--
                  ``(A) sections 5a (to the extent so provided in 
                section 5a(g)), 5b, and 12(e)(2)(B) of this Act;
                  ``(B) sections 4b and 4o of this Act and the 
                regulations of the Commission pursuant to section 4c(b) 
                of this Act proscribing fraud in connection with 
                commodity option transactions to the extent such 
                agreement, contract, or transaction would otherwise be 
                subject to those provisions;
                  ``(C) sections 6(c) and 9(a)(2) of this Act, to the 
                extent they prohibit manipulation of the market price 
                of any commodity in interstate commerce and to the 
                extent such agreement, contract, or transaction would 
                otherwise be subject to those provisions; and
                  ``(D) such rules and regulations as the Commission 
                may prescribe if necessary to ensure timely 
                dissemination by the electronic trading facility of 
                price, trading volume, and other trading data to the 
                extent appropriate, if the Commission determines that 
                the electronic trading facility performs a significant 
                price discovery function for transactions in the cash 
                market for the commodity underlying any agreement, 
                contract, or transaction executed or traded on the 
                electronic trading facility.
  ``(i) Application of the Act.--Nothing in this Act shall be construed 
(1) as implying or creating any presumption that (A) any agreement, 
contract, or transactionthat is eligible for an exclusion or exemption 
from regulation under this Act or (B) any agreement, contract, or 
transaction that is not eligible for an exclusion or exemption from 
regulation under this Act is or would otherwise be subject to this Act 
or (2) as conferring jurisdiction on the Commission with respect to any 
such agreement, contract, or transaction, except as expressly provided 
in section 5a (to the extent so provided in section 5a(g)) and 5b.''.

SEC. 108. PROTECTION OF THE PUBLIC INTEREST.

  The Commodity Exchange Act is amended by striking section 3 (7 U.S.C. 
5) and inserting the following:

``SEC. 3. FINDINGS AND PURPOSE.

  ``(a) Findings.--The futures contracts and options contracts that are 
subject to this Act are entered into regularly in interstate and 
international commerce and are affected with a national public interest 
by providing a means for managing and assuming price risks, discovering 
prices, and disseminating pricing information through trading in 
liquid, fair and financially secure trading facilities.
  ``(b) Purpose.--It is the purpose of this Act to serve the public 
interests described in subsection (a) through a system of effective 
self-regulation of trading facilities, clearing systems, market 
participants and market professionals under the oversight of the 
Commission. To foster these public interests, it is further the purpose 
of this Act to deter and prevent price manipulation or any other 
disruptions to market integrity; to ensure the financial integrity of 
all transactions subject to this Act and the avoidance of systemic 
risk; to protect all market participants from fraudulent or other 
abusive sales practices and misuses of customer assets; and to promote 
responsible innovation and fair competition among boards of trade, 
other markets and market participants.''.

SEC. 109. PROHIBITED TRANSACTIONS.

  Section 4c of the Commodity Exchange Act (7 U.S.C. 6c) is amended by 
striking ``Sec. 4c.'' and all that follows through subsection (a) and 
inserting the following:

``SEC. 4C. PROHIBITED TRANSACTIONS.

  ``(a) In General.--
          ``(1) Prohibition.--It shall be unlawful for any person to 
        offer to enter into, enter into, or confirm the execution of a 
        transaction described in paragraph (2) involving any commodity 
        if the transaction is used or may be used to--
                  ``(A) hedge any transaction in interstate commerce in 
                the commodity or the product or byproduct of the 
                commodity;
                  ``(B) determine the price basis of any such 
                transaction in interstate commerce in the commodity; or
                  ``(C) deliver any such commodity sold, shipped, or 
                received in interstate commerce for the execution of 
                the transaction.
          ``(2) Transaction.--A transaction referred to in paragraph 
        (1) is a transaction that--
                  ``(A)(i) is, is of the character of, or is commonly 
                known to the trade as, a `wash sale' or `accommodation 
                trade'; or
                  ``(ii) is a fictitious sale; or
                  ``(B) is used to cause any price to be reported, 
                registered, or recorded that is not a true and bona 
                fide price.''.

SEC. 110. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.

  The Commodity Exchange Act is amended--
          (1) by redesignating section 5b (7 U.S.C. 7b) as section 5e; 
        and
          (2) by striking sections 5 and 5a (7 U.S.C. 7, 7a) and 
        inserting the following:

``SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.

  ``(a) Applications.--A board of trade applying to the Commission for 
designation as a contract market shall submit an application to the 
Commission that includes any relevant materials and records the 
Commission may require consistent with this Act.
  ``(b) Criteria for Designation.--
          ``(1) In general.--To be designated as a contract market, the 
        board of trade shall demonstrate to the Commission that the 
        board of trade meets the criteria specified in this subsection.
          ``(2) Prevention of market manipulation.--The board of trade 
        shall have the capacity to prevent market manipulation through 
        market surveillance, compliance, and enforcement practices and 
        procedures, including methods for conducting real-time 
        monitoring of trading and comprehensive and accurate trade 
        reconstructions.
          ``(3) Fair and equitable trading.--The board of trade shall 
        establish and enforce trading rules to ensure fair and 
        equitable trading through the facilities of the contract 
        market, and the capacity to detect, investigate, and discipline 
        any person that violates the rules. Such rules may authorize--
                  ``(A) an exchange of--
                          ``(i) futures in connection with a cash 
                        commodity transaction;
                          ``(ii) futures for cash commodities;
                          ``(iii) transfer trades or office trades; or
                          ``(iv) futures for swaps; and
                  ``(B) a futures commission merchant, acting as 
                principal or agent, to enter into or confirm the 
                execution of a contract for the purchase or sale of a 
                commodity for future delivery if the contract is 
                reported, recorded, or cleared in accordance with the 
                rules of the contract market or a derivatives clearing 
                organization.
          ``(4) Trade execution facility.--The board of trade shall--
                  ``(A) establish and enforce rules defining, or 
                specifications detailing, the manner of operation of 
                the trade execution facility maintained by the board of 
                trade, including rules or specifications describing the 
                operation of any electronic matching platform; and
                  ``(B) demonstrate that the trading facility operates 
                in accordance with the rules or specifications.
          ``(5) Financial integrity of transactions.--The board of 
        trade shall establish and enforce rules and procedures for 
        ensuring the financial integrity of transactions entered into 
        by or through the facilities of the contract market.
          ``(6) Disciplinary procedures.--The board of trade shall 
        establish and enforce disciplinary procedures that authorize 
        the board of trade to discipline, suspend, or expel members or 
        market participants that violate the rules of the board of 
        trade, or similar methods for performing the same functions, 
        including delegation of the functions to third parties.
          ``(7) Public access.--The board of trade shall provide the 
        public with access to the rules, regulations, and contract 
        specifications of the board of trade.
          ``(8) Ability to obtain information.--The board of trade 
        shall establish and enforce rules that will allow the board of 
        trade to obtain any necessary information to perform any of the 
        functions described in this subsection, including the capacity 
        to carry out such international information-sharing agreements 
        as the Commission may require.
  ``(c) Existing Contract Markets.--A board of trade that is designated 
as a contract market on the effective date of the Commodity Futures 
Modernization Act of 2000 shall be considered to be a designated 
contract market under this section.
  ``(d) Core Principles for Contract Markets.--
          ``(1) In general.--To maintain the designation of a board of 
        trade as a contract market, a board of trade shall comply with 
        the core principles specified in this subsection.
          ``(2) Compliance with rules.--The board of trade shall 
        monitor and enforce compliance with the rules of the contract 
        market, including the terms and conditions of any contracts to 
        be traded and any limitations on access to the contract market.
          ``(3) Contracts not readily subject to manipulation.--The 
        board of trade shall list on the contract market only contracts 
        that are not readily susceptible to manipulation.
          ``(4) Monitoring of trading.--The board of trade shall 
        monitor trading to prevent manipulation, price distortion, and 
        disruptions of the delivery or cash-settlement process.
          ``(5) Position limitations or accountability.--To reduce the 
        potential threat of market manipulation or congestion, 
        especially during trading in the delivery month, the board of 
        trade shall adopt position limitations or position 
        accountability for speculators, where necessary and 
        appropriate.
          ``(6) Emergency authority.--The board of trade shall adopt 
        rules to provide for the exercise of emergency authority, in 
        consultation or cooperation with the Commission, where 
        necessary and appropriate, including the authority to--
                  ``(A) liquidate or transfer open positions in any 
                contract;
                  ``(B) suspend or curtail trading in any contract; and
                  ``(C) require market participants in any contract to 
                meet special margin requirements.
          ``(7) Availability of general information.--The board of 
        trade shall make available to market authorities, market 
        participants, and the public information concerning--
                  ``(A) the terms and conditions of the contracts of 
                the contract market; and
                  ``(B) the mechanisms for executing transactions on or 
                through the facilities of the contract market.
          ``(8) Daily publication of trading information.--The board of 
        trade shall make public daily information on settlement prices, 
        volume, open interest, and opening and closing ranges for 
        actively traded contracts on the contract market.
          ``(9) Execution of transactions.--The board of trade shall 
        provide a competitive, open, and efficient market and mechanism 
        for executing transactions.
          ``(10) Trade information.--The board of trade shall maintain 
        rules and procedures to provide for the recording and safe 
        storage of all identifying trade information in a manner that 
        enables the contract market to use the information for purposes 
        of assisting in the prevention of customer and market abuses 
        and providing evidence of any violations of the rules of the 
        contract market.
          ``(11) Financial integrity of contracts.--The board of trade 
        shall establish and enforce rules providing for the financial 
        integrity of any contracts traded on the contract market, 
        including rules to ensure the financial integrity of any 
        futures commission merchants and introducing brokers and the 
        protection of customer funds.
          ``(12) Protection of market participants.--The board of trade 
        shall establish and enforce rules to protect market 
        participants from abusive practices committed by any party 
        acting as an agent for the participants.
          ``(13) Dispute resolution.--The board of trade shall 
        establish and enforce rules regarding and provide facilities 
        for alternative dispute resolution as appropriate for market 
        participants and any market intermediaries.
          ``(14) Governance fitness standards.--The board of trade 
        shall establish and enforce appropriate fitness standards for 
        directors, members of any disciplinary committee, members of 
        the contract market, and any other persons with direct access 
        to the facility (including any parties affiliated with any of 
        the persons described in this paragraph).
          ``(15) Conflicts of interest.--The board of trade shall 
        establish and enforce rules to minimize conflicts of interest 
        in the decisionmaking process of the contract market and 
        establish a process for resolving such conflicts of interest.
          ``(16) Composition of boards of mutually owned contract 
        markets.--In the case of a mutually owned contract market, the 
        board of trade shall ensure that the composition of the 
        governing board reflects market participants.
          ``(17) Recordkeeping.--The board of trade shall--
                  ``(A) maintain full records of all activities related 
                to the business of the contract market in a form and 
                manner acceptable to the Commission for a period of at 
                least 5 years;
                  ``(B) make the records readily available during at 
                least the first 2 years of the 5-year period and 
                provide the records to the Commission at the expense of 
                the person required to maintain the records; and
                  ``(C) keep the records open to inspection by any 
                representative of the Commission or the Department of 
                Justice.
          ``(18) Antitrust considerations.--Unless necessary or 
        appropriate to achieve the purposes of this Act, the board of 
        trade shall not--
                  ``(A) adopt any rules or taking any actions that 
                result in any unreasonable restraints of trade; or
                  ``(B) impose any material anticompetitive burden on 
                trading on the contract market.
  ``(e) Current Agricultural and Metal Commodities.--
          ``(1) Subject to paragraph (2), a contract for purchase or 
        sale for future delivery of an agricultural or metal commodity 
        enumerated in section 1a(4) that is available for trade on a 
        contract market, as of the date of the enactment of this 
        subsection, may be traded only on a contract market designated 
        under this section.
          ``(2) In order to promote responsible economic or financial 
        innovation and fair competition, the Commission, on application 
        by any person, after notice and public comment and opportunity 
        for hearing, may prescribe rules and regulations to provide for 
        the offer and sale of contracts for future delivery or options 
        thereon to be conducted on a derivatives transaction execution 
        facility.''.

SEC. 111. DERIVATIVES TRANSACTION EXECUTION FACILITIES.

  The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by 
inserting after section 5 (as amended by section 110(2)) the following:

``SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.

  ``(a) In General.--In lieu of compliance with the contract market 
designation requirements of section 5, a board of trade may elect to 
operate as a registered derivatives transaction execution facility if 
the facility is--
          ``(1) designated as a contract market and meets the 
        requirements of this section; or
          ``(2) registered as a derivatives transaction execution 
        facility under subsection (c).
  ``(b) Requirements for Trading Futures Contracts or Other Derivatives 
Transactions.--
          ``(1) In general.--A registered derivatives transaction 
        execution facility under subsection (a) may trade any futures 
        contract (or option on such a contract) on or through the 
        facility only by satisfying the requirements of this section.
          ``(2) Requirements for underlying commodities.--A registered 
        derivatives transaction execution facility may trade any 
        futures contract only if--
                  ``(A) the underlying commodity has a nearly 
                inexhaustible deliverable supply;
                  ``(B) the underlying commodity has a deliverable 
                supply that is sufficiently large that the contract is 
                not readily susceptible to manipulation;
                  ``(C) the underlying commodity has no cash market; or
                  ``(D) the Commission determines, based on the market 
                characteristics, surveillance history, self-regulatory 
                record, or capacity of the facility that trading in the 
                futures contract is not readily susceptible to 
                manipulation.
          ``(3) Eligible traders.--To trade on a registered derivatives 
        transaction execution facility, a person shall--
                  ``(A) be authorized by the board of trade to trade on 
                the facility; and
                  ``(B)(i) be an eligible contract participant; or
                  ``(ii) be a person trading through a futures 
                commission merchant that--
                          ``(I) is registered with the Commission;
                          ``(II) is a member of a futures self-
                        regulatory organization;
                          ``(III) is a clearing member of a derivatives 
                        clearing organization; and
                          ``(IV) has net capital of at least 
                        $20,000,000.
          ``(4) Trading by contract markets.--A board of trade that is 
        designated as a contract market shall, to the extent that the 
        contract market also operates a registered derivatives 
        transaction execution facility--
                  ``(A) provide a physical location for the contract 
                market trading of the board of trade that is separate 
                from trading on the derivatives transaction execution 
                facility of the board of trade; or
                  ``(B) if the board of trade uses the same electronic 
                trading system for trading on the contract market and 
                derivatives transaction execution facility of the board 
                of trade, identify whether the electronic trading is 
                taking place on the contract market or the derivatives 
                transaction execution facility.
          ``(5) Impermissible products.--It shall be unlawful for any 
        person to execute or trade a security future product or other 
        future involving a security, except an exempt security as 
        defined in section 3(a)(12) of the Securities Exchange Act of 
        1934 as in effect on the date of enactment of the Futures 
        Trading Act of 1982, on a designated transaction execution 
        facility.
  ``(c) Criteria for Registration.--
          ``(1) In general.--To be registered as a registered 
        derivatives transaction execution facility, the board of trade 
        shall demonstrate to the Commission that the board of trade 
        meets the criteria specified in this subsection.
          ``(2) Deterrence of abuses.--The board of trade shall 
        establish and enforce trading rules that will deter abuses and 
        has the capacity to detect, investigate, and enforce those 
        rules, including means to--
                  ``(A) obtain information necessary to perform the 
                functions required under this section; or
                  ``(B) use technological means to--
                          ``(i) provide market participants with 
                        impartial access to the market; and
                          ``(ii) capture information that may be used 
                        in establishing whether rule violations have 
                        occurred.
          ``(3) Trading procedures.--The board of trade shall establish 
        and enforce rules or terms and conditions defining, or 
        specifications detailing, trading procedures to be used in 
        entering and executing orders traded on the facilities of the 
        board of trade. Such rules may authorize--
                  ``(A) an exchange of--
                          ``(i) futures in connection with a cash 
                        commodity transaction;
                          ``(ii) futures for cash commodities;
                          ``(iii) transfer trades or office trades; or
                          ``(iv) futures for swaps; and
                  ``(B) a futures commission merchant, acting as 
                principal or agent, to enter into or confirm the 
                execution of a contract for the purchase or sale of a 
                commodity for future delivery if the contract is 
                reported, recorded, or cleared in accordance with the 
                rules of the registered derivatives transaction 
                execution facility or a derivatives clearing 
                organization.
          ``(4) Financial integrity of transactions.--The board of 
        trade shall establish and enforce rules or terms and conditions 
        providing for the financial integrity of transactions entered 
        on or through the facilities of the board of trade, including 
        rules or terms and conditions to ensure the financial integrity 
        of any futures commission merchants and introducing brokers and 
        the protection of customer funds.
  ``(d) Core Principles for Registered Derivatives Transaction 
Execution Facilities.--
          ``(1) In general.--To maintain the registration of a board of 
        trade as a derivatives transaction execution facility, a board 
        of trade shall comply with the core principles specified in 
        this subsection.
          ``(2) Compliance with rules.--The board of trade shall 
        monitor and enforce the rules of the facility, including any 
        terms and conditions of any contracts traded on or through the 
        facility and any limitations on access to the facility.
          ``(3) Monitoring of trading.--The board of trade shall 
        monitor trading in the contracts of the facility to ensure 
        orderly trading in the contract and to maintain an orderly 
        market while providing any necessary trading information to the 
        Commission to allow the Commission to discharge the 
        responsibilities of the Commission under the Act.
          ``(4) Disclosure of general information.--The board of trade 
        shall disclose publicly and to the Commission information 
        concerning--
                  ``(A) contract terms and conditions;
                  ``(B) trading conventions, mechanisms, and practices;
                  ``(C) financial integrity protections; and
                  ``(D) other information relevant to participation in 
                trading on the facility.
          ``(5) Daily publication of trading information.--The board of 
        trade shall make public daily information on settlement prices, 
        volume, open interest, and opening and closing ranges for 
        actively traded contracts on the facility.
          ``(6) Fitness standards.--The board of trade shall establish 
        and enforce appropriate fitness standards for directors, 
        members of any disciplinary committee, members, and any other 
        persons with direct access to the facility, including any 
        parties affiliated with any of the persons described in this 
        paragraph.
          ``(7) Conflicts of interest.--The board of trade shall 
        establish and enforce rules to minimize conflicts of interest 
        in the decisionmaking process of the derivatives transaction 
        execution facility and establish a process for resolving such 
        conflicts of interest.
          ``(8) Recordkeeping.--The board of trade shall--
                  ``(A) maintain full records of all activities related 
                to the business of the derivatives transaction 
                execution facility in a form and manner acceptable to 
                the Commission for a period of at least 5 years;
                  ``(B) make the records readily available during at 
                least the first 2 years of the 5-year period and 
                provide the records to the Commission at the expense of 
                the person required to maintain the records; and
                  ``(C) keep the records open to inspection by any 
                representatives of the Commission or the Department of 
                Justice.
          ``(9) Antitrust considerations.--Unless necessary or 
        appropriate to achieve the purposes of this Act, the board of 
        trade shall not--
                  ``(A) adopt any rules or take any actions that result 
                in any unreasonable restraint of trade; or
                  ``(B) impose any material anticompetitive burden on 
                trading on the derivatives transaction execution 
                facility.
  ``(e) Use of Broker-Dealers, Depository Institutions, and Farm Credit 
System Institutions as Intermediaries.--
          ``(1) In general.--A registered derivatives transaction 
        execution facility may by rule allow a broker-dealer, 
        depository institution, or institution of the Farm Credit 
        System that meets the requirements of paragraph (2) to--
                  ``(A) act as an intermediary in transactions executed 
                on the facility on behalf of customers of the broker-
                dealer, depository institution, or institution of the 
                Farm Credit System; and
                  ``(B) receive funds of customers to serve as margin 
                or security for such transactions.
          ``(2) Requirements.--The requirements referred to in 
        paragraph (1) are that--
                  ``(A) the broker-dealer be in good standing with the 
                Securities and Exchange Commission, or the depository 
                institution or institution of the Farm Credit System be 
                in good standing with Federal bank regulatory agencies 
                (including the Farm Credit Administration), as 
                applicable; and
                  ``(B) if the broker-dealer, depository institution, 
                or institution of the Farm Credit System carries or 
                holds customer accounts or funds for transactions on 
                the derivatives transaction execution facility for more 
                than 1 business day, the broker-dealer, depository 
                institution, or institution of the Farm Credit System 
                is registered as a futures commission merchant and is a 
                member of a registered futures association.
          ``(3) Implementation.--The Commission shall cooperate and 
        coordinate with the Securities and Exchange Commission, the 
        Secretary of the Treasury, and Federal banking regulatory 
        agencies (including the Farm Credit Administration) in adopting 
        rules and taking any other appropriate action to facilitate the 
        implementation of this subsection.
  ``(f) Segregation of Customer Funds.--Not later than 180 days after 
the effective date of the Commodity Futures Modernization Act of 2000, 
consistent with regulations adopted by the Commission, a registered 
derivatives transaction execution facility may authorize a futures 
commission merchant to offer any customer of the futures commission 
merchant that is an eligible contract participant the right to not 
segregate the customer funds of the futures commission merchant for 
purposes of trading on or through the facilities of the registered 
derivatives transaction execution facility.
  ``(g) Election To Trade Excluded Commodities.--
          ``(1) In general.--A board of trade that is a registered 
        derivatives transaction execution facility may trade on the 
        facility any agreements, contracts, or transactions involving 
        excluded commodities other than securities, except exempt 
        securities under section 3(a)(12) of the Securities Exchange 
        Act of 1934 as in effect on the date of enactment of the 
        Futures Trading Act of 1982, that are otherwise excluded or 
        exempt from this Act under section 2(c), 2(d), or 2(h). 
        Notwithstanding section 5a(b)(2), a board of trade on which 
        agreements, contracts, or transactions excluded or exempt from 
        this Act under section 2(c), 2(d), or 2(h) are traded may 
        elect, but shall not be required, to register as a derivatives 
        transaction execution facility with respect to such agreements, 
        contracts, or transactions, other than any agreement, contract, 
        or transaction in a security other than such an exempt 
        security.
          ``(2) Exclusive jurisdiction of the commission.--The 
        Commission shall have exclusive jurisdiction over agreements, 
        contracts, or transactions described in paragraph (1) to the 
        extent that the agreements, contracts, or transactions are 
        traded on a derivatives transaction execution facility.''.

SEC. 112. DERIVATIVES CLEARING ORGANIZATIONS.

  The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by 
inserting after section 5a (as added by section 111) the following:

``SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.

  ``(a) Registration Requirement.--Except as provided in subsection 
(b), it shall be unlawful for a derivatives clearing organization, 
unless registered with the Commission, directly or indirectly to make 
use of the mails or any means or instrumentality of interstate commerce 
to perform the functions of a derivatives clearing organization 
described in section 1a(9).
  ``(b) Exclusion of Derivatives Clearing Organizations Subject to 
Other Regulatory Authorities.--A derivatives clearing organization 
shall not be required to register with the Commission, and the 
Commission shall have no jurisdiction with respect to the derivatives 
clearing organization, if the derivatives clearing organization--
          ``(1)(A) is registered as a clearing agency under the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);
          ``(B) is subject to the supervisory jurisdiction of a Federal 
        banking agency (as defined in section 3 of the Federal Deposit 
        Insurance Act (12 U.S.C. 1813)) or the National Credit Union 
        Administration; or
          ``(C) is subject to the supervisory jurisdiction of a foreign 
        regulatory authority that is recognized by the Securities and 
        Exchange Commission, the Board of Governors of the Federal 
        Reserve System, the Comptroller of the Currency, or the 
        Commission as overseeing a system of consolidated supervision 
        comparable to that provided under applicable United States law; 
        and
          ``(2) does not clear--
                  ``(A) a contract of sale for future delivery other 
                than a security future product;
                  ``(B) an option on a contract of sale for future 
                delivery other than a security future product; or
                  ``(C) an option on a commodity other than a security.
  ``(c) Voluntary Registration.--A derivatives clearing organization 
that is not exempt from registration under subsection (b) may register 
with the Commission as a derivatives clearing organization.
  ``(d) Registration of Derivatives Clearing Organizations.--
          ``(1) Application.--A person desiring to register as a 
        derivatives clearing organization shall submit to the 
        Commission an application in such form and containing such 
        information as the Commission may require for the purpose of 
        making the determinations required for approval under paragraph 
        (2).
          ``(2) Core principles.--
                  ``(A) In general.--To be registered and to maintain 
                registration as a derivatives clearing organization, an 
                applicant shall demonstrate to the Commission that the 
                applicant complies with the core principles specified 
                in this paragraph.
                  ``(B) Financial resources.--The applicant shall 
                demonstrate that the applicant has adequate financial, 
                operational, and managerial resources to discharge the 
                responsibilities of a derivatives clearing organization 
                without interruption in various market conditions.
                  ``(C) Participant and product eligibility.--The 
                applicant shall establish--
                          ``(i) appropriate admission and continuing 
                        eligibility standards (including appropriate 
                        minimum financial requirements) for members of 
                        and participants in the organization; and
                          ``(ii) appropriate standards for determining 
                        eligibility of agreements, contracts, or 
                        transactions submitted to the applicant.
                  ``(D) Risk management.--The applicant shall have the 
                ability to manage the risks associated with discharging 
                the responsibilities of a derivatives clearing 
                organization through the use of appropriate tools and 
                procedures.
                  ``(E) Settlement procedures.--The applicant shall 
                have the ability to--
                          ``(i) complete settlements on a timely basis 
                        under varying circumstances;
                          ``(ii) maintain an adequate record of the 
                        flow of funds associated with each transaction 
                        that the applicant clears; and
                          ``(iii) comply with the terms and conditions 
                        of any permitted netting or offset arrangements 
                        with other clearing organizations.
                  ``(F) Treatment of funds.--The applicant shall have 
                standards and procedures designed to protect and ensure 
                the safety of member and participant funds.
                  ``(G) Default rules and procedures.--The applicant 
                shall have rules and procedures designed to allow for 
                efficient, fair, and safe management of events when 
                members or participants become insolvent or otherwise 
                default on their obligations to the derivatives 
                clearing organization.
                  ``(H) Rule enforcement.--The applicant shall--
                          ``(i) maintain adequate arrangements and 
                        resources for the effective monitoring and 
                        enforcement of compliance with rules of the 
                        applicant and for resolution of disputes; and
                          ``(ii) have the authority and ability to 
                        discipline, limit, suspend, or terminate a 
                        member's or participant's activities for 
                        violations of rules of the applicant.
                  ``(I) System safeguards.--The applicant shall 
                demonstrate that the applicant--
                          ``(i) has established and will maintain a 
                        program of oversight and risk analysis to 
                        ensure that the automated systems of the 
                        applicant function properly and have adequate 
                        capacity and security; and
                          ``(ii) has established and will maintain 
                        emergency procedures and a plan for disaster 
                        recovery, and will periodically test backup 
                        facilities sufficient to ensure daily 
                        processing, clearing, and settlement of 
                        transactions.
                  ``(J) Reporting.--The applicant shall provide to the 
                Commission all information necessary for the Commission 
                to conduct the oversight function of the applicant with 
                respect to the activities of the derivatives clearing 
                organization.
                  ``(K) Recordkeeping.--The applicant shall--
                          ``(i) maintain full records of all activities 
                        related to the business of the applicant as a 
                        derivatives clearing organization in a form and 
                        manner acceptable to the Commission for a 
                        period of at least 5 years;
                          ``(ii) make the records readily available 
                        during at least the first 2 years of the 5-year 
                        period and provide the records to the 
                        Commission at the expense of the person 
                        required to maintain the records; and
                          ``(iii) keep the records open to inspection 
                        by any representative of the Commission or the 
                        Department of Justice.
                  ``(L) Public information.--The applicant shall make 
                information concerning the rules and operating 
                procedures governing the clearing and settlement 
                systems (including default procedures) available to 
                market participants.
                  ``(M) Information sharing.--The applicant shall--
                          ``(i) enter into and abide by the terms of 
                        all appropriate and applicable domestic and 
                        international information-sharing agreements; 
                        and
                          ``(ii) use relevant information obtained from 
                        the agreements in carrying out the clearing 
                        organization's risk management program.
                  ``(N) Antitrust considerations.--Unless necessary or 
                appropriate to achieve the purposes of this Act, the 
                derivatives clearing organization shall not--
                          ``(i) adopt any rule or take any action that 
                        results in any unreasonable restraint of trade; 
                        or
                          ``(ii) impose any material anticompetitive 
                        burden on trading on the contract market.
          ``(3) Orders concerning competition.--A derivatives clearing 
        organization may request the Commission to issue an order 
        concerning whether a rule or practice of the applicant is the 
        least anticompetitive means of achieving the objectives, 
        purposes, and policies of this Act.
  ``(e) Existing Derivatives Clearing Organizations.--A derivatives 
clearing organization shall be deemed to be registered under this 
section to the extent that--
          ``(1) the derivatives clearing organization clears 
        agreements, contracts, or transactions for a board of trade 
        that has been designated by the Commission as a contract market 
        for such agreements, contracts, or transactions before the date 
        of enactment of this section; and
          ``(2) the Commission has reviewed and approved the rules of 
        the derivatives clearing organization before that date.
  ``(f) Appointment of Trustee.--
          ``(1) In general.--If a proceeding under section 5e results 
        in the suspension or revocation of the registration of a 
        derivatives clearing organization, or if a derivatives clearing 
        organization withdraws from registration, the Commission, on 
        notice to the derivatives clearing organization, may apply to 
        the appropriate United States district court where the 
        derivatives clearing organization is located for the 
        appointment of a trustee.
          ``(2) Assumption of jurisdiction.--If the Commission applies 
        for appointment of a trustee under paragraph (1)--
                  ``(A) the court may take exclusive jurisdiction over 
                the derivatives clearing organization and the records 
                and assets of the derivatives clearing organization, 
                wherever located; and
                  ``(B) if the court takes jurisdiction under 
                subparagraph (A), the court shall appoint the 
                Commission, or a person designated by the Commission, 
                as trustee with power to take possession and continue 
                to operate or terminate the operations of the 
                derivatives clearing organization in an orderly manner 
                for the protection of participants, subject to such 
                terms and conditions as the court may prescribe.
  ``(g) Linking of Regulated Clearing Facilities.--
          ``(1) In general.--The Commission shall facilitate the 
        linking or coordination of derivatives clearing organizations 
        registered under this Act with other regulated clearance 
        facilities for the coordinated settlement of cleared 
        transactions.
          ``(2) Coordination.--In carrying out paragraph (1), the 
        Commission shall coordinate with the Federal banking agencies 
        and the Securities and Exchange Commission.''.

SEC. 113. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.

  The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by 
inserting after section 5b (as added by section 112) the following:

``SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.

  ``(a) Acceptable Business Practices Under Core Principles.--
          ``(1) In general.--Consistent with the purposes of this Act, 
        the Commission may issue interpretations, or approve 
        interpretations submitted to the Commission, of sections 5(d), 
        5a(d), and 5b(d)(2) to describe what would constitute an 
        acceptable business practice under such sections.
          ``(2) Effect of interpretation.--An interpretation issued 
        under paragraph (1) shall not provide the exclusive means for 
        complying with such sections.
  ``(b) Delegation of Functions Under Core Principles.--
          ``(1) In general.--A contract market or derivatives 
        transaction execution facility may comply with any applicable 
        core principle through delegation of any relevant function to a 
        registered futures association or another registered entity.
          ``(2) Responsibility.--A contract market or derivatives 
        transaction execution facility that delegates a function under 
        paragraph (1) shall remain responsible for carrying out the 
        function.
  ``(c) New Contracts, New Rules, and Rule Amendments.--
          ``(1) In general.--Except as provided in sections 2(a)(1)(C) 
        and 2(a)(1)(D), and subject to paragraph (2), a registered 
        entity may elect to list for trading any new contract or other 
        instrument, or may elect to approve and implement any new rule 
        or rule amendment, by providing to the Commission (and the 
        Secretary of the Treasury, in the case of a contract of sale 
        for future delivery of a government security (or option 
        thereon) or a rule or rule amendment specifically related to 
        such a contract) a written certification that the new contract, 
        new rule, or rule amendment complies with this Act (including 
        regulations under this Act).
          ``(2) Prior approval.--
                  ``(A) In general.--A registered entity may request 
                that the Commission grant prior approval to any new 
                contract or other instrument, new rule, or rule 
                amendment.
                  ``(B) Prior approval required.--Notwithstanding any 
                other provision of this section, a designated contract 
                market shall submit to the Commission for prior 
                approval each rule amendment that materially changes 
                the terms and conditions, as determined by the 
                Commission, in any contract of sale for future delivery 
                of a commodity specifically enumerated in section 1a(4) 
                of this Act (or any option thereon) traded through its 
                facilities if such rule amendment applies to contracts 
                and delivery months which have already been listed for 
                trading and have open interest.
                  ``(C) Deadline.--If prior approval is requested under 
                subparagraph (A), the Commission shall take final 
                action on the request not later than 90 days after 
                submission of the request, unless the person submitting 
                the request agrees to an extension of the time 
                limitation established under this subparagraph.
          ``(3) Approval.--The Commission shall approve any such new 
        contract or instrument, new rule, or rule amendment unless the 
        Commission finds that the new contract or instrument, new rule, 
        or rule amendment would violate this Act.
  ``(d) Reservation of Emergency Authority.--Nothing in this section 
shall limit or in any way affect the emergency powers of the Commission 
provided in section 8a(9) of this Act.''.

SEC. 114. EXEMPT BOARDS OF TRADE.

  The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by 
inserting after section 5c (as added by section 113) the following:

``SEC. 5D. EXEMPT BOARDS OF TRADE.

  ``(a) In General.--Except as otherwise provided in this section, a 
contract of sale (or option on such a contract) of a commodity for 
future delivery traded on or through the facilities of an exempt board 
of trade shall be exempt from all provisions of this Act, other than 
section 2(g).
  ``(b) Criteria for Exemption.--To qualify for an exemption under 
subsection (a), a board of trade shall limit trading on or through the 
facilities of the board of trade to contracts of sale of a commodity 
for future delivery (or options on such contracts)--
          ``(1) that have--
                  ``(A) a nearly inexhaustible deliverable supply;
                  ``(B) a deliverable supply that is sufficiently 
                large, and a cash market sufficiently liquid, to render 
                any contract traded on the commodity highly unlikely to 
                be susceptible to the threat of manipulation; or
                  ``(C) no cash market;
          ``(2) that are entered into only between persons that are 
        eligible contract participants at the time at which the persons 
        enter into the contract; and
          ``(3) that are not contracts of sale (or options on the 
        contract) for future delivery of any security, including any 
        group or index of securities or any interest in, or interest 
        that is based on the value of, any security.
  ``(c) Antimanipulation Requirements.--A party to a futures contract 
or related option that is traded on an exempt board of trade shall be 
subject to sections 4b, 4o, 6(c), and 9(a)(2), and the Commission shall 
enforce those provisions with respect to any such trading.
  ``(d) Price Discovery.--If the Commission finds that an exempt board 
of trade is a significant source of price discovery for any underlying 
commodity in any transaction traded on or through the facilities of the 
board of trade, the board of trade shall disseminate publicly on a 
daily basis trading volume, opening and closing price ranges, open 
interest, and other trading data as appropriate to the market.
  ``(e) Jurisdiction.--The Commission shall have exclusive jurisdiction 
over any account, agreement, or transaction involving a contract of 
sale of a commodity, or related option, to the extent that such 
account, agreement, or transaction is traded on an exempt board of 
trade.
  ``(f) Subsidiaries.--A board of trade that is designated as a 
contract market or registered as a derivatives transaction execution 
facility may operate an exempt board of trade by establishing a 
separate subsidiary or other legal entity and otherwise satisfying the 
requirements of this section.''.

SEC. 115. SUSPENSION OR REVOCATION OF DESIGNATION AS CONTRACT MARKET.

  Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) (as 
redesignated by section 110(1)) is amended to read as follows:

``SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS REGISTERED 
                    ENTITY.

  ``The failure of a registered entity to comply with any provision of 
this Act, or any regulation or order of the Commission under this Act, 
shall be cause for the suspension of the registered entity for a period 
not to exceed 180 days, or revocation of designation as a registered 
entity in accordance with the procedures and subject to the judicial 
review provided in section 6(b).''.

SEC. 116. AUTHORIZATION OF APPROPRIATIONS.

  Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is 
amended by striking ``2000'' and inserting ``2005''.

SEC. 117. PREEMPTION.

  Section 12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) is 
amended by striking paragraph (2) and inserting the following:
          ``(2) the application of any Federal or State law to an 
        agreement, contract, or transaction in or involving any 
        commodity, product, right, service, or interest, except that 
        this Act shall supersede and preempt--
                  ``(A) any Federal or State law, other than antifraud 
                provisions of general applicability and the securities 
                laws (as defined in section 3(a)(47) of the Securities 
                Exchange Act of 1934), as such Federal or State law 
                applies to any such agreement, contract, or 
                transaction--
                          ``(i) that is conducted on or subject to the 
                        rules of a registered entity or exempt board of 
                        trade;
                          ``(ii) that is conducted on or subject to the 
                        rules of any board of trade, exchange, or 
                        market located outside the United States, or 
                        any territory or possession of the United 
                        States (in accordance with any terms or 
                        conditions specified by the Commission by 
                        regulation); or
                          ``(iii) that is subject to regulation by the 
                        Commission under section 4c or 19; and
                  ``(B) any State or local law that prohibits or 
                regulates gaming or the operation of bucket shops 
                (other than antifraud provisions of general 
                applicability) in the case of--
                          ``(i) an electronic trading facility under 
                        section 2(e); or
                          ``(ii) an agreement, contract, or transaction 
                        that is excluded or exempt under section 2(c), 
                        2(d), 2(f), or 2(h) or is covered by the terms 
                        of an exemption granted by the Commission under 
                        section 4(c) (regardless of whether any such 
                        agreement, contract, or transaction is 
                        otherwise subject to this Act); or''.

SEC. 118. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.

  Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is amended by 
striking ``Sec. 15. The Commission'' and inserting the following:

``SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.

  ``(a) Costs and Benefits.--
          ``(1) In general.--Before promulgating a regulation under 
        this Act or issuing an order (except as provided in paragraph 
        (3)), the Commission shall consider the costs and benefits of 
        the action of the Commission.
          ``(2) Considerations.--The costs and benefits of the proposed 
        Commission action shall be evaluated in light of--
                  ``(A) considerations of protection of market 
                participants and the public;
                  ``(B) considerations of the efficiency, 
                competitiveness, and financial integrity of futures 
                markets;
                  ``(C) considerations of price discovery;
                  ``(D) considerations of sound risk management 
                practices; and
                  ``(E) other public interest considerations.
          ``(3) Applicability.--This subsection does not apply to the 
        following actions of the Commission:
                  ``(A) An order that initiates, is part of, or is the 
                result of an adjudicatory or investigative process of 
                the Commission.
                  ``(B) An emergency action.
                  ``(C) A finding of fact regarding compliance with a 
                requirement of the Commission.
  ``(b) Antitrust Laws.--The Commission''.

SEC. 119. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE COUNTERPARTIES.

  Section 22(a) of the Commodity Exchange Act (7 U.S.C. 25(a)) is 
amended by adding at the end the following:
  ``(4) Contract enforcement between eligible counterparties.--No 
agreement, contract, or transaction a party to which is reasonably 
believed by another party to which to be an eligible contract 
participant shall be void, voidable, or unenforceable, and no such 
reasonably believed eligible contract participant shall be entitled to 
rescind, or recover any payment made with respect to, such an 
agreement, contract, or transaction, under this section based solely on 
the failure of the agreement, contract, or transaction to comply with 
the terms or conditions of an exemption or exclusion from any provision 
of this Act or regulations of the Commission.''.

SEC. 120. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE 
                    HEDGING BY AGRICULTURAL PRODUCERS.

  The Commodity Exchange Act is amended by inserting after section 4p 
the following:

``SEC. 4Q. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE 
                    HEDGING BY AGRICULTURAL PRODUCERS.

  ``(a) Authority.--The Commission shall consider issuing rules or 
orders which--
          ``(1) prescribe procedures under which each contract market 
        is to provide for orderly delivery, including temporary storage 
        costs, of any agricultural commodity enumerated in section 
        1a(4) which is the subject of a contract for purchase or sale 
        for future delivery;
          ``(2) increase the ease with which domestic agricultural 
        producers may participate in contract markets, including by 
        addressing cost and margin requirements, so as to better enable 
        such producers to hedge price risk associated with their 
        production;
          ``(3) provide flexibility in the minimum quantities of such 
        agricultural commodities that may be the subject of a contract 
        for purchase or sale for future delivery that is traded on a 
        contract market, to better allow domestic agricultural 
        producers to hedge such price risk; and
          ``(4) encourage exchanges to provide information and 
        otherwise facilitate the participation of domestic agricultural 
        producers in contract markets.
  ``(b) Report.--Within 1 year after the date of enactment of this 
section, the Commission shall submit to the Committee on Agriculture of 
the House of Representatives and the Committee on Agriculture, 
Nutrition, and Forestry of the Senate a report on the steps it has 
taken to implement this section and on the activities of contract 
markets pursuant to this section.''.

SEC. 121. RULE OF CONSTRUCTION.

  Except as expressly provided in this title or an amendment made by 
this title, nothing in this title or an amendment made by this title 
supersedes, affects, or otherwise limits or expands the scope and 
applicability of laws governing the Securities and Exchange Commission.

SEC. 122. TECHNICAL AND CONFORMING AMENDMENTS.

  (a) Commodity Exchange Act.--
          (1) Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is 
        amended--
                  (A) in paragraphs (5), (6), (16), (17), (20), and 
                (23) (as redesignated by section 101), by inserting 
                ``or derivatives transaction execution facility'' after 
                ``contract market'' each place it appears; and
                  (B) in paragraph (25) (as redesignated by section 
                101)--
                          (i) in the paragraph heading, by striking 
                        ``contract market'' and inserting ``registered 
                        entity'';
                          (ii) by striking ``contract market'' each 
                        place it appears and inserting ``registered 
                        entity''; and
                          (iii) by inserting at the end the following:
        ``A participant in an alternative trading system that is 
        designated as a contract market pursuant to section 5f shall be 
        deemed a member of such contract market for purposes of 
        transactions in security future products through such contract 
        market.''.
          (2) Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 
        4, 4a, 3) is amended--
                  (A) by striking ``Sec. 2. (a)(1)(A)(i) The'' and 
                inserting the following:

``SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF 
                    AGENT; COMMODITY FUTURES TRADING COMMISSION; 
                    TRANSACTION IN INTERSTATE COMMERCE.

  ``(a) Jurisdiction of Commission; Commodity Futures Trading 
Commission.--
          ``(1) Jurisdiction of commission.--
                  ``(A) In general.--The'';
                  (B) in subsection (a)(1)(A) (as amended by 
                subparagraph (A) of this paragraph)--
                          (i) by striking ``subparagraph (B) of this 
                        paragraph'' and inserting ``subparagraphs (C) 
                        and (D) of this paragraph and subsections (c), 
                        (d), (e), (f), (g), and (h) of this section'';
                          (ii) by striking ``contract market designated 
                        pursuant to section 5 of this Act'' and 
                        inserting ``contract market designated or 
                        derivatives transaction execution facility 
                        registered pursuant to section 5 or 5a'';
                          (iii) by striking clause (ii); and
                          (iv) in clause (iii), by striking ``(iii) 
                        The'' and inserting the following:
                  ``(B) Liability of principal for act of agent.--
                The''; and
                  (C) in subsection (a)(1)(B)--
                          (i) by striking ``(B)'' and inserting 
                        ``(C)'';
                          (ii) in clause (ii)(I), by striking ``section 
                        3 of the Securities Act of 1933 or'';
                          (iii) in clause (iv), by striking ``(I)'' and 
                        all that follows through ``(II)'';
                          (iv) in clause (v)--
                                  (I) by striking ``section 3 of the 
                                Securities Act of 1933 or''; and
                                  (II) by inserting ``or subparagraph 
                                (D)'' after ``subparagraph''; and
                          (v) by moving clauses (i) through (v) 4 ems 
                        to the right;
                  (D) in subsection (a)(7), by striking ``contract 
                market'' and inserting ``registered entity'';
                  (E) in subsection (a)(8)(B)(ii)--
                          (i) in the first sentence, by striking 
                        ``designation as a contract market'' and 
                        inserting ``designation or registration as a 
                        contract market or derivatives transaction 
                        execution facility'';
                          (ii) in the second sentence, by striking 
                        ``designate a board of trade as a contract 
                        market'' and inserting ``designate or register 
                        a board of trade as a contract market or 
                        derivatives transaction execution facility''; 
                        and
                          (iii) in the fourth sentence, by striking 
                        ``designating, or refusing, suspending, or 
                        revoking the designation of, a board of trade 
                        as a contract market involving transactions for 
                        future delivery referred to in this clause or 
                        in considering possible emergency action under 
                        section 8a(9) of this Act'' and inserting 
                        ``designating, registering, or refusing, 
                        suspending, or revoking the designation or 
                        registration of, a board of trade as a contract 
                        market or derivatives transaction execution 
                        facility involving transactions for future 
                        delivery referred to in this clause or in 
                        considering any possible action under this Act 
                        (including without limitation emergency action 
                        under section 8a(9))'', and by striking 
                        ``designation, suspension, revocation, or 
                        emergency action'' and inserting ``designation, 
                        registration, suspension, revocation, or 
                        action''; and
                  (F) in subsection (a), by moving paragraphs (2) 
                through (9) 2 ems to the right.
          (3) Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is 
        amended--
                  (A) in subsection (a)--
                          (i) in paragraph (1), by striking 
                        ``designated by the Commission as a `contract 
                        market' for'' and inserting ``designated or 
                        registered by the Commission as a contract 
                        market or derivatives transaction execution 
                        facility for'';
                          (ii) in paragraph (2), by striking ``member 
                        of such''; and
                          (iii) in paragraph (3), by inserting ``or 
                        derivatives transaction execution facility'' 
                        after ``contract market''; and
                  (B) in subsection (c)--
                          (i) in paragraph (1)--
                                  (I) by striking ``designated as a 
                                contract market'' and inserting 
                                ``designated or registered as a 
                                contract market or derivatives 
                                transaction execution facility''; and
                                  (II) by striking ``section 
                                2(a)(1)(B)'' and inserting ``sections 
                                2(a)(1)(C) and 2(a)(1)(D)''; and
                          (ii) in paragraph (2)(B)(ii), by inserting 
                        ``or derivatives transaction execution 
                        facility'' after ``contract market''.
          (4) Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is 
        amended--
                  (A) in subsection (a)--
                          (i) in the first sentence, by inserting ``or 
                        derivatives transaction execution facilities'' 
                        after ``contract markets''; and
                          (ii) in the second sentence, by inserting 
                        ``or derivatives transaction execution 
                        facility'' after ``contract market'';
                  (B) in subsection (b)--
                          (i) in paragraph (1), by inserting ``, or 
                        derivatives transaction execution facility or 
                        facilities,'' after ``markets''; and
                          (ii) in paragraph (2), by inserting ``or 
                        derivatives transaction execution facility'' 
                        after ``contract market''; and
                  (C) in subsection (e)--
                          (i) by striking ``contract market or'' each 
                        place it appears and inserting ``contract 
                        market, derivatives transaction execution 
                        facility, or'';
                          (ii) by striking ``licensed or designated'' 
                        each place it appears and inserting ``licensed, 
                        designated, or registered''; and
                          (iii) by striking ``contract market, or'' and 
                        inserting ``contract market or derivatives 
                        transaction execution facility, or''.
          (5) Section 4b(a) of the Commodity Exchange Act (7 U.S.C. 
        6b(a)) is amended by striking ``contract market'' each place it 
        appears and inserting ``registered entity''.
          (6) Sections 4c(g), 4d, 4e, and 4f of the Commodity Exchange 
        Act (7 U.S.C. 6c(g), 6d, 6e, 6f) are amended by inserting ``or 
        derivatives transaction execution facility'' after ``contract 
        market'' each place it appears.
          (7) Section 4g of the Commodity Exchange Act (7 U.S.C. 6g) is 
        amended--
                  (A) in subsection (b), by striking ``clearinghouse 
                and contract market'' and inserting ``registered 
                entity''; and
                  (B) in subsection (f), by striking ``clearinghouses, 
                contract markets, and exchanges'' and inserting 
                ``registered entities''.
          (8) Section 4h of the Commodity Exchange Act (7 U.S.C. 6h) is 
        amended by striking ``contract market'' each place it appears 
        and inserting ``registered entity''.
          (9) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i) is 
        amended in the first sentence by inserting ``or derivatives 
        transaction execution facility'' after ``contract market''.
          (10) Section 4j(a) of the Commodity Exchange Act (7 U.S.C. 
        6j(a)) is amended--
                  (A) in paragraph (1), by inserting ``for security 
                future products'' after ``contract market'';
                  (B) in paragraph (3)--
                          (i) in the matter preceding subparagraph (A), 
                        by inserting ``, other than a designated 
                        contract market in a security future product,'' 
                        after ``exempt a contract market''; and
                          (ii) in subparagraph (A), by striking 
                        ``section 5a(b)'' and inserting ``section 5''; 
                        and
                  (C) in paragraph (6)(ii), by striking ``section 5b'' 
                and inserting ``section 5e''.
          (11) Section 4l of the Commodity Exchange Act (7 U.S.C. 6l) 
        is amended by inserting ``or derivatives transaction execution 
        facilities'' after ``contract markets'' each place it appears.
          (12) Section 4p of the Commodity Exchange Act (7 U.S.C. 6p) 
        is amended--
                  (A) in the third sentence of subsection (a), by 
                striking ``Act or contract markets'' and inserting 
                ``Act, contract markets, or derivatives transaction 
                execution facilities''; and
                  (B) in subsection (b), by inserting ``derivatives 
                transaction execution facility,'' after ``contract 
                market,''.
          (13) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 9, 
        9a, 9b, 13b, 15) is amended--
                  (A) in subsection (a)--
                          (i) in the first sentence--
                                  (I) by striking ``board of trade 
                                desiring to be designated a `contract 
                                market' shall make application to the 
                                Commission for such designation'' and 
                                inserting ``person desiring to be 
                                designated or registered as a contract 
                                market or derivatives transaction 
                                execution facility shall make 
                                application to the Commission for such 
                                designation or registration'';
                                  (II) by striking ``above conditions'' 
                                and inserting ``conditions set forth in 
                                this Act''; and
                                  (III) by striking ``above 
                                requirements'' and inserting ``the 
                                requirements of this Act'';
                          (ii) in the second sentence, by striking 
                        ``designation as a contract market within one 
                        year'' and inserting ``designation or 
                        registration as a contract market or 
                        derivatives transaction execution facility 
                        within 180 days'';
                          (iii) in the third sentence--
                                  (I) by striking ``board of trade'' 
                                and inserting ``person''; and
                                  (II) by striking ``one-year period'' 
                                and inserting ``180-day period''; and
                          (iv) in the last sentence, by striking 
                        ``designate as a `contract market' any board of 
                        trade that has made application therefor, such 
                        board of trade'' and inserting ``designate or 
                        register as a contract market or derivatives 
                        transaction execution facility any person that 
                        has made application therefor, such person'';
                  (B) in subsection (b)--
                          (i) in the first sentence--
                                  (I) by striking ``designation of any 
                                board of trade as a `contract market' 
                                upon'' and inserting ``designation or 
                                registration of any contract market or 
                                derivatives transaction execution 
                                facility on'';
                                  (II) by striking ``board of trade'' 
                                each place it appears and inserting 
                                ``contract market or derivatives 
                                transaction execution facility''; and
                                  (III) by striking ``designation as 
                                set forth in section 5 of this Act'' 
                                and inserting ``designation or 
                                registration as set forth in section 5, 
                                5a, 5b, or 5f'';
                          (ii) in the second sentence--
                                  (I) by striking ``board of trade'' 
                                the first place it appears and 
                                inserting ``contract market or 
                                derivatives transaction execution 
                                facility''; and
                                  (II) by striking ``board of trade'' 
                                the second and third places it appears 
                                and inserting ``person''; and
                          (iii) in the last sentence, by striking 
                        ``board of trade'' each place it appears and 
                        inserting ``person'';
                  (C) in subsection (c)--
                          (i) by striking ``contract market'' each 
                        place it appears and inserting ``registered 
                        entity'';
                          (ii) by striking ``contract markets'' each 
                        place it appears and inserting ``registered 
                        entities''; and
                          (iii) by striking ``trading privileges'' each 
                        place it appears and inserting ``privileges'';
                  (D) in subsection (d), by striking ``contract 
                market'' each place it appears and inserting 
                ``registered entity''; and
                  (E) in subsection (e), by striking ``trading on all 
                contract markets'' each place it appears and inserting 
                ``the privileges of all registered entities''.
          (14) Section 6a of the Commodity Exchange Act (7 U.S.C. 10a) 
        is amended--
                  (A) in the first sentence of subsection (a), by 
                striking ``designated as a `contract market' shall'' 
                and inserting ``designated or registered as a contract 
                market or a derivatives transaction execution 
                facility''; and
                  (B) in subsection (b), by striking ``designated as a 
                contract market'' and inserting ``designated or 
                registered as a contract market or a derivatives 
                transaction execution facility''.
          (15) Section 6b of the Commodity Exchange Act (7 U.S.C. 13a) 
        is amended--
                  (A) by striking ``contract market'' each place it 
                appears and inserting ``registered entity'';
                  (B) in the first sentence, by striking ``designation 
                as set forth in section 5 of this Act'' and inserting 
                ``designation or registration as set forth in sections 
                5 through 5c''; and
                  (C) in the last sentence, by striking ``the contract 
                market's ability'' and inserting ``the ability of the 
                registered entity''.
          (16) Section 6c(a) of the Commodity Exchange Act (7 U.S.C. 
        13a-1(a)) by striking ``contract market'' and inserting 
        ``registered entity''.
          (17) Section 6d(1) of the Commodity Exchange Act (7 U.S.C. 
        13a-2(1)) is amended by inserting ``derivatives transaction 
        execution facility,'' after ``contract market,''.
          (18) Section 7 of the Commodity Exchange Act (7 U.S.C. 11) is 
        amended--
                  (A) in the first sentence--
                          (i) by striking ``board of trade'' and 
                        inserting ``person'';
                          (ii) by inserting ``or registered'' after 
                        ``designated'';
                          (iii) by inserting ``or registration'' after 
                        ``designation'' each place it appears; and
                          (iv) by striking ``contract market'' each 
                        place it appears and inserting ``registered 
                        entity'';
                  (B) in the second sentence--
                          (i) by striking ``designation of such board 
                        of trade as a contract market'' and inserting 
                        ``designation or registration of the registered 
                        entity''; and
                          (ii) by striking ``contract markets'' and 
                        inserting ``registered entities''; and
                  (C) in the last sentence--
                          (i) by striking ``board of trade'' and 
                        inserting ``person''; and
                          (ii) by striking ``designated again a 
                        contract market'' and inserting ``designated or 
                        registered again a registered entity''.
          (19) Section 8(c) of the Commodity Exchange Act (7 U.S.C. 
        12(c)) is amended in the first sentence by striking ``board of 
        trade'' and inserting ``registered entity''.
          (20) Section 8a of the Commodity Exchange Act (7 U.S.C. 12a) 
        is amended--
                  (A) by striking ``contract market'' each place it 
                appears and inserting ``registered entity''; and
                  (B) in paragraph (2)(F), by striking ``trading 
                privileges'' and inserting ``privileges''.
          (21) Sections 8b and 8c(e) of the Commodity Exchange Act (7 
        U.S.C. 12b, 12c(e)) are amended by striking ``contract market'' 
        each place it appears and inserting ``registered entity''.
          (22) Section 8e of the Commodity Exchange Act (7 U.S.C. 12e) 
        is amended--
                  (A) by striking ``contract market'' each place it 
                appears and inserting ``registered entity'';
                  (B) in subsection (a), by striking ``section 5a(b)'' 
                and inserting ``sections 5 through 5c'';
                  (C) in subsection (b)--
                          (i) in paragraph (1), by striking ``contract 
                        market's trade monitoring system implemented 
                        pursuant to section 5a(b)'' and inserting ``the 
                        trade monitoring system of a registered entity 
                        implemented pursuant to sections 5 through 
                        5c'';
                          (ii) by striking paragraph (3) and inserting 
                        the following:
          ``(3) Remedies.--On becoming final, the Commission deficiency 
        order may require the registered entity to--
                  ``(A) institute appropriate improvements in its trade 
                monitoring system necessary to correct the deficiencies 
                in the order;
                  ``(B) satisfy stated objective performance criteria 
                to correct the deficiencies;
                  ``(C) upgrade or reconfigure existing systems for 
                collecting or processing relevant data on trading and 
                trader or broker activity, including, where 
                appropriate, the commitment of additional resources.''; 
                and
                          (iii) in paragraph (5)--
                                  (I) in the paragraph heading, by 
                                striking ``Designation as contract 
                                market'' and inserting ``Designation or 
                                registration as registered entity'';
                                  (II) by inserting ``or registration'' 
                                after ``designation''; and
                                  (III) by striking ``board of trade'' 
                                and inserting ``person'';
                  (D) in subsection (d)(2), by striking ``section 5b'' 
                and inserting ``section 5e''; and
                  (E) in the paragraph heading of subsection (e)(2), by 
                striking ``Contract markets'' and inserting 
                ``Registered entities''.
          (23) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is 
        amended by striking ``contract market'' each place it appears 
        and inserting ``registered entity''.
          (24) Section 14 of the Commodity Exchange Act (7 U.S.C. 18) 
        is amended--
                  (A) in subsection (a)(1)(B), by striking ``contract 
                market'' and inserting ``registered entity''; and
                  (B) in subsection (f), by striking ``contract 
                markets'' and inserting ``registered entities''.
          (25) Section 17 of the Commodity Exchange Act (7 U.S.C. 21) 
        is amended by striking ``contract market'' each place it 
        appears and inserting ``registered entity''.
          (26) Section 22 of the Commodity Exchange Act (7 U.S.C. 25) 
        is amended--
                  (A) in subsection (a)--
                          (i) in paragraph (1)--
                                  (I) by striking ``contract market, 
                                clearing organization of a contract 
                                market, licensed board of trade,'' and 
                                inserting ``registered entity or a 
                                derivatives clearing organization 
                                exempt from registration pursuant to 
                                section 5b(b)''; and
                                  (II) in subparagraph (C)(i), by 
                                striking ``contract market'' and 
                                inserting ``registered entity'';
                          (ii) in paragraph (2), by striking ``sections 
                        5a(11),'' and inserting ``sections 5(d)(13), 
                        5b(b)(1)(E),''; and
                          (iii) in paragraph (3), by striking 
                        ``contract market'' and inserting ``registered 
                        entity''; and
                  (B) in subsection (b)--
                          (i) in paragraph (1)--
                                  (I) by striking ``contract market or 
                                clearing organization of a contract 
                                market'' and inserting ``registered 
                                entity'';
                                  (II) by striking ``section 5a(8) and 
                                section 5a(9) of this Act'' and 
                                inserting ``sections 5 through 5c'';
                                  (III) by striking ``contract market, 
                                clearing organization of a contract 
                                market, or licensed board of trade'' 
                                and inserting ``registered entity''; 
                                and
                                  (IV) by striking ``contract market or 
                                licensed board of trade'' and inserting 
                                ``registered entity'';
                          (ii) in paragraph (3)--
                                  (I) by striking ``a contract market, 
                                clearing organization, licensed board 
                                of trade,'' and inserting ``registered 
                                entity''; and
                                  (II) by striking ``contract market, 
                                licensed board of trade'' and inserting 
                                ``registered entity'';
                          (iii) in paragraph (4), by striking 
                        ``contract market, licensed board of trade, 
                        clearing organization,'' and inserting 
                        ``registered entity''; and
                          (iv) in paragraph (5), by striking ``contract 
                        market, licensed board of trade, clearing 
                        organization,'' and inserting ``registered 
                        entity''.
  (b) Federal Deposit Insurance Corporation Improvement Act of 1991.--
Section 402(2) of the Federal Deposit Insurance Corporation Improvement 
Act of 1991 (12 U.S.C. 4402(2)) is amended by striking subparagraph (B) 
and inserting the following:
                  ``(B) that is registered as a derivatives clearing 
                organization under section 5b of the Commodity Exchange 
                Act.''.

SEC. 123. PRIVACY.

  The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by 
inserting after section 5f (as added by section 222) the following:

``SEC. 5G. PRIVACY.

  ``(a) Treatment as Financial Institutions.--Notwithstanding section 
509(3)(B) of the Gramm-Leach-Bliley Act, any person or entity that is 
subject to the jurisdiction of the Commission under this Act with 
respect to any financial activity shall be treated as a financial 
institution for purposes of title V of such Act with respect to such 
financial activity.
  ``(b) Treatment of CFTC as Federal Functional Regulator.--For 
purposes of title V of such Act, the Commodity Futures Trading 
Commission shall be treated as a Federal functional regulator within 
the meaning of section 509(2) of such Act and shall prescribe 
regulations under such title within 6 months after the date of 
enactment of this section.''.

SEC. 124. REPORT TO CONGRESS.

  (a) The Commodity Futures Trading Commission (in this section 
referred to as the ``Commission'') shall undertake and complete a study 
of the Commodity Exchange Act (in this section referred to as ``the 
Act'') and the Commission's rules, regulations and orders governing the 
conduct of persons required to be registered under the Act, not later 
than 1 year after the date of the enactment of this Act. The study 
shall identify--
          (1) the core principles and interpretations of acceptable 
        business practices that the Commission has adopted or intends 
        to adopt to replace the provisions of the Act and the 
        Commission's rules and regulations thereunder;
          (2) the rules and regulations that the Commission has 
        determined must be retained and the reasons therefor;
          (3) the extent to which the Commission believes it can effect 
        the changes identified in paragraph (1) of this subsection 
        through its exemptive authority under section 4(c) of the Act; 
        and
          (4) the regulatory functions the Commission currently 
        performs that can be delegated to a registered futures 
        association (within the meaning of the Act) and the regulatory 
        functions that the Commission has determined must be retained 
        and the reasons therefor.
  (b) In conducting the study, the Commission shall solicit the views 
of the public as well as Commission registrants, registered entities, 
and registered futures associations (all within the meaning of the 
Act).
  (c) The Commission shall transmit to the Committee on Agriculture of 
the House of Representatives and the Committee on Agriculture, 
Nutrition, and Forestry of the Senate a report of the results of its 
study, which shall include an analysis of comments received.

SEC. 125. EFFECTIVE DATE.

  This title takes effect on the date of enactment of this Act.

SEC. 126. INTERNATIONAL ACTIVITIES OF THE COMMODITY FUTURES TRADING 
                    COMMISSION.

  (a) Findings.--The Congress finds that--
          (1) derivatives markets serving United States industry are 
        increasingly global in scope;
          (2) developments in data processing and communications 
        technologies enable users of risk management services to 
        analyze and compare those services on a worldwide basis;
          (3) financial services regulatory policy must be flexible to 
        account for rapidly changing derivatives industry business 
        practices;
          (4) regulatory impediments to the operation of global 
        business interests can compromise the competitiveness of United 
        States businesses;
          (5) events that disrupt financial markets and economies are 
        often global in scope, require rapid regulatory response, and 
        coordinated regulatory effort across international 
        jurisdictions;
          (6) through its membership in the International Organization 
        of Securities Commissions, the Commodity Futures Trading 
        Commission has promoted beneficial communication among market 
        regulators and international regulatory cooperation; and
          (7) the Commodity Futures Trading Commission and other United 
        States financial regulators and self-regulatory organizations 
        should continue to foster productive and cooperative working 
        relationships with their counterparts in foreign jurisdictions.
  (b) Sense of the Congress.--It is the sense of the Congress that, 
consistent with its responsibilities under the Commodity Exchange Act, 
the Commodity Futures Trading Commission should, as part of its 
international activities, continue to coordinate with foreign 
regulatory authorities, to participate in international regulatory 
organizations and forums, and to provide technical assistance to 
foreign government authorities, in order to encourage--
          (1) the facilitation of cross-border transactions through the 
        removal or lessening of any unnecessary legal or practical 
        obstacles;
          (2) the development of internationally accepted regulatory 
        standards of best practice;
          (3) the enhancement of international supervisory cooperation 
        and emergency procedures;
          (4) the strengthening of international cooperation for 
        customer and market protection; and
          (5) improvements in the quality and timeliness of 
        international information sharing.

                  TITLE II--SECURITIES ACTS AMENDMENTS

                         Subtitle A--Amendments

SEC. 201. DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF 1934.

  Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)) is amended--
          (1) in paragraph (10), by inserting ``security future,'' 
        after ``treasury stock,'';
          (2) by striking paragraph (11) and inserting the following:
          ``(11) The term `equity security' means any stock or similar 
        security; or any security future; or any security convertible, 
        with or without consideration, into such a security, or 
        carrying any warrant or right to subscribe to or purchase such 
        a security; or any such warrant or right; or any put, call, 
        straddle, option, or privilege on any such security; or any 
        other security which the Commission shall deem to be of similar 
        nature and consider necessary or appropriate, by such rules and 
        regulations as it may prescribe in the public interest or for 
        the protection of investors, to treat as an equity security.'';
          (3) in paragraph (13), by adding at the end the following: 
        ``For security future products, such term includes any 
        contract, agreement, or transaction for future delivery.'';
          (4) in paragraph (14), by adding at the end the following: 
        ``For security future products, such term includes any 
        contract, agreement, or transaction for future delivery.''; and
          (5) by adding at the end the following:
          ``(55)(A) The term `security future' means a contract of sale 
        for future delivery of a single security or of a narrow-based 
        security index, including any interest therein or based on the 
        value thereof, except an exempted security under section 
        3(a)(12) of the Securities Exchange Act of 1934 as in effect on 
        the date of enactment of the Futures Trading Act of 1982 (other 
        than any municipal security as defined in section 3(a)(29) as 
        in effect on the date of enactment of the Futures Trading Act 
        of 1982). The term `security future' does not include any 
        agreement, contract, or transaction excluded under subsection 
        (c), (d), or (f) of section 2 of the Commodity Exchange Act as 
        in effect on the date of enactment of the Commodity Futures 
        Modernization Act of 2000.
          ``(B) The term `narrow-based security index' means an index 
        of securities on which contracts for future delivery are not 
        permitted under section 2(a)(1)(C) of the Commodity Exchange 
        Act, including any interest therein or based on the value 
        thereof.
          ``(C) The term `security future product' means a security 
        future or any put, call, straddle, option, or privilege on any 
        security future.
          ``(56)(A) The term `margin', when used with respect to a 
        security future product, means the amount, type, and form of 
        collateral required to secure any extension or maintenance of 
        credit, or the amount, type, and form of collateral required as 
        a performance bond related to the purchase, sale, or carrying 
        of a security future product, and all other uses of collateral 
        related to the purchasing, selling, or carrying of a security 
        future product.
          ``(B) The terms `margin level' and `level of margin', when 
        used with respect to a security future product, mean the amount 
        of margin required to secure any extension or maintenance of 
        credit, or the amount of margin required as a performance bond 
        related to the purchase, sale, or carrying of a security future 
        product.
          ``(C) The terms `higher margin level' and `higher level of 
        margin', when used with respect to a security future product, 
        mean a margin level established by a national securities 
        exchange registered pursuant to section 6(g) that is higher 
        than the minimum amount established by the Commission pursuant 
        to section 7(c)(2)(B).''.

SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING SECURITY FUTURE 
                    PRODUCTS.

  (a) Expedited Registration and Exemption.--Section 6 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at 
the end the following:
  ``(g) Notice Registration of Security Future Product Exchanges.--
          ``(1) Registration required.--An exchange that lists or 
        trades security future products may be registered as a national 
        securities exchange solely for the purposes of trading security 
        future products if--
                  ``(A) the exchange is a board of trade, as that term 
                is defined by the Commodity Exchange Act (7 U.S.C. 
                1a(2)), that has been designated a contract market by 
                the Commodity Futures Trading Commission and such 
                designation is not suspended by order by the Commodity 
                Futures Trading Commission; and
                  ``(B) such exchange does not serve as a market place 
                for transactions in securities other than--
                          ``(i) security future products; or
                          ``(ii) futures on exempted securities or 
                        groups or indexes of securities or options 
                        thereon that have been authorized under section 
                        2(a)(1)(C) of the Commodity Exchange Act by 
                        Commodity Futures Trading Commission order.
          ``(2) Registration by notice filing.--
                  ``(A) Form and content.--An exchange required to 
                register only because such exchange lists or trades 
                security future products may register for purposes of 
                this section by filing with the Commission a written 
                notice in such form, and containing the rules of the 
                exchange and such other information and documents 
                concerning such exchange as the Commission, by rule, 
                may prescribe as necessary or appropriate in the public 
                interest or for the protection of investors.
                  ``(B) Immediate effectiveness.--Such registration 
                shall be effective immediately upon filing of the 
                written notice with the Commission, except that such 
                registration shall not be effective if such 
                registration would be subject to suspension or 
                revocation.
                  ``(C) Termination.--Such registration shall be 
                terminated immediately if any of the conditions for 
                registration set forth in this subsection are no longer 
                satisfied.
          ``(3) Public availability.--The Commission shall make 
        available to the public all notices it receives under this 
        subsection.
          ``(4) Exemption of exchanges from specified provisions.--
                  ``(A) Transaction exemptions.--An exchange that is 
                registered under paragraph (1) of this subsection shall 
                be exempt from, and shall not be required to enforce 
                compliance by its members with, and its members shall 
                not, solely with respect to those transactions effected 
                on such exchange in security future products, be 
                required to comply with, the following provisions of 
                this title and the rules thereunder:
                          ``(i) Subsections (b)(2), (b)(3), (b)(4), 
                        (b)(7), (b)(9), (c), (d), and (e) of this 
                        section.
                          ``(ii) Subsection (a) of section 10.
                          ``(iii) Section 11.
                          ``(iv) Subsections (d), (f), and (k) of 
                        section 17.
                          ``(v) Subsections (a), (f), and (h) of 
                        section 19.
                  ``(B) Rule change exemptions.--An exchange that is 
                subject to the registration requirement of paragraph 
                (1) of this subsection shall also be exempt from 
                submitting proposed rule changes pursuant to section 
                19(b) of this title, except that--
                          ``(i) such exchange shall file proposed rule 
                        changes related to higher margin levels, fraud 
                        or manipulation, recordkeeping, reporting, 
                        listing standards, or decimal pricing for 
                        security future products, sales practices for 
                        security future products for persons who effect 
                        transactions in security future products or 
                        rules effectuating such exchange's obligation 
                        to enforce the securities laws pursuant to 
                        section 19(b)(7);
                          ``(ii) such exchange shall file pursuant to 
                        sections 19(b)(1) and 19(b)(2) proposed rule 
                        changes related to margin, except for changes 
                        resulting in higher margin levels; and
                          ``(iii) such exchange shall file pursuant to 
                        section 19(b)(1) proposed rule changes that 
                        have been abrogated by the Commission pursuant 
                        to section 19(b)(7)(C).
          ``(5) Association compliance with requirements.--No exchange 
        that is registered under paragraph (1) of this subsection shall 
        trade any security future product until a futures association 
        registered under section 17 of the Commodity Exchange Act has 
        met the requirements set forth in section 15A(k)(2) of this 
        title.
          ``(6) Trading in security future products.--It shall be 
        unlawful for any person to execute or trade a security future 
        product until the later of--
                  ``(A) one year after the date of enactment of the 
                Commodity Futures Modernization Act of 2000; or
                  ``(B) such date as the Federal income tax treatment 
                applicable to the security future products permitted 
                under this title are equivalent to the Federal income 
                tax treatment of equity options traded on a national 
                securities exchange.''.
  (b) Commission Review of Proposed Rule Changes.--
          (1) Expedited review.--Section 19(b) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by adding at 
        the end the following:
          ``(7) Security future product rule changes.--
                  ``(A) Filing required.--A self-regulatory 
                organization that is an exchange registered with the 
                Commission pursuant to section 6(g) of this title or 
                that is a national securities association registered 
                pursuant to section 15A(k) of this title shall file 
                with the Commission, in accordance with such rules as 
                the Commission may prescribe, copies of any proposed 
                rule change or any proposed change in, addition to, or 
                deletion from the rules of such self-regulatory 
                organization (hereinafter in this paragraph 
                collectively referred to as a `proposed rule change') 
                that relates to higher margin levels, fraud or 
                manipulation, recordkeeping, reporting, listing 
                standards, or decimal pricing for security future 
                products, sales practices for security future products 
                for persons who effect transactions in security future 
                products or rules effectuating such self-regulatory 
                organization's obligation to enforce the securities 
                laws. Such proposed rule change shall be accompanied by 
                a concise general statement of the basis and purpose of 
                such proposed rule change. The Commission shall, upon 
                the filing of any proposed rule change, publish notice 
                thereof together with the terms of substance of the 
                proposed rule change or a description of the subjects 
                and issues involved. The Commission shall give 
                interested persons an opportunity to submit written 
                data, views, and arguments concerning such proposed 
                rule change.
                  ``(B) Filing with cftc.--A proposed rule change filed 
                with the Commission pursuant to subparagraph (A) shall 
                be filed concurrently with the Commodity Futures 
                Trading Commission. Such proposed rule change may take 
                effect upon filing of a written certification with the 
                Commodity Futures Trading Commission, upon a 
                determination by the Commodity Futures Trading 
                Commission that review of the proposed rule change is 
                not necessary or upon approval of the proposed rule 
                change by the Commodity Futures Trading Commission.
                  ``(C) Abrogation of rule changes.--Any proposed rule 
                change of a self-regulatory organization that has taken 
                effect pursuant to subparagraph (B) may be enforced by 
                such self-regulatory organization to the extent such 
                rule is not inconsistent with the provisions of this 
                title, the rules and regulations thereunder, and 
                applicable Federal law. At any time within 60 days of 
                the date of the filing of a written certification with 
                the Commodity Futures Trading Commission, the date the 
                Commodity Futures Trading Commission determines that 
                review of such proposed rule change is not necessary, 
                or the date the Commodity Futures Trading Commission 
                approves such proposed rule change, the Commission, 
                after consultation with the Commodity Futures Trading 
                Commission, summarily may abrogate the proposed rule 
                change and require that the proposed rule change be 
                refiled in accordance with the provisions of paragraph 
                (1), if it appears to the Commission that such proposed 
                rule change unduly burdens competition, conflicts with 
                the securities laws, does not promote efficiency, or is 
                inconsistent with the public interest and the 
                protection of investors. Commission action pursuant to 
                the preceding sentence shall not affect the validity or 
                force of the rule change during the period it was in 
                effect and shall not be reviewable under section 25 nor 
                deemed to be a final agency action for purposes of 
                section 704 of title 5, United States Code.
                  ``(D) Review of resubmitted abrogated rules.--
                          ``(i) Proceedings.--Within 35 days of the 
                        date of publication of notice of the filing of 
                        a proposed rule change that is abrogated in 
                        accordance with subparagraph (C) and refiled in 
                        accordance with paragraph (1), or within such 
                        longer period as the Commission may designate 
                        up to 90 days after such date if the Commission 
                        finds such longer period to be appropriate and 
                        publishes its reasons for so finding or as to 
                        which the self-regulatory organization 
                        consents, the Commission shall--
                                  ``(I) by order approve such proposed 
                                rule change; or
                                  ``(II) after consultation with the 
                                Commodity Futures Trading Commission, 
                                institute proceedings to determine 
                                whether the proposed rule change should 
                                be disapproved.
                        Proceedings under subclause (II) shall include 
                        notice of the grounds for disapproval under 
                        consideration and opportunity for hearing and 
                        be concluded within 180 days after the date of 
                        publication of notice of the filing of the 
                        proposed rule change. At the conclusion of such 
                        proceedings, the Commission, by order, shall 
                        approve or disapprove such proposed rule 
                        change. The Commission may extend the time for 
                        conclusion of such proceedings for up to 60 
                        days if it finds good cause for such extension 
                        and publishes its reasons for so finding or for 
                        such longer period as to which the self-
                        regulatory organization consents.
                          ``(ii) Grounds for approval.--The Commission 
                        shall approve a proposed rule change of a self-
                        regulatory organization under this subparagraph 
                        if it finds that such proposed rule change 
                        promotes efficiency, does not unduly burden 
                        competition, does not conflict with the 
                        securities laws, and is not inconsistent with 
                        the public interest or the protection of 
                        investors. The Commission shall disapprove such 
                        a proposed rule change of a self-regulatory 
                        organization if it does not make such finding. 
                        The Commission shall not approve any proposed 
                        rule change prior to the 30th day after the 
                        date of publication of notice of the filing 
                        thereof, unless the Commission finds good cause 
                        for so doing and publishes its reasons for so 
                        finding.''.
          (2) Decimal pricing provisions.--Section 19(b) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended 
        by inserting after paragraph (7), as added by paragraph (1), 
        the following:
          ``(8) Decimal pricing.--Not later than 9 months after the 
        later of the dates specified in section 6(g)(5), all self-
        regulatory organizations listing or trading security future 
        products shall file proposed rule changes necessary to 
        implement decimal pricing of security future products. The 
        Commission may not require such rules to contain equal minimum 
        increments in such decimal pricing.''.
          (3) Consultation provisions.--Section 19(b) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by inserting 
        after paragraph (8), as added by paragraph (2), the following:
          ``(9) Consultation with cftc.--
                  ``(A) Consultation required.--The Commission shall 
                consult with and consider the views of the Commodity 
                Futures Trading Commission prior to approving a 
                proposed rule change filed by a national securities 
                association registered pursuant to section 15A(a) or a 
                national securities exchange subject to the provisions 
                of subsection (a) that primarily concerns conduct 
                related to transactions in security futures products, 
                except where the Commission determines that an 
                emergency exists requiring expeditious or summary 
                action and publishes its reasons therefor.
                  ``(B) Responses to cftc comments and findings.--If 
                the Commodity Futures Trading Commission comments in 
                writing to the Commission on a proposed rule that has 
                been published for comment, the Commission shall 
                respond in writing to such written comment before 
                approving the proposed rule. If the Commodity Futures 
                Trading Commission determines, and notifies the 
                Commission, that such rule, if implemented or as 
                applied, would--
                          ``(i) adversely affect the liquidity or 
                        efficiency of the market for security future 
                        products; or
                          ``(ii) impose any burden on competition not 
                        necessary or appropriate in furtherance of the 
                        purposes of this section,
                the Commission shall, prior to approving the proposed 
                rule, find that such rule is necessary and appropriate 
                in furtherance of the purposes of this section 
                notwithstanding the Commodity Futures Trading 
                Commission's determination.
                  ``(C) Considerations of existing regulation.--In 
                approving rules described in subparagraph (A), the 
                Commission shall consider the sufficiency and 
                appropriateness of then existing laws and rules 
                applicable to security futures products.''.
  (c) Review of Disciplinary Proceedings.--Section 19(d) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78s(d)) is amended by adding 
at the end the following:
  ``(3) The provisions of this subsection shall apply to an exchange 
registered pursuant to section 6(g) of this title or a national 
securities association registered pursuant to section 15A(k) of this 
title only to the extent that such exchange or association imposes any 
final disciplinary sanction for--
          ``(A) a violation of the federal securities laws or the rules 
        and regulations thereunder; or
          ``(B) a violation of a rule of such exchange or association, 
        as to which a proposed change would be required to be filed 
        under section 19 of this title, except that, to the extent that 
        the exchange or association rule violation relates to any 
        account, agreement, or transaction, this subsection shall apply 
        only to the extent such violation involves a security future 
        product.''.

SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES TRADING SECURITY FUTURE 
                    PRODUCTS.

  (a) Expedited Registration and Exemptions.--
          (1) Amendment.--Section 15(b) of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78o(b)) is amended by adding at the end the 
        following:
          ``(11) Broker/dealer registration with respect to 
        transactions in security future products.--
                  ``(A) Notice registration.--
                          ``(i) Contents of notice.--Notwithstanding 
                        paragraphs (1) and (2), a broker or dealer 
                        required to register only because it effects 
                        transactions in security future products on an 
                        exchange registered pursuant to section 6(g) 
                        may register for purposes of this section by 
                        filing with the Commission a written notice in 
                        such form and containing such information 
                        concerning such broker or dealer and any 
                        persons associated with such broker or dealer 
                        as the Commission, by rule, may prescribe as 
                        necessary or appropriate in the public interest 
                        or for the protection of investors. A broker or 
                        dealer may not register under this paragraph 
                        unless that broker or dealer is a member of a 
                        national securities association registered 
                        under section 15A(k).
                          ``(ii) Immediate effectiveness.--Such 
                        registration shall be effective immediately 
                        upon filing of the written notice with the 
                        Commission, except that such registration shall 
                        not be effective if the registration would be 
                        subject to suspension or revocation under 
                        paragraph (4).
                          ``(iii) Suspension.--Such registration shall 
                        be suspended immediately if a national 
                        securities association registered pursuant to 
                        section 15A(k) of this title suspends the 
                        membership of that broker or dealer.
                          ``(iv) Termination.--Such registration shall 
                        be terminated immediately if any of the above 
                        stated conditions for registration set forth in 
                        this paragraph are no longer satisfied.
                  ``(B) Exemptions for registered brokers and 
                dealers.--A broker or dealer registered pursuant to the 
                requirements of subparagraph (A) shall be exempt from 
                the following provisions of this title and the rules 
                thereunder with respect to transactions in security 
                future products:
                          ``(i) Section 8.
                          ``(ii)Subsection (a) of section 10.
                          ``(iii) Section 11.
                          ``(iv) Subsections (c)(3) and (c)(5) of this 
                        section.
                          ``(v) Section 15B.
                          ``(vi) Section 15C.
                          ``(vii) Subsections (d), (e), (f), (g), (h), 
                        and (i) of section 17.''.
          (2) Conforming amendment.--Section 28(e) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78bb(e)) is amended by adding 
        at the end the following:
  ``(4) The provisions of this subsection shall not apply with regard 
to securities that are security future products.''.
  (b) Floor Brokers and Floor Traders.--Section 15(b) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended by inserting after 
paragraph (11), as added by subsection (a), the following:
          ``(12) Exemption for security future product exchange 
        members.--
                  ``(A) Registration exemption.--A natural person shall 
                be exempt from the registration requirements of this 
                section if such person--
                          ``(i) is a member of a designated contract 
                        market registered with the Commission as an 
                        exchange pursuant to section 6(g);
                          ``(ii) effects transactions only in 
                        securities on the exchange of which such person 
                        is a member; and
                          ``(iii) has no direct contact with public 
                        customers.
                  ``(B) Other exemptions.--A natural person exempt from 
                registration pursuant to subparagraph (A) shall also be 
                exempt from the following provisions of this title and 
                the rules thereunder:
                          ``(i) Section 8.
                          ``(ii) Subsection (a) of section 10.
                          ``(iii) Section 11.
                          ``(iv) Subsections (c)(3), (c)(5), and (e) of 
                        this section.
                          ``(v) Section 15B.
                          ``(vi) Section 15C.
                          ``(vii) Subsections (d), (e), (f), (g), (h), 
                        and (i) of section 17.''.
  (c) Limited Purpose National Securities Association.--Section 15A of 
the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by 
adding at the end the following:
  ``(k) Limited Purpose National Securities Association.--
          ``(1) Regulation of members with respect to security future 
        products.--A futures association registered under section 17 of 
        the Commodity Exchange Act shall be a registered national 
        securities association for the limited purpose of regulating 
        the activities of members who are registered as brokers or 
        dealers in security future products pursuant to section 
        15(b)(11).
          ``(2) Requirements for registration.--Such a securities 
        association shall--
                  ``(A) be so organized and have the capacity to carry 
                out the purposes of the securities laws applicable to 
                security future products and to comply, and (subject to 
                any rule or order of the Commission pursuant to section 
                19(g)(2)) to enforce compliance by its members and 
                persons associated with its members, with the 
                provisions of the securities laws applicable to 
                security future products, the rules and regulations 
                thereunder, and its rules;
                  ``(B) have rules that--
                          ``(i) are designed to prevent fraudulent and 
                        manipulative acts and practices, to promote 
                        just and equitable principles of trade, and, in 
                        general, to protect investors and the public 
                        interest, including rules governing sales 
                        practices and the advertising of security 
                        future products comparable to those of other 
                        national securities associations registered 
                        pursuant to subsection (a); and
                          ``(ii) are not designed to regulate by virtue 
                        of any authority conferred by this title 
                        matters not related to the purposes of this 
                        title or the administration of the association;
                  ``(C) have rules that provide that (subject to any 
                rule or order of the Commission pursuant to section 
                19(g)(2)) its members and persons associated with its 
                members shall be appropriately disciplined for 
                violation of any provision of the securities laws 
                applicable to security future products, the rules or 
                regulations thereunder, or the rules of the 
                association, by expulsion, suspension, limitation of 
                activities, functions, and operations, fine, censure, 
                being suspended or barred from being associated with a 
                member, or any other fitting sanction; and
                  ``(D) have rules that ensure that members and natural 
                persons associated with members meet such standards of 
                training, experience, and competence necessary to 
                effect transactions in security future products and are 
                tested for their knowledge of securities and security 
                future products.
          ``(3) Exemption from rule change submission.--Such a 
        securities association shall be exempt from submitting proposed 
        rule changes pursuant to section 19(b) of this title, except 
        that--
                  ``(A) the association shall file proposed rule 
                changes related to higher margin levels, fraud or 
                manipulation, recordkeeping, reporting, listing 
                standards, or decimal pricing for security future 
                products, sales practices, advertising of security 
                future products, or standards of training, experience, 
                competence, or other qualifications for security future 
                products for persons who effect transactions in 
                security future products or rules effectuating the 
                association's obligation to enforce the securities laws 
                pursuant to section 19(b)(7);
                  ``(B) the association shall file pursuant to sections 
                19(b)(1) and 19(b)(2) proposed rule changes related to 
                margin, except for changes resulting in higher margin 
                levels; and
                  ``(C) the association shall file pursuant to section 
                19(b)(1) proposed rule changes that have been abrogated 
                by the Commission pursuant to section 19(b)(7)(C).
          ``(4) Other exemptions.--Such a securities association shall 
        be exempt from and shall not be required to enforce compliance 
        by its members, and its members shall not, solely with respect 
        to their transactions effected in security future products, be 
        required to comply, with the following provisions of this title 
        and the rules thereunder:
                  ``(A) Subsections (b)(1), (b)(3), (b)(4), (b)(5), 
                (b)(8), (b)(10), (b)(11), (b)(12), (b)(13), (c), (d), 
                (e), (f), (g), (h), and (i) of this section.
                  ``(B) Subsections (d), (f), and (k) of section 17.
                  ``(C) Subsections (a), (f), and (h) of section 19.''.
  (d) Exemption Under the Securities Investor Protection Act of 1970.--
          (1) Section 16(14) of the Securities Investor Protection Act 
        of 1970 (15 U.S.C. 78lll(14)) is amended by inserting ``or any 
        security future as that term is defined in section 3(a)(55)(A) 
        of the Securities Exchange Act of 1934,'' after ``certificate 
        of deposit for a security,''.
          (2) Section 3(a)(2)(A) of the Securities Investor Protection 
        Act of 1970 (15 U.S.C. 78ccc(a)(2)(A)) is amended--
                  (A) in clause (i), by striking ``and'' after the 
                semicolon;
                  (B) in clause (ii), by striking the period and 
                inserting ``; and'';
                  (C) by adding at the end the following:
                          ``(iii) persons who are registered as a 
                        broker or dealer pursuant to section 
                        15(b)(11)(A) of the Securities Exchange Act of 
                        1934.''.
  (e) Other Provision.--Section 15(i)(6)(A) of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o(i)(6)(A)) is amended--
          (1) in clause (ii), by striking ``and'' after the semicolon;
          (2) in clause (iii), by striking the period and inserting ``; 
        and''; and
          (3) by adding at the end the following:
                          ``(iv) is not a security future product.''.

SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY COOPERATION.

  Section 17 of the Securities Exchange Act of 1934 (15 U.S.C. 78q) is 
amended by striking subsection (b) and inserting the following:
  ``(b) Records Subject to Examination.--
          ``(1) Procedures for cooperation with other agencies.--All 
        records of persons described in subsection (a) are subject at 
        any time, or from time to time, to such reasonable periodic, 
        special, or other examinations by representatives of the 
        Commission and the appropriate regulatory agency for such 
        persons as the Commission or the appropriate regulatory agency 
        for such persons deems necessary or appropriate in the public 
        interest, for the protection of investors, or otherwise in 
        furtherance of the purposes of this title if the Commission, 
        prior to conducting any such examination of a--
                  ``(A) registered clearing agency, registered transfer 
                agent, or registered municipal securities dealer for 
                which it is not the appropriate regulatory agency, 
                gives notice to the appropriate regulatory agency for 
                such clearing agency, transfer agent, or municipal 
                securities dealer, of such proposed examination and 
                consults with the appropriate regulatory agency 
                concerning the feasibility and desirability of 
                coordinating such examinations conducted by the 
                appropriate regulatory agency with a view to avoiding 
                unnecessary regulatory duplication or undue regulatory 
                burdens for such clearing agency, transfer agent, or 
                municipal securities dealer; or
                  ``(B) broker or dealer registered pursuant to section 
                15(b)(11), exchange registered pursuant to section 
                6(g), or national securities association registered 
                pursuant to section 15A(k) gives notice to the 
                Commodity Futures Trading Commission of such proposed 
                examination and consults with the Commodity Futures 
                Trading Commission concerning the feasibility and 
                desirability of coordinating such examination with 
                examinations conducted by the Commodity Futures Trading 
                Commission with a view to avoiding unnecessary 
                regulatory duplication or undue regulatory burdens for 
                such broker or dealer or exchange.
          ``(2) Furnishing data and reports to cftc.--The Commission 
        shall notify the Commodity Futures Trading Commission of any 
        examination conducted of any broker or dealer registered 
        pursuant to section 15(b)(11), exchange registered pursuant to 
        section 6(g), or national securities association registered 
        pursuant to section 15A(k) and, upon request, furnish to the 
        Commodity Futures Trading Commission any examination report and 
        data supplied to the Commission in connection with such 
        examination.
          ``(3) Use of cftc reports.--The Commission shall, to the 
        fullest extent possible, use the reports of examinations of any 
        broker or dealer registered pursuant to section 15(b)(11) or 
        exchange registered pursuant to section 6(g) made by the 
        Commodity Futures Trading Commission, a national securities 
        association registered pursuant to section 15A(k), or an 
        exchange registered pursuant to section 6(g).
          ``(4) Large trader reporting.--The Commission and the 
        Commodity Futures Trading Commission shall jointly prescribe 
        rules to require large trader reporting with respect to 
        security future products. Such rules shall specify a reporting 
        level for each security future product, a format for reporting, 
        and the procedures for filing such reports with the Commission 
        and the Commodity Futures Trading Commission.
          ``(5) Rule of construction.--Nothing in this subsection shall 
        be construed to impair or limit (other than by the requirement 
        of prior consultation) the power of the Commission under this 
        subsection to examine any clearing agency, transfer agent, or 
        municipal securities dealer, broker or dealer registered 
        pursuant to section 15(b)(11), exchange registered pursuant to 
        section 6(g), or national securities association registered 
        pursuant to section 15A(k), or to affect in any way the power 
        of the Commission under any other provision of this title or 
        otherwise to inspect, examine, or investigate any clearing 
        agency, transfer agent, or municipal securities dealer, broker 
        or dealer registered pursuant to section 15(b)(11), exchange 
        registered pursuant to section 6(g), or national securities 
        association registered pursuant to section 15A(k).''.

SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SECURITY FUTURE PRODUCTS.

  (a) Addition of Security Future Products to Option-Specific 
Enforcement Provisions.--
          (1) Prohibition against manipulation.--Section 9(b) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78i(b)) is amended--
                  (A) in paragraph (1)--
                          (i) by inserting ``(A)'' after ``acquires''; 
                        and
                          (ii) by striking ``; or'' and inserting ``, 
                        or (B) any security future product on the 
                        security; or'';
                  (B) in paragraph (2)--
                          (i) by inserting ``(A)'' after ``interest in 
                        any''; and
                          (ii) by striking ``; or'' and inserting ``, 
                        or (B) such security future product delivery; 
                        or''; and
                  (C) in paragraph (3)--
                          (i) by inserting ``(A)'' after ``interest in 
                        any''; and
                          (ii) by inserting ``, or (B) such security 
                        future product'' after ``privilege''.
          (2) Manipulation in options and other derivative products.--
        Section 9(g) of the Securities Exchange Act of 1934 (15 U.S.C. 
        78i(g)) is amended--
                  (A) by inserting ``(1)'' after ``(g)'';
                  (B) by inserting ``other than a security future 
                product'' after ``future delivery''; and
                  (C) by adding at the end following:
  ``(2) Notwithstanding the Commodity Exchange Act, the Commission 
shall have the authority to regulate the trading of any security future 
product to the extent provided in the securities laws.''.
          (3) Liability of controlling persons and persons who aid and 
        abet violations.--Section 20(d) of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78t(d)) is amended by striking ``or 
        privilege'' and inserting ``privilege, or security future 
        product''.
          (4) Liability to contemporaneous traders for insider 
        trading.--Section 21A(a)(1) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78u-1(a)(1)) is amended by striking 
        ``standardized options, the Commission--'' and inserting 
        ``standardized options or security future products, the 
        Commission--''.
          (5) Enforcement consultation.--Section 21 of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at 
        the end the following:
  ``(i) Information to CFTC.--The Commission shall provide the 
Commodity Futures Trading Commission with notice of the commencement of 
any proceeding and a copy of any order entered by the Commission 
against any broker or dealer registered pursuant to section 15(b)(11) 
or any exchange registered pursuant to section 6(g).''.

SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SECURITY FUTURE 
                    PRODUCTS.

  (a) Listing Standards and Conditions for Trading.--Section 6 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by inserting 
after subsection (g), as added by section 202, the following:
  ``(h) Trading in Security Future Products.--
          ``(1) Trading on exchange or association required.--It shall 
        be unlawful for any person to effect transactions in security 
        future products that are not listed on a national securities 
        exchange or a national securities association registered 
        pursuant to section 15A(a).
          ``(2) Listing standards and conditions for trading 
        required.--A national securities exchange or a national 
        securities association registered pursuant to section 15A(a) 
        may trade only security future products that (A) conform with 
        listing standards and conditions for trading that such exchange 
        or association files with the Commission under section 19(b), 
        and (B) meet the criteria specified in section 2(a)(1)(D)(i) of 
        the Commodity Exchange Act.
          ``(3) Requirements for listing standards and conditions for 
        trading.--Such listing standards and conditions for trading 
        shall--
                  ``(A) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to paragraph (4), 
                require that any security underlying the security 
                future, including each component security of a narrow-
                based security index, be registered pursuant to section 
                12 of this title;
                  ``(B) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to paragraph (4), 
                require that the security future product be cash 
                settled;
                  ``(C) be no less restrictive than comparable listing 
                standards for options traded on a national securities 
                exchange or a national securities association 
                registered pursuant to section 15A(a) of this title;
                  ``(D) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to paragraph (4), 
                require that the security future be based upon common 
                stock and such other equity securities as the 
                Commission and the Commodity Futures Trading Commission 
                jointly determine appropriate;
                  ``(E) require that the security future product is 
                cleared by a clearing agency that has in place 
                provisions for linked and coordinated clearing with 
                other clearing agencies that clear security future 
                products, which permits the security future product to 
                be purchased on one market and offset on any other 
                market on which the security future product is traded;
                  ``(F) require that only a broker or dealer subject to 
                suitability rules comparable to those of a national 
                securities association registered pursuant to section 
                15A(a) effect transactions in the security future 
                product;
                  ``(G) require that the security future product be 
                subject to the prohibition against dual trading in 
                section 4j of the Commodity Exchange Act (7 U.S.C. 6j) 
                and the rules and regulations thereunder or the 
                provisions of section 11(a) of this title and the rules 
                and regulations thereunder, except to the extent 
                otherwise permitted under this title and the rules and 
                regulations thereunder;
                  ``(H) require that trading in the security future 
                product not be readily susceptible to manipulation of 
                the price of such security future product, nor to 
                causing or being used in the manipulation of the price 
                of any underlying security, option on such security, or 
                option on a group or index including such securities;
                  ``(I) require that procedures be in place for 
                coordinated surveillance among the market on which the 
                security future product is traded, any market on which 
                any security underlying the security future product is 
                traded,and other markets on which any related security 
is traded to detect manipulation and insider trading;
                  ``(J) require that the market on which the security 
                future product is traded has in place audit trails 
                necessary or appropriate to facilitate the coordinated 
                surveillance required in subparagraph (I);
                  ``(K) require that the market on which the security 
                future product is traded has in place procedures to 
                coordinate trading halts between such market and any 
                market on which any security underlying the security 
                future product is traded and other markets on which any 
                related security is traded; and
                  ``(L) require that the margin requirements for a 
                security future product be consistent with the margin 
                requirements for comparable option contracts traded on 
                an exchange registered pursuant to section 6(a) of this 
                title and that initial and maintenance margin levels 
                for a security future product not be lower than the 
                levels of margin required for comparable option 
                contracts traded on an exchange registered pursuant to 
                section 6(a) of this title, except that nothing in this 
                subparagraph shall be construed to prevent a national 
                securities exchange or national securities association 
                from requiring higher margin levels for a security 
                future product when it deems such action to be 
                necessary or appropriate.
          ``(4) Authority to modify certain listing standard 
        requirements.--The Commission and the Commodity Futures Trading 
        Commission, by rule, regulation, or order, may jointly modify 
        the listing standard requirements specified in subparagraph 
        (A), (B), or (D) of paragraph (3) to the extent such 
        modification fosters the development of fair and orderly 
        markets in security future products, is necessary or 
        appropriate in the public interest, and is consistent with the 
        protection of investors.
          ``(5) Requirements for other persons trading security future 
        products.--It shall be unlawful for any person (other than a 
        national securities exchange or a national securities 
        association registered pursuant to section 15A(a)) to 
        constitute, maintain, or provide a marketplace or facilities 
        for bringing together purchasers and sellers of security future 
        products or to otherwise perform with respect to security 
        future products the functions commonly performed by a stock 
        exchange as that term is generally understood, unless a 
        national securities association registered pursuant to section 
        15A(a)--
                  ``(A) has in place procedures for coordinated 
                surveillance among such person, the market trading the 
                securities underlying the security future products, and 
                other markets trading related securities to detect 
                manipulation and insider trading;
                  ``(B) has rules to require audit trails necessary or 
                appropriate to facilitate the coordinated surveillance 
                required in subparagraph (A); and
                  ``(C) has rules to require such person to coordinate 
                trading halts with markets trading the securities 
                underlying the security future products and other 
                markets trading related securities.
          ``(6) Deferral of options on security futures trading.--No 
        person shall offer to enter into, enter into, or confirm the 
        execution of any put, call, straddle, option, or privilege on a 
        security future, except that, after 3 years after the date of 
        enactment of this subsection, the Commission and the Commodity 
        Futures Trading Commission may by order jointly determine to 
        permit trading of puts, calls, straddles, options, or 
        privileges on any security future authorized to be traded under 
        the provisions of this Act and the Commodity Exchange Act. 
        Before any such determination, the Commission and the Commodity 
        Futures Trading Commission shall conduct a study of the effect 
        of the trading of security futures on the markets for futures 
        contracts, securities, and options and the adequacy of 
        protections for investors and other market participants.''.
  (b) Margin.--Section 7 of the Securities Exchange Act of 1934 (15 
U.S.C. 78g) is amended--
          (1) in subsection (a), by inserting ``or a security future 
        product'' after ``exempted security'';
          (2) in subsection (c)(1)(A), by inserting ``except as 
        provided in paragraph (2),'' after ``security),'';
          (3) by redesignating paragraph (2) of subsection (c) as 
        paragraph (3) of such subsection; and
          (4) by inserting after paragraph (1) of such subsection the 
        following:
          ``(2) Margin regulations.--
                  ``(A) Compliance with margin rules required.--It 
                shall be unlawful for any broker, dealer, or member of 
                a national securities exchange to, directly or 
                indirectly, extend or maintain credit to or for, or 
                collect margin from any customer on, any security 
                future product unless such activities comply with the 
                rules and regulations which the Commission, after 
                consultation with the Commodity Futures Trading 
                Commission shall prescribe pursuant to subparagraph 
                (B).
                  ``(B) Criteria for issuance of rules.--The Commission 
                shall issue such regulations to establish margin 
                requirements, including the establishment of levels of 
                margin (initial and maintenance) and use of collateral 
                for security future products under such terms, and at 
                such levels, as the Commission deems appropriate--
                          ``(i) to preserve the financial integrity of 
                        markets trading security future products;
                          ``(ii) to prevent systemic risk;
                          ``(iii) to make consistent the margin levels 
                        (initial and maintenance) and other margin 
                        requirements between security future products 
                        and comparable options contracts traded on a 
                        national securities exchange; and
                          ``(iv) to ensure that the margin requirements 
                        (other than levels of margin), including the 
                        type, form, and use of collateral for security 
                        future products, are and remain consistent with 
                        the requirements established by the Federal 
                        Reserve Board, pursuant to subparagraphs (A) 
                        and (B) of paragraph (1).''.
  (c) Incorporation of Security Future Products Into the National 
Market System.--Section 11A of the Securities Exchange Act of 1934 (15 
U.S.C. 78k-1) is amended by adding at the end the following:
  ``(e) National Markets System for Security Future Products.--
          ``(1) Consultation and cooperation required.--With respect to 
        security future products, the Commission and the Commodity 
        Futures Trading Commission shall consult and cooperate so that, 
        to the maximum extent practicable, their respective regulatory 
        responsibilities may be fulfilled and the rules and regulations 
        applicable to security future products may foster a national 
        market system for security future products if the Commission 
        and the Commodity Futures Trading Commission jointly determine 
        that such a system would be consistent with the congressional 
        findings in subsection (a)(1). In accordance with this 
        objective, the Commission shall, at least 15 days prior to the 
        issuance for public comment of any proposed rule or regulation 
        under this section concerning security future products, consult 
        and request the views of the Commodity Futures Trading 
        Commission.
          ``(2) Application of rules by order of cftc.--No rule adopted 
        pursuant to this section shall be applied to any person with 
        respect to the trading of security future products on an 
        exchange that is registered under section 6(g) unless the 
        Commodity Futures Trading Commission has issued an order 
        directing that such rule is applicable to such persons.''.
  (d) Incorporation of Security Future Products Into the National 
System for Clearance and Settlement.--Section 17A(b) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q-1(b)) is amended by adding at the 
end the following:
  ``(7) A clearing agency that is regulated directly or indirectly by 
the Commodity Futures Trading Commission through its association with a 
designated contract market for security future products, and that 
performs the functions of a clearing agency only with respect to 
security future products and transactions in securities effected 
pursuant to the rules of the designated contract market with which such 
agency is associated, is exempted from the provisions of this section 
and the rules and regulations thereunder, except that any clearing 
agency that performs the functions of a clearing agency with respect to 
security future products must coordinate with and develop fair and 
reasonable links with any and all other clearing agencies that perform 
the functions of a clearing agency with respect to security future 
products, in order to permit security future products to be purchased 
on a national securities exchange or national securities association 
registered pursuant to section 15A(a) and offset on another national 
securities exchange or national securities association registered 
pursuant to section 15A(a).''.
  (e) Market Emergency Powers and Circuit Breakers.--Section 12(k) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78l(k)) is amended--
          (1) in paragraph (1), by adding at the end the following: 
        ``If the actions described in subparagraph (A) or (B) involve a 
        security future product,the Commission shall consult with and 
consider the views of the Commodity Futures Trading Commission.''; and
          (2) in paragraph (2)(B), by inserting after the first 
        sentence the following: ``If the actions described in 
        subparagraph (A) involve a security future product, the 
        Commission shall consult with and consider the views of the 
        Commodity Futures Trading Commission.''.
  (f) Obligation To Put in Place Procedures and Adopt Rules.--Section 
15A of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended 
by inserting after subsection (k), as added by section 203, the 
following new subsection:
  ``(l) Procedures and Rules for Security Future Products.--A national 
securities association registered pursuant to subsection (a) shall, not 
later than one year after the date of enactment of the Commodity 
Futures Modernization Act of 2000, implement the procedures specified 
in section 6(h)(5)(A) of this title and adopt the rules specified in 
subparagraphs (B) and (C) of section 6(h)(5) of this title.''.

SEC. 207. CLEARANCE AND SETTLEMENT.

  Section 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1) 
is amended--
          (1) in subsection (a)--
                  (A) in paragraph (1), by inserting after subparagraph 
                (D) the following:
          ``(E) The clearance and settlement of transactions in over-
        the-counter derivatives through clearing agencies registered 
        with the Commission will reduce systemic risk and provide 
        stability to financial markets during times of market 
        disorder.''; and
                  (B) in paragraph (2)(A)(ii), by striking ``and 
                commodity options'' and inserting ``commodity options, 
                and over-the-counter derivatives''; and
          (2) in subsection (b)--
                  (A) in paragraph (3)(A), by inserting ``and 
                derivative agreements, contracts, and transactions'' 
                after ``prompt and accurate clearance and settlement of 
                securities transactions'';
                  (B) in paragraph (3)(F), by inserting ``and, to the 
                extent applicable, derivative agreements, contracts, 
                and transactions'' after ``designed to promote the 
                prompt and accurate clearance and settlement of 
                securities transactions''; and
                  (C) by inserting after paragraph (7), as added by 
                section 206(d), the following:
  ``(8) A registered clearing agency shall be permitted to provide 
facilities for the clearance and settlement of any derivative 
agreements, contracts, or transactions that are excluded from the 
Commodity Exchange Act, subject to the requirements of this section and 
to such rules and regulations as the Commission may prescribe as 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of this 
title.''.

SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE ISSUES 
                    UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES 
                    EXCHANGE ACT OF 1934.

  (a) Amendments to the Securities Act of 1933.--
          (1) Treatment of security future products.--Section 2(a) of 
        the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended--
                  (A) in paragraph (1), by inserting ``security 
                future,'' after ``treasury stock,'';
                  (B) in paragraph (3), by adding at the end the 
                following: ``Any offer or sale of a security future 
                product by or on behalf of the issuer of the securities 
                underlying the security future product, an affiliate of 
                the issuer, or an underwriter, shall constitute a 
                contract for sale of, sale of, offer for sale, or offer 
                to sell the underlying securities.''; and
                  (C) by adding at the end the following:
          ``(16) The terms `security future', `narrow-based security 
        index', and `security future product' have the same meanings as 
        provided in section 3(a)(55) of the Securities Exchange Act of 
        1934.''.
          (2) Exemption from registration.--Section 3(a) of the 
        Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by adding 
        at the end the following:
          ``(14) Any security future product that is--
                  ``(A) cleared by a clearing agency registered under 
                section 17A of the Securities Exchange Act of 1934 or 
                exempt from registration under subsection (b)(7) of 
                such section 17A; and
                  ``(B) listed on a national securities exchange or a 
                national securities association registered pursuant to 
                section 15A(a) of the Securities Exchange Act of 
                1934.''.
          (3) Conforming amendment.--Section 12(a)(2) of the Securities 
        Act of 1933 (15 U.S.C. 77l(a)(2)) is amended by striking 
        ``paragraph (2)'' and inserting ``paragraphs (2) and (14)''.
  (b) Amendments to the Securities Exchange Act of 1934.--
          (1) Exemption from registration.--Section 12(a) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78l(a)) is amended 
        by adding at the end the following: ``The provisions of this 
        subsection shall not apply in respect of a security future 
        product listed on a national securities exchange.''.
          (2) Exemptions from reporting requirement.--Section 12(g)(5) 
        of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(5)) is 
        amended by adding at the end the following: ``For purposes of 
        this subsection, a security future product shall not be 
        considered a class of equity security of the issuer of the 
        securities underlying the security future product.''.
          (3) Transactions by corporate insiders.--Section 16 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by 
        adding at the end the following:
  ``(f) Treatment of Transactions in Security Future Products.--The 
provisions of this section shall apply to ownership of and transactions 
in security future products as if they were ownership of and 
transactions in the underlying equity security. The Commission may 
adopt such rules and regulations as it deems necessary or appropriate 
in the public interest to carry out the purposes of this section.''.

SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940 AND THE 
                    INVESTMENT ADVISERS ACT OF 1940.

  (a) Definitions Under the Investment Company Act of 1940 and the 
Investment Advisers Act of 1940.--
          (1) Section 2(a)(36) of the Investment Company Act of 1940 
        (15 U.S.C. 80a-2(a)(36)) is amended by inserting ``security 
        future,'' after ``treasury stock,''.
          (2) Section 202(a)(18) of the Investment Advisers Act of 1940 
        (15 U.S.C. 80b-2(a)(18)) is amended by inserting ``security 
        future,'' after ``treasury stock,''.
          (3) Section 2(a) of the Investment Company Act of 1940 (15 
        U.S.C. 80a-2(a)) is amended by adding at the end the following:
          ``(52) The terms `security future' and `narrow-based security 
        index' have the same meanings as provided in section 3(a)(55) 
        of the Securities Exchange Act of 1934.''.
          (4) Section 202(a) of the Investment Advisers Act of 1940 (15 
        U.S.C. 80b-2(a)) is amended by adding at the end the following:
          ``(27) The terms `security future' and `narrow-based security 
        index' have the same meanings as provided in section 3(a)(55) 
        of the Securities Exchange Act of 1934.''.
  (b) Other Provision.--Section 203(b) of the Investment Advisers Act 
of 1940 (15 U.S.C. 80b-3(b)) is amended--
          (1) by striking ``or'' at the end of paragraph (4);
          (2) by striking the period at the end of paragraph (5) and 
        inserting ``; or''; and
          (3) by adding at the end the following:
          ``(6) any investment adviser that is registered with the 
        Commodity Futures Trading Commission as a commodity trading 
        advisor whose business does not consist primarily of acting as 
        an investment adviser, as defined in section 202(a)(11) of this 
        title, and that does not act as an investment adviser to (A) an 
        investment company registered under title I of this Act, or (B) 
        a company which has elected to be a business development 
        company pursuant to section 54 of title I of this Act and has 
        not withdrawn its election.''.

SEC. 210. PREEMPTION OF STATE GAMING AND BUCKET SHOP LAWS.

  The last sentence of section 28(a) of the Securities Exchange Act of 
1934 (15 U.S.C. 78bb(a)) is amended--
          (1) by inserting ``subject to this title'' after ``privilege, 
        or other security''; and
          (2) by striking ``any such instrument, if such instrument is 
        traded pursuant to rules and regulations of a self-regulatory 
        organization that are filed with the Commission pursuant to 
        section 19(b) of this Act'' and inserting ``any such 
        security''.

    Subtitle B--Conforming Amendments to the Commodity Exchange Act

SEC. 221. JURISDICTION OF SECURITIES AND EXCHANGE COMMISSION; OTHER 
                    PROVISIONS.

  (a) Jurisdiction of Securities and Exchange Commission.--Section 
2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2, 2a, 4) is amended by 
adding at the end the following:
                  ``(D)(i) Notwithstanding any other provision of this 
                Act, the Securities and Exchange Commission shall have 
                jurisdiction and authority over security futures as 
                defined in section 3(a)(55) of the Securities Exchange 
                Act of 1934, section 2(a)(16) of the Securities Act of 
                1933, section 2(a)(52) of the Investment Company Act of 
                1940, and section 202(a)(27) of the Investment Advisers 
                Act of 1940, options on security futures, and persons 
                effecting transactions in security futures and options 
                thereon, and this Act shall apply to and the Commission 
                shall have jurisdiction with respect to accounts, 
                agreements (including any transaction which is of the 
                character of, or is commonly known to the trade as, an 
                `option', `privilege', `indemnity', `bid', `offer', 
                `put', `call', `advance guaranty', or `decline 
                guaranty') and transactions involving, and may 
                designate a board of trade as a contract market in, a 
                security future product as defined in section 1a(33) of 
                this Act: Provided, however, That, except as provided 
                in clause (v) of this subparagraph, no board of trade 
                shall be designated as a contract market with respect 
                to any such contracts of sale for future delivery 
                unless the board of trade making such application 
                demonstrates and the Commission expressly finds that 
                the specific contract with respect to which the 
                application has been made, or the board of trade, meets 
                the following criteria:
                          ``(I) Except as otherwise provided in a rule, 
                        regulation, or order issued pursuant to clause 
                        (vi) of this subparagraph, any security 
                        underlying the security future, including each 
                        component security of a contract of sale for 
                        future delivery on a narrow-based security 
                        index, is registered pursuant to section 12 of 
                        the Securities Exchange Act of 1934.
                          ``(II) Except as otherwise provided in a 
                        rule, regulation, or order issued pursuant to 
                        clause (vi) of this subparagraph, the security 
                        future product is cash settled.
                          ``(III) The security future product is not 
                        traded on an exempt board of trade or a 
                        designated transaction execution facility.
                          ``(IV) Except as otherwise provided in a 
                        rule, regulation, or order issued pursuant to 
                        clause (vi) of this subparagraph, the security 
                        future is based upon common stock and such 
                        other equity securities as the Commission and 
                        the Securities and Exchange Commission jointly 
                        determine appropriate.
                          ``(V) The security future product is cleared 
                        by a clearing agency that has in place 
                        provisions for linked and coordinated clearing 
                        with other clearing agencies that clear 
                        security future products, which permits the 
                        security future product to be purchased on a 
                        designated contract market, national securities 
                        exchange registered under section 6(a) of the 
                        Securities Exchange Act of 1934, or national 
                        securities association registered pursuant to 
                        section 15A(a) of the Securities Exchange Act 
                        of 1934 and offset on any other designated 
                        contract market, national securities exchange 
                        registered under section 6(a) of the Securities 
                        Exchange Act of 1934, or national securities 
                        association registered pursuant to section 
                        15A(a) of the Securities Exchange Act of 1934 
                        on which the security future product is traded.
                          ``(VI) Only futures commission merchants, 
                        introducing brokers, commodity trading 
                        advisers, commodity pool operators or 
                        associated persons subject to suitability rules 
                        comparable to those of a national securities 
                        association registered pursuant to section 
                        15A(a) of the Securities Exchange Act of 1934 
                        solicit, accept any order for, or otherwise 
                        deal in any transaction in or in connection 
                        with a security future product.
                          ``(VII) The security future product is 
                        subject to a prohibition against dual trading 
                        in section 4j of this Act and the rules and 
                        regulations thereunder or the provisions of 
                        section 11(a) of the Securities Exchange Act of 
                        1934 and the rules and regulations thereunder, 
                        except to the extent otherwise permitted under 
                        the Securities Exchange Act of 1934 and the 
                        rules and regulations thereunder.
                          ``(VIII) Trading in the security future 
                        product is not readily susceptible to 
                        manipulation of the price of such security 
                        future product, nor to causing or being used in 
                        the manipulation of the price of any underlying 
                        security, option on such security, or option on 
                        a group or index including such securities.
                          ``(IX) The board of trade on which the 
                        security future product is traded has 
                        procedures in place for coordinated 
                        surveillance among such board of trade, any 
                        market on which any security underlying the 
                        security future product is traded, and other 
                        markets on which any related security is traded 
                        to detect manipulation and insider trading, 
                        except that, if the board of trade is an 
                        alternative trading system, a national 
                        securities association registered pursuant to 
                        section 15A(a) of the Securities Exchange Act 
                        of 1934 of which such alternative trading 
                        system is a member has in place such 
                        procedures.
                          ``(X) The board of trade on which the 
                        security future product is traded has in place 
                        audit trails necessary or appropriate to 
                        facilitate the coordinated surveillance 
                        required in subclause (IX), except that, if the 
                        board of trade is an alternative trading 
                        system, a national securities association 
                        registered pursuant to section 15A(a) of the 
                        Securities Exchange Act of 1934 of which such 
                        alternative trading system is a member has 
                        rules to require such audit trails.
                          ``(XI) The board of trade on which the 
                        security future product is traded has in place 
                        procedures to coordinate trading halts between 
                        such board of trade and any market on which any 
                        security underlying the security future product 
                        is traded and other markets on which any 
                        related security is traded, except that, if the 
                        board of trade is an alternative trading 
                        system, a national securities association 
                        registered pursuant to section 15A(a) of the 
                        Securities Exchange Act of 1934 of which such 
                        alternative trading system is a member has 
                        rules to require such coordinated trading 
                        halts.
                          ``(XII) The margin requirements for a 
                        security future product are consistent with the 
                        margin requirements for comparable option 
                        contracts traded on an exchange registered 
                        pursuant to section 6(a) of the Securities 
                        Exchange Act of 1934 and initial and 
                        maintenance margin levels for a security future 
                        product are not lower than the levels of margin 
                        required for comparable option contracts traded 
                        on an exchange registered pursuant to section 
                        6(a) of the Securities Exchange Act of 1934, 
                        except that nothing in this subclause shall be 
                        construed to prevent a board of trade from 
                        requiring higher margin levels for a security 
                        future product when it deems such action to be 
                        necessary or appropriate.
                  ``(ii) It shall be unlawful for any person to offer, 
                to enter into, to execute, to confirm the execution of, 
                or to conduct any office or business anywhere in the 
                United States, its territories or possessions, for the 
                purpose of soliciting, or accepting any order for, or 
                otherwise dealing in, any transaction in, or in 
                connection with, a security future product unless--
                          ``(I) such transaction is conducted on or 
                        subject to the rules of a board of trade which 
                        has been designated by the Commission as a 
                        contract market in such security future 
                        product;
                          ``(II) such security future product is 
                        executed or consummated by, through, or with a 
                        member of such contract market; and
                          ``(III) such security future product is 
                        evidenced by a record in writing which shows 
                        the date, the parties to such security future 
                        product and their addresses, the property 
                        covered and its price: Provided, That each 
                        contract market member shall keep such record 
                        for a period of 3 years from the date thereof, 
                        or for a longer period if the Commission so 
                        directs, which record shall at all times be 
                        open to the inspection of any representative of 
                        the Commission, the Securities and Exchange 
                        Commission, or the Department of Justice.
                  ``(iii)(I) Except as provided in subclause (II) but 
                notwithstanding any other provision of this Act, no 
                person shall offer to enter into, enter into, or 
                confirm the execution of any option on a security 
                future.
                  ``(II) After 3 years after the date of enactment of 
                the Commodity Futures Modernization Act of 2000, the 
                Commission and the Securities and Exchange Commission 
                may by order jointly determine to permit trading of 
                options on any security future authorized to be traded 
                under the provisions of this Act and the Securities 
                Exchange Act of 1934. Before any such determination, 
                the Commission and the Securities and Exchange 
                Commission shall conduct a study of the effect of the 
                trading of security futures on the markets for futures 
                contracts, securities, and options and the adequacy of 
                protections for investors and other market 
                participants.
                  ``(iv)(I) All records of a futures commission 
                merchant or introducing broker registered pursuant to 
                section 4f(a)(2), a floor broker or floor trader exempt 
                from registration pursuant to section 4f(a)(3), an 
                associated person exempt from registration pursuant to 
                section 4k(6), or a board of trade designated as a 
                contract market in a security future product pursuant 
                tosection 5f shall be subject at any time, or from time 
to time, to such reasonable periodic, special, or other examinations by 
representatives of the Commission as the Commission deems necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of this title: Provided, That 
the Commission, prior to conducting any such examination, gives notice 
to the Securities and Exchange Commission of such proposed examination 
and consults with the Securities and Exchange Commission concerning the 
feasibility and desirability of coordinating such examination with 
examinations conducted by the Securities and Exchange Commission with a 
view to avoiding unnecessary regulatory duplication or undue regulatory 
burdens for such registrant or board of trade.
                  ``(II) The Commission shall notify the Securities and 
                Exchange Commission of any examination conducted of any 
                futures commission merchant or introducing broker 
                registered pursuant to section 4f(a)(2), floor broker 
                or floor trader exempt from registration pursuant to 
                section 4f(a)(3), associated person exempt from 
                registration pursuant to section 4k(6), or board of 
                trade designated as a contract market in a security 
                future product pursuant to section 5f, and, upon 
                request, furnish to the Securities and Exchange 
                Commission any examination report and data supplied to 
                the Commission in connection with such examination.
                  ``(III) The Commission shall, to the fullest extent 
                possible, use the reports of examinations of any 
                futures commission merchant or introducing broker 
                registered pursuant to section 4f(a)(2), floor broker 
                or floor trader exempt from registration pursuant to 
                section 4f(a)(3), associated person exempt from 
                registration pursuant to section 4k(6), or board of 
                trade designated as a contract market in a security 
                future product pursuant to section 5f, made by the 
                Securities and Exchange Commission, a national 
                securities association registered pursuant to section 
                15A(a) of the Securities Exchange Act of 1934 (15 
                U.S.C. 78o-3), or a national securities exchange 
                registered pursuant to section 6(a) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78f(g)).
                  ``(IV) Nothing in this subsection shall be construed 
                to impair or limit (other than by the requirement of 
                prior consultation) the power of the Commission under 
                this subsection to examine any futures commission 
                merchant or introducing broker registered pursuant to 
                section 4f(a)(2), floor broker or floor trader exempt 
                from registration pursuant to section 4f(a)(3), 
                associated person exempt from registration pursuant to 
                section 4k(6), or board of trade designated as a 
                contract market in a security future product pursuant 
                to section 5f, or to affect in any way the power of the 
                Commission under any other provision of this Act.
                  ``(v) A board of trade designated as a contract 
                market pursuant to section 5f shall be designated as a 
                contract market with respect to a security future 
                product by providing to the Commission a written 
                certification that the specific contract with respect 
                to which the application has been made, or the board of 
                trade, meets the criteria specified in subclauses (I) 
                through (XII) of clause (i).
                  ``(vi) The Commission and the Securities and Exchange 
                Commission, by rule, regulation, or order, may jointly 
                modify the criteria specified in subclause (I), (II), 
                or (IV) of clause (i) of this subparagraph to the 
                extent such modification fosters the development of 
                fair and orderly markets in security future products, 
                is necessary or appropriate in the public interest, and 
                is consistent with the protection of investors.''.
  (b) Margin on Security Futures.--Section 2(a)(1)(C)(vi) of the 
Commodity Exchange Act (7 U.S.C. 2a(vi)) (as redesignated by section 
122) is amended--
          (1) by redesignating subclause (V) as subclause (VI); and
          (2) by striking ``(vi)(I)'' and all that follows through 
        subclause (IV) and inserting the following:
                                  ``(vi)(I) Notwithstanding any other 
                                provision of this Act, any contract 
                                market in a stock index futures 
                                contract (or option thereon), other 
                                than a security future product, shall 
                                file with the Board of Governors of the 
                                Federal Reserve System any rule 
                                establishing or changing the levels of 
                                margin (initial and maintenance) for 
                                such stock index futures contract (or 
                                option thereon), other than security 
                                future products.
                                  ``(II) The Board may at any time 
                                request any contract market to set the 
                                margin for any stock index futures 
                                contract (or option thereon), other 
                                than for any security future product, 
                                at such levels as the Board in its 
                                judgment determines are appropriate to 
                                preserve the financial integrity of the 
                                contract market or its clearing system 
                                or to prevent systemic risk. If the 
                                contract market fails to do so within 
                                the time specified by the Board in its 
                                request, the Board may direct the 
                                contract market to alter or supplement 
                                the rules of the contract market as 
                                specified in the request.
                                  ``(III) Subject to such conditions as 
                                the Board may determine, the Board may 
                                delegate any or all of its authority, 
                                relating to margin for any stock index 
                                futures contract (or option thereon), 
                                other than security future products, 
                                under this clause to the Commission.
                                  ``(IV) Margin regulations.--It shall 
                                be unlawful for any futures commission 
                                merchant to, directly or indirectly, 
                                extend or maintain credit to or for, or 
                                collect margin from any customer on any 
                                security future product unless such 
                                activities comply with the rules and 
                                regulations which the Securities and 
                                Exchange Commission, after consultation 
                                with the Commission, shall prescribe 
                                pursuant to section 7(c)(2)(B) of the 
                                Securities Exchange Act of 1934.
                                  ``(V) Nothing in this clause shall 
                                supersede or limit the authority 
                                granted to the Commission in section 
                                8a(9) to direct a contract market, on 
                                finding an emergency to exist, to raise 
                                temporary margin levels on any futures 
                                contract, or option on the contract 
                                covered by this clause, or on any 
                                security future product.''.
  (c) Exemption From Registration for Investment Advisers.--Section 4m 
of the Commodity Exchange Act (7 U.S.C. 6m) is amended by adding at the 
end the following:
  ``(3) The provisions of subsection (1) of this section shall not 
apply to any commodity trading advisor that is registered with the 
Securities and Exchange Commission as an investment adviser whose 
business does not consist primarily of acting as a commodity trading 
advisor, as defined in section 1a of this Act, and that does not act as 
a commodity trading advisor to any investment trust, syndicate, or 
similar form of enterprise that is engaged primarily in trading in any 
commodity for future delivery on or subject to the rules of any 
contract market.''.
  (d) Exemption From Investigations of Markets in Underlying 
Securities.--Section 16 of the Commodity Exchange Act (7 U.S.C. 20) is 
amended by adding at the end the following:
  ``(e) The provisions of this section shall not apply to 
investigations involving any security underlying a security future 
product.''.

SEC. 222. APPLICATION OF THE COMMODITY EXCHANGE ACT TO NATIONAL 
                    SECURITIES EXCHANGES AND NATIONAL SECURITIES 
                    ASSOCIATIONS THAT TRADE SECURITY FUTURES.

  (a) Notice Designation of National Securities Exchanges and National 
Securities Associations.--The Commodity Exchange Act is amended by 
inserting after section 5e (7 U.S.C. 7b), as amended by section 115, 
the following:

``SEC. 5F. DESIGNATION OF SECURITIES EXCHANGES AND ASSOCIATIONS AS 
                    CONTRACT MARKETS.

  ``(a) Any board of trade that is registered with the Securities and 
Exchange Commission as a national securities exchange, is a national 
securities association registered pursuant to section 15A(a) of the 
Securities Exchange Act of 1934, or is an alternative trading system 
shall be a designated contract market in security future products if--
          ``(1) such national securities exchange, national securities 
        association, or alternative trading system lists or trades no 
        other contracts of sale for future delivery, except for 
        security future products;
          ``(2) such national securities exchange, national securities 
        association, or alternative trading system files written notice 
        with the Commission in such form as the Commission, by rule, 
        may prescribe containing such information as the Commission, by 
        rule, may prescribe as necessary or appropriate in the public 
        interest or for the protection of customers; and
          ``(3) the registration of such national securities exchange, 
        association, or alternative trading system is not suspended 
        pursuant to an order by the Securities and Exchange Commission.
Such designation shall be effective immediately upon filing of the 
written notice with the Commission.
  ``(b)(1) A national securities exchange, national securities 
association, or alternative trading system that is designated as a 
contract market pursuant to section 5f of this Act shall be exempt from 
the following provisions of this Act and the rules thereunder:
          ``(A) Subsections (c), (e), and (g) of section 4c.
          ``(B) Subsections (a) and (d) of section 4j.
          ``(C) Section 5.
          ``(D) Section 5c.
          ``(E) Section 6a.
          ``(F) Section 8(d).
          ``(G) Section 8e.
          ``(H) Section 9(f).
          ``(I) Section 16.
          ``(J) Section 22(b).
  ``(2)(A) Except as provided in subparagraph (B), but notwithstanding 
any other provision of this Act, the Commission, by rule, regulation, 
or order, may conditionally or unconditionally exempt any designated 
contract market in security futures subject to the designation 
requirement of this section from any provision of this Act or of any 
rule or regulation thereunder, to the extent such exemption is 
necessary or appropriate in the public interest and is consistent with 
the protection of investors.
  ``(B) The Commission shall, by rule or regulation, determine the 
procedures under which an exemptive order under this section is granted 
and may, in its sole discretion, decline to entertain any application 
for an order of exemption under this section.''.
  (b) Notice Registration of Certain Securities Broker-Dealers; 
Exemption From Registration for Certain Securities Broker-Dealers.--
Section 4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a)) is 
amended--
          (1) by inserting ``(1)'' after ``(a)''; and
          (2) by adding at the end the following:
  ``(2) Notwithstanding paragraph (1), and except as provided in 
paragraph (3), any broker or dealer that is registered with the 
Securities and Exchange Commission shall be registered as a futures 
commission merchant or introducing broker, as applicable, if--
          ``(A) such broker or dealer limits its solicitation of 
        orders, acceptance of orders, or execution of orders, or 
        placing of orders on behalf of others involving any contracts 
        of sale of any commodity for future delivery, on or subject to 
        the rules of any contract market to security future products;
          ``(B) such broker or dealer files written notice with the 
        Commission in such form as the Commission, by rule, may 
        prescribe containing such information as the Commission, by 
        rule, may prescribe as necessary or appropriate in the public 
        interest or for the protection of investors;
          ``(C) the registration of such broker or dealer is not 
        suspended pursuant to an order of the Securities and Exchange 
        Commission; and
          ``(D) such broker or dealer is a member of a national 
        securities association registered pursuant to section 15A(a) of 
        the Securities Exchange Act of 1934.
Such registration shall be effective immediately upon filing of the 
written notice with the Commission.
  ``(3) A floor broker or floor trader shall be exempt from the 
registration requirements of section 4e and paragraph (1) of this 
subsection if--
          ``(A) such floor broker or floor trader is a broker or dealer 
        registered with the Securities and Exchange Commission;
          ``(B) such floor broker or floor trader limits its 
        solicitation of orders, acceptance of orders, or execution of 
        orders, or placing of orders on behalf of others involving any 
        contracts of sale of any commodity for future delivery, on or 
        subject to the rules of any contract market to security future 
        products; and
          ``(C) the registration of such floor broker or floor trader 
        is not suspended pursuant to an order of the Securities and 
        Exchange Commission.''.
  (c) Exemption for Securities Broker-Dealers.--Section 4f(a) of the 
Commodity Exchange Act (7 U.S.C. 6f(a)) is amended by inserting after 
paragraph (3), as added by subsection (b), the following:
  ``(4)(A) A broker or dealer that is registered as a futures 
commission merchant or introducing broker pursuant to paragraph (2), or 
that is a floor broker or floor trader exempt from registration 
pursuant to paragraph (3), shall be exempt from the following 
provisions of this Act and the rules thereunder:
          ``(i) Subsections (b), (d), (e), and (g) of section 4c.
          ``(ii) Sections 4d, 4e, and 4h.
          ``(iii) Subsections (b) and (c) of this section.
          ``(iv) Subsections (b) and (c) of section 4j.
          ``(v) Section 4k(1).
          ``(vi) Section 4p.
          ``(vii) Section 6d.
          ``(viii) Subsections (d) and (g) of section 8.
          ``(ix) Section 16.
          ``(x) Section 22(a).
  ``(B)(i) Except as provided in clause (ii), but notwithstanding any 
other provision of this Act, the Commission, by rule, regulation, or 
order, may conditionally or unconditionally exempt any broker or dealer 
subject to the registration requirement of paragraph (2) of this 
subsection, or exempt from registration pursuant to paragraph (3) of 
this subsection, from any provision of this Act or of any rule or 
regulation thereunder, to the extent such exemption is necessary or 
appropriate in the public interest and is consistent with the 
protection of investors.
  ``(ii) The Commission shall, by rule or regulation, determine the 
procedures under which an exemptive order under this section shall be 
granted and may, in its sole discretion, decline to entertain any 
application for an order of exemption under this section.
  ``(C)(i) A broker or dealer that is registered as a futures 
commission merchant or introducing broker pursuant to paragraph (2) or 
an associated person thereof, or that is a floor broker or floor trader 
exempt from registration pursuant to paragraph (3), shall not be 
required to become a member of any futures association registered under 
section 17 of this Act.
  ``(ii) No futures association registered under section 17 of this Act 
shall limit its members from carrying an account, accepting an order, 
or transacting business with a broker or dealer that is registered as a 
futures commission merchant or introducing broker pursuant to paragraph 
(2) or an associated person thereof, or that is a floor broker or floor 
trader exempt from registration pursuant to paragraph (3).''.
  (d) Exemptions for Associated Persons of Securities Broker-Dealers.--
Section 4k of the Commodity Exchange Act (7 U.S.C. 6k) is amended by 
adding at the end the following:
  ``(6) Any associated person of a broker or dealer that is registered 
with the Securities and Exchange Commission, and who limits its 
solicitation of orders, acceptance of orders, or execution of orders, 
or placing of orders on behalf of others involving any contracts of 
sale of any commodity for future delivery, on or subject to the rules 
of any contract market to security future products, shall be exempt 
from the following provisions of this Act and the rules thereunder:
          ``(A) Subsections (b), (d), (e), and (g) of section 4c.
          ``(B) Sections 4d, 4e, and 4h.
          ``(C) Subsections (b) and (c) of section 4f.
          ``(D) Subsections (b) and (c) of section 4j.
          ``(E) Paragraph (1) of this section.
          ``(F) Section 4p.
          ``(G) Section 6d.
          ``(H) Subsections (d) and (g) of section 8.
          ``(I) Section 16.
          ``(J) Section 22(a).''.

SEC. 223. NOTIFICATION OF INVESTIGATIONS AND ENFORCEMENT ACTIONS.

  (a) Section 8(a) of the Commodity Exchange Act (7 U.S.C. 12(a)) is 
amended by adding at the end the following:
  ``(3) The Commission shall provide the Securities and Exchange 
Commission with notice of the commencement of any proceeding and a copy 
of any order entered by the Commission against any futures commission 
merchant or introducing broker registered pursuant to section 4f(a)(2), 
any floor broker or floor trader exempt from registration pursuant to 
section 4f(a)(3), any associated person exempt from registration 
pursuant to section 4k(6), or any board of trade designated as a 
contract market pursuant to section 5f.''.
  (b) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 9, 9a, 9b, 
13b, 15) is amended by adding at the end the following:
  ``(g) The Commission shall provide the Securities and Exchange 
Commission with notice of the commencement of any proceeding and a copy 
of any order entered by the Commission pursuant to subsections (c) and 
(d) of this section against any futures commission merchant or 
introducing broker registered pursuant to section 4f(a)(2), any floor 
broker or floor trader exempt from registration pursuant to section 
4f(a)(3), any associated person exempt from registration pursuant to 
section 4k(6), or any board of trade designated as a contract market 
pursuant to section 5f.''.
  (c) Section 6c of the Commodity Exchange Act (7 U.S.C. 13a-1) is 
amended by adding at the end the following:
  ``(h) The Commission shall provide the Securities and Exchange 
Commission with notice of the commencement of any proceeding and a copy 
of any order entered by the Commission against any futures commission 
merchant or introducing broker registered pursuant to section 4f(a)(2), 
any floor broker or floor trader exempt from registration pursuant to 
section 4f(a)(3), any associated person exempt from registration 
pursuant to section 4k(6), or any board of trade designated as a 
contract market pursuant to section 5f.''.

                       Subtitle C--Effective Date

SEC. 231. EFFECTIVE DATE.

  This title and the amendments made by this title take effect on the 
date of enactment of this Act.

                          Purpose and Summary

    The purpose of this legislation is threefold: to create 
legal certainty for over-the-counter derivative transactions 
under the Commodity Exchange Act; to repeal the ban on single 
stock futures; and to provide regulatory relief for the futures 
exchanges. The legislation seeks to further the viability of 
the over-the-counter derivatives market by creating legal 
certainty for certain derivative transactions. Over-the-counter 
financial derivatives contracts between eligible contract 
participants are excluded from the Commodity Exchange Act (CEA) 
under this legislation. The Commodity Futures Trading 
Commission (CFTC) retains anti-fraud and anti-manipulation 
authority over non-financial exempted commodities. The CFTC 
retains full jurisdiction over contracts on agricultural 
commodities.
    This legislation also seeks to ensure that the market is 
the final arbiter of a product's economic worth by repealing 
the ban on single stock futures and narrow based stock index 
futures and developing a joint regulatory framework for these 
products administered by both the Securities and Exchange 
Commission (SEC) and the CFTC. The regulatory framework 
promotes competition both within and across markets while 
preserving investor protections.
    The legislation also promotes competition between the 
contract markets and the over-the-counter markets by providing 
greater flexibility for trading on contract markets.

                  Background and Need for Legislation

    Legal Certainty for Over-the-Counter Derivatives. 
Derivative instruments are important financial management tools 
that, in many respects, reflect the unique strength and 
innovation of American capital markets. U.S. markets and market 
professionals have been global leaders in derivatives 
technology and development. Derivatives, such as options, have 
traded on U.S. securities exchanges for decades.
    Of particular importance are U.S. OTC derivatives markets. 
America's institutions, and institutional investors use 
derivative instruments to manage risks associated with their 
business activities or their financial assets. Because of the 
range of benefits these products offer, the OTC derivatives 
market has grown significantly during the past two decades. The 
growth in activity involving this market has come, in part, as 
a result of the careful approach to regulation taken by the 
Congress and by U.S. financial regulators. That approach has 
focused on promoting legal certainty for OTC derivative 
transactions and encouraging the development of sound industry 
practices.
    Certain, but not all, derivative transactions in the U.S. 
are regulated under various statutes. Among these is the CEA, a 
statute that predates the establishment of significant markets 
for financial derivatives in the United States. The CEA evolved 
from the Grain Futures Act of 1922, which was designed to 
protect farmers from speculative excesses and price 
manipulation on agricultural products by enabling the 
Government to deal with exchanges themselves, rather than with 
individual traders. In order to conduct futures trading 
lawfully, the grain exchanges were required to be federally 
licensed or ``designated'' as ``contract markets.'' A condition 
of such designation was that the exchanges had to take 
responsibility for the prevention of price manipulation by 
their members. If they failed to do so, the only recourse was 
suspension or revocation of their designations. The Act was 
administered by the Agriculture Department.
    Under 1936 amendments, the legislation was renamed the 
Commodity Exchange Act and the regulatory coverage was extended 
to cotton and other specified commodities as well as grains. 
Broad additional authority was granted over traders generally 
as well as exchange members, and over the previously uncovered 
field of commodity brokerage.
    The Commodity Futures Trading Commission Act of 1974 
constituted a significant and substantial revision of the CEA. 
In 1974, Congress extended the coverage of the CEA to include 
not only previously unregulated commodities, but also all other 
goods and articles, and all services, rights, and interests in 
which contracts for future delivery are presently or in the 
future dealt. Congress also created the CFTC as an independent 
regulatory agency to administer the CEA, and granted the CFTC 
exclusive jurisdiction over transactions involving futures 
contracts and certain other commodity-related activities.
    OTC derivatives do not fall within the regulatory scope of 
the CEA but do, however, have a quality similar to a futures 
contract: a promise for delivery or payment in the future. This 
similarity to futures contracts has caused legal uncertainty 
under the CEA for OTC derivative transactions. If a court were 
to determine an OTC derivative was a future, the contract would 
be void because futures traded off exchange are illegal and 
unenforceable. By contrast, the securities laws do not have a 
similar prohibition of off-exchange trading.
    While the Congress and the CFTC have both acted to create 
legal certainty through the creation of a Swaps and Hybrids 
Exemption (Swaps Exemption), a certain amount of uncertainty 
under the CEA remains. Because the Swaps Exemption is 
administered by the CFTC, it is subject to changes in the 
regulatory perspective of the agency.
    The issuance by the CFTC of a concept release suggesting a 
new regulatory framework for swaps, enhanced the uncertainty 
surrounding OTC derivatives transactions. The concept release 
drew objection from the Secretary of the Treasury, the Chairman 
of the Federal Reserve Board and the Chairman of the SEC, and 
led Congress to call for a moratorium on CFTC rulemaking in 
this area.
    In addition, the CFTC cannot exempt products subject to the 
Shad-Johnson Jurisdictional Accord, causing legal uncertainty 
for equity swaps, as further discussed below.
    The over-the-counter derivatives market accounts for 
trillions of dollars (notional value) in transactions each 
year, and provides useful tools for investment banks, 
commercial banks, companies and individuals wishing to 
neutralize business and investment risks. The President's 
Working Group on Financial Markets emphasized the importance 
that the market serves and stressed the immediate need to 
improve legal certainty under the CEA for the transactions 
(President's Working Group on Financial Markets, Over-the-
Counter Derivatives Markets and the Commodity Exchange Act 
(1999)). Testimony provided to this Committee, as well as other 
committees of both the House and Senate, demonstrated 
widespread agreement that greater legal certainty under the CEA 
for over-the-counter derivative transactions would be 
beneficial for further development of these products.
    To help achieve greater legal certainty for over-the-
counter transactions, the legislation excludes from the CEA 
financial derivatives contracts traded off exchange by eligible 
contract participants. The legislation exempts any contract on 
a commodity which is not an agricultural commodity and not 
otherwise excluded from the CEA. Anti-fraud, anti-manipulation 
and transparency provisions of the CEA apply to exempt 
commodities. Further, the legislation excludes from the CEA 
electronic trading facilities that execute contracts traded on 
a principle to principle basis between eligible contract 
participants.
    Lifting the Ban on Single Stock Futures and Narrow-based 
Stock Index Futures. In the early 1980's, disputes arose as to 
whether certain derivative transactions based on stock prices 
were best regulated as futures or securities. In 1982, the CFTC 
and the SEC agreed on a regulatory scheme (known as the Shad-
Johnson Jurisdictional Accord). The Accord reinforced the SEC's 
jurisdiction over options on securities and recognized the 
CFTC's jurisdiction over options on certain futures. The CFTC 
also received jurisdiction over futures on broad-based stock 
indices. However, the SEC was given an explicit role in the 
determination of whether a stock index was properly 
characterized as broad-based. The question of what constitutes 
a narrow-based index under the Shad-Johnson Accord was 
litigated in Board of Trade of the City of Chicago v. SEC 187 
F.3d 713 (7th Cir 1999). Futures on government securities were 
permitted. The SEC and the CFTC failed to reach agreement on 
regulation of futures on single stocks and narrow-based indices 
and on options on these products. They therefore agreedto ban 
the products. The Congress codified the ban in 1982 (Futures Trading 
Act of 1982, P.L. 97-444). The SEC and the CFTC planned to undertake a 
study within five years of the Accord's codification regarding its 
operation and whether and on what terms the prohibition should be 
lifted. The agencies never conducted the study.
    Futures industry officials have said that the Accord 
prohibition should be repealed because it has restricted U.S. 
futures exchanges from competing with other markets that trade 
derivatives on single stocks and narrow based indices. Banks 
and options exchanges have been permitted to trade products 
economically similar to futures products. A synthetic future 
can be created by buying a call option on a single stock and 
selling a put option on the same stock. A naked option (i.e., 
an option for which the buyer or seller does not hold an 
underlying security position) can also replicate the economic 
function of a future. Finally, many over-the- counter 
derivative transactions (equity swaps) can be used to achieve 
positions similar to those unavailable through stock futures. 
The Accord prohibits futures exchanges from competing with the 
options exchanges and banks who are trading in these 
instruments.
    In the President's Working Group on Financial Markets 1999 
report entitled Over-the-Counter Derivatives Markets and the 
Commodity Exchange Act, the members agreed that: ``the current 
prohibition on single stock futures can be repealed if issues 
about the integrity of the underlying securities market and 
regulatory arbitrage are resolved.'' Such issues reflect 
legitimate regulatory concerns of both the SEC and the CFTC and 
their respective oversight committees. In a letter dated March 
2, 2000, to Chairman Bliley, Chairman Levitt of the SEC and 
Chairman Rainer of the CFTC noted that these products should be 
subject to joint regulation by both agencies. The Committee 
agrees.
    The legislation lifts the prohibition on the trading of 
security futures by providing that cash, options, and futures 
exchanges can trade single stock futures and narrow-based 
indices under a system of SEC and CFTC joint regulation. 
Exchanges registered with one agency are required to file a 
notice registration with the other agency. For futures 
products, the legislation extends SEC jurisdiction over the 
Futures Exchanges for core securities regulations, and the CFTC 
jurisdiction over the cash and options markets for core futures 
regulations.
    The legislation also enhances competition among market 
centers by explicitly providing that Alternative Trading 
Systems (ATSs) may also trade in security futures.
    For security futures, margin requirements, suitability, 
sales practice rules, and transaction fees are harmonized 
between the options and futures markets to minimize competitive 
disparity between the markets. On each market, security futures 
must trade in decimals with no mandatory minimum increments. 
Finally, to ensure equity in tax treatment between the markets 
trading security futures, the legislation provides that trading 
in security futures may commence only after tax treatments 
between options and futures are harmonized.
    CFTC Regulatory Reform. The legislation also enacts changes 
to CFTC regulatory oversight of the futures markets.

                                Hearings

    The Subcommittee on Finance and Hazardous Materials held a 
hearing on H.R. 4541, the Commodity Futures Modernization Act 
of 2000 on July 12, 2000. The Subcommittee received testimony 
from: The Honorable Arthur Levitt, Securities and Exchange 
Commission; Mr. C. Robert Paul, Commodity Futures Trading 
Commission; Mr. Patrick M. Parkinson, Board of Governors of the 
Federal Reserve System; and Mr. Lewis A. Sachs, Department of 
the Treasury.

                        Committee Consideration

    On July 20, 2000, the Subcommittee on Finance and Hazardous 
Materials met in open markup session and approved H.R. 4541 for 
Full Committee consideration, as amended, by a voice vote. The 
Full Commerce Committee met in open markup session on July 25, 
2000, and ordered H.R. 4541 reported to the House with a 
favorable recommendation, as amended, by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. 
There were no record votes taken in connection with ordering 
H.R. 4541 reported. A motion by Mr. Bliley to order H.R. 4541 
reported to the House, as amended, was agreed to by a voice 
vote.
    The following amendment was agreed to by a voice vote:

          An amendment in the nature of a substitute by Mr. 
        Shimkus, No. 1, raising the threshold for eligible 
        contract participants, exempting futures exchanges from 
        the short sale rule, applying section 31 fees to 
        security futures, delaying trading in security futures 
        until tax treatments of options and futures are 
        harmonized, providing for trading of security futures 
        in decimals with no minimum mandatory increments, 
        extending privacy provisions of Gramm-Leach-Bliley to 
        Futures Commission Merchants, applying large trader 
        reporting requirements to securities exchanges trading 
        security futures, and allowing ATSs to trade security 
        futures on futures listed on securities exchanges.

           Committee on Government Reform Oversight Findings

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that H.R. 
4541, would result in additional revenues from the 
legislation's extension of the section 31 transaction fee to 
security futures. The Committee estimates that this provision 
will generate revenues comparable to the section 31 fees on 
listed options.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974, with the 
following addition. The Committee notes that the legislation 
extends the section 31 transaction fee to security futures. 
This extension will generate additional revenues comparable to 
those generated by the section 31 fees on listed options.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, September 6, 2000.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4541, the 
Commodity Futures Modernization Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Ken Johnson 
and Mark Hadley.
            Sincerely,
                                           Steven Lieberman
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 4541--Commodity Futures Modernization Act of 2000]

    Summary: H.R. 4541 would reauthorize funding for the 
activities of the Commodity Futures Trading Commission (CFTC) 
during the 2001-2005 period. The bill also would authorize the 
CFTC and the Securities and Exchange Commission (SEC) to 
regulate the trading of futures contracts on single stocks 
(single-stock futures) under certain conditions. In addition, 
H.R. 4541 would authorize those agencies to regulate trading of 
options on single-stock futures. Finally, the bill also would 
clarify that certain over-the-counter derivative transactions 
are outside of the jurisdiction of the CFTC.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing this legislation would cost $368 
million over the 2001-2005 period. Although most of this cost 
would be incurred by the CFTC, CBO estimates that the SEC would 
spend about $4 million a year to regulate single-stock futures. 
H.R. 4541 would not affect direct spending or receipts; 
therefore, pay-as-you-go procedures would not apply.
    H.R. 4541 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA), but CBO estimates that 
the costs, if any, would not exceed the threshold established 
in the act ($55 million in 2000, adjusted annually for 
inflation). CBO's estimate of the impact of this bill on the 
private sector will be provided later in a separate statement.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4541 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2001     2002     2003     2004     2005
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Proposed changes to CFTC spending:
    Estimated authorization level..................................       67       69       72       74       77
    Estimated outlays..............................................       60       68       71       73       76
Proposed changes to SEC spending:
    Estimated authorization level..................................        4        4        4        4        4
    Estimated outlays..............................................        4        4        4        4        4
Total changes in spending:
    Estimated authorization level..................................       71       73       76       78       81
    Estimated outlays..............................................       64       72       75       77       80
----------------------------------------------------------------------------------------------------------------

    Basis of Estimate: For this estimate, CBO assumes that the 
bill will be enacted near the start of fiscal year 2001 and 
that the necessary amounts will be appropriated for each fiscal 
year.
    H.R. 4541 would reauthorize funding for the activities of 
the CFTC during the 2001-2005 period. For 2000, the agency 
received an appropriation of $63 million. Based on the agency's 
current budget and adjusting for anticipated inflation, this 
reauthorization would cost about $59 million in 2001 and a 
total of $343 million over the five-year period.
    The bill also would make several changes to the Commodity 
Exchange Act that would increase the administrative costs of 
the CFTC. The CFTC would share oversight of single stock 
futures transactions with the SEC. CBO estimates that this 
change to the CFTC's regulatory responsibilities would require 
the agency to hire new staff. Based on information from the 
CFTC, CBO estimates that these changes to the CFTC's 
administrative responsibilities would cost $1 million a year 
over the 2001-2005 period. The bill also clarifies that the 
CFTC does not have jurisdiction over certain over-the-counter 
transactions for derivatives.
    H.R. 4541 also would require that the SEC play a 
significant role in overseeing the market for single stock 
futures. Based on information from the SEC, CBO estimates that 
the SEC would have to hire additional staff to handle these new 
responsibilities. These new personnel would cost about $4 
million a year during the 2001-2005 period.
    To the extent that single-stock futures would be traded on 
national securities exchanges, these transactions would be 
subject to fees charged by the SEC. However, H.R. 4541 would 
allow the trading of single-stock futures one year after 
enactment of the bill if the Congress makes the income tax 
treatment of single-stock futures equal to the income tax 
treatment of stock options. Because the trading of single-stock 
futures would be contingent upon enactment of subsequent 
legislation, CBO estimates that the provisions of H.R. 4541 
related to single-stock futures would not cause an increase in 
fee collections.
    H.R. 4541 also would authorize the SEC and CFTC to allow 
the trading of options on single-stock futures three years 
after the enactment of the bill, if single-stock futures can be 
traded. To the extent that options on single-stock futures 
would be traded on national securities exchanges, these 
transactions would be subject to fees charged by the SEC. 
Because the trading of options on single-stock futures would be 
contingent upon a future action of the Congress, CBO estimates 
that the provisions of H.R. 4541 related to such options would 
not cause an increase in fee collections or revenues.
    Pay-as-you-go considerations: None.
    Estimated impact on State, local, and tribal governments: 
H.R. 4541 would preempt state laws affecting certain 
commodities transactions that are conducted in markets 
regulated by the Commodities Futures Trading Commission. The 
bill also would expand a preemption of privacy laws in certain 
states by placing entities regulated by the CFTC under federal 
rather than state privacy requirements. Both a new preemption 
and an expansion of an existing one would be mandates as 
defined by UMRA. CBO estimates that the costs of these 
mandates, if any, would not exceed the threshold in that act 
($55 million in 2000, adjusted annually for inflation). The 
bill would impose no other costs on state, local, or tribal 
governments.
    Estimated impact on the private sector: CBO's estimate of 
the impact of H.R. 4541 on the private sector will be provided 
later in a separate statement.
    Previous CBO estimate: On June 29, 2000, CBO transmitted a 
cost estimate for H.R. 4541 as ordered reported by the House 
Committee on Agriculture on June 27, 2000. The authorized 
activities for the CFTC and the SEC are different in those 
versions of the legislation, and our cost estimate reflects 
those differences. On July 11, 2000, CBO transmitted a cost 
estimate for S. 2697, the Commodity Futures Modernization Act 
of 2000, as ordered reported by the Senate Committee on 
Agriculture, Nutrition, and Forestry, on June 29, 2000. H.R. 
4541 and S. 2697 would authorize the CFTC and SEC to carry out 
different activities, and our cost estimates reflect these 
differences.
    Estimate prepared by: Federal costs: Ken Johnson and Mark 
Hadley; impact on State, local, and tribal governments: Susan 
Sieg Tompkins.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of impacts on 
State, local, and tribal governments prepared by the Director 
of the Congressional Budget Office pursuant to section 423 of 
the Unfunded Mandates Reform Act. The estimate of impacts on 
the private sector was not timely submitted to the Committee. 
The Chairman of the Committee shall cause such estimate to be 
printed in the Congressional Record when it is submitted to the 
Committee.

                      Advisory Committee Statement

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

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

                  Applicability to Legislative Branch

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

             Section-by-Section Analysis of the Legislation

Section 1. Short title; table of contents

    This section provides the table of contents and short title 
of the bill, the Commodity Futures Modernization Act of 2000.

Section 2. Purposes

    This section lists eight purposes for the bill including: 
reauthorizing the CFTC; streamlining the CEA; eliminating 
unnecessary regulation for the futures exchanges; transforming 
the regulatory role of the CFTC; providing a legislative and 
regulatory framework for the trading of futures on securities; 
providing CFTC jurisdiction over the retail foreign exchange 
market and bucket shops; promoting innovation and reducing 
systemic risk for OTC derivatives; allowing clearing of OTC 
derivatives; and enhancing the competitive position of the U.S. 
financial institutions and markets.

               TITLE I--COMMODITY EXCHANGE ACT AMENDMENTS

Section 101. Definitions

    Section 101 adds definitions to section 1a of the CEA for 
the following terms: ``alternative trading system''; 
``derivatives clearing organization''; ``designated future on a 
security''; ``electronic trading facility''; ``eligible 
commercial participant''; ``eligible contract participant''; 
``exempt commodity''; ``excluded commodity''; ``financial 
institution''; ``hybrid instrument''; ``margin''; ``narrow 
based security index''; ``nonexempt security''; ``option''; 
``organized exchange''; ``registered entity''; ``security''; 
``security future''; ``security future product''; and ``trading 
facility''.

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

    This section redesignates section 2(a)(1)(A)(ii) of the CEA 
(the ``Treasury Amendment'') as section 2(c) and clarifies the 
application of the Treasury Amendment. The new section 2(c) 
clarifies the list of products that are excluded from the CEA 
under the Treasury Amendment.
    New subsection (c)(2) excludes foreign currency 
transactions from CFTC regulation, other than those conducted 
on an organized exchange, between specified regulated entities 
and persons who are not eligible contract participants.
    The bill defines ``organized exchange'' as a trading 
facility that either allows retail customers, permits agency 
trades, or has a self- regulatory role. New subsection 
(c)(2)(B) provides the CFTC with jurisdiction over retail 
foreign currency transactions that are not traded on an 
organized exchange and that are not regulated by another 
federal regulator. This would allow the CFTC to take 
enforcement action against illegal bucket shops.

Section 103. Legal certainty for excluded derivatives transactions

    This section amends section 2 of the CEA to create a new 
subsection (d), which provides that nothing in the CEA applies 
to a transaction in an excluded commodity if the transaction 
(1) is entered into only between eligible contract participants 
and (2) is not executed on a trading facility. New section 2 
also provides that nothing in the CEA applies to a transaction 
in an excluded commodity executed or traded on electronic 
trading facilities as long as the transaction is entered into 
on a principal-to-principal basis by certain eligible contract 
participants trading for their own accounts.

Section 104. Excluded electronic trading facilities

    This section amends section 2 of the CEA to create a new 
subsection (e) which excludes from the CEA electronic trading 
of excluded and exempt commodities by eligible contract 
participants. Paragraph (2) provides that nothing in the CEA 
prohibits a contract market or derivatives transaction 
execution facility from establishing and operating an excluded 
electronic trading facility.

Section 105. Hybrid instruments

    Section 105 amends section 2 of the CEA to create a new 
subsection (f) that provides that nothing in the CEA applies to 
a hybrid instrument that is predominantly a security or 
depository instrument. New paragraph (2) sets forth conditions 
for determining predominance to cover any hybrid instrument in 
which (1) the issuer of the instrument receives payment in full 
of the purchase price at the time the instrument is delivered; 
(2) the purchaser is not required to make additional payments; 
(3) the issuer of the instrument is not subject to mark-to-
market margining requirements; and (4) the instrument is not 
marketed as a futures contract or as an option on a futures 
contract. New paragraph (3) clarifies that mark-to-market 
margining requirements do not include the obligation of an 
issuer of a secured debt instrument to increase the amount of 
collateral held to secure the repayment obligations. This 
section does not prevent the issuer of a hybrid instrument from 
using exchange-traded futures or other instruments requiring 
mark-to-market margin requirements to hedge its obligations 
under the hybrid instrument.

Section 106. Futures on securities

    Section 106 ensures that excluded OTC equity derivatives 
remain outside the CEA and jurisdiction of the CFTC.

Section 107. Transactions in exempt commodities and swap transactions

    This section amends section 2 of the CEA by adding a new 
subsection (h) to provide legal certainty for exempt 
commodities. New section 2(h) provides that nothing in the CEA 
applies to transactions in exempt commodities that are entered 
into between eligible participants and are not entered into on 
a trading facility. The amendment further provides that nothing 
in the CEA applies to transactions in an exempt commodity that 
are conducted on a principal to principal basis between 
eligible contract participants on an electronic trading 
facility. However, transactions in exempt commodities are 
subject to the clearing system provisions of the bill, and the 
fraud and anti-manipulation provisions of the Act. In addition, 
the CFTC may prescribe rules to ensure the timely dissemination 
of electronic trading facility data if the CFTC determines that 
the electronic facility performs a significant prices discovery 
function.

Section 108. Protection of the public interest

    Section 108 rewrites section 3 of the CEA that lists the 
responsibilities of the CFTC and purposes of the CEA in 
protecting thepublic interest. These include: promoting 
financial innovation and competition; protecting investors from fraud 
and manipulation; fostering efficiency with transparent price 
dissemination; and preventing market manipulation and minimizing the 
risk of systemic failure.

Section 109. Prohibited transactions

    Section 109 rewrites section 4c of the CEA for clarity.

Section 110. Designation of boards of trade as contract markets

    This section amends section 5 and 5a of the CEA by creating 
a new section 5 providing for the designation of boards of 
trade as contract markets. Subsection (b) contains criteria 
that boards of trade must meet in order to be designated as a 
contract market. These include establishing and enforcing rules 
preventing market manipulation; ensuring fair and equitable 
trading by authorizing various futures exchange transactions; 
specifying how the trade execution facility operates, including 
any electronic matching systems; ensuring the financial 
integrity of transactions; disciplining members or market 
participants who violate the rules; allowing for public access 
to the board of trade rules; and enabling the board of trade to 
obtain information in order to enforce its rules. Existing 
contract markets are grandfathered in under new subsection (c). 
The 18 core principles that must be met to maintain designation 
as a contract market are contained in new subsection (d) and 
provide that a board of trade must: monitor and enforce 
compliance with the contract market rules; list contracts that 
are not susceptible to manipulation; monitor trading to prevent 
manipulation, price distortion and delivery or settlement 
disruptions; adopt position limits for speculators and hedgers; 
adopt rules to provide for the exercise of emergency authority, 
including the authority to liquidate or transfer open 
positions, suspend trading and make margin calls; make 
available the terms and conditions of the contracts and the 
mechanisms for executing transactions; publish daily 
information on prices, bids, offers, volume, open interest, and 
opening and closing ranges; provide a competitive, open and 
efficient market and mechanism for executing transactions; 
provide for the safe storage of all trade information in a 
readily usable manner to assist in fraud prevention; provide 
for the financial integrity of the contracts, the futures 
commission merchants and customer funds; protect market 
participants from abusive practices; provide for alternative 
dispute resolutions for market participants and intermediaries; 
establish and enforce rules regarding fitness standards for 
those involved in market governance; establish and enforce 
rules to minimize conflicts of interest in a contract market; 
ensure that the governing board reflects the composition of the 
market participants (in the case of mutually owned exchanges); 
maintain records; and avoid taking any action that restrains 
trade or imposes anti-competitive burdens on the markets.
    Subsection (e) provides that, with respect to futures 
contracts involving agricultural or metal commodities 
enumerated in section 1a(3) of the CEA, such contracts may only 
trade on designated contract markets. However, upon application 
by any person, the CFTC may prescribe rules and regulations to 
allow such agricultural commodities to trade on a derivatives 
transaction execution facility in instances where it would 
promote responsible economic or financial innovation and 
competition.

Section 111. Derivatives transaction execution facilities

    Section 111 amends the CEA by adding a new section 5a 
authorizing a new trading designation called a derivatives 
transaction execution facility (DTEF). Under subsection (b), a 
board of trade may elect to operate as a DTEF rather than a 
contract market if it meets the DTEF designation requirements. 
A registered DTEF may trade any non-designated futures contract 
if the commodity underlying the contract has a nearly 
inexhaustible supply, is not readily susceptible to 
manipulation, and does not have a cash market in commercial 
practice. Eligible DTEF traders include authorized contract 
market participants and persons trading through registered 
futures commission merchants with capital of at least 
$20,000,000 that are members of a self-regulatory organization 
(SRO) and a clearing organization. Boards of trade that have 
been designated as contract markets may operate as DTEFs if 
they provide a separate location for DTEF trading or, in the 
case of an electronic system, identify whether the trading is 
on a DTEF or contract market. Security future products, except 
futures on exempt securities, may not be traded on a DTEF.
    Subsection (c) provides criteria for boards of trade that 
wish to register as DTEFs, including: establishing and 
enforcing trading rules that will deter abuses, provide market 
participants impartial access to the markets, and capture 
information that may be used in rule enforcement. In addition, 
subsection (c) requires DTEFs to establish trading procedures 
to be used and to provide for the financial integrity of DTEF 
transactions.
    To maintain registration as a DTEF, a board of trade must 
comply with 9 core principles listed in subsection (d). It 
must: maintain and enforce rules; ensure orderly trading and 
provide trading information to the CFTC; publicly disclose 
information regarding contract terms, trading practices, and 
financial integrity protections; provide information on prices, 
bids and offers to market participants as well as daily 
information in volume and open interest for the actively traded 
contracts; establish and enforce rules regarding fitness 
standards for those involved in DTEF governance; establish and 
enforce rules to minimize conflicts of interest in a 
derivatives transaction execution facility; maintain records; 
and avoid taking any action that restrains trade or imposes 
anti-competitive burdens on the markets.
    Subsection (e) allows a broker-dealer, bank, or Farm Credit 
Institution in good standing to act as an intermediary on 
behalf of its customers and to receive customer funds serving 
as margin or security for the customer's transactions. If such 
entity holds the DTEF customer funds or accounts for more than 
1 business day, such entity must be a registered FCM and a 
member of a registered futures association. The CFTC is 
required to coordinate with the SEC, the Secretary of the 
Treasury, and the Federal banking regulatory authorities in 
adopting rules to implement this subsection.
    Under subsection (f), the CFTC may adopt regulations to 
allow FCMs to give customers that are eligible contract 
participants the right to not segregate customer funds for 
purposes of trading on the DTEF.
    Subsection (g) clarifies that a DTEF may trade derivatives 
that otherwise would be excluded, exempted or not subject to 
the CEA, other than derivatives involving securities (including 
security future products), and the CFTC has exclusive 
jurisdiction only when these instruments are traded on a DTEF.

Section 112. Derivatives clearing organizations

    This section amends the CEA to create a new section 5b 
regarding derivatives clearing organizations.
    Subsection (a) makes it unlawful for a derivatives clearing 
organization to operate unless it is registered with the CFTC.
    Subsection (b) provides an exclusion from the requirements 
in subsection (a) for clearing organizations that meet two 
requirements: first, the clearing organization must be 
registered with another federal regulatory agency (SEC or a 
federal banking regulator) or be subject to a foreign 
regulatory authority recognized by U.S. federal regulators; and 
second, the clearing organization must not clear futures or 
options other than (a) futures or options on security future 
products or (b) options on securities.
    Subsection (c) provides that organizations that are not 
excluded under subsection (b) may voluntarily register with the 
CFTC as a clearing organization.
    Subsection (d) sets forth the process for applying with the 
CFTC to be a clearing organization under this section, and 
provides 14 core principles that must be met and maintained in 
order to maintain registration as a clearing organization. The 
clearing organization must: register as a derivatives clearing 
organization; demonstrate adequate financial, operational and 
managerial resources; establish participant and product 
eligibility standards; have the ability to manage risks 
associated with derivatives clearing organizations; have the 
ability to perform proper settlement; have standards and 
procedures to protect member and participant funds; have rules 
and procedures to deal with defaults; monitor and enforce 
rules; ensure system safeguards for daily processing, clearing, 
and settlement of transactions; provide the CFTC with necessary 
information for the CFTC's oversight function; maintain and 
keep available records; make rules and procedures fully 
available; enter into and abide by information-sharing 
agreements; and avoid imposing any unreasonable or anti-
competitive burden on trading.
    Subsection (e) grandfathers existing derivatives clearing 
organizations that clear transactions for designated contract 
markets prior to date of enactment.
    Subsection (f) authorizes the CFTC to seek the appointment 
of a trustee by an appropriate U.S. district court if the 
registration of aderivatives clearing organization is suspended 
or revoked by the CFTC under section 5e.
    Subsection (g) requires the CFTC to facilitate and 
coordinate with Federal banking agencies and the SEC with 
respect to clearing organizations registered under this Act and 
other regulated clearing facilities.

Section 113. Common provisions applicable to registered entities

    Section 113 amends the CEA to create a new section 5c that 
contains provisions affecting all registered entities (contract 
markets, DTEFs, and derivatives clearing organizations).
    Subsection (a) allows the CFTC to issue or approve 
interpretations to describe what would constitute an acceptable 
business practice under the core principals for registered 
entities.
    Subsection (b) allows a registered entity to delegate its 
self regulatory functions to a registered futures association, 
while specifying that responsibility for carrying out these 
functions remain with the registered entity.
    Subsection (c) enables the registered entity to trade new 
products or adopt or amend rules by providing the CFTC (or, in 
the case of a government security product, the Secretary of the 
Treasury) a written certification that the new contract or new 
rule or amendment complies with the CEA. This subsection would 
allow a registered entity to request that the CFTC grant prior 
approval of a new contract, new rule or rule amendment. For 
enumerated commodity products, a contract market (futures 
exchange) shall submit to the CFTC for prior approval each rule 
amendment that materially changes the terms and conditions of a 
contract that has already been listed and has substantial open 
interest.
    Subsection (d) reserves all of the CFTC's emergency powers.

Section 114. Exempt boards of trade

    This section amends the CEA to create a new section 5d 
regarding exempt boards of trade. Under subsections (a) and 
(b), futures contracts traded on an exempt board of trade would 
be exempt from the CEA (except section 2(g) regarding equity 
futures) if: (1) the commodity underlying the futures contract 
has an inexhaustible deliverable supply, is not readily 
susceptible to manipulation, or has no cash market; (2) the 
futures contracts are entered into only by eligible contract 
participants; and (3) the contracts do not involve securities 
(including security indices).
    Subsection (c) subjects futures contracts traded on an 
exempt board of trade to the anti-fraud and anti-manipulation 
provisions of the CEA. Under subsection (d), if the CFTC finds 
that an exempt board of trade is a significant source of price 
discovery for the underlying commodity, the board of trade 
shall disseminate publicly on a daily basis trading volume, 
opening and closing price ranges, open interest, and other 
trading data as appropriate to the market.

Section 115. Suspension or revocation of designation as contract market

    Section 115 amends redesignated section 5e of the CEA to 
authorize the CFTC to suspend the registration of a registered 
entity for 180 days for any violation of the CEA.

Section 116. Authorization of appropriations

    Section 116 amends section 12(d) of the CEA by 
reauthorizing appropriations through fiscal year 2005.

Section 117. Preemption

    This section rewrites paragraph 12(e)(2) of the CEA for 
clarity and to conform with changes made in the bill. New 
section 12(e)(2) restates that the CEA supercedes and preempts 
other laws in the case of transactions conducted on a 
registered entity or subject to regulation by the CFTC (even if 
outside the United States), and adds that, in the case of 
excluded electronic trading facilities and any agreements, 
contracts or transactions that are excluded commodities or 
covered by a 4(c) exemption, the CEA supercedes and preempts 
state gaming and bucket shop laws (except for the anti-fraud 
provisions of bucket shop laws that are generally applicable).

Section 118. Consideration of costs and benefits and antitrust laws

    Section 118 amends section 15 of the CEA to add a new 
subsection (a) requiring the CFTC, before promulgating 
regulations and issuing orders, to consider the costs and 
benefits of its action. This does not apply to orders 
associated with an adjudicatory or investigative process, or to 
emergency actions or findings of fact regarding compliance with 
CFTC rules.

Section 119. Contract enforcement between eligible counterparties

    This section amends subsection 22(a) of the CEA to provide 
a safe harbor so that excluded transactions will not be 
voidable based solely on the failure of the transaction to 
comply with the terms or conditions of an exclusion or 
exemption from the Act or CFTC regulations.
    The Committee intends that any failure to provide a 
statutory exclusion or exemption for any type of swaps 
transactions does not reflect, and should not be construed to 
reflect, a determination by Congress that these categories of 
swaps transactions are subject to the CEA.

Section 120. Special procedures to encourage and facilitate bona fide 
        hedging by agricultural producers

    This section authorizes the CFTC to consider several 
factors to improve domestic agricultural producers' ability to 
use contract markets for hedging price risk. Specifically, this 
section authorizes CFTC, in issuing rules or orders, to 
consider: procedures to facilitate the orderly delivery of 
agricultural commodities, including temporary storage costs; 
the ease with which domestic agricultural producers may 
participate in contract markets, including cost and margin 
requirements; and flexibility in the minimum quantities of 
contract size. This section also requires the CFTC to report to 
the House and Senate Agriculture Committees regarding steps 
taken to implement this section.

Section 121. Rule of construction

    Section 121 provides that nothing in the CEA as amended by 
this legislation supersedes, affects, or otherwise limits or 
expands the scope and applicability of laws governing the 
Securities and Exchange Commission unless expressly provided.

Section 122. Technical and conforming amendments

    Section 122 makes technical and conforming amendment 
throughout the CEA to reflect changes made by the bill.

Section 123. Privacy

    This section extends privacy provisions of the Gramm-Leach-
Bliley Act to any entity or person subject to the jurisdiction 
of the CFTC under the CEA.

Section. 124. Report to Congress

    Section 124 requires the CFTC to study the CEA and its 
rules, regulations and orders governing the conduct of CFTC's 
registrants and report to Congress within one year.

Section. 125. Effective date

    This section specifies that the changes made by this 
legislation take effect on the date of enactment.

Section 126. International activities of the Commodity Futures Trading 
        Commission

    This section contains Congressional findings about the 
changing and global nature of derivatives markets, the increase 
in the use of data processing and communications technologies 
that enable users of risk management services to analyze and 
compare services on a worldwide basis, and the need for 
financial regulatory policy to be flexible and to avoid 
compromising U.S. competitiveness.
    This section also establishes that it is the sense of 
Congress that it is important for the CFTC, as part of its 
international activities, to continue to coordinate with 
foreign regulatory authorities, participate in international 
regulatory organizations and forums, and provide technical 
assistance to foreign government authorities in order to 
encourage and facilitate cross-border transactions, reduce 
unnecessary obstacles, and enhance international cooperation 
and information sharing.

                  TITLE II--SECURITIES ACTS AMENDMENTS

                         Subtitle A--Amendments

Section 201. Definitions under the Securities Exchange Act of 1934

    Section 201 amends section 3 of the Securities Exchange Act 
of 1934 (Exchange Act) to add definitions of the terms 
``security future,'' ``security future product,'' and ``narrow-
based security index'' (15 U.S.C. 78c). The question of what 
constitutes a narrow-based index under the Shad-Johnson Accord 
was litigated in Board of Trade of the City of Chicago v. SEC 
187 F.3d 713 (7th Cir 1999). The Committee does not intend any 
provision of title II, including but not limited to the 
definition of ``narrow-based security index'' in the Exchange 
Act, the Securities Act of 1933, the Investment Company Act of 
1940, or the Investment Advisers Act of 1940, to disturb the 
determination of the Seventh Circuit in that case.
    This section also amends section 3 to add definitions of 
the terms ``margin,'' ``margin level,'' ``level of margin,'' 
``higher margin level,'' and ``higher level of margin.'' In 
addition, section 3 includes the term ``security future'' in 
the definitions of the terms ``security'' and ``equity 
security.''

Section 202. Regulatory relief for markets trading security future 
        products

    Section 202 amends section 6 of the Exchange Act to provide 
for expedited SEC registration of CFTC designated contract 
markets that fall within the statutory definition of the term 
``exchange'' by trading security future products. These 
``notice registrant'' exchanges become registered by filing a 
notice with the SEC. Because notice registrant exchanges 
continue to be subject to the CEA, they are exempt from all but 
the core provisions of the federal securities laws applicable 
to exchanges.
    Section 202 also amends section 6 of the Exchange Act to 
permit notice registrant exchanges to increase margin levels 
above minimum levels established jointly by the SEC and the 
CFTC by submitting proposed rule changes through the expedited 
filing process described below. In addition, amended section 6 
provides that notice registrant exchanges are required to 
submit any other proposed rule changes relating to margin 
(except for changes resulting in higher margin levels) for SEC 
approval under section 19(b)(2) of the Exchange Act.
    Section 202 further amends section 6 of the Exchange Act to 
provide a waiting period before security future products may be 
traded. Specifically, section 6 prohibits the trading of 
security future products until the later of: (a) the date on 
which federal income tax treatment for security future products 
is equivalent to that for equity options; or (b) one year after 
enactment of the legislation.
    Section 202 amends section 19 of the Exchange Act to limit 
the types of proposed rule changes that notice registrant 
exchanges have to file and to provide for expedited treatment 
of such proposed rule changes. In particular, section 19 
requires notice registrant exchanges to file with the SEC under 
new section 19(b)(7) only proposed rule changes that relate to 
higher margin levels, fraud or manipulation, record keeping, 
reporting, listing standards, decimal pricing for security 
future products, sales practices for security futures products 
for persons who effect transactions in security future 
products, and rules effectuating their obligations to enforce 
the federal securities laws. Notice registrant exchanges are 
required to file these proposed rule changes with the CFTC 
simultaneously. The SEC is permitted to abrogate a proposed 
rule change filed by a notice registrant exchange after it 
takes effect, but only if the SEC determines that the rule 
change unduly burdens competition, conflicts with the federal 
securities laws, does not promote efficiency, or is 
inconsistent with the public interest and the protection of 
investors.
    Section 202 provides for SEC consultation with the CFTC, 
except for emergencies, for proposed rule changes that 
primarily concern conduct related to security future product 
transactions submitted by national securities exchanges and 
national securities associations that are not notice 
registrants.
    Section 202 also amends section 19 of the Exchange Act to 
provide that the SEC does not have the authority to review 
final disciplinary proceedings by notice registrant exchanges 
except to the extent that they relate to a violation of the 
federal securities laws or a violation of the exchange's rules 
with respect to a security future product. Finally, section 202 
requires that security future products be priced in decimals 
with no SEC or CFTC mandated minimum increments.

Section 203. Regulatory relief for intermediaries trading security 
        future products

    Section 203 amends section 15 of the Exchange Act to 
provide for expedited SEC registration of CFTC registered 
futures commission merchants (FCMs) and introducing brokers 
that would fall within the statutory definition of the term 
``broker'' or ``dealer'' solely by effecting transactions in 
security future products. These ``notice registrant'' broker-
dealers become registered by filing a notice with the SEC. 
Because notice registrant broker-dealers continue to be subject 
to the CEA, they are exempt from all but the core provisions of 
the federal securities laws applicable to broker-dealers.
    Section 203 also amends section 15 of the Exchange Act to 
provide an exemption from all broker-dealer registration 
requirements for floor brokers and floor traders on CFTC 
designated contract markets.
    Section 203 amends section 15A of the Exchange Act to allow 
futures associations to become national securities associations 
for the limited purpose of regulating the activities of notice 
registrant broker-dealers.
    Amended section 15A also exempts futures associations from 
all but the core requirements of the federal securities laws 
applicable to national securities associations and provides for 
limited review by the SEC of futures association rules relating 
to security future products. A futures association, such as the 
National Futures Association (NFA), becomes a national 
securities association automatically as long as it meets 
certain conditions. The NFA (and other limited purpose national 
securities associations) are expected to enforce securities 
laws applicable to security future products. As a result, 
notice registrant broker-dealers that belong to the NFA do not 
have to join the National Association of Securities Dealers.
    Section 203 amends the Securities Investor Protection Act 
of 1970 to exempt notice registrant broker-dealers from the 
requirement to join the Securities Investor Protection 
Corporation (SIPC) (15 U.S.C. 78bbb-78kkk). In addition, 
section 203 extends the protections of SIPC to customer 
positions in security future products that are held by 
registered broker-dealers (other than notice registrant broker-
dealers).
    Finally, section 203 makes a technical amendment to section 
15(i)(6)(A) of the Exchange Act to avoid extending the 
definition of ``new hybrid product'' to security future 
products.

Section 204. Special provisions for interagency cooperation

    Section 204 amends section 17 of the Exchange Act to permit 
the SEC to examine limited purpose national securities 
associations, notice registrant broker-dealers and exchanges. 
Amended section 17 requires the SEC to notify the CFTC of such 
examinations. In addition, amended section 17 requires the SEC, 
to the fullest extent possible, to use the CFTC's examination 
reports.
    In addition, it requires the SEC and the CFTC jointly to 
prescribe rules to require large trader reporting with respect 
to security future products. Those rules must specify a 
reporting level for each security future product, a format for 
reporting, and the procedures for filing the reports with the 
SEC and the CFTC.

Section 205. Maintenance of market integrity for security future 
        products

    Section 205 is intended to ensure effective enforcement 
against unlawful practices with respect to the trading of 
security future products. Specifically, section 205 amends 
sections 9(b), 9(g), 20(d), and 21A(a)(1) of the Exchange Act, 
which relate to the trading of options and their underlying 
securities, so they expressly apply to security future 
products. In addition, section 205 amends section 21 of the 
Exchange Act to require the SEC to file with the CFTC a notice 
of the commencement of any proceeding, and a copy of any order 
issued, against a notice registrant broker-dealer or exchange.

Section 206. Special provisions for the trading of security future 
        products

    Section 206 amends section 6 of the Exchange Act to provide 
minimum requirements for the listing and trading of security 
future products, including requirements that trading in the 
security future not be readily susceptible to manipulation or 
to causing or being used in the manipulation of the underlying 
security, transactions in security future products be effected 
by broker-dealers subject to suitability requirements generally 
comparable to those of the National Association of Securities 
Dealers (NASD), and procedures for coordinated surveillance. 
This section also provides that any market other than a 
national securities exchange or national securities association 
registered pursuant to section 15(A)(a), such as an ATS, may 
trade a security future product provided that it does so 
pursuant to procedures and rules established by a national 
securities association regarding surveillance coordination, 
audit trails, and trading halt coordination. The section 
requires that these rules be adopted no later than one year 
after enactment of the bill so that trading of security future 
products will not commence until ATSs also can trade the 
products. The Committee intends that the rules adopted by the 
NSA pertaining to ATSs not impose an undue burden on 
competition. The Committee further intends that the SEC 
disapprove any SRO rule that would allow the trading of 
security future products on an exchange on terms more favorable 
than those pertaining to an ATS, consistent with the 
requirements of section 3(f) of the Securities Exchange Act of 
1934. The Committee intends that this section improve 
competition within the marketplace by allowing ATSs to trade 
security futures in full and fair competition with exchanges 
and the NASD.
    After a study, this section allows the SEC and CFTC jointly 
to permit options on security futures.
    This section also amends section 7 of the Exchange Act to 
permit the SEC to establish margin requirements for security 
futures and narrow based indices after consultation with the 
CFTC.
    Section 206 also amends section 11A of the Exchange Act to 
require the SEC to consult with the CFTC on national market 
system rulemaking relating to security future products. In 
addition, amended section 11A provides that any national market 
system rules adopted by the SEC do not apply to trading on 
notice registrant exchanges unless the CFTC specifically orders 
that they should apply.
    This section also amends section 17A of the Exchange Act to 
provide that clearing agencies regulated by the CFTC do not 
have to register with the SEC in order to clear and settle 
transactions in security future products. Amended section 17A 
also provides that all clearing agencies that clear security 
future products (whether registered or exempted from 
registration) must coordinate with and develop links with one 
another.
    Finally, section 206 amends section 12 of the Exchange Act 
to require the SEC to consult with the CFTC before suspending 
trading in a security future product or taking emergency action 
with respect to a security future product.

Section 207. Amendments relating to the clearance and settlement of 
        over-the-counter derivatives

    This section amends section 17A of the Exchange Act to 
provide registered clearing agencies with the express authority 
to clear and settle over-the-counter derivatives.

Section 208. Amendments relating to registration and disclosure issues 
        under the Securities Act of 1933 and the Securities Exchange 
        Act of 1934

    Section 208 amends section 2 of the Securities Act of 1933 
(Securities Act) to incorporate definitions of the terms 
``security future,'' ``security future product,'' and ``narrow-
based security index.'' (15 U.S.C. 77b). In addition, section 2 
includes the term ``security future'' in the definition of the 
term ``security.''
    Section 208 further amends section 2 of the Securities Act 
to provide that any offer or sale of a security future product 
by or on behalf of an issuer of underlying securities, any 
affiliate of an issuer, or an underwriter constitutes a 
contract for sale of, sale of, offer for sale of, or offer to 
sell the underlying securities.
    Section 208 also amends section 3 of the Securities Act to 
exempt from the registration requirements of section 5 any 
security future product that is (1) cleared by a clearing 
agency registered under section17A of the Exchange Act or 
exempt from registration under section 17A(b)(7) of the Exchange Act; 
and (2) listed on a registered exchange or a national securities 
association registered pursuant to section 15A(a) of the Exchange Act.
    Further, section 208 amends section 12(a)(2) of the 
Securities Act to exempt offers or sales of security futures 
that are exempt from section 5 by reason of section 3(a) from 
the liability provisions of section 12(a)(2) of the Securities 
Act.
    Section 208 amends section 12(a) of the Exchange Act to 
exempt security future product listed on a national securities 
exchange from the registration requirements of that section. 
Because the security future product need not be registered 
under section 12, the provisions of sections 13, 14 and 16 of 
the Exchange Act do not apply to the security future product as 
a class of equity security registered under section 12. 
Sections 13(e), 14(d) and 14(e) of the Exchange Act still apply 
to the securities underlying security futures.
    Section 208 also amends section 12(g)(5) of the Exchange 
Act to clarify that, for purposes of section 12(g), a security 
future product is not to be considered a separate class of 
equity security of the issuer of the securities underlying the 
security future product.
    Lastly, section 208 amends section 16 of the Exchange Act 
to provide that, for purposes of section 16 of the Exchange 
Act, ownership of and transactions in security futures are 
considered ownership of and transactions in the underlying 
equity securities.

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

    Section 209 amends section 2 of the Investment Company Act 
of 1940 (Investment Company Act) to incorporate definitions of 
the terms ``security future'' and ``narrow-based security 
index'' (15 U.S.C. 80a-2). In addition, section 2 of the 
Investment Company Act is amended to include the term 
``security future'' in the definition of the term ``security.''
    Section 209 will assure that a publicly offered pooled 
investment vehicle that invests in security futures and that is 
not excluded from the definition of ``investment company'' 
under the Investment Company Act will be encompassed within the 
definition of an ``investment company'' and regulated as such 
under the Investment Company Act. Mutual funds investing in 
securities and pools investing in security futures would be 
engaged in functionally equivalent economic activity. The 
performance of security futures necessarily will be closely 
correlated with the performance of the underlying securities. 
Pools of securities and pools of comparable security futures 
can be expected to have very similar performance results. From 
an investor's point of view, purchasing shares of a mutual 
fund, or interests in a similar pool that invests in security 
futures, will appear to be economically equivalent. As a 
result, the Committee provides for the regulation of these 
pools as investment companies.
    Section 209 also amends section 202 of the Investment 
Advisers Act of 1940 (Advisers Act) to add definitions of the 
terms ``security future'' and ``narrow-based security index'' 
and to include the term ``security future'' in the definition 
of the term ``security'' (15 U.S.C 80b-2). Section 209 also 
adds new section 203(b)(6) to the Advisers Act, which exempts 
from the registration provisions of the Advisers Act any 
investment adviser that is registered with the CFTC as a 
commodity trading adviser, whose business does not consist 
primarily of acting as an investment adviser and that does not 
act as an investment advisor to an investment company 
registered under the Investment Company Act or a business 
development company that has elected to be regulated under the 
Investment Company Act and has not withdrawn such election.
    The SEC and the CFTC will promulgate complementary rules or 
regulations to give effect to these provisions.

Section 210. Preemption

    Section 210 amends Section 28 of the Exchange Act to 
clarify the preemption of the state laws related to gaming and 
bucket shops.

    Subtitle B--Conforming Amendments to the Commodity Exchange Act

Section 221. Amendments relating to the jurisdiction of the Securities 
        and Exchange Commission

    Section 221 amends section 2 of the CEA to clarify that 
security futures are jointly regulated by the CFTC and the SEC, 
and that security futures are not subject to the exclusive 
jurisdiction of the CFTC.
    Section 221 also amends section 2 of the CEA to provide 
criteria that security futures will have to meet before they 
could be traded on a designated contract market. These criteria 
include requirements that trading in the security future 
product not be readily susceptible to manipulation or to 
causing or being used in the manipulation of the underlying 
security, transactions in security futures be effected only by 
futures commission merchants, introducing brokers, commodity 
trading advisers, commodity pool operators, or associated 
persons subject to suitability requirements comparable to those 
of a registered national securities association, and procedures 
for coordinated surveillance be in place to detect manipulation 
and insider trading between the market trading the security 
future product and markets trading the underlying securities 
and other related securities.
    In addition, section 221 amends section 2 of the CEA to 
permit the CFTC to examine designated contract markets, futures 
commission merchants, introducing brokers, commodity trading 
advisers, commodity pool operators, and associated persons that 
are registered with the CFTC under the expedited notice 
registration process described below. Amended section 2 
requires the CFTC to notify the SEC of such examinations. In 
addition, amended section 2 requires the CFTC to the fullest 
extent possible, to use the SEC's examination reports.
    Moreover, section 221 allows the SEC and CFTC jointly to 
permit options on security futures after a period of study.
    Section 221 amends section 2 of the CEA to permit the CFTC 
and the SEC to establish margin requirements for security 
futures.
    Furthermore, section 221 amends section 4m of the CEA to 
exempt from regulation as commodity trading advisors, 
investment advisers registered with the SEC whose business does 
not consist primarily of acting as a commodity trading advisor 
and that does not act as a commodity trading advisor to any 
investment trust, syndicate, or similar form of enterprise that 
is engaged primarily in trading in any commodity for future 
delivery on or subject to the rules of any contract market. 
Finally, section 221 amends section 16 of the CEA to clarify 
that this section's provisions do not apply to investigations 
involving any security underlying a security future product.

Section 222. Regulatory relief under the Commodity Exchange Act for 
        markets and intermediaries trading security future products

    Section 222 adds section 5f to the CEA to provide for 
expedited CFTC registration as designated contract markets of 
national securities exchanges, national securities 
associations, and alternative trading systems that are 
registered with the SEC that would fall within the statutory 
definition of the term ``board of trade'' by trading security 
future products. These ``notice registrant'' designated 
contract markets become registered by filing a notice with the 
CFTC. Because notice registrant designated contract markets 
continue to be subject to the federal securities laws, they are 
exempt from all but the core provisions of the CEA applicable 
to designated contract markets.
    This section also amends section 4f of the CEA to provide 
for expedited CFTC registration of SEC registered broker-
dealers that would fall within the statutory definition of the 
term ``futures commission merchant'' or ``introducing broker'' 
by effecting transactions in security future products. These 
``notice registrants'' become registered by filing a notice 
with the CFTC. In addition, amended section 4f provides that 
SEC registered broker-dealers that would fall within the 
definition of ``floor broker'' or ``floor trader'' by effecting 
transactions in security future products are exempt from CEA 
registration. Because these entities continue to be subject to 
the federal securities laws, they are exempt from all but the 
core provisions of the CEA that otherwise would apply to them.
    In addition, section 222 amends section 4k of the CEA to 
provide exemptions from relevant provisions of the CEA for 
associated persons of SEC registered broker-dealers.

Section 223. Amendments relating to the notification of investigations 
        and enforcement actions

    Section 223 amends sections 6, 6c, and 8 of the CEA to 
require the CFTC to file with the SEC a notice of the 
commencement of any proceeding, and a copy of any order issued, 
against a notice registrant designated contract market, futures 
commission merchant, introducing broker, floor broker, or floor 
trader.

                       Subtitle C--Effective Date

Section 231. Effective date

    This section provides that amendments made by this bill 
become effective on the date of the enactment of the 
legislation.

         Changes in Existing Law Made by the Bill, as Reported

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

COMMODITY EXCHANGE ACT

           *       *       *       *       *       *       *

SEC. 1A. DEFINITIONS.

  As used in this Act:
          (1) Alternative trading system.--The term 
        ``alternative trading system'' means an organization, 
        association, or group of persons that is registered as 
        a broker or dealer pursuant to section 15(b) of the 
        Securities Exchange Act of 1934 (except paragraph (11) 
        thereof) and that performs the functions commonly 
        performed by an exchange (as defined in section 3(a)(1) 
        of such Act) but that is exempt from the definition of 
        the term ``exchange'' under such section 3(a)(1) by 
        rule or regulation of the Securities and Exchange 
        Commission on terms that require compliance with 
        regulations of the trading functions of such 
        organization, association, or group of persons.
          [(1)] (2) Board of trade.--The term ``board of 
        trade'' means any exchange or association, whether 
        incorporated or unincorporated, of persons who are 
        engaged in the business of buying or selling any 
        commodity or receiving the same for sale on 
        consignment.
          [(2)] (3) Commission.--The term ``Commission'' means 
        the Commodity Futures Trading Commission established 
        under section 2(a)(2).
          [(3)] (4) Commodity.--The term ``commodity'' means 
        wheat, cotton, rice, corn, oats, barley, rye, flaxseed, 
        grain sorghums, mill feeds, butter, eggs, Solanum 
        tuberosum (Irish potatoes), wool, wool tops, fats and 
        oils (including lard, tallow, cottonseed oil, peanut 
        oil, soybean oil, and all other fats and oils), 
        cottonseed meal, cottonseed, peanuts, soybeans, soybean 
        meal, livestock, livestock products, and frozen 
        concentrated orange juice, and all other goods and 
        articles, except onions as provided in Public Law 85-
        839 (7 U.S.C. 13-1), and all services, rights, and 
        interests in which contracts for future delivery are 
        presently or in the future dealt in.
          [(4)] (5) Commodity pool operator.--The term 
        ``commodity pool operator'' means any person engaged in 
        a business that is of the nature of an investment 
        trust, syndicate, or similar form of enterprise, and 
        who, in connection therewith, solicits, accepts, or 
        receives from others, funds, securities, or property, 
        either directly or through capital contributions, the 
        sale of stock or other forms of securities, or 
        otherwise, for the purpose of trading in any commodity 
        for future delivery on or subject to the rules of any 
        contract market or derivatives transaction execution 
        facility, except that the term does not include such 
        persons not within the intent of the definition of the 
        term as the Commission may specify by rule, regulation, 
        or order.
          [(5)] (6) Commodity trading advisor.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, the term ``commodity trading 
                advisor'' means any person who--
                          (i) for compensation or profit, 
                        engages in the business of advising 
                        others, either directly or through 
                        publications, writings, or electronic 
                        media, as to the value of or the 
                        advisability of trading in--
                                  (I) any contract of sale of a 
                                commodity for future delivery 
                                made or to be made on or 
                                subject to the rules of a 
                                contract market or derivatives 
                                transaction execution facility;

           *       *       *       *       *       *       *

                  (B) Exclusions.--Subject to subparagraph (C), 
                the term ``commodity trading advisor'' does not 
                include--
                          (i) * * *

           *       *       *       *       *       *       *

                          (vi) any contract market or 
                        derivatives transaction execution 
                        facility; and

           *       *       *       *       *       *       *

          [(6)] (7) Contract of sale.--The term ``contract of 
        sale'' includes sales, agreements of sale, and 
        agreements to sell.
          [(7)] (8) Cooperative association of producers.--The 
        term ``cooperative association of producers'' means any 
        cooperative association, corporate, or otherwise, not 
        less than 75 percent in good faith owned or controlled, 
        directly or indirectly, by producers of agricultural 
        products and otherwise complying with the Act of 
        February 18, 1922 (42 Stat. 388, chapter 57; 7 U.S.C. 
        291 and 292), including any organization acting for a 
        group of such associations and owned or controlled by 
        such associations, except that business done for or 
        with the United States, or any agency thereof, shall 
        not be considered either member or nonmember business 
        in determining the compliance of any such association 
        with this Act.
          (9) Derivatives clearing organization.--
                  (A) In general.--The term ``derivatives 
                clearing organization'' means a clearinghouse, 
                clearing association, clearing corporation, or 
                similar entity, facility, system, or 
                organization that, with respect to a derivative 
                agreement, contract, or transaction--
                          (i) enables each party to the 
                        derivative agreement, contract, or 
                        transaction to substitute, through 
                        novation or otherwise, the credit of 
                        the derivatives clearing organization 
                        for the credit of the parties;
                          (ii) arranges or provides, on a 
                        multilateral basis, for the settlement 
                        or netting of obligations resulting 
                        from such agreements, contracts, or 
                        transactionsexecuted by parties in the 
derivatives clearing organization; or
                          (iii) otherwise provides clearing 
                        services or arrangements that mutualize 
                        or transfer among parties in the 
                        derivatives clearing organization the 
                        credit risk arising from such 
                        agreements, contracts, or transactions 
                        executed by the parties.
                  (B) Exclusions.--The term ``derivatives 
                clearing organization'' does not include an 
                entity, facility, system, or organization 
                solely because it arranges or provides for--
                          (i) settlement, netting, or novation 
                        of obligations resulting from 
                        agreements, contracts, or transactions, 
                        on a bilateral basis and without a 
                        centralized counterparty;
                          (ii) settlement or netting of cash 
                        payments through an interbank payment 
                        system; or
                          (iii) settlement, netting, or 
                        novation of obligations resulting from 
                        a sale of a commodity in a transaction 
                        in the spot market for the commodity.
          (10) Electronic trading facility.--The term 
        ``electronic trading facility'' means a trading 
        facility that--
                  (A) operates by means of an electronic 
                network; and
                  (B) maintains a real-time audit trail of 
                bids, offers, and the matching of orders or the 
                execution of transactions.
          (11) Eligible commercial participant.--The term 
        ``eligible commercial participant'' means a party or 
        entity described in paragraph (11)(A)(i), (ii), (v), or 
        (viii) or paragraph (11)(C), who, in connection with 
        its business--
                  (A) has a demonstrable capacity or ability, 
                directly or through separate contractual 
                arrangements, to make or take delivery of the 
                underlying physical commodity;
                  (B) incurs risks, in addition to price risk, 
                related to the commodity; or
                  (C) is a dealer that regularly provides 
                hedging, risk management, or market-making 
                services to the foregoing entities.
          (12) Eligible contract participant.--The term 
        ``eligible contract participant'' means--
                  (A) acting for its own account--
                          (i) a financial institution;
                          (ii) an insurance company regulated 
                        by a State or a foreign government 
                        (including a regulated subsidiary or 
                        affiliate of such an insurance 
                        company);
                          (iii) an investment company subject 
                        to regulation under the Investment 
                        Company Act of 1940 (15 U.S.C. 80a-1 et 
                        seq.) or a foreign person performing a 
                        similarrole or function subject as such 
to foreign regulation (regardless of whether each investor in the 
investment company or the foreign person is itself an eligible contract 
participant);
                          (iv) a commodity pool that--
                                  (I) has total assets 
                                exceeding $5,000,000; and
                                  (II) is formed and operated 
                                by a person subject to 
                                regulation under this Act or a 
                                foreign person performing a 
                                similar role or function 
                                subject as such to foreign 
                                regulation (regardless of 
                                whether each investor in the 
                                commodity pool or the foreign 
                                person is itself an eligible 
                                contract participant);
                          (v) a corporation, partnership, 
                        proprietorship, organization, trust, or 
                        other entity--
                                  (I) that has total assets 
                                exceeding $10,000,000;
                                  (II) the obligations of which 
                                under an agreement, contract, 
                                or transaction are guaranteed 
                                or otherwise supported by a 
                                letter of credit or keepwell, 
                                support, or other agreement by 
                                an entity described in 
                                subclause (I), in clause (i), 
                                (ii), (iii), (iv), or (vii), or 
                                in subparagraph (C); or
                                  (III) that--
                                          (aa) has a net worth 
                                        exceeding $1,000,000; 
                                        and
                                          (bb) enters into an 
                                        agreement, contract, or 
                                        transaction in 
                                        connection with the 
                                        conduct of the entity's 
                                        business or to manage 
                                        the risk associated 
                                        with an asset or 
                                        liability owned or 
                                        incurred or reasonably 
                                        likely to be owned or 
                                        incurred by the entity 
                                        in the conduct of the 
                                        entity's business;
                          (vi) an employee benefit plan subject 
                        to the Employee Retirement Income 
                        Security Act of 1974 (29 U.S.C. 1001 et 
                        seq.) or a foreign person performing a 
                        similar role or function subject as 
                        such to foreign regulation--
                                  (I) that has total assets 
                                exceeding $5,000,000; or
                                  (II) the investment decisions 
                                of which are made by--
                                          (aa) an investment 
                                        advisor or commodity 
                                        trading advisor subject 
                                        to regulation under the 
                                        Investment Advisers Act 
                                        of 1940 (15 U.S.C. 80b-
                                        1 et seq.) or this Act;
                                          (bb) a foreign person 
                                        performing a similar 
                                        role or function 
                                        subject as such to 
                                        foreign regulation;
                                          (cc) a financial 
                                        institution; or
                                          (dd) an insurance 
                                        company regulated by a 
                                        State or a foreign 
                                        government (including a 
                                        regulated subsidiary or 
                                        affiliate of such an 
                                        insurance company);
                          (vii)(I) a governmental entity 
                        (including the United States, a State, 
                        or a foreign government) or political 
                        subdivision of a governmental entity;
                          (II) a multinational or supranational 
                        government entity; or
                          (III) an instrumentality, agency, or 
                        department of an entity described in 
                        subclause (I) or (II);
                          (viii)(I) a broker or dealer subject 
                        to regulation under the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78a et 
                        seq.) or a foreign person performing a 
                        similar role or function subject as 
                        such to foreign regulation, except 
                        that, if the broker or dealer or 
                        foreign person is a natural person or 
                        proprietorship, the broker or dealer or 
                        foreign person shall not be considered 
                        to be an eligible contract participant 
                        unless the broker or dealer or foreign 
                        person also meets the requirements of 
                        clause (v) or (xi);
                          (II) an associated person of a 
                        registered broker or dealer concerning 
                        the financial or securities activities 
                        of which the registered person makes 
                        and keeps records under section 15C(b) 
                        or 17(h) of the Securities Exchange Act 
                        of 1934 (15 U.S.C. 78o-5(b), 78q(h));
                          (III) an investment bank holding 
                        company (as defined in section 17(i) of 
                        the Securities Exchange Act of 1934 (15 
                        U.S.C. 78q(i)));
                          (ix)(I) a futures commission merchant 
                        subject to regulation under this Act or 
                        a foreign person performing a similar 
                        role or function subject as such to 
                        foreign regulation, except that, if the 
                        futures commission merchant or foreign 
                        person is a natural person or 
                        proprietorship, the futures commission 
                        merchant or foreign person shall not be 
                        considered to be an eligible contract 
                        participant unless the futures 
                        commission merchant or foreign person 
                        also meets the requirements of clause 
                        (v) or (xi); or
                          (II) an affiliate of a registered 
                        futures commission merchant concerning 
                        the financial activities of which the 
                        registered person makes and keeps 
                        records under section 4f(c)(2)(B) of 
                        this Act;
                          (x) a floor broker or floor trader 
                        subject to regulation under this Act in 
                        connection with any transaction that 
                        takes place on or through the 
                        facilities of a registered entity or an 
                        exempt board of trade, or any affiliate 
                        thereof, on which such person regularly 
                        trades; or
                          (xi) a natural person with total 
                        assets exceeding $10,000,000;
                  (B)(i) a person described in clause (i), 
                (ii), (viii), (ix), or (x) of subparagraph (A) 
                or in subparagraph (C), acting as broker or 
                performing an equivalent agency function on 
                behalf of another person described in 
                subparagraph (A) or (C); or
                  (ii) an investment adviser subject to 
                regulation under the Investment Advisers Act of 
                1940, a commodity trading advisor subject to 
                regulation under this Act, a foreign person 
                performing a similar role or function subject 
                as such to foreign regulation, or a person 
                described in clause (i), (ii), (viii), (ix), or 
                (x) of subparagraph (A) or in subparagraph (C), 
                in any such case acting as investment manager 
                or fiduciary (but excluding a person acting as 
                broker or performing an equivalent agency 
                function) for another person described in 
                subparagraph (A) or (C) and who is authorized 
                by such person to commit such person to the 
                transaction; or
                  (C) any other person that the Commission 
                determines to be eligible in light of the 
                financial or other qualifications of the 
                person;
        except that entities that are eligible contract 
        participants under clause (v), (vi), (vii)(I) or (III), 
        or (xi) of subparagraph (A) or subparagraph (C) and own 
        and invest on a discretionary basis less than 
        $50,000,000 in investments, shall only be considered 
        eligible contract participants if the agreement, 
        contract, or transaction is offered by, and entered 
        into with, an entity that is listed in any of 
        subclauses (I) through (VI) of section 2(c)(2)(B)(ii) 
        of this Act.
          (13) Excluded commodity.--The term ``excluded 
        commodity'' means--
                  (A) an interest rate, exchange rate, 
                currency, security, security index, credit risk 
                or measure, debt or equity instrument, or index 
                or measure of inflation;
                  (B) any other rate, differential, index, or 
                measure of economic or commercial risk, return, 
                or value that--
                          (i) is not within the control of any 
                        party to the relevant contract, 
                        agreement, or transaction; and
                          (ii) is not based in substantial part 
                        on the value of a limited number of 
                        commodities not described in 
                        subparagraph (A) that have a finite 
                        supply; or
                  (C) an occurrence, extent of an occurrence, 
                or contingency associated with commercial or 
                economic consequences beyond the control of the 
                parties to the relevant contract, agreement, or 
                transaction.
          (14) Exempt commodity.--The term ``exempt commodity'' 
        means a commodity that is not an excluded commodity and 
        is not an agricultural commodity.
          (15) Financial institution.--The term ``financial 
        institution'' means--
                  (A) a corporation operating under the fifth 
                undesignated paragraph of section 25 of the 
                Federal Reserve Act (12 U.S.C. 603), commonly 
                known as ``an agreement corporation'';
                  (B) a corporation organized under section 25A 
                of the Federal Reserve Act (12 U.S.C. 611 et 
                seq.), commonly known as an ``Edge Act 
                corporation'';
                  (C) an institution that is regulated by the 
                Farm Credit Administration;
                  (D) a Federal credit union or State credit 
                union (as defined in section 101 of the Federal 
                Credit Union Act (12 U.S.C. 1752));
                  (E) a depository institution (as defined in 
                section 3 of the Federal Deposit Insurance Act 
                (12 U.S.C. 1813));
                  (F) a foreign bank or a branch or agency of a 
                foreign bank (each as defined in section 1(b) 
                of the International Banking Act of 1978 (12 
                U.S.C. 3101(b)));
                  (G) a financial holding company (as defined 
                in section 2 of the Bank Holding Company Act of 
                1956 (12 U.S.C. 1841));
                  (H) a trust company; or
                  (I) a similarly regulated subsidiary or 
                affiliate of an entity described in any of 
                subparagraphs (A) through (H).
          [(8)] (16) Floor broker.--The term ``floor broker'' 
        means any person who, in or surrounding any pit, ring, 
        post, or other place provided by a contract market or 
        derivatives transaction execution facility for the 
        meeting of persons similarly engaged, shall purchase or 
        sell for any other person any commodity for future 
        delivery on or subject to the rules of any contract 
        market.
          [(9)] (17) Floor trader.--The term ``floor trader'' 
        means any person who, in or surrounding any pit, ring, 
        post, or other place provided by a contract market for 
        the meeting of persons similarly engaged, purchases, or 
        sells solely for such person's own account, any 
        commodity for future delivery on or subject to the 
        rules of any contract market or derivatives transaction 
        execution facility.
          [(10)] (18) Foreign futures authority.--The term 
        ``foreign futures authority'' means any foreign 
        government, or any department, agency, governmental 
        body, or regulatory organization empowered by a foreign 
        government to administer or enforce a law, rule, or 
        regulation as it relates to a futures or options 
        matter, or any department or agency of a political 
        subdivision of a foreign government empowered to 
        administer or enforce a law, rule, or regulation as it 
        relates to a futures or options matter.
          [(11)] (19) Future delivery.--The term ``future 
        delivery'' does not include any sale of any cash 
        commodity for deferred shipment or delivery.
          [(12)] (20) Futures commission merchant.--The term 
        ``futures commission merchant'' means an individual, 
        association, partnership, corporation, or trust that--
                  (A) is engaged in soliciting or in accepting 
                orders for the purchase or sale of any 
                commodity for future delivery on or subject to 
                the rules of any contract market or derivatives 
                transaction execution facility; and
                  (B) in or in connection with such 
                solicitation or acceptance of orders, accepts 
                any money, securities, or property (or extends 
                credit in lieu thereof) to margin, guarantee, 
                or secure any trades or contracts that result 
                or may result therefrom.
          (21) Hybrid instrument.--The term ``hybrid 
        instrument'' means a deposit (as defined in section 3 
        of the Federal Deposit Insurance Act (12 U.S.C. 1813)) 
        offered by a financial institution, or a security, 
        having 1 or more payments indexed to the value, level, 
        or rate of 1 or more commodities.
          [(13)] (22) Interstate commerce.--The term 
        ``interstate commerce'' means commerce--
                  (A) between any State, territory, or 
                possession, or the District of Columbia, and 
                any place outside thereof; or
                  (B) between points within the same state, 
                territory, or possession, or the District of 
                Columbia, but through any place outside 
                thereof, or within any territory or possession, 
                or the District of Columbia.
          [(14)] (23) Introducing broker.--The term 
        ``introducing broker'' means any person (except an 
        individual who elects to be and is registered as an 
        associated person of a futures commission merchant) 
        engaged in soliciting or in accepting orders for the 
        purchase or sale of any commodity for future delivery 
        on or subject to the rules of any contract market or 
        derivatives transaction execution facility who does not 
        accept any money, securities, or property (or extend 
        credit in lieu thereof) to margin, guarantee, or secure 
        any trades or contracts that result or may result 
        therefrom.
          (24)(A) Margin.--The term ``margin'', when used with 
        respect to a security future product, means the amount, 
        type, and form of collateral required to secure any 
        extension or maintenance of credit, or the amount, 
        type, and form of collateral required as a performance 
        bond related to the purchase, sale, or carrying of a 
        security future product, and all other uses of 
        collateral related to the purchasing, selling, or 
        carrying of a security future product.
          (B) The terms ``margin level'' and ``level of 
        margin'', when used with respect to a security future 
        product, mean the amount of margin required to secure 
        any extension or maintenance of credit, or the amount 
        of margin required as a performance bond related to the 
        purchase, sale, or carrying of a security future 
        product.
          (C) The terms ``higher margin level'' and ``higher 
        level of margin'', when used with respect to a security 
        future product, mean a margin level established by a 
        contract market that is higher than the minimum amount 
        established by the Securities and Exchange Commission 
        pursuant to section 7(c)(2)(B) of the Securities 
        Exchange Act of 1934.
          [(15)] (25) Member of a [contract market] registered 
        entity.--The term ``member of a [contract market] 
        registered entity'' means an individual, association, 
        partnership, corporation, or trust owning or holding 
        membership in, or admitted to membership representation 
        on, a [contract market] registered entity or given 
        members' trading privileges thereon. A participant in 
        an alternative trading system that is designated as a 
        contract market pursuant to section 5f shall be deemed 
        a member of such contract market for purposes of 
        transactions in security future products through such 
        contract market.
          (26) Narrow-based security index.--The term ``narrow-
        based security index'' means an index of securities on 
        which contracts for future delivery are not permitted 
        under section 2(a)(1)(C) of this Act, including any 
        interest therein or based on the value thereof.
          (27) Option.--The term ``option'' means an agreement, 
        contract, or transaction that is of the character of, 
        or is commonly known to the trade as, an ``option'', 
        ``privilege'', ``indemnity'', ``bid'', ``offer'', 
        ``put'', ``call'', ``advance guaranty'', or ``decline 
        guaranty''.
          (28) Organized exchange.--The term ``organized 
        exchange'' means a trading facility that--
                  (A) permits trading--
                          (i) by or on behalf of a person that 
                        is not an eligible contract 
                        participant; or
                          (ii) by persons other than on a 
                        principal-to-principal basis; or
                  (B) has adopted (directly or through another 
                nongovernmental entity) rules that--
                          (i) govern the conduct of 
                        participants, other than rules that 
                        govern the submission of orders or 
                        execution of transactions on the 
                        trading facility; or
                          (ii) include disciplinary sanctions 
                        other than the exclusion of 
                        participants from trading.
          [(16)] (29) Person.--The term ``person'' imports the 
        plural or singular, and includes individuals, 
        associations, partnerships, corporations, and trusts.
          (30) Registered entity.--The term ``registered 
        entity'' means--
                  (A) a board of trade designated as a contract 
                market under section 5;
                  (B) a derivatives transaction execution 
                facility registered under section 5a;
                  (C) a derivatives clearing organization 
                registered under section 5b; or
                  (D) a board of trade designated as a contract 
                market under section 5f.
          (31) Security.--The term ``security'' means a 
        security as defined in section 2(a)(1) of the 
        Securities Act of 1933 (15 U.S.C. 77b(a)(1)) or section 
        3(a)(10) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78c(a)(10)).
          (32) Security future.--The term ``security future'' 
        means a contract of sale for future delivery of a 
        single security or of a narrow-based security index, 
        including any interest therein or based on the value 
        thereof, except an exempted security under section 
        3(a)(12) of the Securities Exchange Act of 1934 as in 
        effect on the date of enactment of the Futures Trading 
        Act of 1982 (other than any municipal security as 
        defined in section 3(a)(29) of the Securities Exchange 
        Act of 1934 as in effect on the date of enactment of 
        the Futures Trading Act of 1982).
          (33) Security future product.--The term ``security 
        future product'' means a security future or any put, 
        call, straddle, option, or privilege on any security 
        future.
          (34) Trading facility.--
                  (A) In general.--The term ``trading 
                facility'' means a person or group of persons 
                that constitutes, maintains, or provides a 
                physical or electronic facility or system in 
                which multiple participants have the ability to 
                execute or trade agreements, contracts, or 
                transactions by accepting bids and offers made 
                by other participants that are open to multiple 
                participants in the facility or system.
                  (B) Exclusions.--The term ``trading 
                facility'' does not include--
                          (i) a person or group of persons 
                        solely because the person or group of 
                        persons--
                                  (I) constitutes, maintains, 
                                or provides an electronic 
                                facility or system that enables 
                                participants to negotiate the 
                                terms of and enter into 
                                bilateral transactions as a 
                                result of communications 
                                exchanged by the parties and 
                                not from interaction of 
                                multiple orders within a 
                                predetermined, nondiscretionary 
                                automated trade matching 
                                algorithm; or
                                  (II) is a derivatives 
                                clearing organization;
                          (ii) a government securities dealer 
                        or government securities broker, to the 
                        extent that the dealer or broker 
                        executes or trades agreements, 
                        contracts, or transactions in 
                        government securities, or assists 
                        persons in communicating about, 
                        negotiating, entering into, executing, 
                        or trading an agreement, contract, or 
                        transaction in government securities 
                        (as the terms ``government securities 
                        dealer'', ``government securities 
                        broker'', and ``government securities'' 
                        are defined in section 3(a) of the 
                        Securities Exchange Act of 1934 (15 
                        U.S.C. 78c(a))); or
                          (iii) facilities on which bids and 
                        offers, and acceptances of bids and 
                        offers effected on the facility, are 
                        not binding.
      [Sec. 2. (a)(1)(A)(i) The]

SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF 
                    AGENT; COMMODITY FUTURES TRADING COMMISSION; 
                    TRANSACTION IN INTERSTATE COMMERCE.

  (a) Jurisdiction of Commission; Commodity Futures Trading 
Commission.--
          (1) Jurisdiction of commission.--
                  (A) In general.--The Commission shall have 
                exclusive jurisdiction, except to the extent 
                otherwise provided in [subparagraph (B) of this 
                paragraph] subparagraphs (C) and (D) of this 
                paragraph and subsections (c), (d), (e), (f), 
                (g), and (h) of this section, with respect to 
                accounts, agreements (including any transaction 
                which is of the character of, or is commonly 
                known to the trade as, an ``option'', 
                ``privilege'', ``indemnity'', ``bid'', 
                ``offer'', ``put'', ``call'', ``advance 
                guaranty'', or ``decline guaranty''), and 
                transactions involving contracts of sale of a 
                commodity for future delivery, traded or 
                executed on a [contract market designated 
                pursuant to section 5 of this Act] contract 
                market designated or derivatives transaction 
                execution facility registered pursuant to 
                section 5 or 5a or any other board of trade, 
                exchange, or market, and transactions subject 
                to regulation by the Commission pursuant to 
                section 19 of this Act. Except as hereinabove 
                provided, nothing contained in this section 
                shall (I) supersede or limit the jurisdiction 
                at any time conferred on the Securities and 
                Exchange Commission or other regulatory 
                authorities under the laws of the United States 
                or of any State, or (II) restrict the 
                Securities and Exchange Commission and such 
                other authorities from carrying out their 
                duties and responsibilities in accordance with 
                such laws. Nothing in this section shall 
                supersede or limit the jurisdiction conferred 
                on courts of the United States or any State.
  [(ii) Nothing in this Act shall be deemed to govern or in any 
way be applicable to transactions in foreign currency, security 
warrants, security rights, resales of installment loan 
contracts, repurchase options, government securities, or 
mortgages and mortgage purchase commitments, unless such 
transactions involve the sale thereof for future delivery 
conducted on a board of trade.
  [(iii) The]
                  (B) Liability of principal for act of 
                agent.--The act, omission, or failure of any 
                official, agent, or other person acting for any 
                individual, association, partnership, 
                corporation, or trust within the scope of his 
                employment or office shall be deemed the act, 
                omission, or failure of such individual, 
                association, partnership, corporation, or 
                trust, as well as of such official, agent, or 
                other person.
                  [(B)] (C) Notwithstanding any other provision 
                of law--
                          (i) * * *
                          (ii) This Act shall apply to and the 
                        Commission shall have exclusive 
                        jurisdiction with respect to accounts, 
                        agreements (including any transaction 
                        which is of the character of, or is 
                        commonly known to the trade as, an 
                        ``option'', ``privilege'', 
                        ``indemnity'', ``bid'', ``offer'', 
                        ``put'', ``call'', ``advance 
                        guaranty'', or ``decline guaranty'') 
                        and transactions involving, and may 
                        designate a board of trade as a 
                        contract market in, contracts of sale 
                        (or options on such contracts) for 
                        future delivery of a group or index of 
                        securities (or any interest therein or 
                        based upon the value thereof): 
                        Provided, however, That no board of 
                        trade shall be designated as a contract 
                        market with respect to any such 
                        contracts of sale (or options on such 
                        contracts) for future delivery unless 
                        the board of trade making such 
                        application demonstrates and the 
                        Commission expressly finds that the 
                        specific contract (or option on such 
                        contract) with respect to which the 
                        application has been made meets the 
                        following minimum requirements:
                                  (I) Settlement of or delivery 
                                on such contract (or option on 
                                such contract) shall be 
                                effected in cash or by means 
                                other than the transfer or 
                                receipt of any security, except 
                                an exempted security under 
                                [section 3 of the Securities 
                                Act of 1933 or] section 
                                3(a)(12) of the Securities 
                                Exchange Act of 1934 as in 
                                effect on the date of enactment 
                                of the Futures Trading Act of 
                                1982 (other than any municipal 
                                security, as defined in section 
                                3(a)(29) of the Securities 
                                Exchange Act of 1934 on the 
                                date of enactment of the 
                                Futures Trading Act of 1982);

           *       *       *       *       *       *       *

                          (iv)[(I) The Commission shall consult 
                        with the Securities and Exchange 
                        Commission with respect to any 
                        application which is submitted by a 
                        board of trade before December 9, 1982, 
                        for designation as a contract market 
                        with respect to any contract of sale 
                        (or option on such contract) for future 
                        delivery of a group or index of 
                        securities. If, no later than fifteen 
                        days following the close of the public 
                        comment period, the Securities and 
                        Exchange Commission shall object to the 
                        designation of a board of trade as a 
                        contract market in such contract (or 
                        option on such contract) on the ground 
                        that any minimum requirement of clause 
                        (ii) of this subparagraph is not met, 
                        the Commission shall afford the 
                        Securities and Exchange Commission an 
                        opportunity for an oral hearing, to be 
                        transcribed, before the Commission, and 
                        shall give appropriate weight to the 
                        views of the Securities and Exchange 
                        Commission. Such oral hearing shall be 
                        held after the public comment period, 
                        prior to Commission action upon such 
                        designation, and not less than thirty 
                        nor more than forty-five days after the 
                        close of the public comment period, 
                        unless both the Commission and the 
                        Securities and Exchange Commission 
                        otherwise agree. If such an oral 
                        hearing is held, the Securities and 
                        Exchange Commission fails to withdraw 
                        its objections, and the Commission 
                        issues an order designating a board of 
                        trade as a contract market with respect 
                        to any such contract (or option on such 
                        contract), the Securities and Exchange 
                        Commission shall have the right of 
                        judicial review of such order in 
                        accordance with the standards of 
                        section 6(c) of this Act. If, pursuant 
                        to section 6 of this Act, there is a 
                        hearing on the record with respect to 
                        such application for designation, the 
                        Securities and Exchange Commission 
                        shall have the right to participate in 
                        that hearing as an interested party.
                          [(II)] Effective for any application 
                        submitted by a board of trade on or 
                        after December 9, 1982, for designation 
                        as a contract market with respect to 
                        any contract of sale (or option on such 
                        contract) for future delivery of a 
                        group or index of securities, the 
                        Commission shall transmit a copy of 
                        such application to the Securities and 
                        Exchange Commission for review. The 
                        Commission shall not approve any such 
                        application if the Securities and 
                        Exchange Commission determines that 
                        such contract (or option on such 
                        contract) fails to meet the minimum 
                        requirements set forth in clause (ii) 
                        of this subparagraph. Such 
                        determination shall be made by order no 
                        later than forty-five days after the 
                        close of the public comment period 
                        under clause (iii) of this 
                        subparagraph. In the event of such 
                        determination, the board of trade shall 
                        be afforded an opportunity for a 
                        hearing on the record before the 
                        Securities and Exchange Commission. If 
                        a board of trade requests a hearing on 
                        the record, the hearing shall commence 
                        no later than thirty days following the 
                        receipt of the request, and a final 
                        determination shall be made no later 
                        than thirty days after the close of the 
                        hearing. A person aggrieved by any such 
                        order of the Securities and Exchange 
                        Commission may obtain judicial 
reviewthereof in the same manner and under such terms and conditions as 
are provided in section 6(b) of this Act.
                          (v) No person shall offer to enter 
                        into, enter into, or confirm the 
                        execution of any contract of sale (or 
                        option on such contract) for future 
                        delivery of any security, or interest 
                        therein or based on the value thereof, 
                        except an exempted security under 
                        [section 3 of the Securities Act of 
                        1933 or] section 3(a)(12) of the 
                        Securities Exchange Act of 1934 as in 
                        effect on the date of enactment of the 
                        Futures Trading Act of 1982 (other than 
                        any municipal security as defined in 
                        section 3(a)(29) of the Securities 
                        Exchange Act of 1934 on the date of 
                        enactment of the Futures Trading Act of 
                        1982), or except as provided in clause 
                        (ii) of this subparagraph or 
                        subparagraph (D), any group or index of 
                        such securities or any interest therein 
                        or based on the value thereof.
          [(vi)(I) Notwithstanding any other provision of this 
        Act, any contract market in a stock index futures 
        contract (or option thereon) shall file with the Board 
        of Governors of the Federal Reserve System any rule 
        establishing or changing the levels of margin (initial 
        and maintenance) for the stock index futures contract 
        (or option thereon).
                  [(II) The Board may at any time request any 
                contract market to set the margin for any stock 
                index futures contract (or option thereon) at 
                such levels as the Board in its judgment 
                determines are appropriate to preserve the 
                financial integrity of the contract market or 
                its clearing system or to prevent systemic 
                risk. If the contract market fails to do so 
                within the time specified by the Board in its 
                request, the Board may direct the contract 
                market to alter or supplement the rules of the 
                contract market as specified in the request.
                  [(III) Subject to such conditions as the 
                Board may determine, the Board may delegate any 
                or all of its authority under this clause only 
                to the Commission.
                  [(IV) Nothing in this clause shall supersede 
                or limit the authority granted to the 
                Commission in section 8a(9) to direct a 
                contract market, on finding an emergency to 
                exist, to raise temporary emergency margin 
                levels on any futures contract or option on the 
                contract covered by this clause.]
                          (vi)(I) Notwithstanding any other 
                        provision of this Act, any contract 
                        market in a stock index futures 
                        contract (or option thereon), other 
                        than a security future product, shall 
                        file with the Board of Governors of the 
                        Federal Reserve System any rule 
                        establishing or changing the levels of 
                        margin (initial and maintenance) for 
                        such stock index futures contract (or 
                        option thereon), other than security 
                        future products.
                          (II) The Board may at any time 
                        request any contract market to set the 
                        margin for any stock index futures 
                        contract (or option thereon), other 
                        than for any security future product, 
                        at such levels as the Board in its 
                        judgment determines are appropriate to 
                        preserve the financial integrity of the 
                        contract market or its clearing system 
                        or to prevent systemic risk. If the 
                        contract market fails to do so within 
                        the time specified by the Board in its 
                        request, the Board may direct the 
                        contract market to alter or supplement 
                        the rules of the contract market as 
                        specified in the request.
                          (III) Subject to such conditions as 
                        the Board may determine, the Board may 
                        delegate any or all of its authority, 
                        relating to margin for any stock index 
                        futures contract (or option thereon), 
                        other than security future products, 
                        under this clause to the Commission.
                          (IV) Margin regulations.--It shall be 
                        unlawful for any futures commission 
                        merchant to, directly or indirectly, 
                        extend or maintain credit to or for, or 
                        collect margin from any customer on any 
                        security future product unless such 
                        activities comply with the rules and 
                        regulations which the Securities and 
                        Exchange Commission, after consultation 
                        with the Commission, shall prescribe 
                        pursuant to section 7(c)(2)(B) of the 
                        Securities Exchange Act of 1934.
                          (V) Nothing in this clause shall 
                        supersede or limit the authority 
                        granted to the Commission in section 
                        8a(9) to direct a contract market, on 
                        finding an emergency to exist, to raise 
                        temporary margin levels on any futures 
                        contract, or option on the contract 
                        covered by this clause, or on any 
                        security future product.
                          [(V)] (VI) Any action taken by the 
                        Board, or by the Commission acting 
                        under the delegation of authority under 
                        subclause III, under this clause 
                        directing a contract market to alter or 
                        supplement a contract market rule shall 
                        be subject to review only in the Court 
                        of Appeals where the party seeking 
                        review resides or has its principal 
                        place of business, or in the United 
                        States Court of Appeals for the 
                        District of Columbia Circuit. The 
                        review shall be based on the 
                        examination of all information before 
                        the Board or the Commission, as the 
                        case may be, at the time the 
                        determination was made. The court 
                        reviewing the action of the Board or 
                        the Commission shall not enter a stay 
                        or order of mandamus unless the court 
                        has determined, after notice and a 
                        hearing before a panel of the court, 
                        that the agency action complained of 
                        was arbitrary, capricious, an abuse of 
                        discretion, or otherwise not in 
                        accordance with law.
                  (D)(i) Notwithstanding any other provision of 
                this Act, the Securities and Exchange 
                Commission shall have jurisdiction and 
                authority over security futures as defined 
insection 3(a)(55) of the Securities Exchange Act of 1934, section 
2(a)(16) of the Securities Act of 1933, section 2(a)(52) of the 
Investment Company Act of 1940, and section 202(a)(27) of the 
Investment Advisers Act of 1940, options on security futures, and 
persons effecting transactions in security futures and options thereon, 
and this Act shall apply to and the Commission shall have jurisdiction 
with respect to accounts, agreements (including any transaction which 
is of the character of, or is commonly known to the trade as, an 
``option'', ``privilege'', ``indemnity'', ``bid'', ``offer'', ``put'', 
``call'', ``advance guaranty'', or ``decline guaranty'') and 
transactions involving, and may designate a board of trade as a 
contract market in, a security future product as defined in section 
1a(33) of this Act: Provided, however, That, except as provided in 
clause (v) of this subparagraph, no board of trade shall be designated 
as a contract market with respect to any such contracts of sale for 
future delivery unless the board of trade making such application 
demonstrates and the Commission expressly finds that the specific 
contract with respect to which the application has been made, or the 
board of trade, meets the following criteria:
                          (I) Except as otherwise provided in a 
                        rule, regulation, or order issued 
                        pursuant to clause (vi) of this 
                        subparagraph, any security underlying 
                        the security future, including each 
                        component security of a contract of 
                        sale for future delivery on a narrow-
                        based security index, is registered 
                        pursuant to section 12 of the 
                        Securities Exchange Act of 1934.
                          (II) Except as otherwise provided in 
                        a rule, regulation, or order issued 
                        pursuant to clause (vi) of this 
                        subparagraph, the security future 
                        product is cash settled.
                          (III) The security future product is 
                        not traded on an exempt board of trade 
                        or a designated transaction execution 
                        facility.
                          (IV) Except as otherwise provided in 
                        a rule, regulation, or order issued 
                        pursuant to clause (vi) of this 
                        subparagraph, the security future is 
                        based upon common stock and such other 
                        equity securities as the Commission and 
                        the Securities and Exchange Commission 
                        jointly determine appropriate.
                          (V) The security future product is 
                        cleared by a clearing agency that has 
                        in place provisions for linked and 
                        coordinated clearing with other 
                        clearing agencies that clear security 
                        future products, which permits the 
                        security future product to be purchased 
                        on a designated contract market, 
                        national securities exchange registered 
                        under section 6(a) of the Securities 
                        Exchange Act of 1934, or national 
                        securities association registered 
                        pursuant to section 15A(a) of the 
                        Securities Exchange Act of 1934 and 
                        offset on any other designated contract 
                        market, national securities exchange 
                        registered under section 6(a) of the 
                        Securities Exchange Act of 1934, or 
                        national securities association 
                        registered pursuant to section 15A(a) 
                        of the Securities Exchange Act of 1934 
                        on which the security future product is 
                        traded.
                          (VI) Only futures commission 
                        merchants, introducing brokers, 
                        commodity trading advisers, commodity 
                        pool operators or associated persons 
                        subject to suitability rules comparable 
                        to those of a national securities 
                        association registered pursuant to 
                        section 15A(a) of the Securities 
                        Exchange Act of 1934 solicit, accept 
                        any order for, or otherwise deal in any 
                        transaction in or in connection with a 
                        security future product.
                          (VII) The security future product is 
                        subject to a prohibition against dual 
                        trading in section 4j of this Act and 
                        the rules and regulations thereunder or 
                        the provisions of section 11(a) of the 
                        Securities Exchange Act of 1934 and the 
                        rules and regulations thereunder, 
                        except to the extent otherwise 
                        permitted under the Securities Exchange 
                        Act of 1934 and the rules and 
                        regulations thereunder.
                          (VIII) Trading in the security future 
                        product is not readily susceptible to 
                        manipulation of the price of such 
                        security future product, nor to causing 
                        or being used in the manipulation of 
                        the price of any underlying security, 
                        option on such security, or option on a 
                        group or index including such 
                        securities.
                          (IX) The board of trade on which the 
                        security future product is traded has 
                        procedures in place for coordinated 
                        surveillance among such board of trade, 
                        any market on which any security 
                        underlying the security future product 
                        is traded, and other markets on which 
                        any related security is traded to 
                        detect manipulation and insider 
                        trading, except that, if the board of 
                        trade is an alternative trading system, 
                        a national securities association 
                        registered pursuant to section 15A(a) 
                        of the Securities Exchange Act of 1934 
                        ofwhich such alternative trading system 
is a member has in place such procedures.
                          (X) The board of trade on which the 
                        security future product is traded has 
                        in place audit trails necessary or 
                        appropriate to facilitate the 
                        coordinated surveillance required in 
                        subclause (IX), except that, if the 
                        board of trade is an alternative 
                        trading system, a national securities 
                        association registered pursuant to 
                        section 15A(a) of the Securities 
                        Exchange Act of 1934 of which such 
                        alternative trading system is a member 
                        has rules to require such audit trails.
                          (XI) The board of trade on which the 
                        security future product is traded has 
                        in place procedures to coordinate 
                        trading halts between such board of 
                        trade and any market on which any 
                        security underlying the security future 
                        product is traded and other markets on 
                        which any related security is traded, 
                        except that, if the board of trade is 
                        an alternative trading system, a 
                        national securities association 
                        registered pursuant to section 15A(a) 
                        of the Securities Exchange Act of 1934 
                        of which such alternative trading 
                        system is a member has rules to require 
                        such coordinated trading halts.
                          (XII) The margin requirements for a 
                        security future product are consistent 
                        with the margin requirements for 
                        comparable option contracts traded on 
                        an exchange registered pursuant to 
                        section 6(a) of the Securities Exchange 
                        Act of 1934 and initial and maintenance 
                        margin levels for a security future 
                        product are not lower than the levels 
                        of margin required for comparable 
                        option contracts traded on an exchange 
                        registered pursuant to section 6(a) of 
                        the Securities Exchange Act of 1934, 
                        except that nothing in this subclause 
                        shall be construed to prevent a board 
                        of trade from requiring higher margin 
                        levels for a security future product 
                        when it deems such action to be 
                        necessary or appropriate.
                  (ii) It shall be unlawful for any person to 
                offer, to enter into, to execute, to confirm 
                the execution of, or to conduct any office or 
                business anywhere in the United States, its 
                territories or possessions, for the purpose of 
                soliciting, or accepting any order for, or 
                otherwise dealing in, any transaction in, or in 
                connection with, a security future product 
                unless--
                          (I) such transaction is conducted on 
                        or subject to the rules of a board of 
                        trade which has been designated by the 
                        Commission as a contract market in such 
                        security future product;
                          (II) such security future product is 
                        executed or consummated by, through, or 
                        with a member of such contract market; 
                        and
                          (III) such security future product is 
                        evidenced by a record in writing which 
                        shows the date, the parties to such 
                        security future product and their 
                        addresses, the property covered and its 
                        price: Provided, That each contract 
                        market member shall keep such record 
                        for a period of 3 years from the date 
                        thereof, or for a longer period if the 
                        Commission so directs, which record 
                        shall at all times be open to the 
                        inspection of any representative of the 
                        Commission, the Securities and Exchange 
                        Commission, or the Department of 
                        Justice.
                  (iii)(I) Except as provided in subclause (II) 
                but notwithstanding any other provision of this 
                Act, no person shall offer to enter into, enter 
                into, or confirm the execution of any option on 
                a security future.
                  (II) After 3 years after the date of 
                enactment of the Commodity Futures 
                Modernization Act of 2000, the Commission and 
                the Securities and Exchange Commission may by 
                order jointly determine to permit trading of 
                options on any security future authorized to be 
                traded under the provisions of this Act and the 
                Securities Exchange Act of 1934. Before any 
                such determination, the Commission and the 
                Securities and Exchange Commission shall 
                conduct a study of the effect of the trading of 
                security futures on the markets for futures 
                contracts, securities, and options and the 
                adequacy of protections for investors and other 
                market participants.
                  (iv)(I) All records of a futures commission 
                merchant or introducing broker registered 
                pursuant to section 4f(a)(2), a floor broker or 
                floor trader exempt from registration 
pursuantto section 4f(a)(3), an associated person exempt from 
registration pursuant to section 4k(6), or a board of trade designated 
as a contract market in a security future product pursuant to section 
5f shall be subject at any time, or from time to time, to such 
reasonable periodic, special, or other examinations by representatives 
of the Commission as the Commission deems necessary or appropriate in 
the public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of this title: Provided, That the 
Commission, prior to conducting any such examination, gives notice to 
the Securities and Exchange Commission of such proposed examination and 
consults with the Securities and Exchange Commission concerning the 
feasibility and desirability of coordinating such examination with 
examinations conducted by the Securities and Exchange Commission with a 
view to avoiding unnecessary regulatory duplication or undue regulatory 
burdens for such registrant or board of trade.
                  (II) The Commission shall notify the 
                Securities and Exchange Commission of any 
                examination conducted of any futures commission 
                merchant or introducing broker registered 
                pursuant to section 4f(a)(2), floor broker or 
                floor trader exempt from registration pursuant 
                to section 4f(a)(3), associated person exempt 
                from registration pursuant to section 4k(6), or 
                board of trade designated as a contract market 
                in a security future product pursuant to 
                section 5f, and, upon request, furnish to the 
                Securities and Exchange Commission any 
                examination report and data supplied to the 
                Commission in connection with such examination.
                  (III) The Commission shall, to the fullest 
                extent possible, use the reports of 
                examinations of any futures commission merchant 
                or introducing broker registered pursuant to 
                section 4f(a)(2), floor broker or floor trader 
                exempt from registration pursuant to section 
                4f(a)(3), associated person exempt from 
                registration pursuant to section 4k(6), or 
                board of trade designated as a contract market 
                in a security future product pursuant to 
                section 5f, made by the Securities and Exchange 
                Commission, a national securities association 
                registered pursuant to section 15A(a) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78o-
                3), or a national securities exchange 
                registered pursuant to section 6(a) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 
                78f(g)).
                  (IV) Nothing in this subsection shall be 
                construed to impair or limit (other than by the 
                requirement of prior consultation) the power of 
                the Commission under this subsection to examine 
                any futures commission merchant or introducing 
                broker registered pursuant to section 4f(a)(2), 
                floor broker or floor trader exempt from 
                registration pursuant to section 4f(a)(3), 
                associated person exempt from registration 
                pursuant to section 4k(6), or board of trade 
                designated as a contract market in a security 
                future product pursuant to section 5f, or to 
                affect in any way the power of the Commission 
                under any other provision of this Act.
                  (v) A board of trade designated as a contract 
                market pursuant to section 5f shall be 
                designated as a contract market with respect to 
                a security future product by providing to the 
                Commission a written certification that the 
                specific contract with respect to which the 
                application has been made, or the board of 
                trade, meets the criteria specified in 
                subclauses (I) through (XII) of clause (i).
                  (vi) The Commission and the Securities and 
                Exchange Commission, by rule, regulation, or 
                order, may jointly modify the criteria 
                specified in subclause (I), (II), or (IV) of 
                clause (i) of this subparagraph to the extent 
                such modification fosters the development of 
                fair and orderly markets in security future 
                products, is necessary or appropriate in the 
                public interest, and is consistent with the 
                protection of investors.

           *       *       *       *       *       *       *

          (7) No Commissioner or employee of the Commission 
        shall accept employment or compensation from any 
        person, exchange, or clearinghouse subject to 
        regulation by the Commission under this Act during his 
        term of office, nor shall he participate, directly or 
        indirectly, in any [contract market] registered entity 
        operations or transactions of a character subject to 
        regulation by the Commission.
          (8)(A) * * *
          (B)(i) The Commission shall maintain communications 
        with the Department of the Treasury, the Board of 
        Governors of the Federal Reserve System, and the 
        Securities and Exchange Commission for the purpose of 
        keeping such agencies fully informed of Commission 
        activities that relate to the responsibilities of those 
        agencies, for the purpose of seeking the views of those 
        agencies on such activities, and for considering the 
        relationships between the volume and nature of 
        investment and trading in contracts of sale of a 
        commodity for future delivery and in securities and 
        financial instruments under the jurisdiction of such 
        agencies.
          (ii) When a board of trade applies for [designation 
        as a contract market] designation or registration as a 
        contract market or derivatives transaction execution 
        facility involving transactions for future delivery of 
        any security issued or guaranteed by the United States 
        or any agency thereof, the Commission shall promptly 
        deliver a copy of such application to the Department of 
        the Treasury and the Board of Governors of the Federal 
        Reserve System. The Commission may not [designate a 
        board of trade as a contract market] designate or 
        register a board of trade as a contract market or 
        derivatives transaction execution facility based on 
        such application until forty-five days after the date 
        the Commission delivers the application to such 
        agencies or until the Commission receives comments from 
        each of such agencies on the application, whichever 
        period is shorter. Any comments received by the 
        Commission from such agencies shall be included as part 
        of the public record of the Commission's designation 
        proceeding. In [designating, or refusing, suspending, 
        or revoking the designation of, a board of trade as a 
        contract market involving transactions for future 
        delivery referred to in this clause or in considering 
        possible emergency action under section 8a(9) of this 
        Act] designating, registering, or refusing, suspending, 
        or revoking the designation or registration of, a board 
        of trade as a contract market or derivatives 
        transaction execution facility involving transactions 
        for future delivery referred to in this clause or in 
        considering any possible action under this Act 
        (including without limitation emergency action under 
        section 8a(9)) with respect to such transactions, the 
        Commission shall take into consideration all comments 
        it receives from the Department of the Treasury and the 
        Board of Governors of the Federal Reserve System and 
        shall consider the effect that any such [designation, 
        suspension, revocation, or emergency action] 
        designation, registration, suspension, revocation, or 
        action may have on the debt financing requirements of 
        the United States Government and the continued 
        efficiency and integrity of the underlying market for 
        government securities.
      (iii) The provisions of this subparagraph shall not 
create any

           *       *       *       *       *       *       *

  (c) Agreements, Contracts, and Transactions in Foreign 
Currency, Government Securities, and Certain Other 
Commodities.--
          (1) In general.--Except as provided in paragraph (2), 
        nothing in this Act (other than section 5b or 
        12(e)(2)(B)) governs or applies to an agreement, 
        contract, or transaction in--
                  (A) foreign currency;
                  (B) government securities;
                  (C) security warrants;
                  (D) security rights;
                  (E) resales of installment loan contracts;
                  (F) repurchase agreements in an excluded 
                commodity; or
                  (G) mortgages or mortgage purchase 
                commitments.
          (2) Commission jurisdiction.--
                  (A) Agreements, contracts, and transactions 
                that are futures traded on an organized 
                exchange.--This Act applies to, and the 
                Commission shall have jurisdiction over, an 
                agreement, contract, or transaction described 
                in paragraph (1) that is--
                          (i) a contract of sale of a commodity 
                        for future delivery (or an option 
                        thereon), or an option on a commodity 
                        (other than foreign currency or a 
                        security or group or index of 
                        securities), that is executed or traded 
                        on an organized exchange; or
                          (ii) an option on foreign currency 
                        and is executed or traded on an 
                        organized exchange that is not a 
                        national securities exchange registered 
                        pursuant to section 6(a) of the 
                        Securities Exchange Act of 1934.
                  (B) Agreements, contracts, and transactions 
                in retail foreign currency.--This Act applies 
                to, and the Commission shall have jurisdiction 
                over, an agreement, contract, or transaction in 
                foreign currency that--
                          (i) is a contract of sale for future 
                        delivery (or an option on such a 
                        contract) or an option; and
                          (ii) is offered to, or entered into 
                        with, a person that is not an eligible 
                        contract participant, unless the 
                        counterparty, or the person offering to 
                        be the counterparty, of the person is--
                                  (I) a financial institution;
                                  (II) a broker or dealer 
                                registered under section 15(b) 
                                or 15C of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 
                                78o(b), 78o-5) or a futures 
                                commission merchant registered 
                                under this Act;
                                  (III) an associated person of 
                                a broker or dealer registered 
                                under section 15(b) or 15C of 
                                the Securities Exchange Act of 
                                1934 (15 U.S.C. 78o(b), 78o-5), 
                                or an affiliated person of a 
                                futures commission merchant 
                                registered under this Act, 
                                concerning the financial or 
                                securities activities of which 
                                the registered person makes and 
                                keeps records under section 
                                15C(b) or 17(h) of the 
                                Securities Exchange Act of 1934 
                                (15 U.S.C. 78o-5(b), 78q(h)) or 
                                section 4f(c)(2)(B) of this 
                                Act;
                                  (IV) an insurance company 
                                that is subject to State 
                                regulation (including a 
                                subsidiary or affiliate of such 
                                an insurance company);
                                  (V) a financial holding 
                                company (as defined in section 
                                2 of the Bank Holding Company 
                                Act of 1956); or
                                  (VI) an investment bank 
                                holding company (as defined in 
                                section 17(i) of the Securities 
                                Exchange Act of 1934).
  (d) Excluded Derivative Transactions.--
          (1) In general.--Nothing in this Act (other than 
        section 5b or 12(e)(2)(B)) governs or applies to an 
        agreement, contract, or transaction in an excluded 
        commodity if--
                  (A) the agreement, contract, or transaction 
                is entered into only between persons that are 
                eligible contract participants at the time at 
                which the persons enter into the agreement, 
                contract, or transaction; and
                  (B) the agreement, contract, or transaction 
                is not executed or traded on a trading 
                facility.
          (2) Electronic trading facility exclusion.--Nothing 
        in this Act (other than section 5a, 5b, or 12(e)(2)(B)) 
        governs or applies to an agreement, contract, or 
        transaction in an excluded commodity if--
                  (A) the agreement, contract, or transaction 
                is entered into on a principal-to-principal 
                basis between parties trading for their own 
                accounts or as described in section 
                1a(12)(B)(ii) of this Act;
                  (B) the agreement, contract, or transaction 
                is entered into only between persons that are 
                eligible contract participants (as defined in 
                sections 1a(12)(A), (B)(ii), and (C)) at the 
                time at which the persons enter into the 
                agreement, contract, or transaction; and
                  (C) the agreement, contract, or transaction 
                is executed or traded on an electronic trading 
                facility.
  (e) Excluded Electronic Trading Facilities.--
          (1) In general.--Nothing in this Act (other than 
        section 12(e)(2)(B)) governs or is applicable to an 
        electronic trading facility that limits transactions 
        authorized to be conducted on its facilities to those 
        satisfying the requirements of sections 2(d)(2) and 
        2(h)(3) of this Act.
          (2) Effect on authority to establish and operate.--
        Nothing in this Act shall prohibit a board of trade 
        designated by the Commission as a contract market or 
        derivatives transaction execution facility, or an 
        exempt board of trade, from establishing and operating 
        an excluded electronic trading facility excluded under 
        this Act pursuant to paragraph (1).
  (f) Exclusion for Qualifying Hybrid Instruments.--
          (1) In general.--Nothing in this Act (other than 
        section 12(e)(2)(B)) governs or is applicable to a 
        hybrid instrument that is predominantly a security or 
        depository instrument.
          (2) Predominance.--A hybrid instrument shall be 
        considered to be predominantly a security or depository 
        instrument if--
                  (A) the issuer of the hybrid instrument 
                receives payment in full of the purchase price 
                of the hybrid instrument, substantially 
                contemporaneously with delivery of the hybrid 
                instrument;
                  (B) the purchaser or holder of the hybrid 
                instrument is not required to make any payment 
                to the issuer in addition to the purchase price 
                paid under subparagraph (A), whether as margin, 
                settlement payment, or otherwise, during the 
                life of the hybrid instrument or at maturity;
                  (C) the issuer of the hybrid instrument is 
                not subject by the terms of the instrument to 
                mark-to-market margining requirements; and
                  (D) the hybrid instrument is not marketed as 
                a contract of sale for future delivery of a 
                commodity (or option on such a contract) 
                subject to this Act.
          (3) Mark-to-market margining requirements.--For the 
        purposes of paragraph (2)(C), mark-to-market margining 
        requirements do not include the obligation of an issuer 
        of a secured debt instrument to increase the amount of 
        collateral held in pledge for the benefit of the 
        purchaser of the secured debt instrument to secure the 
        repayment obligations of the issuer under the secured 
        debt instrument.
  (g) Nothing in subsection (a)(1)(C) or (a)(1)(D) governs or 
applies to--
          (1) an agreement, contract, or transaction that is 
        excluded under subsection (c) or (d) (whether or not 
        the agreement, contract, or transaction is otherwise 
        subject to this Act);
          (2) an electronic trading facility that is excluded 
        under subsection (e); or
          (3) a hybrid instrument that is covered by an 
        exclusion under subsection (f) or an exemption granted 
        by the Commission under section 4(c) (whether or not 
        the hybrid instrument is otherwise subject to this 
        Act).
  (h) Legal Certainty for Certain Transactions in Exempt 
Commodities.--
          (1) Except as provided in paragraph (2) of this 
        subsection, nothing in this Act shall apply to a 
        contract, agreement or transaction in an exempt 
        commodity which--
                  (A) is entered into solely between persons 
                that are eligible contract participants at the 
                time they enter into the agreement, contract, 
                or transaction; and
                  (B) is not entered into on a trading 
                facility.
          (2) An agreement, contract, or transaction described 
        in paragraph (1) of this subsection shall be subject 
        to--
                  (A) sections 5b and 12(e)(2)(B) of this Act;
                  (B) sections 4b and 4o of this Act and the 
                regulations of the Commission pursuant to 
                section 4c(b) of this Act proscribing fraud in 
                connection with commodity option transactions, 
                to the extent such agreement, contract, or 
                transaction is not between eligible commercial 
                participants and would otherwise be subject to 
                those provisions; and
                  (C) sections 6(c) and 9(a)(2) of this Act to 
                the extent they prohibit manipulation of the 
                market price of any commodity in interstate 
                commerce, to the extent such agreement, 
                contract, or transaction would otherwise be 
                subject to those provisions.
          (3) Except as provided in paragraph (4) of this 
        subsection, nothing in this Act shall apply to an 
        agreement, contract, or transaction in an exempt 
        commodity which--
                  (A) is entered into on a principal-to-
                principal basis solely between persons that are 
                eligible contract participants at the time at 
                which the persons enter into the agreement, 
                contract, or transaction;
                  (B) entered into only between persons that 
                are eligible contract participants (as defined 
                in sections 1a(12)(A), (B)(ii), (B)(iii), and 
                (C) at the time at which the persons enter into 
                the agreement, contract, or transaction; and
                  (C) is executed or traded on an electronic 
                trading facility.
          (4) An agreement, contract, or transaction described 
        in paragraph (3) shall be subject to--
                  (A) sections 5a (to the extent so provided in 
                section 5a(g)), 5b, and 12(e)(2)(B) of this 
                Act;
                  (B) sections 4b and 4o of this Act and the 
                regulations of the Commission pursuant to 
                section 4c(b) of this Act proscribing fraud in 
                connection with commodity option transactions 
                to the extent such agreement, contract, or 
                transaction would otherwise be subject to those 
                provisions;
                  (C) sections 6(c) and 9(a)(2) of this Act, to 
                the extent they prohibit manipulation of the 
                market price of any commodity in interstate 
                commerce and to the extent such agreement, 
                contract, or transaction would otherwise be 
                subject to those provisions; and
                  (D) such rules and regulations as the 
                Commission may prescribe if necessary to ensure 
                timely dissemination by the electronic trading 
                facility of price, trading volume, and other 
                trading data to the extent appropriate, if the 
                Commission determines that the electronic 
                trading facility performs a significant price 
                discovery function for transactions in the cash 
                market for the commodity underlying any 
                agreement, contract, or transaction executed or 
                traded on the electronic trading facility.
  (i) Application of the Act.--Nothing in this Act shall be 
construed (1) as implying or creating any presumption that (A) 
any agreement, contract, or transaction that is eligible for an 
exclusion or exemption from regulation under this Act or (B) 
any agreement, contract, or transaction that is not eligible 
for an exclusion or exemption from regulation under this Act is 
or would otherwise be subject to this Act or (2) as conferring 
jurisdiction on the Commission with respect to any such 
agreement, contract, or transaction, except as expressly 
provided in section 5a (to the extent so provided in section 
5a(g)) and 5b.
  [Sec. 3. Transactions in commodities involving the sale 
thereof for future delivery as commonly conducted on boards of 
trade and known as ``futures'' are affected with a national 
public interest. Such futures transactions are carried on in 
large volume by the public generally and by persons engaged in 
the business of buying and selling commodities and the products 
and byproducts thereof in interstate commerce. The prices 
involved in such transactions are generally quoted and 
disseminated throughout the United States and in foreign 
countries as a basis for determining the prices to the producer 
and the consumer of commodities and the products and byproducts 
thereof and to facilitate the movements thereof in interstate 
commerce. Such transactions are utilized by shippers, dealers, 
millers, and others engaged in handling commodities and the 
products and byproducts thereof in interstate commerce as a 
means of hedging themselves against possible loss through 
fluctuations in price. The transactions and prices of 
commodities on such boards of trade are susceptible to 
excessive speculation and can be manipulated, controlled, 
cornered or squeezed, to the detriment of the producer or the 
consumer and the persons handling commodities and the products 
and byproducts thereof in interstate commerce, rendering 
regulation imperative for the protection of such commerce and 
the national public interest therein. Furthermore, transactions 
which are of the character of, or are commonly known to the 
trade as, ``options'' are or may be utilized by commercial and 
other entities for risk shifting and other purposes. Options 
transactions are in interstate commerce or affect such commerce 
and the national economy, rendering regulation of such 
transactions imperative for the protection of such commerce and 
the national public interest.]

SEC. 3. FINDINGS AND PURPOSE.

  (a) Findings.--The futures contracts and options contracts 
that are subject to this Act are entered into regularly in 
interstate and international commerce and are affected with a 
national public interest by providing a means for managing and 
assuming price risks,discovering prices, and disseminating 
pricing information through trading in liquid, fair and financially 
secure trading facilities.
  (b) Purpose.--It is the purpose of this Act to serve the 
public interests described in subsection (a) through a system 
of effective self-regulation of trading facilities, clearing 
systems, market participants and market professionals under the 
oversight of the Commission. To foster these public interests, 
it is further the purpose of this Act to deter and prevent 
price manipulation or any other disruptions to market 
integrity; to ensure the financial integrity of all 
transactions subject to this Act and the avoidance of systemic 
risk; to protect all market participants from fraudulent or 
other abusive sales practices and misuses of customer assets; 
and to promote responsible innovation and fair competition 
among boards of trade, other markets and market participants.
    Sec. 4. (a) Unless exempted by the Commission pursuant to 
subsection (c), it shall be unlawful for any person to offer to 
enter into, to enter into, to execute, to confirm the execution 
of, or to conduct any office or business anywhere in the United 
States, its territories or possessions, for the purpose of 
soliciting, or accepting any order for, or otherwise dealing 
in, any transaction in, or in connection with, a contract for 
the purchase or sale of a commodity for future delivery (other 
than a contract which is made on or subject to the rules of a 
board of trade, exchange, or market located outside the United 
States, its territories or possessions) unless--
          (1) such transaction is conducted on or subject to 
        the rules of a board of trade which has been 
        [designated by the Commission as a ``contract market'' 
        for] designated or registered by the Commission as a 
        contract market or derivatives transaction execution 
        facility for such commodity;
          (2) such contract is executed or consummated by or 
        through a [member of such] contract market; and
          (3) such contract is evidenced by a record in writing 
        which shows the date, the parties to such contract and 
        their addresses, the property covered and its price, 
        and the terms of delivery: Provided, That each contract 
        market or derivatives transaction execution facility 
        member shall keep such record for a period of three 
        years from the date thereof, or for a longer period if 
        the Commission shall so direct, which record shall at 
        all times be open to the inspection of any 
        representative of the Commission or the Department of 
        Justice.

           *       *       *       *       *       *       *

  (c)(1) In order to promote responsible economic or financial 
innovation and fair competition, the Commission by rule, 
regulation, or order, after notice and opportunity for hearing, 
may (on its own initiative or on application of any person, 
including any board of trade [designated as a contract market] 
designated or registered as a contract market or derivatives 
transaction execution facility for transactions for future 
delivery in any commodity under section 5 of this Act) exempt 
any agreement, contract, or transaction (or class thereof) that 
is otherwise subject to subsection (a) (including any person or 
class of persons offering, entering into, rendering advice or 
rendering other services with respect to, the agreement, 
contract, or transaction), either unconditionally or on stated 
terms or conditions or for stated periods and either 
retroactively or prospectively, or both, from any of the 
requirements of subsection (a), or from any other provision of 
this Act (except [section 2(a)(1)(B)] sections 2(a)(1)(C) and 
2(a)(1)(D)), if the Commission determines that the exemption 
would be consistent with the public interest.
  (2) The Commission shall not grant any exemption under 
paragraph (1) from any of the requirements of subsection (a) 
unless the Commission determines that--
          (A) the requirement should not be applied to the 
        agreement, contract, or transaction for which the 
        exemption is sought and that the exemption would be 
        consistent with the public interest and the purposes of 
        this Act; and
          (B) the agreement, contract, or transaction--
                  (i) will be entered into solely between 
                appropriate persons; and
                  (ii) will not have a material adverse effect 
                on the ability of the Commission or any 
                contract market or derivatives transaction 
                execution facility to discharge its regulatory 
                or self-regulatory duties under this Act.

           *       *       *       *       *       *       *

    Sec. 4a. (a) Excessive speculation in any commodity under 
contracts of sale of such commodity for future delivery made on 
or subject to the rules of contract markets or derivatives 
transaction execution facilities causing sudden or unreasonable 
fluctuations or unwarranted changes in the price of such 
commodity, is an undue and unnecessary burden on interstate 
commerce in such commodity. For the purpose of diminishing, 
eliminating, or preventing such burden, the Commission shall, 
from time to time, after due notice and opportunity for 
hearing, by rule, regulation, or order, proclaim and fix such 
limits on the amounts of trading which may be done or positions 
which may be held by any person under contracts of sale of such 
commodity for future delivery on or subject to the rules of any 
contract market or derivatives transaction execution facility 
as the Commission finds are necessary to diminish, eliminate, 
or prevent such burden. In determining whether any person has 
exceeded such limits, the positions held and trading done by 
any persons directly or indirectly controlled by such person 
shall be included with the positions held and trading done by 
such person; and further, such limits upon positions and 
trading shall apply to positions held by, and trading done by, 
two or more persons acting pursuant to an expressed or implied 
agreement or understanding, the same as if the positions were 
held by, or the trading were done by, a single person. Nothing 
in this section shall be construed to prohibit the Commission 
from fixing different trading or position limits for different 
commodities, markets, futures, or delivery months, or for 
different number of days remaining until the last day of 
trading in a contract, or different trading limits for buying 
and selling operations, or different limits for the purposes of 
paragraphs (1) and (2) of subsection (b) of this section, or 
from exempting transactions normally known to the trade as 
``spreads'' or ``straddles'' or ``arbitrage'' or from fixing 
limits applying to such transactions or positions different 
from limits fixed for other transactions or positions. The word 
``arbitrage'' in domestic markets shall be defined to mean the 
same as a ``spread'' or ``straddle''. TheCommission is 
authorized to define the term ``international arbitrage''.
    (b) The Commission shall, in such rule, regulation, or 
order, fix a reasonable time (not to exceed ten days) after the 
promulgation of the rule, regulation, or order; after which, 
and until such rule, regulation, or order is suspended, 
modified, or revoked, it shall be unlawful for any person--
          (1) directly or indirectly to buy or sell, or agree 
        to buy or sell, under contracts of sale of such 
        commodity for future delivery on or subject to the 
        rules of the contract market or markets, or derivatives 
        transaction execution facility or facilities, to which 
        the rule, regulation, or order applies, any amount of 
        such commodity during any one business day in excess of 
        any trading limit fixed for one business day by the 
        Commission in such rule, regulation, or order for or 
        with respect to such commodity; or
          (2) directly or indirectly to hold or control a net 
        long or a net short position in any commodity for 
        future delivery on or subject to the rules of any 
        contract market or derivatives transaction execution 
        facility in excess of any position limit fixed by the 
        Commission for or with respect to such commodity: 
        Provided, That such position limit shall not apply to a 
        position acquired in good faith prior to the effective 
        date of such rule, regulation, or order.

           *       *       *       *       *       *       *

    (e) Nothing in this section shall prohibit or impair the 
adoption by any [contract market or] contract market, 
derivatives transaction execution facility, or by any other 
board of trade [licensed or designated] licensed, designated, 
or registered by the Commission of any bylaw, rule, regulation, 
or resolution fixing limits on the amount of trading which may 
be done or positions which may be held by any person under 
contracts of sale of any commodity for future delivery traded 
on or subject to the rules of such [contract market, or] 
contract market or derivatives transaction execution facility, 
or under options on such contracts or commodities traded on or 
subject to the rules of such [contract market or] contract 
market, derivatives transaction execution facility, or  such 
board of trade: Provided, That if the Commission shall have 
fixed limits under this section for any contract or under 
section 4c of this Act for any commodity option, then the 
limits fixed by the bylaws, rules, regulations, and resolutions 
adopted by such [contract market or] contract market, 
derivatives transaction execution facility, or such board of 
trade shall not be higher than the limits fixed by the 
Commission. It shall be a violation of this Act for any person 
to violate any bylaw, rule, regulation, or resolution of any 
[contract market or] contract market, derivatives transaction 
execution facility, or other board of trade [licensed or 
designated] licensed, designated, or registered by the 
Commission fixing limits on the amount of trading which may be 
done or positions which may be held by any person under 
contracts of sale of any commodity for future delivery or under 
options on such contracts or commodities, if such bylaw, rule, 
regulation, or resolution has been approved by the Commission: 
Provided, That the provisions of section 9(c) of this Act shall 
apply only to those who knowingly violate such limits.
    Sec. 4b. (a) It shall be unlawful (1) for any member of a 
[contract market] registered entity, or for any correspondent, 
agent, or employee of any member, in or in connection with any 
order to make, or the making of, any contract of sale of any 
commodity in interstate commerce, made, or to be made, on or 
subject to the rules of any [contract market] registered 
entity, for or on behalf of any other person, or (2) for any 
person, in or in connection with any order to make, or the 
making of, any contract of sale of any commodity for future 
delivery, made, or to be made, for or on behalf of any other 
person if such contract for future delivery is or may be used 
for (A) hedging any transaction in interstate commerce in such 
commodity or the products or by products thereof, or (B) 
determining the price basis of any transaction in interstate 
commerce in such commodity, or (C) delivering any such 
commodity sold, shipped, or received in interstate commerce for 
the fulfillment thereof--
          (i) * * *

           *       *       *       *       *       *       *

    [Sec. 4c. (a) It shall be unlawful for any person to offer 
to enter into, enter into, or confirm the execution of, any 
transaction involving any commodity, which is or may be used 
for (1) hedging any transaction in interstate commerce in such 
commodity or the products or byproducts thereof, or (2) 
determining the price basis of any such transaction in 
interstate commerce in such commodity, or (3) delivering any 
such commodity sold, shipped, or received in interstate 
commerce for the fulfillment thereof--
          [(A) if such transaction is, is of the character of, 
        or is commonly known to the trade as, a ``wash sale'', 
        ``cross trade'', or ``accommodation trade'', or is a 
        fictitious sale; or
           [(B) if such transaction is used to cause any price 
        to be reported, registered, or recorded which is not a 
        true and bona fide price.
    Nothing in this section shall be construed to prevent the 
exchange of futures in connection with cash commodity 
transactions or of futures for cash commodities, or of transfer 
trades or office trades if made in accordance with board of 
trade rules applying to such transactions and such rules shall 
have been approved by the Commission.]

SEC. 4C. PROHIBITED TRANSACTIONS.

  (a) In General.--
          (1) Prohibition.--It shall be unlawful for any person 
        to offer to enter into, enter into, or confirm the 
        execution of a transaction described in paragraph (2) 
        involving any commodity if the transaction is used or 
        may be used to--
                  (A) hedge any transaction in interstate 
                commerce in the commodity or the product or 
                byproduct of the commodity;
                  (B) determine the price basis of any such 
                transaction in interstate commerce in the 
                commodity; or
                  (C) deliver any such commodity sold, shipped, 
                or received in interstate commerce for the 
                execution of the transaction.
          (2) Transaction.--A transaction referred to in 
        paragraph (1) is a transaction that--
                  (A)(i) is, is of the character of, or is 
                commonly known to the trade as, a ``wash sale'' 
                or ``accommodation trade''; or
                  (ii) is a fictitious sale; or
                  (B) is used to cause any price to be 
                reported, registered, or recorded that is not a 
                true and bona fide price.

           *       *       *       *       *       *       *

  (g) The Commission shall adopt rules requiring that a 
contemporaneous written record be made, as practicable, of all 
orders for execution on the floor or subject to the rules of 
each contract market or derivatives transaction execution 
facility placed by a member of the contract market who is 
present on the floor at the time such order is placed.
    Sec. 4d. It shall be unlawful for any person to engage as 
futures commission merchant or introducing broker in soliciting 
orders or accepting orders for the purchase or sale of any 
commodity for future delivery, or involving any contracts of 
sale of any commodity for future delivery, on or subject to the 
rules of any contract market or derivatives transaction 
execution facility unless--
          (1) such person shall have registered, under this 
        Act, with the Commission as such futures commission 
        merchant or introducing broker and such registration 
        shall not have expired nor been suspended nor revoked; 
        and
          (2) such person shall, if a futures commission 
        merchant, whether a member or nonmember of a contract 
        market or derivatives transaction execution facility, 
        treat and deal with all money, securities, and property 
        received by such person to margin, guarantee, or secure 
        the trades or contracts of any customer of such person, 
        or accruing to such customer as the result of such 
        trades or contracts, as belonging to such customer. 
        Such money, securities, and property shall be 
        separately accounted for and shall not be commingled 
        with the funds of such commission merchant or be used 
        to margin or guarantee the trades or contracts, or to 
        secure or extend the credit, of any customer or person 
        other than the one for whom the same are held: 
        Provided, however, That such money, securities, and 
        property of the customers of such futures commission 
        merchant may, for convenience, be commingled and 
        deposited in the same account or accounts with any bank 
        or trust company or with the clearing house 
        organization of such contract market or derivatives 
        transaction execution facility, and that such share 
        thereof as in the normal course of business shall be 
        necessary to margin, guarantee, secure, transfer, 
        adjust, or settle the contracts or trades of such 
        customers, or resulting market positions, with the 
        clearing-house organization of such contract market or 
        derivatives transaction execution facility or with any 
        member of such contract market or derivatives 
        transaction execution facility, may be withdrawn and 
        applied to such purposes, including the payment of 
        commissions, brokerage, interest, taxes, storage, and 
        other charges, lawfully accruing in connection with 
        such contracts and trades: Provided further, That in 
        accordance with such terms and conditions as the 
        Commission may prescribe by rule, regulation, or order, 
        such money, securities, and property of the customers 
        of such futures commission merchant may be commingled 
        and deposited as provided in this section with any 
        other money, securities, and property received by such 
        futures commission merchant and required by the 
        Commission to be separately accounted for and treated 
        and dealt with as belonging to the customers of such 
        futures commission merchant: Provided further, That 
        such money may be invested in obligations of the United 
        States, in general obligations of any State or of any 
        political subdivision thereof, and in obligations fully 
        guaranteed as to principal and interest by the United 
        States, such investments to be made in accordance with 
        such rules and regulations and subject to such 
        conditions as the Commission may prescribe.

It shall be unlawful for any person, including but not limited 
to any clearing agency of a contract market or derivatives 
transaction execution facility and any depository, that has 
received any money, securities, or property for deposit in a 
separate account as provided in paragraph (2) of this section, 
to hold, dispose of, or use any such money, securities, or 
property as belonging to the depositing futures commission 
merchant or any person other than the customers of such futures 
commission merchant.
    Sec. 4e. It shall be unlawful for any person to act as 
floor trader in executing purchases and sales, or as floor 
broker in executing any orders for the purchase or sale, of any 
commodity for future delivery, or involving any contracts of 
sale of any commodity for future delivery, on or subject to the 
rules of any contract market or derivatives transaction 
execution facility unless such person shall have registered, 
under this Act, with the Commission as such floor trader or 
floor broker and such registration shall not have expired nor 
been suspended nor revoked.
    Sec. 4f. (a)(1) Any person desiring to register as a 
futures commission merchant, introducing broker, floor broker, 
or floor trader hereunder shall be registered upon application 
to the Commission. The application shall be made in such form 
and manner as prescribed by the Commission, giving such 
information and facts as the Commission may deem necessary 
concerning the business in which the applicant is or will be 
engaged, including in the case of an application of a futures 
commission merchant or an introducing broker, the names and 
addresses of the managers of all branch offices, and the names 
of such officers and partners, if a partnership, and of such 
officers, directors, and stockholders, if a corporation, as the 
Commission may direct. Such person, when registered hereunder, 
shall likewise continue to report and furnish to the Commission 
the above-mentioned information and such other information 
pertaining to such person's business as the Commission may 
require. Each registration shall expire on December 31 of the 
year for which issued or at such other time, not less than one 
year from the date of issuance, as the Commission may by rule, 
regulation, or order prescribe, and shall be renewed upon 
application therefor unless the registration has been suspended 
(and the period of such suspension has not expired) or revoked 
pursuant to the provisions of this Act.
  (2) Notwithstanding paragraph (1), and except as provided in 
paragraph (3), any broker or dealer that is registered with the 
Securities and Exchange Commission shall be registered as a 
futures commission merchant or introducing broker as 
applicable, if--
          (A) such broker or dealer limits its solicitation of 
        orders, acceptance of orders, or execution of orders, 
        or placing of orders on behalf of others involving any 
        contracts of sale of any commodity for future delivery, 
        on or subject to the rules of any contract market to 
        security future products;
          (B) such broker or dealer files written notice with 
        the Commission in such form as the Commission, by rule, 
        may prescribe containing such information as the 
        Commission, by rule, may prescribe as necessary or 
        appropriate in the public interest or for the 
        protection of investors;
          (C) the registration of such broker or dealer is not 
        suspended pursuant to an order of the Securities and 
        Exchange Commission; and
          (D) such broker or dealer is a member of a national 
        securities association registered pursuant to section 
        15A(a) of the Securities Exchange Act of 1934.
Such registration shall be effective immediately upon filing of 
the written notice with the Commission.
  (3) A floor broker or floor trader shall be exempt from the 
registration requirements of section 4e and paragraph (1) of 
this subsection if--
          (A) such floor broker or floor trader is a broker or 
        dealer registered with the Securities and Exchange 
        Commission;
          (B) such floor broker or floor trader limits its 
        solicitation of orders, acceptance of orders, or 
        execution of orders, or placing of orders on behalf of 
        others involving any contracts of sale of any commodity 
        for future delivery, on or subject to the rules of any 
        contract market to security future products; and
          (C) the registration of such floor broker or floor 
        trader is not suspended pursuant to an order of the 
        Securities and Exchange Commission.
  (4)(A) A broker or dealer that is registered as a futures 
commission merchant or introducing broker pursuant to paragraph 
(2), or that is a floor broker or floor trader exempt from 
registration pursuant to paragraph (3), shall be exempt from 
the following provisions of this Act and the rules thereunder:
          (i) Subsections (b), (d), (e), and (g) of section 4c.
          (ii) Sections 4d, 4e, and 4h.
          (iii) Subsections (b) and (c) of this section.
          (iv) Subsections (b) and (c) of section 4j.
          (v) Section 4k(1).
          (vi) Section 4p.
          (vii) Section 6d.
          (viii) Subsections (d) and (g) of section 8.
          (ix) Section 16.
          (x) Section 22(a).
  (B)(i) Except as provided in clause (ii), but notwithstanding 
any other provision of this Act, the Commission, by rule, 
regulation, or order, may conditionally or unconditionally 
exempt any broker or dealer subject to the registration 
requirement of paragraph (2) of this subsection, or exempt from 
registration pursuant to paragraph (3) of this subsection, from 
any provision of this Act or of any rule or regulation 
thereunder, to the extent such exemption is necessary or 
appropriate in the public interest and is consistent with the 
protection of investors.
  (ii) The Commission shall, by rule or regulation, determine 
the procedures under which an exemptive order under this 
section shall be granted and may, in its sole discretion, 
decline to entertain any application for an order of exemption 
under this section.
  (C)(i) A broker or dealer that is registered as a futures 
commission merchant or introducing broker pursuant to paragraph 
(2) or an associated person thereof, or that is a floor broker 
or floor trader exempt from registration pursuant to paragraph 
(3), shall not be required to become a member of any futures 
association registered under section 17 of this Act.
  (ii) No futures association registered under section 17 of 
this Act shall limit its members from carrying an account, 
accepting an order, or transacting business with a broker or 
dealer that is registered as a futures commission merchant or 
introducing broker pursuant to paragraph (2) or an associated 
person thereof, or that is a floor broker or floor trader 
exempt from registration pursuant to paragraph (3).
    (b) Notwithstanding any other provisions of this Act, no 
person desiring to register as futures commission merchant or 
as introducing broker shall be so registered unless he meets 
such minimum financial requirements as the Commission may by 
regulation prescribe as necessary to insure his meeting his 
obligations as a registrant, and each person so registered 
shall at all times continue to meet such prescribed minimum 
financial requirements: Provided, That such minimum financial 
requirements will be considered met if the applicant for 
registration or registrant is a member of a contract market or 
derivatives transaction execution facility and conforms to 
minimum financial standards and related reporting requirements 
set by such contract market  in its bylaws, rules, regulations, 
or resolutions and approved by the Commission as adequate to 
effectuate the purposes of this subsection.
  (c)(1) As used in this subsection:
          (i) * * *

           *       *       *       *       *       *       *

  (3)(A) * * *
  (B) The Commission, in requiring reports pursuant to this 
paragraph, shall specify the information required, the period 
for which it is required, the time and date on which the 
information must be furnished, and whether the information is 
to be furnished directly to the Commission or to a contract 
market or derivatives transaction execution facility or other 
self-regulatory organization with primary responsibility for 
examining the registered futures commission merchant's 
financial and operational condition.

           *       *       *       *       *       *       *

    Sec. 4g. (a) * * *
    (b) Every [clearinghouse and contract market] registered 
entity shall maintain daily trading records. The daily trading 
records shall include such information as the Commission shall 
prescribe by rule.

           *       *       *       *       *       *       *

    (f) Nothing contained in this section shall be construed to 
prohibit the Commission from making separate determinations for 
different [clearinghouses, contract markets, and exchanges] 
registered entities when such determinations are warranted in 
the judgment of the Commission.
    Sec. 4h. It shall be unlawful for any person falsely to 
represent such person to be a member of a [contract market] 
registered entity or the representative or agent of such 
member, or to be a registrant under this Act or the 
representative or agent of any registrant, in soliciting or 
handling any order or contract for the purchase or sale of any 
commodity in interstate commerce or for future delivery, or 
falsely to represent in connection with the handling of any 
such order or contract that the same is to be or has been 
executed on, or by or through a member of, any [contract 
market] registered entity.
    Sec. 4i. It shall be unlawful for any person to make any 
contract for the purchase or sale of any commodity for future 
delivery on or subject to the rules of any contract market or 
derivatives transaction execution facility--
          (1) * * *

           *       *       *       *       *       *       *

    Sec. 4j. (a)(1) The Commission shall issue regulations to 
prohibit the privilege of dual trading on each contract market 
for security future products which has not been exempted from 
such regulations under paragraph (3). The regulations issued by 
the Commission under this paragraph--
          (A) * * *

           *       *       *       *       *       *       *

  (3) The Commission shall exempt a contract market, other than 
a designated contract market in a security future product, from 
the regulations issued under paragraph (1), either 
unconditionally or on stated conditions (including stated 
periods of time) relevant to the attainment or maintenance of 
compliance with the standards in subparagraphs (A) and (B), 
upon finding that--
          (A) the trade monitoring system in place at the 
        contract market satisfies the requirements of [section 
        5a(b)] section 5 with regard to violations attributable 
        to dual trading at such contract market; or

           *       *       *       *       *       *       *

  (6) Violation of an order issued under this subsection shall 
be considered a violation of an order of the Commission for 
purposes of--
          (i) establishing liability and assessing penalties 
        against a contract market or any director, officer, 
        agent, or employee thereof under section 6b or 6c; or
          (ii) initiating proceedings under [section 5b] 
        section 5e or 6(a).

           *       *       *       *       *       *       *

    Sec. 4k. (1) * * *

           *       *       *       *       *       *       *

  (6) Any associated person of a broker or dealer that is 
registered with the Securities and Exchange Commission, and who 
limits its solicitation of orders, acceptance of orders, or 
execution of orders, or placing of orders on behalf of others 
involving any contracts of sale of any commodity for future 
delivery, on or subject to the rules of any contract market to 
security future products, shall be exempt from the following 
provisions of this Act and the rules thereunder:
          (A) Subsections (b), (d), (e), and (g) of section 4c.
          (B) Sections 4d, 4e, and 4h.
          (C) Subsections (b) and (c) of section 4f.
          (D) Subsections (b) and (c) of section 4j.
          (E) Paragraph (1) of this section.
          (F) Section 4p.
          (G) Section 6d.
          (H) Subsections (d) and (g) of section 8.
          (I) Section 16.
          (J) Section 22(a).
    Sec. 4l. It is hereby found that the activities of 
commodity trading advisors and commodity pool operators are 
affected with a national public interest in that, among other 
things--
          (1) their advice, counsel, publications, writings, 
        analyses, and reports are furnished and distributed, 
        and their contracts, solicitations, subscriptions, 
        agreements, and other arrangements with clients take 
        place and are negotiated and performed by the use of 
        the mails and other means and instrumentalities of 
        interstate commerce;
          (2) their advice, counsel, publications, writings, 
        analyses, and reports customarily relate to and their 
        operations are directed toward and cause the purchase 
        and sale of commodities for future delivery on or 
        subject to the rules of contract markets or derivatives 
        transaction execution facilities; and
          (3) the foregoing transactions occur in such volume 
        as to affect substantially transactions on contract 
        markets or derivatives transaction execution 
        facilities.
    Sec. 4m. (1) * * *

           *       *       *       *       *       *       *

  (3) The provisions of subsection (1) of this section shall 
not apply to any commodity trading advisor that is registered 
with the Securities and Exchange Commission as an investment 
adviser whose business does not consist primarily of acting as 
a commodity trading advisor, as defined in section 1a of this 
Act, and that does not act as a commodity trading advisor to 
any investment trust, syndicate, or similar form of enterprise 
that is engaged primarily in trading in any commodity for 
future delivery on or subject to the rules of any contract 
market.

           *       *       *       *       *       *       *

    Sec. 4p. (a) The Commission may specify by rules and 
regulations appropriate standards with respect to training, 
experience, and such other qualifications as the Commission 
finds necessary or desirable to insure the fitness of persons 
required to be registered with the Commission. In connection 
therewith, the Commission may prescribe by rules and 
regulations the adoption of written proficiency examinations to 
be given to applicants for registration andthe establishment of 
reasonable fees to be charged to such applicants to cover the 
administration of such examinations. The Commission may further 
prescribe by rules and regulations that, in lieu of examinations 
administered by the Commission, futures associations registered under 
section 17 of this [Act or contract markets] Act, contract markets, or 
derivatives transaction execution facilities may adopt written 
proficiency examinations to be given to applicants for registration and 
charge reasonable fees to such applicants to cover the administration 
of such examinations. Notwithstanding any other provision of this 
section, the Commission may specify by rules and regulations such terms 
and conditions as it deems appropriate to protect the public interest 
wherein exception to any written proficiency examination shall be made 
with respect to individuals who have demonstrated, through training and 
experience, the degree of proficiency and skill necessary to protect 
the interests of customers, clients, pool participants, or other 
members of the public with whom such individuals deal.
  (b) The Commission shall issue regulations to require new 
registrants, within six months after receiving such 
registration, to attend a training session, and all other 
registrants to attend periodic training sessions, to ensure 
that registrants understand their responsibilities to the 
public under this Act, including responsibilities to observe 
just and equitable principles of trade, any rule or regulation 
of the Commission, any rule of any appropriate contract market, 
derivatives transaction execution facility, registered futures 
association, or other self-regulatory organization, or any 
other applicable Federal or state law, rule or regulation.

SEC. 4Q. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE 
                    HEDGING BY AGRICULTURAL PRODUCERS.

  (a) Authority.--The Commission shall consider issuing rules 
or orders which--
          (1) prescribe procedures under which each contract 
        market is to provide for orderly delivery, including 
        temporary storage costs, of any agricultural commodity 
        enumerated in section 1a(4) which is the subject of a 
        contract for purchase or sale for future delivery;
          (2) increase the ease with which domestic 
        agricultural producers may participate in contract 
        markets, including by addressing cost and margin 
        requirements, so as to better enable such producers to 
        hedge price risk associated with their production;
          (3) provide flexibility in the minimum quantities of 
        such agricultural commodities that may be the subject 
        of a contract for purchase or sale for future delivery 
        that is traded on a contract market, to better allow 
        domestic agricultural producers to hedge such price 
        risk; and
          (4) encourage exchanges to provide information and 
        otherwise facilitate the participation of domestic 
        agricultural producers in contract markets.
  (b) Report.--Within 1 year after the date of enactment of 
this section, the Commission shall submit to the Committee on 
Agriculture of the House of Representatives and the Committee 
on Agriculture, Nutrition, and Forestry of the Senate a report 
on the steps it has taken to implement this section and on the 
activities of contract markets pursuant to this section.
    [Sec. 5. The Commission is hereby authorized and directed 
to designate any board of trade as a ``contract market'' when, 
and only when, such board of trade complies with and carries 
out the following conditions and requirements:
          [(1) When located at a terminal market where any cash 
        commodity of the kind specified in the contracts of 
        sale of commodities for future delivery to be executed 
        on such board is sold in sufficient volumes and under 
        such conditions as fairly to reflect the general value 
        of the commodity and the differences in value between 
        the various grades of such commodity, and where there 
        is available to such board of trade official inspection 
        service approved by the Secretary of Agriculture or the 
        Commission for the purpose: Provided, That any board of 
        trade not so located shall be designated as a 
        ``contract market'' if such board of trade provides for 
        the delivery of commodities on such contracts at a 
        delivery point or points and upon terms and conditions 
        approved by the Commission.
          [(2) When the governing board thereof provides for 
        the making and filing by the board or any member 
        thereof, as the Commission may direct, of reports in 
        accordance with the rules and regulations, and in such 
        manner and form and at such times as may be prescribed 
        by the Commission, showing the details and terms of all 
        transactions entered into by the board, or the members 
        thereof, either in cash transactions or transactions 
        for future delivery consummated on or subject to the 
        rules of a board of trade, and when such governing 
        board provides, in accordance with such rules and 
        regulations, for the keeping of a record by the board 
        or the members of the board of trade, as the Commission 
        may direct, showing the details and terms of all cash 
        and future transactions entered into by them, 
        consummated on or subject to the rules of a board of 
        trade, such record to be in permanent form, showing the 
        parties to all such transactions, including the persons 
        for whom made, any assignments or transfers thereof, 
        with the parties thereto, and the manner in which said 
        transactions are fulfilled, discharged, or terminated. 
        Such record shall be required to be kept for a period 
        of three years from the date thereof, or for a longer 
        period if the Commission shall so direct, and shall at 
        all times be open to the inspection of any 
        representative of the Commission or United States 
        Department of Justice.
          [(3) When the governing board thereof provides for 
        the prevention of dissemination by the board or any 
        member thereof, of false or misleading or knowingly 
        inaccurate reports concerning crop or market 
        information or conditions that affect or tend to affect 
        the price of any commodity in interstate commerce.
          [(4) When the governing board thereof provides for 
        the prevention of manipulation of prices and the 
        cornering of any commodity by the dealers or operators 
        upon such board.
          [(5) When the governing board thereof does not 
        exclude from membership in, and all privileges on, such 
        board of trade, any duly authorized representative of 
        any lawfully formed andconducted cooperative 
association of producers having adequate financial responsibility which 
is engaged in any cash commodity business, if such association has 
complied, and agrees to comply, with such terms and conditions as are 
or may be imposed lawfully on other members of such board: Provided, 
That no rule of a contract market shall forbid or be construed to 
forbid the return on a patronage basis by such cooperative association 
to its bona fide members of moneys collected in excess of the expense 
of conducting the business of such association.
          [(6) When the governing board provides for making 
        effective the final orders or decisions entered 
        pursuant to the provisions of section 6(c), and the 
        orders issued pursuant to the provisions of section 5a 
        of this Act, and for compliance in all other respects 
        with the requirements applicable to such board of trade 
        under this Act.
          [(7) When such board of trade demonstrates that 
        transactions for future delivery in the commodity for 
        which designation as a contract market is sought will 
        not be contrary to the public interest.
          [(8) When such board of trade demonstrates that every 
        contract market for which such board of trade is 
        designated complies with the requirements of section 
        5a(b).
    [Sec. 5a. (a) Each contract market shall--
          [(1) promptly furnish the Commission copies of all 
        bylaws, rules, regulations, and resolutions made or 
        issued by it or by the governing boardthereof or any 
committee, and of all changes and proposed changes therein;
          [(2) keep all books, records, minutes, and journals 
        of proceedings of such contract market, and its 
        governing board, committees, subsidiaries, and 
        affiliates in a manner that will clearly describe all 
        matters discussed by such contract market, governing 
        board, committees, subsidiaries and affiliates and 
        reveal any action taken in such matters, and allow 
        inspection at all times by any authorized 
        representative of the Commission or United States 
        Department of Justice of all such books, records, 
        minutes, and journals of proceedings. Such books, 
        records, minutes, and journals of proceedings shall be 
        kept for a period of three years from the date thereof, 
        or for a longer period if the Commission shall so 
        direct;
          [(3) require the operators of warehouses in which or 
        out of which any commodity is deliverable on any 
        contract for future delivery made on or subject to the 
        rules of such contract market, to make such reports, 
        keep such records, and permit such warehouse visitation 
        as the Commission may prescribe. Such books and records 
        shall be required to be kept for a period of three 
        years from the date thereof, or for a longer period if 
        the Commission shall so direct, and such books, 
        records, and warehouses shall be open at all times to 
        inspection by any representative of the Commission or 
        United States Department of Justice;
          [(4) when so directed by order of the Commission, 
        provide for a period, after trading in contracts of 
        sale of any commodity for future delivery in a delivery 
        month has ceased, during which contracts of sale of 
        such commodity for future delivery in such month may be 
        satisfied by the delivery of the actual cash commodity. 
        Whenever, after due notice and opportunity for hearing, 
        the Commission finds that provision for such a period 
        of delivery for any one or more commodities or markets 
        would prevent or tend to prevent ``squeezes'' and 
        market congestion endangering price stability, it 
        shall, by order, require such period of delivery (which 
        shall be not less than three nor more than ten business 
        days) applicable to such commodities and markets as it 
        finds will prevent or tend to prevent such ``squeezes'' 
        and market congestion: Provided, however, That such 
        order shall not apply to then existing contracts;
          [(5) require the party making delivery of any 
        commodity on any contract of sale of such commodity for 
        future delivery to furnish the party obligated under 
        the contract to accept delivery, written notice of the 
        date of delivery at least one business day prior to 
        such date of delivery. Whenever, after due notice and 
        opportunity for hearing, the Commission finds that the 
        giving of longer notice of delivery is necessary to 
        prevent or diminish unfair practices in trading in any 
        one or more commodities or markets, it shall by order 
        require such longer notice of delivery (which shall be 
        not more than ten business days) applicable to such 
        commodities and markets as it finds will prevent or 
        diminish such unfair practices: Provided, however, That 
        such order shall not apply to then existing contracts;
          [(6) require that all contracts of sale of any 
        commodity for future delivery on such contract market 
        shall provide for the delivery thereunder of 
        commodities of grades conforming to United States 
        standards, if such standards shall have been officially 
        promulgated and adopted by the Commission;
          [(7) require that receipts issued under the United 
        States Warehouse Act (U.S.C., 1934 ed., title 7, secs. 
        241-273) shall be accepted in satisfaction of any 
        futures contract, made on or subject to the rules of 
        such contract market, without discrimination and 
        notwithstanding that the warehouseman issuing such 
        receipts is not also licensed as a warehouseman under 
        the laws of any State or enjoys other or different 
        privileges than under State law: Provided, however, 
        That such receipts shall be for the kind, quality, and 
        quantity of commodity specified in such contract and 
        that the warehouse in which the commodity is stored 
        meets such reasonable requirements as may be imposed by 
        such contract market on other warehouses as to 
        location, accessibility, and suitability for 
        warehousing and delivery purposes: And provided 
        further, That this subsection shall apply only to 
        futures contracts for those commodities which may be 
        delivered from a warehouse subject to the United States 
        Warehouse Act;
          [(8) enforce all bylaws, rules, regulations, and 
        resolutions, made or issued by it or by the governing 
        board thereof or any committee, that (i) have been 
        approved by the Commission pursuant to paragraph (12) 
        of this section, (ii) have become effective under such 
        paragraph, or (iii) must be enforced pursuant to any 
        Commission rule, regulation, or order; and revoke and 
        not enforce any bylaw, rule, regulation, or resolution, 
        made, issued, or proposed by it or by the governing 
        board thereof or any committee, that has been 
        disapproved by the Commission;
          [(9) enforce all bylaws, rules, regulations, and 
        resolutions made or issued by it or by the governing 
        board thereof or by any committee, which provide 
        minimum financial standards and related reporting 
        requirements for futures commission merchants who are 
        members of such contract market, and which have been 
        approved by the Commission;
          [(10) permit the delivery of any commodity, on 
        contracts of sale thereof for future delivery, of such 
        grade or grades, at such point or points and at such 
        quality and locational price differentials as will tend 
        to prevent or diminish price manipulation, market 
        congestion, or the abnormal movement of such commodity 
        in interstate commerce. If the Commission after 
        investigation finds that the rules and regulations 
        adopted by a contract market permitting delivery of any 
        commodity on contracts of sale thereof for future 
        delivery, do not accomplish the objectives of this 
        subsection, then the Commission shall notify the 
        contract market of its finding and afford the contract 
        market an opportunity to make appropriate changes in 
        such rules and regulations. If the contract market 
        within seventy-five days of such notification fails to 
        make the changes which in the opinion of the Commission 
        are necessary to accomplish the objectives of this 
        subsection, then the Commission after granting the 
        contract market an opportunity to be heard, may change 
        or supplement such rules and regulations of the 
        contract market to achieve the above objectives: 
        Provided, That any order issued under this paragraph 
        shall not apply to contracts of sale for future 
        delivery in any months in which contracts are currently 
        outstanding and open: And provided further, That no 
        requirement for an additional delivery point or points 
        shall be promulgated following hearings until the 
        contract market affected has had notice and opportunity 
        to file exceptions to the proposed order determining 
        the location and number of such delivery point or 
        points;
          [(11) provide a fair and equitable procedure through 
        arbitration or otherwise (such as by delegation to a 
        registered futures association having rules providing 
        for such procedures) for the settlement of customers' 
        claims and grievances against any member or employee 
        thereof: Provided, That (A) the use of such procedure 
        by a customer shall be voluntary, (B) the term 
        ``customer'' as used in this paragraph shall not 
        include another member of the contract market, and (C) 
        in the case of a claim arising from a violation in the 
        execution of an order on the floor of a contract 
        market, such procedure shall provide, to the extent 
        appropriate--
                  [(i) for payment of actual damages 
                proximately caused by such violation. If an 
                award of actual damages is made against a floor 
                broker in connection with the execution of a 
                customer order, and the futures commission 
                merchant which selected the floor broker for 
                the execution of the customer order is held to 
                be responsible under section 2(a)(1) for the 
                floor broker's violation, such futures 
                commission merchant may be required to satisfy 
                such award; and
                  [(ii) where the violation is willful and 
                intentional, for payment to the customer of 
                punitive or exemplary damages, in addition to 
                losses proximately caused by the violation, in 
                an amount equal to no more than two times the 
                amount of such losses. If punitive or exemplary 
                damages are awarded against a floor broker in 
                connection with the execution of a customer 
                order, and the futures commission merchant 
                which selected the floor broker for the 
                execution of such order is held to be 
                responsible under section 2(a)(1) for the floor 
                broker's violation, such futures commission 
                merchant may be required to satisfy the award 
                of punitive or exemplary damages if the floor 
                broker fails to do so, except that such 
                requirement shall apply to the futures 
                commission merchant only if it willfully and 
                intentionally selected the floor broker with 
                the intent to assist or facilitate the floor 
                broker's violation;
          [(12)(A) except as otherwise provided in this 
        paragraph, submit to the Commission for its prior 
        approval all bylaws, rules, regulations, and 
        resolutions (``rules'') made or issued by such contract 
        market, or by the governing board thereof or any 
        committee thereof, that relate to terms and conditions 
        in contracts of sale to be executed on or subject to 
        the rules of such contract market, as such terms and 
        conditions are defined by the Commission by rule or 
        regulation, except those rules relating to the setting 
        of levels of margin. Each contract market shall submit 
        to the Commission all other rules (except those 
        relating to the setting of levels of margin and except 
        those that the Commission may specify by regulation) 
        and may make such rules effective ten days after 
        receipt of such submission by the Commission unless, 
        within the ten-day period, the contract market requests 
        review and approval thereof by the Commission or the 
        Commission notifies such contract market in writing of 
        its determination to review such rules for approval. 
        The determination to review such rules for approval 
        shall not be delegable to any employee of the 
        Commission. At least thirty days before approving any 
        rules of major economic significance, as determined by 
        the Commission, the Commission shall publish a notice 
        of such rules in the Federal Register. The Commission 
        shall give interested persons an opportunity to 
        participate in the approval process through the 
        submission of written data, views, or arguments. The 
        determination by the Commission whether any such rules 
        are of major economic significance shall be final and 
        not subject to judicial review. The Commission shall 
        approve such rules if such rules are determined by the 
        Commission not to be in violation of this Act or the 
        regulations of the Commission and the Commission shall 
        disapprove, after appropriate notice and opportunity 
        for hearing, any such rule which the Commission 
        determines at any time to be in violation of the 
        provisions of this Act or the regulations of the 
        Commission. If the Commission institutes proceedings to 
        determine whether a rule should be disapproved pursuant 
        to this paragraph, it shall provide the contract market 
        with written notice of the proposed grounds for 
        disapproval, including the specific sections of this 
        Act or theCommission's regulations which would be 
violated. At the conclusion of such proceedings, the Commission shall 
approve or disapprove such rule. Any disapproval shall specify the 
sections of this Act or the Commission's regulations which the 
Commission determines such rule has violated or, if effective, would 
violate. If the Commission does not approve or institute disapproval 
proceedings with respect to any rule within one hundred and eighty days 
after receipt or within such longer period as the contract market may 
agree to, or if the Commission does not conclude a disapproval 
proceeding with respect to any rule within one year after receipt or 
within such longer period as the contract market may agree to, such 
rule may be made effective by the contract market until such time as 
the Commission disapproves such rule in accordance with this paragraph.
          [(B)(i) The Commission shall issue regulations to 
        specify the terms and conditions under which, in an 
        emergency as defined by the Commission, a contract 
        market may, by a two-thirds vote of its governing 
        board, make a rule (hereinafter referred to as an 
        ``emergency rule'') effective on a temporary basis 
        without prior Commission approval, or without 
        compliance with the ten-day notice requirement under 
        subparagraph (A), or during any period of review by the 
        Commission, if the contract market makes every effort 
        practicable to notify the Commission of such emergency 
        rule, along with a complete explanation of the 
        emergency involved, prior to making the emergency rule 
        effective. If the contract market does not provide the 
        Commission with such notification and explanation 
        before making the emergency rule effective, the 
        contract market shall provide the Commission with such 
        notification and explanation at the earliest possible 
        date. The Commission may delegate the power to receive 
        such notification and explanation to such individuals 
        as the Commission determines necessary and appropriate.
          [(ii) Within ten days of the receipt from a contract 
        market of notification of such an emergency rule and an 
        explanation of the emergency involved, or as soon as 
        practicable, the Commission shall determine whether it 
        is appropriate either--
                  [(I) to permit such rule to remain in effect 
                during the pendency of the emergency, or
                  [(II) to suspend the effect of such rule 
                pending review either under the procedures of 
                subparagraph (A) or otherwise.
        The Commission shall submit a report on its 
        determination and the basis thereof with respect to 
        such emergency rule to the affected contract market, to 
        the Committee on Agriculture of the House of 
        Representatives and the Committee on Agriculture, 
        Nutrition, and Forestry of the Senate. If the report is 
        submitted more than ten days after the Commission's 
        receipt of notification of such an emergency rule from 
        a contract market, the report shall explain why 
        submission within such ten-day period was not 
        practicable. A determination by the Commission to 
        suspend the effect of a rule under this subparagraph 
        shall be subject to judicial review on the same basis 
        as an emergency determination under section 8a(9). 
        Nothing in this paragraph shall be construed to limit 
        the authority of the Commission under section 8a(9);
          [(13) provide for disclosure to the contract market 
        and the Commission of any trade, business, or financial 
        partnership, cost-, profit-, or capital-sharing 
        agreements or other formal arrangement among or between 
        floor brokers and traders on such contract market where 
        such partnership agreement or arrangement is material 
        and known to the floor broker or floor trader;
          [(14)(A) provide for meaningful representation on the 
        governing board of the contract market's board of trade 
        of a diversity of interests, including--
                  [(i) futures commission merchants;
                  [(ii) producers of, and consumers, 
                processors, distributors, or merchandisers of, 
                principal commodities traded on the board of 
                trade;
                  [(iii) floor brokers and traders; and
                  [(iv) participants in a variety of pits or 
                principal groups of commodities traded on the 
                exchange.
          [(B) provide that no less than 20 percent of the 
        regular voting members of such board be comprised of 
        nonmembers of such contract market's board of trade 
        with--
                  [(i) expertise in futures trading, or the 
                regulation thereof, or in commodities traded 
                through contracts on the board of trade; or
                  [(ii) other eminent qualifications making 
                such person capable of participating in and 
                contributing to board deliberations.
          [(C) provide that no less than 10 percent of the 
        regular voting members of such board be comprised where 
        applicable of farmers, producers, merchants, or 
        exporters of principal commodities traded on the 
        exchange;
          [(15)(A) provide on all major disciplinary committees 
        for a diversity of membership sufficient to ensure 
        fairness and to prevent special treatment or preference 
        for any person in the conduct of disciplinary 
        proceedings and the assessment of penalties.
          [(B) Consistent with Commission rules, a major 
        disciplinary committee hearing a disciplinary matter 
        shall include--
                  [(i) a majority of qualified persons 
                representing a trading status other than that 
                of the subject of the proceeding; and
                  [(ii) where appropriate to carry out the 
                purposes of this Act, qualified persons who are 
                not members of the exchange.
          [(C) For purposes of this paragraph, a trading status 
        on a contract market may include, consistent with 
        Commission rules, such categories as--
                  [(i) floor brokers and traders;
                  [(ii) producers, consumers, processors, 
                distributors, or merchandisers of commodities;
                  [(iii) futures commission merchants; and
                  [(iv) members of the aforementioned 
                categories who participate in particular 
                contract markets or principal groups of 
                commodities on the board of trade.
          [(D) If a contract market takes final disciplinary 
        action against a member for a violation that involves 
        the execution of a customer transaction and results in 
        financial harm to such customer, the contract market 
        shall promptly inform the futures commission merchant 
        identified on the records of such contract market as 
        having cleared such transaction, and such futures 
        commission merchant shall promptly inform the person 
        identified on its records as the owner of the account 
        for which such transaction was executed, of the 
        disciplinary action and the principal facts thereof;
          [(16) provide that no member found by the Commission, 
        a contract market, a registered futures association, or 
        a court of competent jurisdiction to have committed any 
        violation of this Act or any other provision of law 
        that would reflect on the fitness of the member may 
        serve on any contract market oversight or disciplinary 
        panel for an appropriate period (as defined by 
        Commission rule); and
          [(17)(A) provide for the avoidance of conflict of 
        interest in deliberations by the governing board and 
        any disciplinary and oversight committees. In order to 
        comply with this subparagraph, each contract market 
        shall adopt rules and procedures to require, at a 
        minimum, that
                  [(i) any member of a governing board or a 
                disciplinary or other oversight committee must 
                abstain from confidential deliberations and 
                voting on any matter where the named party in 
                interest is the member, the member's employer, 
                the member's employee, or any other person that 
                has a business, employment, or family 
                relationship with the member that warrants 
                abstention by the member;
                  [(ii) any member of a governing board or a 
                disciplinary or other oversight committee must 
                abstain from voting on any significant action 
                that would not be submitted to the Commission 
                for its prior approval, if, as determined in 
                accordance with regulations promulgated by the 
                Commission, the member knowingly has a direct 
                and substantial financial interest in the 
                result of the vote, based either on positions 
                held personally or at an affiliated firm;
                  [(iii) prior to the deliberations of the 
                governing board, disciplinary board, or other 
                oversight committee, acting directly or 
                indirectly through an authorized member or 
                contract market official, the positions of the 
                members of such board or committee, and 
                positions of the firm or firms with which such 
                members are affiliated, are reviewed: Provided, 
                however, That no contract market or official, 
                employee, member, other than the member whose 
                position or positions are being reviewed, or 
                agent thereof shall be subject to liability, 
                except for liability in an action initiated by 
                the Commission, for having conducted this 
                review and for having taken or not taken 
                further action; and
                  [(iv) the board or committee shall clearly 
                reflect, in the minutes of such meeting, that 
                the review required in clause (iii) occurred 
                and any decisions by a member to abstain or by 
                the board or committee whether to direct a 
                member or members to abstain from deliberations 
                or voting on the matter before the board or 
                committee.
        Any member prohibited from voting on a rule pursuant to 
        this paragraph shall not be included in determining 
        whether there has been a two-thirds vote of members of 
        the governing board or committee as required by 
        subparagraph (12).
          [(B) For the purposes of this paragraph, the term 
        ``significant action that would not be submitted to the 
        Commission for its prior approval'' includes--
                  [(i) any nonphysical emergency rule; or
                  [(ii) any changes in margin levels designed 
                to respond to extraordinary market conditions 
                that are likely to have a substantial affect on 
                prices in any contract traded on such contract 
                market, but does not include any rule not 
                submitted for prior Commission approval because 
                such rule is unrelated to terms and conditions 
                of any contract traded on such contract market.
          [(C) Notwithstanding the provisions of subparagraph 
        (A)(ii), the Commission shall issue rules establishing 
        the conditions under which a member of a board or 
        committee who is required to abstain from voting on a 
        significant action, as provided in subparagraph 
        (A)(ii), may participate in deliberations on that 
        action prior to such vote, where the member's 
        participation is consistent with the public interest.
  [(b)(1) Each contract market shall maintain and utilize a 
system to monitor trading to detect and deter violations of the 
contract market's rules and regulations committed in the making 
of trades and the execution of customer orders on the floor or 
subject to the rules of such contract market. The system shall 
include--
          [(A) physical observation of trading areas;
          [(B) audit trail and recordkeeping systems able to 
        capture essential data on the terms, participants, and 
        sequence of transactions (including relevant data on 
        unmatched trades and out-trades);
          [(C) systems capable of reviewing, and used to 
        review, data on trades effectively on a regular basis 
        to detect violations committed in making trades and 
        executing customer orders on the floor or subject to 
        the rules of such contract market, including--
                  [(i) all types of violations attributable to 
                dual trading; and
                  [(ii) to the full extent feasible, as 
                determined by the Commission, all other types 
                of violations involving the making of trades 
                and the execution of customer orders;
          [(D) the use of information gathered through such 
        system on a consistent basis to bring appropriate 
        disciplinary actions against violators;
          [(E) the commitment of resources to such system 
        necessary for such system to be effective in detecting 
        and deterring such violations, including adequate staff 
        to develop and prosecute disciplinary actions; and
          [(F) the assessment of meaningful penalties against 
        violators and the referral of appropriate cases to the 
        Commission.
  [(2) The audit trail system of the contract market shall, 
consistent with Commission regulations, accurately record--
          [(A) the times of trades in increments of no more 
        than one minute in length; and
          [(B) the sequence of trades for each floor trader and 
        broker.
  [(3) Beginning three years after the date of enactment of 
this subsection, the audit trail system of each contract 
market, except as provided in paragraph (5) and except to the 
extent the Commission determines that circumstances beyond the 
control of the contract market prevent compliance despite the 
contract market's affirmative good faith efforts to comply, 
shall--
          [(A) for all trades, record accurately and promptly 
        the essential data on terms, participants, and times as 
        required by the Commission by rule, including the time 
        of execution of such trade, through a means that--
                  [(i) records such data in a form which cannot 
                be altered except in a manner that will leave a 
                complete and independent record of such 
                alteration;
                  [(iii) identifies such time, to the extent 
                practicable as determined by the Commission--
                  [(ii) continually provides such data to the 
                contract market;
                          [(I) independently of the person 
                        making the trade;
                          [(II) through a mechanism that 
                        records the time automatically when 
                        entered by the person making the trade; 
                        or
                          [(III) through such other means that 
                        will capture a similarly reliable time; 
                        and
                  [(iv) is adequately precise to determine, to 
                the extent practicable as determined by the 
                Commission by rule or order--
                          [(I) the sequence of all trades by 
                        each floor trader; and
                          [(II) the sequence of all trades by 
                        each floor broker; and
          [(B) to the extent practicable as determined by the 
        Commission by rule or order, for customer trades, 
        record the time that each order is received on the 
        floor of the board of trade, is received by the floor 
        broker for execution (or when such order is transmitted 
        in an extremely rapid manner to the broker), and is 
        reported from the floor of the board of trade as 
        executed, through a means that--
                  [(i) records such times in a form which 
                cannot be altered except in a manner that will 
                leave a complete and independent record of such 
                alteration;
                  [(ii) continually provides such data to the 
                contract market;
                  [(iii) identifies such time--
                          [(I) independently of the person 
                        making the trade or processing the 
                        order;
                          [(II) through a mechanism that 
                        records the time automatically when 
                        entered by the person making the trade 
                        or processing such order, as 
                        appropriate; or
                          [(III) through such other means as 
                        will capture a similarly reliable time; 
                        and
                  [(iv) is adequately precise to determine--
                          [(I) the sequence in which, for each 
                        futures commission merchant, floor 
                        broker, or member firm, as applicable, 
                        all orders are received on and reported 
                        from the floor of the contract market; 
                        and
                          [(II) the sequence in which orders 
                        are received by each floor broker for 
                        execution.
  [(4) The Commission may, by rule, establish standards under 
which the audit trail systems required under paragraph (3) 
shall record, to the extent practicable--
          [(A) the sequence of all trades made by all floor 
        traders and floor brokers; and
          [(B) the interval between the time of receipt and the 
        time of execution of each order by the floor broker 
        executing the order.
  [(5)(A) The Commission shall, by rule or order, make 
exemptions from the requirements of paragraph (3)--
          [(i) for an exchange with respect to which the 
        Commission finds that--
                  [(I) the volume of trading on such exchange 
                is relatively small and the exchange has 
                demonstrated substantial compliance with the 
                objectives of such paragraph; and
                  [(II) the trade monitoring system at such 
                exchange otherwise maintains a high level of 
                compliance with this subsection; and
          [(ii) to the extent determined appropriate by the 
        Commission, for categories of customer orders with 
        respect to which the Commission finds that such orders 
        are transmitted to and reported from the trading pit in 
        an extremely rapid manner such that substantial 
        compliance with the objectives of paragraph (3) can be 
        otherwise achieved.
  [(B) For purposes of subparagraph (A)(i)(I) the Commission 
shall find that the volume of trading at an exchange is 
relatively small if, among other things, the Commission 
determines that the average daily trading volume for each 
contract market for which the board of trade is designated is 
less than the threshold trading level established for the 
contract market under section 4j(a)(4).
  [(6) Any rule or order adopted by the Commission under 
paragraphs (4) and (5) shall become effective thirty 
legislative days or ninety calendar days, whichever is later, 
after submission of such rule or order to the Committee on 
Agriculture of the House of Representatives and the Committee 
on Agriculture, Nutrition, and Forestry of the Senate. For 
purposes of this paragraph, the term ``legislative day'' means 
any day on which either House of Congress is in session.
    [Sec. 5b. The failure or refusal of any board of trade to 
comply with any of the provisions of this Act, or any of the 
rules, regulations, or orders of the Commission or the 
commission thereunder, shall be cause for suspending for a 
period not to exceed six monthsor revoking the designation of 
such board of trade as a ``contract market'' in accordance with the 
procedure and subject to the judicial review provided in section 6(b) 
of this Act.]

SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.

  (a) Applications.--A board of trade applying to the 
Commission for designation as a contract market shall submit an 
application to the Commission that includes any relevant 
materials and records the Commission may require consistent 
with this Act.
  (b) Criteria for Designation.--
          (1) In general.--To be designated as a contract 
        market, the board of trade shall demonstrate to the 
        Commission that the board of trade meets the criteria 
        specified in this subsection.
          (2) Prevention of market manipulation.--The board of 
        trade shall have the capacity to prevent market 
        manipulation through market surveillance, compliance, 
        and enforcement practices and procedures, including 
        methods for conducting real-time monitoring of trading 
        and comprehensive and accurate trade reconstructions.
          (3) Fair and equitable trading.--The board of trade 
        shall establish and enforce trading rules to ensure 
        fair and equitable trading through the facilities of 
        the contract market, and the capacity to detect, 
        investigate, and discipline any person that violates 
        the rules. Such rules may authorize--
                  (A) an exchange of--
                          (i) futures in connection with a cash 
                        commodity transaction;
                          (ii) futures for cash commodities;
                          (iii) transfer trades or office 
                        trades; or
                          (iv) futures for swaps; and
                  (B) a futures commission merchant, acting as 
                principal or agent, to enter into or confirm 
                the execution of a contract for the purchase or 
                sale of a commodity for future delivery if the 
                contract is reported, recorded, or cleared in 
                accordance with the rules of the contract 
                market or a derivatives clearing organization.
          (4) Trade execution facility.--The board of trade 
        shall--
                  (A) establish and enforce rules defining, or 
                specifications detailing, the manner of 
                operation of the trade execution facility 
                maintained by the board of trade, including 
                rules or specifications describing the 
                operation of any electronic matching platform; 
                and
                  (B) demonstrate that the trading facility 
                operates in accordance with the rules or 
                specifications.
          (5) Financial integrity of transactions.--The board 
        of trade shall establish and enforce rules and 
        procedures for ensuring the financial integrity of 
        transactions entered into by or through the facilities 
        of the contract market.
          (6) Disciplinary procedures.--The board of trade 
        shall establish and enforce disciplinary procedures 
        that authorize the board of trade to discipline, 
        suspend, or expel members or market participants that 
        violate the rules of the board of trade, or similar 
        methods for performing the same functions, including 
        delegation of the functions to third parties.
          (7) Public access.--The board of trade shall provide 
        the public with access to the rules, regulations, and 
        contract specifications of the board of trade.
          (8) Ability to obtain information.--The board of 
        trade shall establish and enforce rules that will allow 
        the board of trade to obtain any necessary information 
        to perform any of the functions described in this 
        subsection, including the capacity to carry out such 
        international information-sharing agreements as the 
        Commission may require.
  (c) Existing Contract Markets.--A board of trade that is 
designated as a contract market on the effective date of the 
Commodity Futures Modernization Act of 2000 shall be considered 
to be a designated contract market under this section.
  (d) Core Principles for Contract Markets.--
          (1) In general.--To maintain the designation of a 
        board of trade as a contract market, a board of trade 
        shall comply with the core principles specified in this 
        subsection.
          (2) Compliance with rules.--The board of trade shall 
        monitor and enforce compliance with the rules of the 
        contract market, including the terms and conditions of 
        any contracts to be traded and any limitations on 
        access to the contract market.
          (3) Contracts not readily subject to manipulation.--
        The board of trade shall list on the contract market 
        only contracts that are not readily susceptible to 
        manipulation.
          (4) Monitoring of trading.--The board of trade shall 
        monitor trading to prevent manipulation, price 
        distortion, and disruptions of the delivery or cash-
        settlement process.
          (5) Position limitations or accountability.--To 
        reduce the potential threat of market manipulation or 
        congestion, especially during trading in the delivery 
        month, the board of trade shall adopt position 
        limitations or position accountability for speculators, 
        where necessary and appropriate.
          (6) Emergency authority.--The board of trade shall 
        adopt rules to provide for the exercise of emergency 
        authority, in consultation or cooperation with the 
        Commission, where necessary and appropriate, including 
        the authority to--
                  (A) liquidate or transfer open positions in 
                any contract;
                  (B) suspend or curtail trading in any 
                contract; and
                  (C) require market participants in any 
                contract to meet special margin requirements.
          (7) Availability of general information.--The board 
        of trade shall make available to market authorities, 
        market participants, and the public information 
        concerning--
                  (A) the terms and conditions of the contracts 
                of the contract market; and
                  (B) the mechanisms for executing transactions 
                on or through the facilities of the contract 
                market.
          (8) Daily publication of trading information.--The 
        board of trade shall make public daily information on 
        settlement prices, volume, open interest, and opening 
        and closing ranges for actively traded contracts on the 
        contract market.
          (9) Execution of transactions.--The board of trade 
        shall provide a competitive, open, and efficient market 
        and mechanism for executing transactions.
          (10) Trade information.--The board of trade shall 
        maintain rules and procedures to provide for the 
        recording and safe storage of all identifying trade 
        information in a manner that enables the contract 
        market to use the information for purposes of assisting 
        in the prevention of customer and market abuses and 
        providing evidence of any violations of the rules of 
        the contract market.
          (11) Financial integrity of contracts.--The board of 
        trade shall establish and enforce rules providing for 
        the financial integrity of any contracts traded on the 
        contract market, including rules to ensure the 
        financial integrity of any futures commission merchants 
        and introducing brokers and the protection of customer 
        funds.
          (12) Protection of market participants.--The board of 
        trade shall establish and enforce rules to protect 
        market participants from abusive practices committed by 
        any party acting as an agent for the participants.
          (13) Dispute resolution.--The board of trade shall 
        establish and enforce rules regarding and provide 
        facilities for alternative dispute resolution as 
        appropriate for market participants and any market 
        intermediaries.
          (14) Governance fitness standards.--The board of 
        trade shall establish and enforce appropriate fitness 
        standards for directors, members of any disciplinary 
        committee, members of the contract market, and any 
        other persons with direct access to the facility 
        (including any parties affiliated with any of the 
        persons described in this paragraph).
          (15) Conflicts of interest.--The board of trade shall 
        establish and enforce rules to minimize conflicts of 
        interest in the decisionmaking process of the contract 
        market and establish a process for resolving such 
        conflicts of interest.
          (16) Composition of boards of mutually owned contract 
        markets.--In the case of a mutually owned contract 
        market, the board of trade shall ensure that the 
        composition of the governing board reflects market 
        participants.
          (17) Recordkeeping.--The board of trade shall--
                  (A) maintain full records of all activities 
                related to the business of the contract market 
                in a form and manner acceptable to the 
                Commission for a period of at least 5 years;
                  (B) make the records readily available during 
                at least the first 2 years of the 5-year period 
                and provide the records to the Commission at 
                the expense of the person required to maintain 
                the records; and
                  (C) keep the records open to inspection by 
                any representative of the Commission or the 
                Department of Justice.
          (18) Antitrust considerations.--Unless necessary or 
        appropriate to achieve the purposes of this Act, the 
        board of trade shall not--
                  (A) adopt any rules or taking any actions 
                that result in any unreasonable restraints of 
                trade; or
                  (B) impose any material anticompetitive 
                burden on trading on the contract market.
  (e) Current Agricultural and Metal Commodities.--
          (1) Subject to paragraph (2), a contract for purchase 
        or sale for future delivery of an agricultural or metal 
        commodity enumerated in section 1a(4) that is available 
        for trade on a contract market, as of the date of the 
        enactment of this subsection, may be traded only on a 
        contract market designated under this section.
          (2) In order to promote responsible economic or 
        financial innovation and fair competition, the 
        Commission, on application by any person, after notice 
        and public comment and opportunity for hearing, may 
        prescribe rules and regulations to provide for the 
        offer and sale of contracts for future delivery or 
        options thereon to be conducted on a derivatives 
        transaction execution facility.

SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.

  (a) In General.--In lieu of compliance with the contract 
market designation requirements of section 5, a board of trade 
may elect to operate as a registered derivatives transaction 
execution facility if the facility is--
          (1) designated as a contract market and meets the 
        requirements of this section; or
          (2) registered as a derivatives transaction execution 
        facility under subsection (c).
  (b) Requirements for Trading Futures Contracts or Other 
Derivatives Transactions.--
          (1) In general.--A registered derivatives transaction 
        execution facility under subsection (a) may trade any 
        futures contract (or option on such a contract) on or 
        through the facility only by satisfying the 
        requirements of this section.
          (2) Requirements for underlying commodities.--A 
        registered derivatives transaction execution facility 
        may trade any futures contract only if--
                  (A) the underlying commodity has a nearly 
                inexhaustible deliverable supply;
                  (B) the underlying commodity has a 
                deliverable supply that is sufficiently large 
                that the contract is not readily susceptible to 
                manipulation;
                  (C) the underlying commodity has no cash 
                market; or
                  (D) the Commission determines, based on the 
                market characteristics, surveillance history, 
                self-regulatory record, or capacity of the 
                facility that trading in the futures contract 
                is not readily susceptible to manipulation.
          (3) Eligible traders.--To trade on a registered 
        derivatives transaction execution facility, a person 
        shall--
                  (A) be authorized by the board of trade to 
                trade on the facility; and
                  (B)(i) be an eligible contract participant; 
                or
                  (ii) be a person trading through a futures 
                commission merchant that--
                          (I) is registered with the 
                        Commission;
                          (II) is a member of a futures self-
                        regulatory organization;
                          (III) is a clearing member of a 
                        derivatives clearing organization; and
                          (IV) has net capital of at least 
                        $20,000,000.
          (4) Trading by contract markets.--A board of trade 
        that is designated as a contract market shall, to the 
        extent that the contract market also operates a 
        registered derivatives transaction execution facility--
                  (A) provide a physical location for the 
                contract market trading of the board of trade 
                that is separate from trading on the 
                derivatives transaction execution facility of 
                the board of trade; or
                  (B) if the board of trade uses the same 
                electronic trading system for trading on the 
                contract market and derivatives transaction 
                execution facility of the board of trade, 
                identify whether the electronic trading is 
                taking place on the contract market or the 
                derivatives transaction execution facility.
          (5) Impermissible products.--It shall be unlawful for 
        any person to execute or trade a security future 
        product or other future involving a security, except an 
        exempt security as defined in section 3(a)(12) of the 
        Securities Exchange Act of 1934 as in effect on the 
        date of enactment of the Futures Trading Act of 1982, 
        on a designated transaction execution facility.
  (c) Criteria for Registration.--
          (1) In general.--To be registered as a registered 
        derivatives transaction execution facility, the board 
        of trade shall demonstrate to the Commission that the 
        board of trade meets the criteria specified in this 
        subsection.
          (2) Deterrence of abuses.--The board of trade shall 
        establish and enforce trading rules that will deter 
        abuses and has the capacity to detect, investigate, and 
        enforce those rules, including means to--
                  (A) obtain information necessary to perform 
                the functions required under this section; or
                  (B) use technological means to--
                          (i) provide market participants with 
                        impartial access to the market; and
                          (ii) capture information that may be 
                        used in establishing whether rule 
                        violations have occurred.
          (3) Trading procedures.--The board of trade shall 
        establish and enforce rules or terms and conditions 
        defining, or specifications detailing, trading 
        procedures to be used in entering and executing orders 
        traded on the facilities of the board of trade. Such 
        rules may authorize--
                  (A) an exchange of--
                          (i) futures in connection with a cash 
                        commodity transaction;
                          (ii) futures for cash commodities;
                          (iii) transfer trades or office 
                        trades; or
                          (iv) futures for swaps; and
                  (B) a futures commission merchant, acting as 
                principal or agent, to enter into or confirm 
                the execution of a contract for the purchase or 
                sale of a commodity for future delivery if the 
                contract is reported, recorded, or cleared in 
                accordance with the rules of the registered 
                derivatives transaction execution facility or a 
                derivatives clearing organization.
          (4) Financial integrity of transactions.--The board 
        of trade shall establish and enforce rules or terms and 
        conditions providing for the financial integrity of 
        transactions entered on or through the facilities of 
        the board of trade, including rules or terms and 
        conditions to ensure the financial integrity of any 
        futures commission merchants and introducing brokers 
        and the protection of customer funds.
  (d) Core Principles for Registered Derivatives Transaction 
Execution Facilities.--
          (1) In general.--To maintain the registration of a 
        board of trade as a derivatives transaction execution 
        facility, a board of trade shall comply with the core 
        principles specified in this subsection.
          (2) Compliance with rules.--The board of trade shall 
        monitor and enforce the rules of the facility, 
        including any terms and conditions of any contracts 
        traded on or through the facility and any limitations 
        on access to the facility.
          (3) Monitoring of trading.--The board of trade shall 
        monitor trading in the contracts of the facility to 
        ensure orderly trading in the contract and to maintain 
        an orderly market while providing any necessary trading 
        information to the Commission to allow the Commission 
        to discharge the responsibilities of the Commission 
        under the Act.
          (4) Disclosure of general information.--The board of 
        trade shall disclose publicly and to the Commission 
        information concerning--
                  (A) contract terms and conditions;
                  (B) trading conventions, mechanisms, and 
                practices;
                  (C) financial integrity protections; and
                  (D) other information relevant to 
                participation in trading on the facility.
          (5) Daily publication of trading information.--The 
        board of trade shall make public daily information on 
        settlement prices, volume, open interest, and opening 
        and closing ranges for actively traded contracts on the 
        facility.
          (6) Fitness standards.--The board of trade shall 
        establish and enforce appropriate fitness standards for 
        directors, members of any disciplinary committee, 
        members, and any other persons with direct access to 
        the facility, including any parties affiliated with any 
        of the persons described in this paragraph.
          (7) Conflicts of interest.--The board of trade shall 
        establish and enforce rules to minimize conflicts of 
        interest in the decisionmaking process of the 
        derivatives transaction execution facility and 
        establish a process for resolving such conflicts of 
        interest.
          (8) Recordkeeping.--The board of trade shall--
                  (A) maintain full records of all activities 
                related to the business of the derivatives 
                transaction execution facility in a form and 
                manner acceptable to the Commission for a 
                period of at least 5 years;
                  (B) make the records readily available during 
                at least the first 2 years of the 5-year period 
                and provide therecords to the Commission at the 
expense of the person required to maintain the records; and
                  (C) keep the records open to inspection by 
                any representatives of the Commission or the 
                Department of Justice.
          (9) Antitrust considerations.--Unless necessary or 
        appropriate to achieve the purposes of this Act, the 
        board of trade shall not--
                  (A) adopt any rules or take any actions that 
                result in any unreasonable restraint of trade; 
                or
                  (B) impose any material anticompetitive 
                burden on trading on the derivatives 
                transaction execution facility.
  (e) Use of Broker-Dealers, Depository Institutions, and Farm 
Credit System Institutions as Intermediaries.--
          (1) In general.--A registered derivatives transaction 
        execution facility may by rule allow a broker-dealer, 
        depository institution, or institution of the Farm 
        Credit System that meets the requirements of paragraph 
        (2) to--
                  (A) act as an intermediary in transactions 
                executed on the facility on behalf of customers 
                of the broker-dealer, depository institution, 
                or institution of the Farm Credit System; and
                  (B) receive funds of customers to serve as 
                margin or security for such transactions.
          (2) Requirements.--The requirements referred to in 
        paragraph (1) are that--
                  (A) the broker-dealer be in good standing 
                with the Securities and Exchange Commission, or 
                the depository institution or institution of 
                the Farm Credit System be in good standing with 
                Federal bank regulatory agencies (including the 
                Farm Credit Administration), as applicable; and
                  (B) if the broker-dealer, depository 
                institution, or institution of the Farm Credit 
                System carries or holds customer accounts or 
                funds for transactions on the derivatives 
                transaction execution facility for more than 1 
                business day, the broker-dealer, depository 
                institution, or institution of the Farm Credit 
                System is registered as a futures commission 
                merchant and is a member of a registered 
                futures association.
          (3) Implementation.--The Commission shall cooperate 
        and coordinate with the Securities and Exchange 
        Commission, the Secretary of the Treasury, and Federal 
        banking regulatory agencies (including the Farm Credit 
        Administration) in adopting rules and taking any other 
        appropriate action to facilitate the implementation of 
        this subsection.
  (f) Segregation of Customer Funds.--Not later than 180 days 
after the effective date of the Commodity Futures Modernization 
Act of 2000, consistent with regulations adopted by the 
Commission, a registered derivatives transaction execution 
facility may authorize a futures commission merchant to offer 
any customer of the futures commission merchant that is an 
eligible contract participant the right to not segregate the 
customer funds of the futures commission merchant for purposes 
of trading on or through the facilities of the registered 
derivatives transaction execution facility.
  (g) Election To Trade Excluded Commodities.--
          (1) In general.--A board of trade that is a 
        registered derivatives transaction execution facility 
        may trade on the facility any agreements, contracts, or 
        transactions involving excluded commodities other than 
        securities, except exempt securities under section 
        3(a)(12) of the Securities Exchange Act of 1934 as in 
        effect on the date of enactment of the Futures Trading 
        Act of 1982, that are otherwise excluded or exempt from 
        this Act under section 2(c), 2(d), or 2(h). 
        Notwithstanding section 5a(b)(2), a board of trade on 
        which agreements, contracts, or transactions excluded 
        or exempt from this Act under section 2(c), 2(d), or 
        2(h) are traded may elect, but shall not be required, 
        to register as a derivatives transaction execution 
        facility with respect to such agreements, contracts, or 
        transactions, other than any agreement, contract, or 
        transaction in a security other than such an exempt 
        security.
          (2) Exclusive jurisdiction of the commission.--The 
        Commission shall have exclusive jurisdiction over 
        agreements, contracts, or transactions described in 
        paragraph (1) to the extent that the agreements, 
        contracts, or transactions are traded on a derivatives 
        transaction execution facility.

SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.

  (a) Registration Requirement.--Except as provided in 
subsection (b), it shall be unlawful for a derivatives clearing 
organization, unless registered with the Commission, directly 
or indirectly to make use of the mails or any means or 
instrumentality of interstate commerce to perform the functions 
of a derivatives clearing organization described in section 
1a(9).
  (b) Exclusion of Derivatives Clearing Organizations Subject 
to Other Regulatory Authorities.--A derivatives clearing 
organization shall not be required to register with the 
Commission, and the Commission shall have no jurisdiction with 
respect to the derivatives clearing organization, if the 
derivatives clearing organization--
          (1)(A) is registered as a clearing agency under the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et 
        seq.);
          (B) is subject to the supervisory jurisdiction of a 
        Federal banking agency (as defined in section 3 of the 
        Federal Deposit Insurance Act (12 U.S.C. 1813)) or the 
        National Credit Union Administration; or
          (C) is subject to the supervisory jurisdiction of a 
        foreign regulatory authority that is recognized by the 
        Securities and Exchange Commission, the Board of 
        Governors of the Federal Reserve System, the 
        Comptroller of the Currency, or the Commission as 
        overseeing a system of consolidated supervision 
        comparable to that provided under applicable United 
        States law; and
          (2) does not clear--
                  (A) a contract of sale for future delivery 
                other than a security future product;
                  (B) an option on a contract of sale for 
                future delivery other than a security future 
                product; or
                  (C) an option on a commodity other than a 
                security.
  (c) Voluntary Registration.--A derivatives clearing 
organization that is not exempt from registration under 
subsection (b) may register with the Commission as a 
derivatives clearing organization.
  (d) Registration of Derivatives Clearing Organizations.--
          (1) Application.--A person desiring to register as a 
        derivatives clearing organization shall submit to the 
        Commission an application in such form and containing 
        such information as the Commission may require for the 
        purpose of making the determinations required for 
        approval under paragraph (2).
          (2) Core principles.--
                  (A) In general.--To be registered and to 
                maintain registration as a derivatives clearing 
                organization, an applicant shall demonstrate to 
                the Commission that the applicant complies with 
                the core principles specified in this 
                paragraph. 
                  (B) Financial resources.--The applicant shall 
                demonstrate that the applicant has adequate 
                financial, operational, and managerial 
                resources to discharge the responsibilities of 
                a derivatives clearing organization without 
                interruption in various market conditions.
                  (C) Participant and product eligibility.--The 
                applicant shall establish--
                          (i) appropriate admission and 
                        continuing eligibility standards 
                        (including appropriate minimum 
                        financial requirements) for members of 
                        and participants in the organization; 
                        and
                          (ii) appropriate standards for 
                        determining eligibility of agreements, 
                        contracts, or transactions submitted to 
                        the applicant.
                  (D) Risk management.--The applicant shall 
                have the ability to manage the risks associated 
                with discharging the responsibilities of a 
                derivatives clearing organization through the 
                use of appropriate tools and procedures.
                  (E) Settlement procedures.--The applicant 
                shall have the ability to--
                          (i) complete settlements on a timely 
                        basis under varying circumstances;
                          (ii) maintain an adequate record of 
                        the flow of funds associated with each 
                        transaction that the applicant clears; 
                        and
                          (iii) comply with the terms and 
                        conditions of any permitted netting or 
                        offset arrangements with other clearing 
                        organizations.
                  (F) Treatment of funds.--The applicant shall 
                have standards and procedures designed to 
                protect and ensure the safety of member and 
                participant funds.
                  (G) Default rules and procedures.--The 
                applicant shall have rules and procedures 
                designed to allow for efficient, fair, and safe 
                management of events when members or 
                participants become insolvent or otherwise 
                default on their obligations to the derivatives 
                clearing organization.
                  (H) Rule enforcement.--The applicant shall--
                          (i) maintain adequate arrangements 
                        and resources for the effective 
                        monitoring and enforcement of 
                        compliance with rules of the applicant 
                        and for resolution of disputes; and
                          (ii) have the authority and ability 
                        to discipline, limit, suspend, or 
                        terminate a member's or participant's 
                        activities for violations of rules of 
                        the applicant.
                  (I) System safeguards.--The applicant shall 
                demonstrate that the applicant--
                          (i) has established and will maintain 
                        a program of oversight and risk 
                        analysis to ensure that the automated 
                        systems of the applicant function 
                        properly and have adequate capacity and 
                        security; and
                          (ii) has established and will 
                        maintain emergency procedures and a 
                        plan for disaster recovery, and will 
                        periodically test backup facilities 
                        sufficient to ensure daily processing, 
                        clearing, and settlement of 
                        transactions.
                  (J) Reporting.--The applicant shall provide 
                to the Commission all information necessary for 
                the Commission to conduct the oversight 
                function of the applicant with respect to the 
                activities of the derivatives clearing 
                organization.
                  (K) Recordkeeping.--The applicant shall--
                          (i) maintain full records of all 
                        activities related to the business of 
                        the applicant as a derivatives clearing 
                        organization in a form and manner 
                        acceptable to the Commission for a 
                        period of at least 5 years;
                          (ii) make the records readily 
                        available during at least the first 2 
                        years of the 5-year period and provide 
                        the records to the Commission at the 
                        expense of the person required to 
                        maintain the records; and
                          (iii) keep the records open to 
                        inspection by any representative of the 
                        Commission or the Department of 
                        Justice.
                  (L) Public information.--The applicant shall 
                make information concerning the rules and 
                operating procedures governing the clearing and 
                settlement systems (including default 
                procedures) available to market participants.
                  (M) Information sharing.--The applicant 
                shall--
                          (i) enter into and abide by the terms 
                        of all appropriate and applicable 
                        domestic and international information-
                        sharing agreements; and
                          (ii) use relevant information 
                        obtained from the agreements in 
                        carrying out the clearing 
                        organization's risk management program.
                  (N) Antitrust considerations.--Unless 
                necessary or appropriate to achieve the 
                purposes of this Act, the derivatives clearing 
                organization shall not--
                          (i) adopt any rule or take any action 
                        that results in any unreasonable 
                        restraint of trade; or
                          (ii) impose any material 
                        anticompetitive burden on trading on 
                        the contract market.
          (3) Orders concerning competition.--A derivatives 
        clearing organization may request the Commission to 
        issue an order concerning whether a rule or practice of 
        the applicant is the least anticompetitive means of 
        achieving the objectives, purposes, and policies of 
        this Act.
  (e) Existing Derivatives Clearing Organizations.--A 
derivatives clearing organization shall be deemed to be 
registered under this section to the extent that--
          (1) the derivatives clearing organization clears 
        agreements, contracts, or transactions for a board of 
        trade that has been designated by the Commission as a 
        contract market for such agreements, contracts, or 
        transactions before the date of enactment of this 
        section; and
          (2) the Commission has reviewed and approved the 
        rules of the derivatives clearing organization before 
        that date.
  (f) Appointment of Trustee.--
          (1) In general.--If a proceeding under section 5e 
        results in the suspension or revocation of the 
        registration of a derivatives clearing organization, or 
        if a derivatives clearing organization withdraws from 
        registration, the Commission, on notice to the 
        derivatives clearing organization, may apply to the 
        appropriate United States district court where the 
        derivatives clearing organization is located for the 
        appointment of a trustee.
          (2) Assumption of jurisdiction.--If the Commission 
        applies for appointment of a trustee under paragraph 
        (1)--
                  (A) the court may take exclusive jurisdiction 
                over the derivatives clearing organization and 
                the records and assets of the derivatives 
                clearing organization, wherever located; and
                  (B) if the court takes jurisdiction under 
                subparagraph (A), the court shall appoint the 
                Commission, or a person designated by the 
                Commission, as trustee with power to take 
                possession and continue to operate or terminate 
                the operations of the derivatives clearing 
                organization in an orderly manner for the 
                protection of participants, subject to such 
                terms and conditions as the court may 
                prescribe.
  (g) Linking of Regulated Clearing Facilities.--
          (1) In general.--The Commission shall facilitate the 
        linking or coordination of derivatives clearing 
        organizations registered under this Act with other 
        regulated clearance facilities for the coordinated 
        settlement of cleared transactions.
          (2) Coordination.--In carrying out paragraph (1), the 
        Commission shall coordinate with the Federal banking 
        agencies and the Securities and Exchange Commission.

SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.

  (a) Acceptable Business Practices Under Core Principles.--
          (1) In general.--Consistent with the purposes of this 
        Act, the Commission may issue interpretations, or 
        approve interpretations submitted to the Commission, of 
        sections 5(d), 5a(d), and 5b(d)(2) to describe what 
        would constitute an acceptable business practice under 
        such sections.
          (2) Effect of interpretation.--An interpretation 
        issued under paragraph (1) shall not provide the 
        exclusive means for complying with such sections.
  (b) Delegation of Functions Under Core Principles.--
          (1) In general.--A contract market or derivatives 
        transaction execution facility may comply with any 
        applicable core principle through delegation of any 
        relevant function to a registered futures association 
        or another registered entity.
          (2) Responsibility.--A contract market or derivatives 
        transaction execution facility that delegates a 
        function under paragraph (1) shall remain responsible 
        for carrying out the function.
  (c) New Contracts, New Rules, and Rule Amendments.--
          (1) In general.--Except as provided in sections 
        2(a)(1)(C) and 2(a)(1)(D), and subject to paragraph 
        (2), a registered entity may elect to list for trading 
        any new contract or other instrument, or may elect to 
        approve and implement any new rule or rule amendment, 
        by providing to the Commission (and the Secretary of 
        the Treasury, in the case of a contract of sale for 
        future delivery of a government security (or option 
        thereon) or a rule or rule amendment specifically 
        related to such a contract) a written certification 
        that the new contract, new rule, or rule amendment 
        complies with this Act (including regulations under 
        this Act).
          (2) Prior approval.--
                  (A) In general.--A registered entity may 
                request that the Commission grant prior 
                approval to any new contract or other 
                instrument, new rule, or rule amendment.
                  (B) Prior approval required.--Notwithstanding 
                any other provision of this section, a 
                designated contract market shall submit to the 
                Commission for prior approval each rule 
                amendment that materially changes the terms and 
                conditions, as determined by the Commission, in 
                any contract of sale for future delivery of a 
                commodity specifically enumerated in section 
                1a(4) of this Act (or any option thereon) 
                traded through its facilities if such rule 
                amendment applies to contracts and delivery 
                months which have already been listed for 
                trading and have open interest.
                  (C) Deadline.--If prior approval is requested 
                under subparagraph (A), the Commission shall 
                take final action on the request not later than 
                90 days after submission of the request, unless 
                the person submitting the request agrees to an 
                extension of the time limitation established 
                under this subparagraph.
          (3) Approval.--The Commission shall approve any such 
        new contract or instrument, new rule, or rule amendment 
        unless the Commission finds that the new contract or 
        instrument, new rule, or rule amendment would violate 
        this Act.
  (d) Reservation of Emergency Authority.--Nothing in this 
section shall limit or in any way affect the emergency powers 
of the Commission provided in section 8a(9) of this Act.

SEC. 5D. EXEMPT BOARDS OF TRADE.

  (a) In General.--Except as otherwise provided in this 
section, a contract of sale (or option on such a contract) of a 
commodity forfuture delivery traded on or through the 
facilities of an exempt board of trade shall be exempt from all 
provisions of this Act, other than section 2(g).
  (b) Criteria for Exemption.--To qualify for an exemption 
under subsection (a), a board of trade shall limit trading on 
or through the facilities of the board of trade to contracts of 
sale of a commodity for future delivery (or options on such 
contracts)--
          (1) that have--
                  (A) a nearly inexhaustible deliverable 
                supply;
                  (B) a deliverable supply that is sufficiently 
                large, and a cash market sufficiently liquid, 
                to render any contract traded on the commodity 
                highly unlikely to be susceptible to the threat 
                of manipulation; or
                  (C) no cash market;
          (2) that are entered into only between persons that 
        are eligible contract participants at the time at which 
        the persons enter into the contract; and
          (3) that are not contracts of sale (or options on the 
        contract) for future delivery of any security, 
        including any group or index of securities or any 
        interest in, or interest that is based on the value of, 
        any security.
  (c) Antimanipulation Requirements.--A party to a futures 
contract or related option that is traded on an exempt board of 
trade shall be subject to sections 4b, 4o, 6(c), and 9(a)(2), 
and the Commission shall enforce those provisions with respect 
to any such trading.
  (d) Price Discovery.--If the Commission finds that an exempt 
board of trade is a significant source of price discovery for 
any underlying commodity in any transaction traded on or 
through the facilities of the board of trade, the board of 
trade shall disseminate publicly on a daily basis trading 
volume, opening and closing price ranges, open interest, and 
other trading data as appropriate to the market.
  (e) Jurisdiction.--The Commission shall have exclusive 
jurisdiction over any account, agreement, or transaction 
involving a contract of sale of a commodity, or related option, 
to the extent that such account, agreement, or transaction is 
traded on an exempt board of trade.
  (f) Subsidiaries.--A board of trade that is designated as a 
contract market or registered as a derivatives transaction 
execution facility may operate an exempt board of trade by 
establishing a separate subsidiary or other legal entity and 
otherwise satisfying the requirements of this section.

SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS REGISTERED ENTITY.

  The failure of a registered entity to comply with any 
provision of this Act, or any regulation or order of the 
Commission under this Act, shall be cause for the suspension of 
the registered entity for a period not to exceed 180 days, or 
revocation of designation as a registered entity in accordance 
with the procedures and subject to the judicial review provided 
in section 6(b).

SEC. 5F. DESIGNATION OF SECURITIES EXCHANGES AND ASSOCIATIONS AS 
                    CONTRACT MARKETS.

  (a) Any board of trade that is registered with the Securities 
and Exchange Commission as a national securities exchange, is a 
national securities association registered pursuant to section 
15A(a) of the Securities Exchange Act of 1934, or is an 
alternative trading system shall be a designated contract 
market in security future products if--
          (1) such national securities exchange, national 
        securities association, or alternative trading system 
        lists or trades no other contracts of sale for future 
        delivery, except for security future products;
          (2) such national securities exchange, national 
        securities association, or alternative trading system 
        files written notice with the Commission in such form 
        as the Commission, by rule, may prescribe containing 
        such information as the Commission, by rule, may 
        prescribe as necessary or appropriate in the public 
        interest or for the protection of customers; and
          (3) the registration of such national securities 
        exchange, association, or alternative trading system is 
        not suspended pursuant to an order by the Securities 
        and Exchange Commission.
Such designation shall be effective immediately upon filing of 
the written notice with the Commission.
  (b)(1) A national securities exchange, national securities 
association, or alternative trading system that is designated 
as a contract market pursuant to section 5f of this Act shall 
be exempt from the following provisions of this Act and the 
rules thereunder:
          (A) Subsections (c), (e), and (g) of section 4c.
          (B) Subsections (a) and (d) of section 4j.
          (C) Section 5.
          (D) Section 5c.
          (E) Section 6a.
          (F) Section 8(d).
          (G) Section 8e.
          (H) Section 9(f).
          (I) Section 16.
          (J) Section 22(b).
  (2)(A) Except as provided in subparagraph (B), but 
notwithstanding any other provision of this Act, the 
Commission, by rule, regulation, or order, may conditionally or 
unconditionally exempt any designated contract market in 
security futures subject to the designation requirement of this 
section from any provision of this Act or of any rule or 
regulation thereunder, to the extent such exemption is 
necessary or appropriate in the public interest and is 
consistent with the protection of investors.
  (B) The Commission shall, by rule or regulation, determine 
the procedures under which an exemptive order under this 
section is granted and may, in its sole discretion, decline to 
entertain any application for an order of exemption under this 
section.

SEC. 5G. PRIVACY.

  (a) Treatment as Financial Institutions.--Notwithstanding 
section 509(3)(B) of the Gramm-Leach-Bliley Act, any person or 
entity that is subject to the jurisdiction of the Commission 
under this Act with respect to any financial activity shall be 
treated as a financialinstitution for purposes of title V of 
such Act with respect to such financial activity.
  (b) Treatment of CFTC as Federal Functional Regulator.--For 
purposes of title V of such Act, the Commodity Futures Trading 
Commission shall be treated as a Federal functional regulator 
within the meaning of section 509(2) of such Act and shall 
prescribe regulations under such title within 6 months after 
the date of enactment of this section.
    Sec. 6. (a) Any [board of trade desiring to be designated a 
``contract market'' shall make application to the Commission 
for such designation] person desiring to be designated or 
registered as a contract market or derivatives transaction 
execution facility shall make application to the Commission for 
such designation or registration and accompany the same with a 
showing that it complies with the [above conditions] conditions 
set forth in this Act, and with a sufficient assurance that it 
will continue to comply with the [above requirements] the 
requirements of this Act. The Commission shall approve or deny 
an application for [designation as a contract market within one 
year] designation or registration as a contract market or 
derivatives transaction execution facility within 180 days of 
the filing of the application. If the Commission notifies the 
[board of trade] person that its application is materially 
incomplete and specifies the deficiencies in the application, 
the running of the [one-year period] 180-day period shall be 
stayed from the time of such notification until the application 
is resubmitted in completed form: Provided, That the Commission 
shall have not less than sixty days to approve or deny the 
application from the time the application is resubmitted in 
completed form. If the Commission denies an application, it 
shall specify the grounds for the denial. In the event of a 
refusal to [designate as a ``contract market'' any board of 
trade that has made application therefor, such board of trade] 
designate or register as a contract market or derivatives 
transaction execution facility any person that has made 
application therefor, such person shall be afforded an 
opportunity for a hearing on the record before the Commission, 
with the right to appeal an adverse decision after such hearing 
to the court of appeals as provided for in other cases in 
subsection (b) of this section.
    (b) The Commission is authorized to suspend for a period 
not to exceed six months or to revoke the [designation of any 
board of trade as a ``contract market'' upon] designation or 
registration of any contract market or derivatives transaction 
execution facility on a showing that such [board of trade] 
contract market or derivatives transaction execution facility 
is not enforcing or has not enforced its rules of government 
made a condition of its [designation as set forth in section 5 
of this Act] designation or registration as set forth in 
section 5, 5a, 5b, or 5f or that such [board of trade] contract 
market or derivatives transaction execution facility, or any 
director, officer, agent, or employee thereof, otherwise is 
violating or has violated any of the provisions of this Act or 
any of the rules, regulations, or orders of the Commission or 
the Commission thereunder. Such suspension or revocation shall 
only be after a notice to the officers of the [board of trade] 
contract market or derivatives transaction execution facility 
affected and upon a hearing on the record: Provided, That such 
suspension or revocation shall be final and conclusive, unless 
within fifteen days after such suspension or revocation by the 
Commission such [board of trade] person appeals to the court of 
appeals for the circuit in which it has its principal place of 
business, by filing with the clerk of such court a written 
petition praying that the order of the Commission be set aside 
or modified in the manner stated in the petition, together with 
a bond in such sum as the court may determine, conditioned that 
such [board of trade] person will pay the costs of the 
proceedings if the court so directs. The clerk of the court in 
which such a petition is filed shall immediately cause a copy 
thereof to be delivered to the Commission and file in the court 
the record in such proceedings, as provided in section 2112 of 
title 28, United States Code. The testimony and evidence taken 
or submitted before the Commission, duly filed as aforesaid as 
a part of the record, shall be considered by the court of 
appeals as the evidence in the case. Such a court may affirm or 
set aside the order of the Commission or may direct it to 
modify its order. No such order of the Commission shall be 
modified or set aside by the court of appeals unless it is 
shown by the [board of trade] person that the order is 
unsupported by the weight of the evidence or was issued without 
due notice and a reasonable opportunity having been afforded to 
such [board of trade] person for a hearing, or infringes the 
Constitution of the United States, or is beyond the 
jurisdiction of the Commission.
      (c) If the Commission has reason to believe that any 
person (other than a [contract market] registered entity) is 
manipulating or attempting to manipulate or has manipulated or 
attempted to manipulate the market price of any commodity, in 
interstate commerce, or for future delivery on or subject to 
the rules of any [contract market] registered entity, or has 
willfully made any false or misleading statement of a material 
fact in any registration application or any report filed with 
the Commission under this Act, or willfully omitted to state in 
any such application or report any material fact which is 
required to be stated therein, or otherwise is violating or has 
violated any of the provisions of this Act or of the rules, 
regulations, or orders of the Commission or the Commission 
thereunder, it may serve upon such person a complaint stating 
its charges in that respect, which complaint shall have 
attached or shall contain therein a notice of hearing, 
specifying a day and place not less than three days after the 
service thereof, requiring such person to show cause why an 
order should not be made prohibiting him from trading on or 
subject to the rules of any [contract market] registered 
entity, and directing that all [contract markets] registered 
entities refuse all [trading] privileges to such person, until 
further notice of the Commission and to show cause why the 
registration of such person, if registered with the Commission 
in any capacity, should not be suspended or revoked. Said 
hearing may be held in Washington, District of Columbia, or 
elsewhere, before the Commission or before an Administrative 
Law Judge designated by the Commission, which Administrative 
Law Judge shall cause all evidence to be reduced to writing and 
forthwith transmit the same to the Commission. For the purpose 
of securing effective enforcement of the provisions of this 
Act, for the purpose of any investigation or proceeding under 
this Act, and for the purpose of any action taken under section 
12(f), any member of the Commission orany Administrative Law 
Judge or other officer designated by the Commission (except as provided 
in the fifth sentence of this subsection) may administer oaths and 
affirmations, subpoena witnesses, compel their attendance, take 
evidence, and require the production of any books, papers, 
correspondence, memoranda, or other records that the Commission deems 
relevant or material to the inquiry. The attendance of witnesses and 
the production of any such records may be required from any place in 
the United States, any State or any foreign country or jurisdiction at 
any designated place of hearing. A subpoena issued under this section 
may be served upon any person who is not to be found within the 
territorial jurisdiction of any court of the United States in such 
manner as the Federal Rules of Civil Procedure prescribe for service of 
process in a foreign country, except that a subpoena to be served on a 
person who is not to be found within the territorial jurisdiction of 
any court of the United States may be issued only on the prior approval 
of the Commission. In case of contumacy by, or refusal to obey a 
subpoena issued to, any person, the Commission may invoke the aid of 
any court of the United States within the jurisdiction in which the 
investigation or proceeding is conducted, or where such person resides 
or transacts business, in requiring the attendance and testimony of 
witnesses and the production of books, papers, correspondence, 
memoranda, and other records. Such court may issue an order requiring 
such person to appear before the Commission or member or Administrative 
Law Judge or other officer designated by the Commission, there to 
produce records, if so ordered, or to give testimony touching the 
matter under investigation or in question. Any failure to obey such 
order of the court may be punished by the court as a contempt thereof. 
All process in any such case may be served in the judicial district 
wherein such person is an inhabitant or transacts business or wherever 
such person may be found. Upon evidence received, the Commission may 
(1) prohibit such person from trading on or subject to the rules of any 
[contract market] registered entity and require all [contract markets] 
registered entities to refuse such person all [trading] privileges 
thereon for such period as may be specified in the order, (2) if such 
person is registered with the Commission in any capacity, suspend, for 
a period not to exceed six months, or revoke, the registration of such 
person, (3) assess such person a civil penalty of not more than the 
higher of $100,000 or triple the monetary gain to such person for each 
such violation and (4) require restitution to customers of damages 
proximately caused by violations of such persons. Notice of such order 
shall be sent forthwith by registered mail or by certified mail or 
delivered to the offending person and to the governing boards of said 
[contract markets] registered entities. After the issuance of the order 
by the Commission, as aforesaid, the person against whom it is issued 
may obtain a review of such order or such other equitable relief as to 
the court may seem just by filing in the United States court of appeals 
of the circuit in which the petitioner is doing business, or in the 
case of an order denying registration, the circuit in which the 
petitioner's principal place of business listed on petitioner's 
application for registration is located, a written petition, within 
fifteen days after the notice of such order is given to the offending 
person praying that the order of the Commission be set aside. A copy of 
such petition shall be forthwith transmitted by the clerk of the court 
to the Commission and thereupon the Commission shall file in the court 
the record theretofore made, as provided in section 2112 of title 28, 
United States Code. Upon the filing of the petition the court shall 
have jurisdiction to affirm, to set aside, or modify the order of the 
Commission, and the findings of the Commission as to the facts, if 
supported by the weight of evidence, shall in like manner be 
conclusive.
    (d) If any person (other than a [contract market] 
registered entity) is manipulating or attempting to manipulate 
or has manipulated or attempted to manipulate the market price 
of any commodity, in interstate commerce, or for future 
delivery on or subject to the rules of any [contract market] 
registered entity, or otherwise is violating or has violated 
any of the provisions of this Act or of the rules, regulations, 
or orders of the Commission or the commission thereunder, the 
Commission may, upon notice and hearing, and subject to appeal 
as in other cases provided for in subsection (c), make and 
enter an order directing that such person shall cease and 
desist therefrom and, if such person thereafter and after the 
lapse of the period allowed for appeal of such order or after 
the affirmance of such order, shall fail or refuse to obey or 
comply with such order, such person shall be guilty of a 
misdemeanor and, upon conviction thereof, shall be fined not 
more than the higher of $100,000 or triple the monetary gain to 
such person, or imprisoned for not less than six months nor 
more than one year, or both, except that if such failure or 
refusal to obey or comply with such order involves any offense 
within paragraph (a) or (b) of section 9 of this Act, such 
person shall be guilty of a felony and, upon conviction 
thereof, shall be subject to the penalties of said paragraph 
9(a) or 9(b): Provided, That any such cease and desist order 
against any respondent in any case of manipulation of, or 
attempt to manipulate, the price of any commodity shall be 
issued only in conjunction with an order issued against such 
respondent under subsection (c). Each day during which such 
failure or refusal to obey or comply with such order continues 
shall be deemed a separate offense.
    (e)(1) In determining the amount of the money penalty 
assessed under subsection (c), the Commission shall consider 
the appropriateness of such penalty to the gravity of the 
violation.
  (2) Unless the person against whom a money penalty is 
assessed under subsection (c) shows to the satisfaction of the 
Commission within fifteen days from the expiration of the 
period allowed for payment of such penalty that either an 
appeal as authorized by subsection (c) has been taken or 
payment of the full amount of the penalty then due has been 
made, at the end of such fifteen-day period and until such 
person shows to the satisfaction of the Commission that payment 
of such amount with interest thereon to date of payment has 
been made--
          (A) such person shall be prohibited automatically 
        from [trading on all contract markets] the privileges 
        of all registered entities; and
          (B) if such person is registered with the Commission, 
        such registration shall be suspended automatically.
  (3) If a person against whom a money penalty is assessed 
under subsection (c) takes an appeal and if the Commission 
prevails or the appeal is dismissed, unless such person shows 
to the satisfaction of the Commission that payment of the full 
amount of the penalty then due has been made by the end of 
thirty days from the date of entry of judgment on the appeal--
          (A) such person shall be prohibited automatically 
        from [trading on all contract markets] the privileges 
        of all registered entities; and

           *       *       *       *       *       *       *

  (g) The Commission shall provide the Securities and Exchange 
Commission with notice of the commencement of any proceeding 
and a copy of any order entered by the Commission pursuant to 
subsections (c) and (d) of this section against any futures 
commission merchant or introducing broker registered pursuant 
to section 4f(a)(2), any floor broker or floor trader exempt 
from registration pursuant to section 4f(a)(3), any associated 
person exempt from registration pursuant to section 4k(6), or 
any board of trade designated as a contract market pursuant to 
section 5f.
    Sec. 6a. (a) No board of trade which has been [designated 
as a ``contract market'' shall] designated or registered as a 
contract market or a derivatives transaction execution facility 
exclude from membership in, and all privileges on, such board 
of trade, any association or corporation engaged in cash 
commodity business having adequate financial responsibility 
which is organized under the cooperative laws of any State, or 
which has been recognized as a cooperative association of 
producers by the United States Government or by any agency 
thereof, if such association or corporation complies and agrees 
to comply with such terms and conditions as are or may be 
imposed lawfully upon other members of such board, and as are 
or may be imposed lawfully upon a cooperative association of 
producers engaged in cash commodity business, unless such board 
of trade is authorized by the Commission to exclude such 
association or corporation from membership and privileges after 
hearing held upon at least three days' notice subsequent to the 
filing of complaint by the board of trade: Provided, however, 
That if any such association or corporation shall fail to meet 
its obligations with any established clearing house or clearing 
agency of any contract market, such association or corporation 
shall be ipso facto debarred from further trading on such 
contract market, except such trading as may be necessary to 
close open trades and to discharge existing contracts in 
accordance with the rules of such contract market applicable in 
such cases. Such Commission may prescribe that such association 
or corporation shall have and retain membership and privileges, 
with or without imposing conditions, or it may permit such 
board of trade immediately to bar such association or 
corporation from membership and privileges. Any order of said 
Commission entered hereunder shall be reviewable by the court 
of appeals for the circuit in which such association or 
corporation, or such board of trade, has its principal place of 
business, on written petition either of such association or 
corporation, or of such board of trade, under the procedure 
provided in section 6(b) of this Act, but such order shall not 
be stayed by the court pending review.
    (b) No rule of any board of trade [designated as a contract 
market] designated or registered as a contract market or a 
derivatives transaction execution facility shall forbid or be 
construed to forbid the payment of compensation on a commodity-
unit basis, or otherwise, by any federated cooperative 
association to its regional member-associations for services 
rendered or to be rendered in connection with any organization 
work, educational activity, or procurement of patronage, 
provided no part of any such compensation is returned to 
patrons (whether members or nonmembers) of such cooperative 
association, or of its regional or local member-associations, 
otherwise than as a dividend on capital stock or as a patronage 
dividend out of the net earnings or surplus of such federated 
cooperative association.
    Sec. 6b. If any [contract market] registered entity is not 
enforcing or has not enforced its rules of government made a 
condition of its [designation as set forth in section 5 of this 
Act] designation or registration as set forth in section 5, 5a, 
5b, or 5f, or if any [contract market] registered entity, or 
any director, officer, agent, or employee of any [contract 
market] registered entity otherwise is violating or has 
violated any of the provisions of this Act or any of the rules, 
regulations, or orders of the Commission thereunder, the 
Commission may, upon notice and hearing on the record and 
subject to appeal as in other cases provided for in section 
6(b) of this Act, make and enter an order directing that such 
[contract market] registered entity, director, officer, agent, 
or employee shall cease and desist from such violation, and 
assess a civil penalty of not more than $500,000 for each such 
violation. If such [contract market] registered entity, 
director, officer, agent, or employee, after the entry of such 
a cease and desist order and the lapse of the period allowed 
for appeal of such order or after the affirmance of such order, 
shall fail or refuse to obey or comply with such order, such 
[contract market] registered entity, director, officer, agent, 
or employee shall be guilty of a misdemeanor and, upon 
conviction thereof, shall be fined not more than $500,000 or 
imprisoned for not less than six months nor more than one year, 
or both. Each day during which such failure or refusal to obey 
such cease and desist order continues shall be deemed a 
separate offense. If the offending [contract market] registered 
entity or other person upon whom such penalty is imposed, after 
the lapse of the period allowed for appeal or after the 
affirmance of such penalty, shall fail to pay such penalty, the 
Commission shall refer the matter to the Attorney General who 
shall recover such penalty by action in the appropriate United 
States district court. In determining the amount of the money 
penalty assessed under this section, the Commission shall 
consider the gravity of the offense, and in the case of a 
[contract market] registered entity shall further consider 
whether the amount of the penalty will materially impair [the 
contract market's ability] the ability of the registered entity 
to carry on its operations and duties.
    Sec. 6c. (a) Whenever it shall appear to the Commission 
that any [contract market] registered entity or other person 
has engaged, is engaging, or is about to engage in any act or 
practice constituting a violation of any provision of this Act 
or any rule, regulation, or order thereunder, or is restraining 
trading in anycommodity for future delivery, the Commission may 
bring an action in the proper district court of the United States or 
the proper United States court of any territory or other place subject 
to the jurisdiction of the United States, to enjoin such act or 
practice, or to enforce compliance with this Act, or any rule, 
regulation or order thereunder, and said courts shall have jurisdiction 
to entertain such actions: Provided, That no restraining order (other 
than a restraining order which prohibits any person from destroying, 
altering or disposing of, or refusing to permit authorized 
representatives of the Commission to inspect, when and as requested, 
any books and records or other documents or which prohibits any person 
from withdrawing, transferring, removing, dissipating, or disposing of 
any funds, assets, or other property, and other than an order 
appointing a temporary receiver to administer such restraining order 
and to perform such other duties as the court may consider appropriate) 
or injunction for violation of the provisions of this Act shall be 
issued ex parte by said court.

           *       *       *       *       *       *       *

  (h) The Commission shall provide the Securities and Exchange 
Commission with notice of the commencement of any proceeding 
and a copy of any order entered by the Commission against any 
futures commission merchant or introducing broker registered 
pursuant to section 4f(a)(2), any floor broker or floor trader 
exempt from registration pursuant to section 4f(a)(3), any 
associated person exempt from registration pursuant to section 
4k(6), or any board of trade designated as a contract market 
pursuant to section 5f.
    Sec. 6d. (1) Whenever it shall appear to the attorney 
general of any State, the administrator of the securities laws 
of any State, or such other official as a State may designate, 
that the interests of the residents of that State have been, 
are being, or may be threatened or adversely affected because 
any person (other than a contract market, derivatives 
transaction execution facility, clearinghouse, floor broker, or 
floor trader) has engaged in, is engaging or is about to engage 
in, any act or practice constituting a violation of any 
provision of this Act or any rule, regulation, or order of the 
Commission thereunder, the State may bring a suit in equity or 
an action at law on behalf of its residents to enjoin such act 
or practice, to enforce compliance with this Act, or any rule, 
regulation, or order of the Commission thereunder, to obtain 
damages on behalf of their residents, or to obtain such further 
and other relief as the court may deem appropriate.

           *       *       *       *       *       *       *

    Sec. 7. Any [board of trade] person that has been 
designated or registered a [contract market] registered entity 
in the manner herein provided may have such designation or 
registration vacated and set aside by giving notice in writing 
to the Commission requesting that its designation or 
registration as a [contract market] registered entity be 
vacated, which notice shall be served at least ninety days 
prior to the date named therein as the date when the vacation 
of designation or registration shall take effect. Upon receipt 
of such notice the Commission shall forthwith order the 
vacation of the [designation of such board of trade as a 
contract market] designation or registration of the registered 
entity, effective upon the day named in the notice, and shall 
forthwith send a copy of the notice and its order to all other 
[contract markets] registered entities. From and after the date 
upon which the vacation became effective the said [board of 
trade] person can thereafter be [designated again a contract 
market] designated or registered again a registered entity by 
making application to the Commission in the manner herein 
provided for an original application.
    Sec. 8. (a)(1) * * *

           *       *       *       *       *       *       *

  (3) The Commission shall provide the Securities and Exchange 
Commission with notice of the commencement of any proceeding 
and a copy of any order entered by the Commission against any 
futures commission merchant or introducing broker registered 
pursuant to section 4f(a)(2), any floor broker or floor trader 
exempt from registration pursuant to section 4f(a)(3), any 
associated person exempt from registration pursuant to section 
4k(6), or any board of trade designated as a contract market 
pursuant to section 5f.

           *       *       *       *       *       *       *

    (c) The Commission may make or issue such reports as it 
deems necessary, or such opinions or orders as may be required 
under other provisions of law, relative to the conduct of any 
[board of trade] registered entity or to the transactions of 
any person found guilty of violating the provisions of this Act 
or the rules, regulations, or orders of the Commission 
thereunder in proceedings brought under section 6 of this Act. 
In any such report or opinion, the Commission may set forth the 
facts as to any actual transaction or any information referred 
to in subsection (b) of this section, if such facts or 
information have previously been disclosed publicly in 
connection with a congressional proceeding, or in an 
administrative or judicial proceeding brought under this Act.

           *       *       *       *       *       *       *

    Sec. 8a. The Commission is authorized--
          (1) * * *
          (2) upon notice, but without a hearing and pursuant 
        to such rules, regulations, or orders as the Commission 
        may adopt, to refuse to register, to register 
        conditionally, or to suspend or place restrictions upon 
        the registration of, any person and with such a hearing 
        as may be appropriate to revoke the registration of any 
        person--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) if such person is subject to an 
                outstanding order of the Commission denying 
                [trading] privileges on any [contract market] 
                registered entity to such person, denying, 
                suspending, or revoking such person's 
                membership in any [contract market] registered 
                entity or registered futures association, or 
                barring or suspending such person from being 
                associated with a registrant under this Act or 
                with a member of a [contract market] registered 
                entity or with a member of a registered futures 
                association;

           *       *       *       *       *       *       *

          (3) to refuse to register or to register 
        conditionally any person, if it is found, after 
        opportunity for hearing, that--
                  (A) * * *

           *       *       *       *       *       *       *

                  (J) such person is subject to an outstanding 
                order denying, suspending, or expelling such 
                person from membership in a [contract market] 
                registered entity, a registered futures 
                association, any other self-regulatory 
                organization, or any foreign regulatory body 
                that the Commission recognizes as having a 
                comparable regulatory program or barring or 
                suspending such person from being associated 
                with any member or members of such [contract 
                market] registered entity, association, self-
                regulatory organization, or foreign regulatory 
                body;

           *       *       *       *       *       *       *

          (4) in accordance with the procedure provided for in 
        section 6(c) of this Act, to suspend, revoke, or place 
        restrictions upon the registration of any person 
        registered under this Act if cause exists under 
        paragraph (3) of this section which would warrant a 
        refusal of registration of such person, and to suspend 
        or revoke the registration of any futures commission 
        merchant or introducing broker who shall knowingly 
        accept any order for the purchase or sale of any 
        commodity for future delivery on or subject to the 
        rules of any [contract market] registered entity from 
        any person if such person has been denied trading 
        privileges on any [contract market] registered entity 
        by order of the Commission under section 6(c) of this 
        Act and the period of denial specified in such order 
        shall not have expired: Provided, That such person may 
        appeal from a decision to suspend, revoke, or place 
        restrictions upon registration made pursuant to this 
        paragraph in the manner provided in section 6(c) of 
        this Act;

           *       *       *       *       *       *       *

          (6) to communicate to the proper committee or officer 
        of any [contract market] registered entity, registered 
        futures association, or self-regulatory organization as 
        defined in section 3(a)(26) of the Securities Exchange 
        Act of 1934, notwithstanding the provisions of section 
        8 of this Act, the full facts concerning any 
        transaction or market operation, including the names of 
        parties thereto, which in the judgment of the 
        Commission disrupts or tends to disrupt any market or 
        is otherwise harmful or against the best interests of 
        producers, consumers, or investors, or which is 
        necessary or appropriate to effectuate the purposes of 
        this Act: Provided, That any information furnished by 
        the Commission under this paragraph shall not be 
        disclosed by such [contract market] registered entity, 
        registered futures association, or self-regulatory 
        organization except in any self-regulatory action or 
        proceeding;
          (7) to alter or supplement the rules of a [contract 
        market] registered entity insofar as necessary or 
        appropriate by rule or regulation or by order, if after 
        making the appropriate request in writing to a 
        [contract market] registered entity that such [contract 
        market] registered entity effect on its own behalf 
        specified changes in its rules and practices, and after 
        appropriate notice and opportunity for hearing, the 
        Commission determines that such [contract market] 
        registered entity has not made the changes so required, 
        and that such changes are necessary or appropriate for 
        the protection of persons producing, handling, 
        processing, or consuming any commodity traded for 
        future delivery on such [contract market] registered 
        entity, or the product or byproduct thereof, or for the 
        protection of traders or to insure fair dealing in 
        commodities traded for future delivery on such 
        [contract market] registered entity. Such rules, 
        regulations, or orders may specify changes with respect 
        to such matters as--
                  (A) terms or conditions in contracts of sale 
                to be executed on or subject to the rules of 
                such [contract market] registered entity;

           *       *       *       *       *       *       *

          (8) to make and promulgate such rules and regulations 
        with respect to those persons registered under this 
        Act, who are not members of a [contract market] 
        registered entity, as in the judgment of the Commission 
        are reasonably necessary to protect the public interest 
        and promote just and equitable principles of trade, 
        including but not limited to the manner, method, and 
        place of soliciting business, including the content of 
        such solicitation;
          (9) to direct the [contract market] registered 
        entity, whenever it has reason to believe that an 
        emergency exists, to take such action as in the 
        Commission's judgment is necessary to maintain or 
        restore orderly trading in or liquidation of any 
        futures contract, including, but not limited to, the 
        setting of temporary emergency margin levels on any 
        futures contract, and the fixing of limits that may 
        apply to a market position acquired in good faith prior 
        to the effective date of the Commission's action. The 
        term ``emergency'' as used herein shall mean, in 
        addition to threatened or actual market manipulations 
        and corners, any act of the United States or a foreign 
        government affecting a commodity or any other major 
        market disturbance which prevents the market from 
        accurately reflecting the forces of supply and demand 
        for such commodity. Any action taken by the Commission 
        under this paragraph shall be subject to review only in 
        the United States Court of Appeals for the circuit in 
        which the party seeking review resides or has its 
        principal place of business, or in the United States 
        Court of Appeals for the District of Columbia Circuit. 
        Such review shall be based upon an examination of all 
        the information before the Commission at the time the 
        determination was made. The court reviewing the 
        Commission's action shall not enter a stay or order of 
        mandamus unless it has determined, after notice and 
        hearing before a panel of the court, that the agency 
        action complained of was arbitrary, capricious, an 
        abuse of discretion, or otherwise not in accordance 
        with law. Nothing herein shall be deemed to limit the 
        meaning or interpretation given by a [contract market] 
        registered entity to the terms ``marketemergency'', 
``emergency'', or equivalent language in its own bylaws, rules, 
regulations, or resolutions;

           *       *       *       *       *       *       *

    Sec. 8b. It shall be unlawful for any person, against whom 
there is outstanding any order of the Commission prohibiting 
him from trading on or subject to the rules of any [contract 
market] registered entity, to make or cause to be made in 
contravention of such order, any contract for future delivery 
of any commodity, on or subject to the rules of any [contract 
market] registered entity.
    Sec. 8c. (a)

           *       *       *       *       *       *       *

  (e)(1) The Commission shall issue regulations requiring each 
contract market to establish and make available to the public a 
schedule of major violations of any rule within the 
disciplinary jurisdiction of such [contract market] registered 
entity.

           *       *       *       *       *       *       *

SEC. 8E. COMMISSION OVERSIGHT; DEFICIENCY ORDERS.

  (a) Assessments.--At least once every two years, to the 
extent practicable, the Commission shall assess whether the 
trade monitoring system of each [contract market] registered 
entity satisfies [section 5a(b)] sections 5 through 5c.
  (b) Deficiency Orders.--
          (1) Causes.--The Commission may issue a proposed 
        deficiency order in accordance with paragraph (2), or 
        take such other administrative or enforcement action as 
        the Commission determines is appropriate, if, based on 
        its assessment or on other information, the Commission 
        at any time has reason to believe that a [contract 
        market's trade monitoring system implemented pursuant 
        to section 5a(b)] the trade monitoring system of a 
        registered entity implemented pursuant to sections 5 
        through 5c does not satisfy one or more of the 
        requirements of such section.

           *       *       *       *       *       *       *

          (2) Contents.--A proposed deficiency order issued 
        under this subsection shall specify--
                  (A) the deficiencies the Commission has 
                reason to believe exist in the trade monitoring 
                system of the [contract market] registered 
                entity and a statement of reasons supporting 
                the Commission's belief that those deficiencies 
                exist;
                  (B) the corrective action that the Commission 
                believes that the [contract market] registered 
                entity must take and an acceptable timetable 
                for such corrective action; and
                  (C) a date, not less than twenty days from 
                the date of issuance of the proposed deficiency 
                order, when such deficiency order will become 
                final, subject to subsection (d).
          [(3) Remedies.--On becoming final, the Commission 
        deficiency order may--
                  [(A) require the contract market to--
                          [(i) institute appropriate 
                        improvements in its trade monitoring 
                        system necessary to correct the 
                        deficiencies noted therein;
                          [(ii) satisfy stated objective 
                        performance criteria to correct such 
                        deficiencies;
                          [(iii) upgrade or reconfigure 
                        existing systems for collecting or 
                        processing relevant data on trading and 
                        trader or broker activity, including, 
                        where appropriate, the commitment of 
                        additional resources; or
                  [(B) revoke any exemption of the contract 
                market from the regulations prohibiting the 
                privilege of dual trading under section 4j(a), 
                if the deficiency noted in such deficiency 
                order relates to--
                          [(i) the audit trail system the 
                        contract market is required to maintain 
                        under paragraph (2), (3), or (4) of 
                        section 5a(b); or
                          [(ii) the prevention, detection, or 
                        disciplining of violations attributable 
                        to such trading at such, subject to the 
                        standards, exceptions, and duration 
                        provisions of section 4j(a); or
                  [(C) take any combination of the actions 
                described in subparagraphs (A) and (B).]
          (3) Remedies.--On becoming final, the Commission 
        deficiency order may require the registered entity to--
                  (A) institute appropriate improvements in its 
                trade monitoring system necessary to correct 
                the deficiencies in the order;
                  (B) satisfy stated objective performance 
                criteria to correct the deficiencies;
                  (C) upgrade or reconfigure existing systems 
                for collecting or processing relevant data on 
                trading and trader or broker activity, 
                including, where appropriate, the commitment of 
                additional resources.
          (4) Removal.--If the Commission finds, after notice 
        and opportunity for a hearing on the record prior to 
        such deficiency order becoming final, that a named 
        officer, director, committee member, or employee of 
        such [contract market] registered entity has 
        willfully--
                  (A) violated this Act, the rules or 
                regulations of the Commission thereunder, or 
                the rules of such [contract market] registered 
                entity;
                  (B) abused the authority of such person; or
                  (C) without reasonable justification or 
                excuse, failed to enforce compliance with any 
                provision of the rules of such [contract 
                market] registered entity by any member or 
                person associated with a member thereof,
        the Commission may issue a deficiency order under this 
        section to remove such officer, director, committee 
        member, or employee.
          (5) [Designation as contract market] Designation or 
        registration as registered entity.--Notwithstanding 
        section 6, during the period that a proposed or final 
        deficiency order under this section is in effect, the 
        Commission may refrain from approving any application 
        for designation orregistration as a [contract market] 
registered entity made by the [board of trade] person whose [contract 
market] registered entity is the subject of such deficiency order.
          (6) Delegation.--The Commission shall not delegate 
        the authority to issue deficiency orders under this 
        subsection.
  (c) Rescission, Modification, or Delay of Deficiency 
Orders.--Before any proposed deficiency order issued by the 
Commission under subsection (b) may become final, the 
Commission shall--
          (1) provide the affected [contract market] registered 
        entity with an opportunity for a hearing through 
        submission of written data, views, or arguments and, 
        under terms set by the Commission at the request of the 
        [contract market] registered entity, through an oral 
        presentation of views and comments to the Commission, 
        in order to petition the Commission to rescind, modify, 
        or delay such deficiency order; and
          (2) rule on such petition, not less than twenty days 
        before the deficiency order takes effect, making 
        findings, as appropriate, as to whether--
                  (A) the deficiencies cited by the Commission 
                have been corrected or are being corrected 
                under an expeditious timetable acceptable to 
                the Commission;
                  (B) the trade monitoring system of the 
                [contract market] registered entity is 
                deficient as noted in the deficiency order; or
                  (C) the timetable for corrective action by 
                the [contract market] registered entity in the 
                proposed deficiency order, and the particular 
                corrective action proposed, is appropriate in 
                light of the deficiencies noted and the 
                purposes of this Act.
  (d) Penalties.--Violation of a final deficiency order issued 
under subsection (c) shall be considered a violation of an 
order of the Commission for purposes of--
          (1) establishing liability and assessing penalties 
        against a [contract market] registered entity or any 
        director, officer, agent, or employee thereof under 
        section 6b or 6c; or
          (2) initiating proceedings under section [5b] 5e or 
        6(a).
  (e) Judicial Review.--
          (1) Persons.--Any person, other than a [contract 
        market] registered entity, aggrieved by a deficiency 
        order issued under subsection (b)(4), may obtain review 
        of such deficiency order when issued by the Commission 
        under the terms and conditions in section 6(b).
          (2) [Contract markets] Registered entities.--Any 
        [contract market] registered entity that has petitioned 
        the Commission to rescind, modify, or delay any 
        proposed deficiency order issued under subsection (b) 
        may obtain judicial review of any final such deficiency 
        order only in the United States Court of Appeals for 
        the circuit in which the party seeking review resides 
        or has its principal place of business, or in the 
        United States Court of Appeals for the District of 
        Columbia Circuit, under the standards applicable to 
        rulemaking proceedings under section 553 of title 5, 
        United States Code.
    Sec. 9. (a) It shall be a felony punishable by a fine of 
not more than $1,000,000 (or $500,000 in the case of a person 
who is an individual) or imprisonment for not more than five 
years, or both, together with the costs of prosecution, for:
          (1) * * *
          (2) Any person to manipulate or attempt to manipulate 
        the price of any commodity in interstate commerce, or 
        for future delivery on or subject to the rules of any 
        [contract market] registered entity, or to corner or 
        attempt to corner any such commodity or knowingly to 
        deliver or cause to be delivered for transmission 
        through the mails or interstate commerce by telegraph, 
        telephone, wireless, or other means of communication 
        false or misleading or knowingly inaccurate reports 
        concerning crop or market information or conditions 
        that affect or tend to affect the price of any 
        commodity in interstate commerce, or knowingly to 
        violate the provisions of section 4, section 4b, 
        subsections (a) through (e) of subsection 4c, section 
        4h, section 4o(1), or section 19.
          (3) Any person knowingly to make, or cause to be 
        made, any statement in any application, report, or 
        document required to be filed under this Act or any 
        rule or regulation thereunder or any undertaking 
        contained in a registration statement required under 
        this Act, or by any [contract market] registered entity 
        or registered futures association in connection with an 
        application for membership or participation therein or 
        to become associated with a member thereof, which 
        statement was false or misleading with respect to any 
        material fact, or knowingly to omit any material fact 
        required to be stated therein or necessary to make the 
        statements therein not misleading.
          (4) Any person willfully to falsify, conceal, or 
        cover up by any trick, scheme, or artifice a material 
        fact, make any false, fictitious, or fraudulent 
        statements or representations, or make or use any false 
        writing or document knowing the same to contain any 
        false, fictitious, or fraudulent statement or entry to 
        a [contract market] registered entity, board of trade, 
        or futures association designated or registered under 
        this Act acting in furtherance of its official duties 
        under this Act.

           *       *       *       *       *       *       *

  (f) It shall be a felony for any person--
          (1) who is an employee, member of the governing 
        board, or member of any committee of a board of trade, 
        [contract market] registered entity, or registered 
        futures association, in violation of a regulation 
        issued by the Commission, willfully and knowingly to 
        trade for such person's own account, or for or on 
        behalf of any other account, in contracts for future 
        delivery or options thereon on the basis of, or 
        willfully and knowingly to disclose for any purpose 
        inconsistent with the performance of such person's 
        official duties as an employee or member, any material 
        nonpublic information obtained through special access 
        related to the performance of such duties.
          (2) willfully and knowingly to trade for such 
        person's own account, or for or on behalf of any other 
        account, in contracts for future delivery or options 
        thereon on the basis of any material nonpublic 
        information that such person knows wasobtained in 
violation of paragraph (1) from an employee, member of the governing 
board, or member of any committee of a board of trade, [contract 
market] registered entity, or registered futures association.
Such felony shall be punishable by a fine of not more than 
$500,000, plus the amount of any profits realized from such 
trading or disclosure made in violation of this subsection, or 
imprisonment for not more than five years, or both, together 
with the costs of prosecution.

           *       *       *       *       *       *       *

    Sec. 12. (a) * * *

           *       *       *       *       *       *       *

  (d) There are authorized to be appropriated such sums as are 
necessary to carry out this Act for each of fiscal years 1995 
through [2000] 2005.
    (e) Nothing in this Act shall supersede or preempt--
          (1) criminal prosecution under any Federal criminal 
        statute;
          [(2) the application of any Federal or State statute, 
        including any rule or regulation thereunder, to any 
        transaction in or involving any commodity, product, 
        right, service, or interest (A) that is not conducted 
        on or subject to the rules of a contract market, or, in 
        the case of any State or local law that prohibits or 
        regulates gaming or the operation of ``bucket shops'' 
        (other than antifraud provisions of general 
        applicability), that is not a transaction or class of 
        transactions that has received or is covered by the 
        terms of any exemption previously granted by the 
        Commission under subsection (c) of section 4 of this 
        Act, or (B) (except as otherwise specified by the 
        Commission by rule or regulation) that is not conducted 
        on or subject to the rules of any board of trade, 
        exchange, or market located outside the United States, 
        its territories or possessions, or (C) that is not 
        subject to regulation by the Commission under section 
        4c or 19 of this Act; or]
          (2) the application of any Federal or State law to an 
        agreement, contract, or transaction in or involving any 
        commodity, product, right, service, or interest, except 
        that this Act shall supersede and preempt--
                  (A) any Federal or State law, other than 
                antifraud provisions of general applicability 
                and the securities laws (as defined in section 
                3(a)(47) of the Securities Exchange Act of 
                1934), as such Federal or State law applies to 
                any such agreement, contract, or transaction--
                          (i) that is conducted on or subject 
                        to the rules of a registered entity or 
                        exempt board of trade;
                          (ii) that is conducted on or subject 
                        to the rules of any board of trade, 
                        exchange, or market located outside the 
                        United States, or any territory or 
                        possession of the United States (in 
                        accordance with any terms or conditions 
                        specified by the Commission by 
                        regulation); or
                          (iii) that is subject to regulation 
                        by the Commission under section 4c or 
                        19; and
                  (B) any State or local law that prohibits or 
                regulates gaming or the operation of bucket 
                shops (other than antifraud provisions of 
                general applicability) in the case of--
                          (i) an electronic trading facility 
                        under section 2(e); or
                          (ii) an agreement, contract, or 
                        transaction that is excluded or exempt 
                        under section 2(c), 2(d), 2(f), or 2(h) 
                        or is covered by the terms of an 
                        exemption granted by the Commission 
                        under section 4(c) (regardless of 
                        whether any such agreement, contract, 
                        or transaction is otherwise subject to 
                        this Act); or

           *       *       *       *       *       *       *

    Sec. 14. (a)(1) Any person complaining of any violation of 
any provision of this Act, or any rule, regulation, or order 
issued pursuant to this Act, by any person who is registered 
under this Act may, at any time within two years after the 
cause of action accrues, apply to the Commission for an order 
awarding--
          (A) * * *
          (B) in the case of any action arising from a willful 
        and intentional violation in the execution of an order 
        on the floor of a [contract market] registered entity, 
        punitive or exemplary damages equal to no more than two 
        times the amount of such actual damages. If an award of 
        punitive or exemplary damages is made against a floor 
        broker in connection with the execution of a customer 
        order, and the futures commission merchant which 
        selected the floor broker for the execution of the 
        customer order is held to be responsible under section 
        2(a)(1) for the floor broker's violation, such futures 
        commission merchant may be required to satisfy such 
        award if the floor broker fails to do so, except that 
        such requirement shall apply to the futures commission 
        merchant only if it willfully and intentionally 
        selected the floor broker with the intent to assist or 
        facilitate the floor broker's violation.

           *       *       *       *       *       *       *

    (f) Unless the party against whom a reparation order has 
been issued shows to the satisfaction of the Commission within 
fifteen days from the expiration of the period allowed for 
compliance with such order that either an appeal as herein 
authorized has been taken or payment of the full amount of the 
order (or any agreed settlement thereof) has been made, such 
party shall be prohibited automatically from trading on all 
[contract markets] registered entities and, if the party is 
registered with the Commission, such registration shall be 
suspended automatically at the expiration of such fifteen-day 
period until such party shows to the satisfaction of the 
Commission that payment of such amount with interest thereon to 
date of payment has been made: Provided, That if on appeal the 
appellee prevails or if the appeal is dismissed, the automatic 
prohibition against trading and suspension of registration 
shall become effective at the expiration of thirty days from 
the date of judgment on the appeal, but if the judgment is 
stayed by a court of competent jurisdiction, the suspension 
shall become effective ten daysafter the expiration of such 
stay, unless prior thereto the judgment of the court has been 
satisfied.

           *       *       *       *       *       *       *

    [Sec. 15. The Commission]

SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.

  (a) Costs and Benefits.--
          (1) In general.--Before promulgating a regulation 
        under this Act or issuing an order (except as provided 
        in paragraph (3)), the Commission shall consider the 
        costs and benefits of the action of the Commission.
          (2) Considerations.--The costs and benefits of the 
        proposed Commission action shall be evaluated in light 
        of--
                  (A) considerations of protection of market 
                participants and the public;
                  (B) considerations of the efficiency, 
                competitiveness, and financial integrity of 
                futures markets;
                  (C) considerations of price discovery;
                  (D) considerations of sound risk management 
                practices; and
                  (E) other public interest considerations.
          (3) Applicability.--This subsection does not apply to 
        the following actions of the Commission:
                  (A) An order that initiates, is part of, or 
                is the result of an adjudicatory or 
                investigative process of the Commission.
                  (B) An emergency action.
                  (C) A finding of fact regarding compliance 
                with a requirement of the Commission.
  (b) Antitrust Laws.--The Commission  shall take into 
consideration the public interest to be protected by the 
antitrust laws and endeavor to take the least anticompetitive 
means of achieving the objectives of this Act, as well as the 
policies and purposes of this Act, in issuing any order or 
adopting any Commission rule or regulation (including any 
exemption under section 4(c) or 4c(b)), or in requiring or 
approving any bylaw, rule, or regulation of a contract market 
or registered futures association established pursuant to 
section 17 of this Act.
    Sec. 16. (a) * * *

           *       *       *       *       *       *       *

  (e) The provisions of this section shall not apply to 
investigations involving any security underlying a security 
future product.
    Sec. 17. (a) * * *
    (b) An applicant association shall not be registered as a 
futures association unless the Commission finds, under 
standards established by the Commission, that--
          (1) * * *
          (2) the rules of the association provide that any 
        person registered under this Act, [contract market] 
        registered entity, or any other person designated 
        pursuant to the rules of the Commission as eligible for 
        membership may become a member of such association, 
        except such as are excluded pursuant to paragraph (3) 
        or (4) of this subsection, or a rule of the association 
        permitted under this paragraph. The rules of the 
        association may restrict membership in such association 
        on such specified basis relating to the type of 
        business done by its members, or on such other 
        specified and appropriate basis, as appears to the 
        Commission to be necessary or appropriate in the public 
        interest and to carry out the purpose of this section. 
        Rules adopted by the association may provide that the 
        association may, unless the Commission directs 
        otherwise in cases in which the Commission finds it 
        appropriate in the public interest so to direct, deny 
        admission to, or refuse to continue in such association 
        any person if (i) such person, whether prior of 
        subsequent to becoming registered as such, or (ii) any 
        person associated within the meaning of ``associated 
        person'' as set forth in section 4k of this Act, 
        whether prior or subsequent to becoming so associated, 
        has been and is suspended or expelled from a [contract 
        market] registered entity or has been and is barred or 
        suspended from being associated with all members of 
        such [contract market] registered entity, for violation 
        of any rule of such [contract market] registered 
        entity;
          (3) the rules of the association provide that, except 
        with the approval or at the direction of the Commission 
        in cases in which the Commission finds it appropriate 
        in the public interest so to approve or direct, no 
        person shall be admitted to or continued in membership 
        in such association, if such person--
                  (A) has been and is suspended or expelled 
                from a registered futures association or from a 
                [contract market] registered entity or has been 
                and is barred or suspended from being 
                associated with all members of such association 
                or from being associated with all members of 
                such [contract market] registered entity, for 
                violation of any rule of such association or 
                [contract market] registered entity which 
                prohibits any act or transaction constituting 
                conduct inconsistent with just and equitable 
                principles of trade, or requires any act the 
                omission of which constitutes conduct 
                inconsistent with just and equitable principles 
                of trade;
                  (B) is subject to an order of the Commission 
                denying, suspending, or revoking his 
                registration pursuant to section 6(c) of this 
                Act, or expelling or suspending him from 
                membership in a registered futures association 
                or a [contract market] registered entity, or 
                barring or suspending him from being associated 
                with a futures commission merchant;
                  (C) whether prior or subsequent to becoming a 
                member, by his conduct while associated with a 
                member, was a cause of any suspension, 
                expulsion, or order of the character described 
                in clause (A) or (B) which is in effect with 
                respect to such member, and in entering such a 
                suspension, expulsion, or order, the Commission 
                or any such [contract market] registered entity 
                or association shall have jurisdiction to 
                determine whether or not any person was a cause 
                thereof; or

           *       *       *       *       *       *       *

          (10) the rules of the association provide a fair, 
        equitable, and expeditious procedure through 
        arbitration or otherwise forthe settlement of 
customers' claims and grievances against any member or employee 
thereof: Provided, That (A) the use of such procedure by a customer 
shall be voluntary, (B) the term ``customer'' as used in this paragraph 
shall not include another member of the association, and (C) in the 
case of a claim arising from a violation in the execution of an order 
on the floor of a [contract market] registered entity, such procedure 
shall provide, to the extent appropriate--
                  (i) * * *

           *       *       *       *       *       *       *

    (o)(1) The Commission may require any futures association 
registered pursuant to this section to perform any portion of 
the registration functions under this Act with respect to each 
member of the association other than a [contract market] 
registered entity and with respect to each associated person of 
such member, in accordance with rules, notwithstanding any 
other provision of law, adopted by such futures association and 
submitted to the Commission pursuant to section 17(j) of this 
Act, and subject to the provisions of this Act applicable to 
registrations granted by the Commission.

           *       *       *       *       *       *       *

  (q)(1) The Commission shall issue regulations requiring each 
registered futures association to establish and make available 
to the public a schedule of major violations of any rule within 
the disciplinary jurisdiction of such registered futures 
association.
  (2) The regulations issued by the Commission pursuant to this 
subsection shall prohibit, for a period of time to be 
determined by the Commission, any member of a registered 
futures association who is found to have committed any major 
violation from service on the governing board of any registered 
futures association or [contract market] registered entity, or 
on any disciplinary committee thereof.

           *       *       *       *       *       *       *

    Sec. 22. (a)(1) Any person (other than a [contract market, 
clearing organization of a contract market, licensed board of 
trade,] registered entity or a derivatives clearing 
organization exempt from registration pursuant to section 5b(b) 
or registered futures association) who violates this Act or who 
willfully aids, abets, counsels, induces, or procures the 
commission of a violation of this Act shall be liable for 
actual damages resulting from one or more of the transactions 
referred to in subparagraphs (A) through (D) of this paragraph 
and caused by such violation to any other person--
          (A) * * *
          (C) who purchased from or sold to such person or 
        placed through such person an order for the purchase or 
        sale of--
                  (i) an option subject to section 4c of this 
                Act (other than an option purchased or sold on 
                a [contract market] registered entity or other 
                board of trade);

           *       *       *       *       *       *       *

    (2) Except as provided in subsection (b), the rights of 
action authorized by this subsection and by sections [5a(11),] 
5(d)(13), 5b(b)(1)(E), 14, and 17(b)(10) of this Act shall be 
the exclusive remedies under this Act available to any person 
who sustains loss as a result of any alleged violation of this 
Act. Nothing in this subsection shall limit or abridge the 
rights of the parties to agree in advance of a dispute upon any 
forum for resolving claims under this section, including 
arbitration.
  (3) In any action arising from a violation in the execution 
of an order on the floor of a [contract market] registered 
entity, the person referred to in paragraph (1) shall be liable 
for--
          (A) * * *

           *       *       *       *       *       *       *

  (4) Contract Enforcement Between Eligible Counterparties.--No 
agreement, contract, or transaction a party to which is 
reasonably believed by another party to which to be an eligible 
contract participant shall be void, voidable, or unenforceable, 
and no such reasonably believed eligible contract participant 
shall be entitled to rescind, or recover any payment made with 
respect to, such an agreement, contract, or transaction, under 
this section based solely on the failure of the agreement, 
contract, or transaction to comply with the terms or conditions 
of an exemption or exclusion from any provision of this Act or 
regulations of the Commission.
    (b)(1)(A) A [contract market or clearing organization of a 
contract market] registered entity that fails to enforce any 
bylaw, rule, regulation, or resolution that it is required to 
enforce by [section 5a(8) and section 5a(9) of this Act] 
sections 5 through 5c, (B) a licensed board of trade that fails 
to enforce any bylaw, rule, regulation, or resolution that it 
is required to enforce by the Commission, or (C) any [contract 
market, clearing organization of a contract market, or licensed 
board of trade] registered entity that in enforcing any such 
bylaw, rule, regulation, or resolution violates this Act or any 
Commission rule, regulation, or order, shall be liable for 
actual damages sustained by a person who engaged in any 
transaction on or subject to the rules of such [contract market 
or licensed board of trade] registered entity to the extent of 
such person's actual losses that resulted from such transaction 
and were caused by such failure to enforce or enforcement of 
such bylaws, rules, regulations, or resolutions.

           *       *       *       *       *       *       *

    (3) Any individual who, in the capacity as an officer, 
director, governor, committee member, or employee of [a 
contract market, clearing organization, licensed board of 
trade,] registered entity or a registered futures association 
willfully aids, abets, counsels, induces, or procures any 
failure by any such entity to enforce (or any violation of the 
Act in enforcing) any bylaw, rule, regulation, or resolution 
referred to in paragraph (1) or (2) of this subsection, shall 
be liable for actual damages sustained by a person who engaged 
in any transaction specified in subsection (a) of this section 
on, or subject to the rules of, such [contract market, licensed 
board of trade] registered entity or, in the case of an 
officer, director, governor, committee member, or employee of a 
registered futures association, any transaction specified in 
subsection (a) of this section, in eithercase to the extent of 
such person's actual losses that resulted from such transaction and 
were caused by such failure or violation.
    (4) A person seeking to enforce liability under this 
section must establish that the [contract market, licensed 
board of trade, clearing organization,] registered entity 
registered futures association, officer, director, governor, 
committee member, or employee acted in bad faith in failing to 
take action or in taking such action as was taken, and that 
such failure or action caused the loss.
    (5) The rights of action authorized by this subsection 
shall be the exclusive remedy under this Act available to any 
person who sustains a loss as a result of (A) the alleged 
failure by a [contract market, licensed board of trade, 
clearing organization,] registered entity or registered futures 
association or by any officer, director, governor, committee 
member, or employee to enforce any bylaw, rule, regulation, or 
resolution referred to in paragraph (1) or (2) of this 
subsection, or (B) the taking of action in enforcing any bylaw, 
rule, regulation, or resolution referred to in this subsection 
that is alleged to have violated this Act, or any Commission 
rule, regulation, or order.

           *       *       *       *       *       *       *

                              ----------                              

 SECTION 402 OF THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT 
                              ACT OF 1991

SEC. 402. DEFINITIONS.

  For purposes of this subtitle--
          (1)  * * *

           *       *       *       *       *       *       *

          (2) Clearing organization.--The term ``clearing 
        organization'' means a clearinghouse, clearing 
        association, clearing corporation, or similar 
        organization--
                  (A)  * * *

           *       *       *       *       *       *       *

                  [(B) that performs clearing functions for a 
                contract market designated pursuant to the 
                Commodity Exchange Act.]
                  (B) that is registered as a derivatives 
                clearing organization under section 5b of the 
                Commodity Exchange Act.

           *       *       *       *       *       *       *

                              ----------                              

SECURITIES EXCHANGE ACT OF 1934

           *       *       *       *       *       *       *

TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *

                  definitions and application of title

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1)  * * *

           *       *       *       *       *       *       *

          (10) The term ``security'' means any note, stock, 
        treasury stock, security future, bond, debenture, 
        certificate of interest or participation in any profit-
        sharing agreement or in any oil, gas, or other mineral 
        royalty or lease, any collateral-trust certificate, 
        preorganization certificate or subscription, 
        transferable share, investment contract, voting-trust 
        certificate, certificate of deposit for a security, any 
        put, call, straddle, option, or privilege on any 
        security, certificate of deposit, or group or index of 
        securities (including any interest therein or based on 
        the value thereof), or any put, call, straddle, option, 
        or privilege entered into on a national securities 
        exchange relating to foreign currency, or in general, 
        any instrument commonly known as a ``security''; or any 
        certificate of interest or participation in, temporary 
        or interim certificate for, receipt for, or warrant or 
        right to subscribe to or purchase, any of the 
        foregoing; but shall not include currency or any note, 
        draft, bill of exchange, or banker's acceptance which 
        has a maturity at the time of issuance of not exceeding 
        nine months, exclusive of days of grace, or any renewal 
        thereof the maturity of which is likewise limited.
          [(11) The term ``equity security'' means any stock or 
        similar security; or any security convertible, with or 
        without consideration, into such a security, or 
        carrying any warrant or right to subscribe to or 
        purchase such a security; or any such warrant or right; 
        or any other security which the Commission shall deem 
        to be of similar nature and consider necessary or 
        appropriate, by such rules and regulations as it may 
        prescribe in the public interest or for the protection 
        of investors, to treat as an equity security.]
          (11) The term ``equity security'' means any stock or 
        similar security; or any security future; or any 
        security convertible, with or without consideration, 
        into such a security, or carrying any warrant or right 
        to subscribe to or purchase such a security; or any 
        such warrant or right; or any put, call, straddle, 
        option, or privilege on any such security; or any other 
        security which the Commission shall deem to be of 
        similar nature and consider necessary or appropriate, 
        by such rules and regulations as it may prescribe in 
        the public interest or for the protection of investors, 
        to treat as an equity security.

           *       *       *       *       *       *       *

          (13) The terms ``buy'' and ``purchase'' each include 
        any contract to buy, purchase, or otherwise acquire. 
        For security future products, such term includes any 
        contract, agreement, or transaction for future 
        delivery.
          (14) The terms ``sale'' and ``sell'' each include any 
        contract to sell or otherwise dispose of. For security 
        future products, such term includes any contract, 
        agreement, or transaction for future delivery.

           *       *       *       *       *       *       *

          (55)(A) The term ``security future'' means a contract 
        of sale for future delivery of a single security or of 
        a narrow-basedsecurity index, including any interest 
therein or based on the value thereof, except an exempted security 
under section 3(a)(12) of the Securities Exchange Act of 1934 as in 
effect on the date of enactment of the Futures Trading Act of 1982 
(other than any municipal security as defined in section 3(a)(29) as in 
effect on the date of enactment of the Futures Trading Act of 1982). 
The term ``security future'' does not include any agreement, contract, 
or transaction excluded under subsection (c), (d), or (f) of section 2 
of the Commodity Exchange Act as in effect on the date of enactment of 
the Commodity Futures Modernization Act of 2000.
          (B) The term ``narrow-based security index'' means an 
        index of securities on which contracts for future 
        delivery are not permitted under section 2(a)(1)(C) of 
        the Commodity Exchange Act, including any interest 
        therein or based on the value thereof.
          (C) The term ``security future product'' means a 
        security future or any put, call, straddle, option, or 
        privilege on any security future.
          (56)(A) The term ``margin'', when used with respect 
        to a security future product, means the amount, type, 
        and form of collateral required to secure any extension 
        or maintenance of credit, or the amount, type, and form 
        of collateral required as a performance bond related to 
        the purchase, sale, or carrying of a security future 
        product, and all other uses of collateral related to 
        the purchasing, selling, or carrying of a security 
        future product.
          (B) The terms ``margin level'' and ``level of 
        margin'', when used with respect to a security future 
        product, mean the amount of margin required to secure 
        any extension or maintenance of credit, or the amount 
        of margin required as a performance bond related to the 
        purchase, sale, or carrying of a security future 
        product.
          (C) The terms ``higher margin level'' and ``higher 
        level of margin'', when used with respect to a security 
        future product, mean a margin level established by a 
        national securities exchange registered pursuant to 
        section 6(g) that is higher than the minimum amount 
        established by the Commission pursuant to section 
        7(c)(2)(B).

           *       *       *       *       *       *       *

                     national securities exchanges

  Sec. 6. (a)  * * *

           *       *       *       *       *       *       *

  (g) Notice Registration of Security Future Product 
Exchanges.--
          (1) Registration required.--An exchange that lists or 
        trades security future products may be registered as a 
        national securities exchange solely for the purposes of 
        trading security future products if--
                  (A) the exchange is a board of trade, as that 
                term is defined by the Commodity Exchange Act 
                (7 U.S.C. 1a(2)), that has been designated a 
                contract market by the Commodity Futures 
                Trading Commission and is not subject to a 
                suspension order by the Commodity Futures 
                Trading Commission; and
                  (B) such exchange does not serve as a market 
                place for transactions in securities other 
                than--
                          (i) security future products; or
                          (ii) futures on exempted securities 
                        or groups or indexes of securities or 
                        options thereon that have been 
                        authorized under section 2(a)(1)(C) of 
                        the Commodity Exchange Act by Commodity 
                        Futures Trading Commission order.
          (2) Registration by notice filing.--
                  (A) Form and content.--An exchange required 
                to register only because such exchange lists or 
                trades security future products may register 
                for purposes of this section by filing with the 
                Commission a written notice in such form, and 
                containing the rules of the exchange and such 
                other information and documents concerning such 
                exchange as the Commission, by rule, may 
                prescribe as necessary or appropriate in the 
                public interest or for the protection of 
                investors.
                  (B) Immediate effectiveness.--Such 
                registration shall be effective immediately 
                upon filing of the written notice with the 
                Commission, except that such registration shall 
                not be effective if such registration would be 
                subject to suspension or revocation.
                  (C) Termination.--Such registration shall be 
                terminated immediately if any of the conditions 
                for registration set forth in this subsection 
                are no longer satisfied.
          (3) Public availability.--The Commission shall make 
        available to the public all notices it receives under 
        this subsection.
          (4) Exemption of exchanges from specified 
        provisions.--
                  (A) Transaction exemptions.--An exchange that 
                is registered under paragraph (1) of this 
                subsection shall be exempt from, and shall not 
                be required to enforce compliance by its 
                members with, and its members shall not, solely 
                with respect to those transactions effected on 
                such exchange in security future products, be 
                required to comply with, the following 
                provisions of this title and the rules 
                thereunder:
                          (i) Subsections (b)(2), (b)(3), 
                        (b)(4), (b)(7), (b)(9), (c), (d), and 
                        (e) of this section.
                          (ii) Subsection (a) of section 10.
                          (iii) Section 11.
                          (iv) Subsections (d), (f), and (k) of 
                        section 17.
                          (v) Subsections (a), (f), and (h) of 
                        section 19.
                  (B) Rule change exemptions.--An exchange that 
                is subject to the registration requirement of 
                paragraph (1) of this subsection shall also be 
                exempt from submitting proposed rule changes 
                pursuant to section 19(b) of this title, except 
                that--
                          (i) such exchange shall file proposed 
                        rule changes related to higher margin 
                        levels, fraud or manipulation, 
                        recordkeeping, reporting, listing 
                        standards, or decimalpricing for 
security future products, sales practices for security future products 
for persons who effect transactions in security future products or 
rules effectuating such exchange's obligation to enforce the securities 
laws pursuant to section 19(b)(7);
                          (ii) such exchange shall file 
                        pursuant to sections 19(b)(1) and 
                        19(b)(2) proposed rule changes related 
                        to margin, except for changes resulting 
                        in higher margin levels; and
                          (iii) such exchange shall file 
                        pursuant to section 19(b)(1) proposed 
                        rule changes that have been abrogated 
                        by the Commission pursuant to section 
                        19(b)(7)(C).
          (5) Association compliance with requirements.--No 
        exchange that is registered under paragraph (1) of this 
        subsection shall trade any security future product 
        until a futures association registered under section 17 
        of the Commodity Exchange Act has met the requirements 
        set forth in section 15A(k)(2) of this title.
          (6) Trading in security future products.--It shall be 
        unlawful for any person to execute or trade a security 
        future product until the later of--
                  (A) one year after the date of enactment of 
                the Commodity Futures Modernization Act of 
                2000; or
                  (B) such date as the Federal income tax 
                treatment applicable to the security future 
                products permitted under this title are 
                equivalent to the Federal income tax treatment 
                of equity options traded on a national 
                securities exchange.
  (h) Trading in Security Future Products.--
          (1) Trading on exchange or association required.--It 
        shall be unlawful for any person to effect transactions 
        in security future products that are not listed on a 
        national securities exchange or a national securities 
        association registered pursuant to section 15A(a).
          (2) Listing standards and conditions for trading 
        required.--A national securities exchange or a national 
        securities association registered pursuant to section 
        15A(a) may trade only security future products that (A) 
        conform with listing standards and conditions for 
        trading that such exchange or association files with 
        the Commission under section 19(b), and (B) meet the 
        criteria specified in section 2(a)(1)(D)(i) of the 
        Commodity Exchange Act.
          (3) Requirements for listing standards and conditions 
        for trading.--Such listing standards and conditions for 
        trading shall--
                  (A) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to 
                paragraph (4), require that any security 
                underlying the security future, including each 
                component security of a narrow-based security 
                index, be registered pursuant to section 12 of 
                this title;
                  (B) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to 
                paragraph (4), require that the security future 
                product be cash settled;
                  (C) be no less restrictive than comparable 
                listing standards for options traded on a 
                national securities exchange or a national 
                securities association registered pursuant to 
                section 15A(a) of this title;
                  (D) except as otherwise provided in a rule, 
                regulation, or order issued pursuant to 
                paragraph (4), require that the security future 
                be based upon common stock and such other 
                equity securities as the Commission and the 
                Commodity Futures Trading Commission jointly 
                determine appropriate;
                  (E) require that the security future product 
                is cleared by a clearing agency that has in 
                place provisions for linked and coordinated 
                clearing with other clearing agencies that 
                clear security future products, which permits 
                the security future product to be purchased on 
                one market and offset on any other market on 
                which the security future product is traded;
                  (F) require that only a broker or dealer 
                subject to suitability rules comparable to 
                those of a national securities association 
                registered pursuant to section 15A(a) effect 
                transactions in the security future product;
                  (G) require that the security future product 
                be subject to the prohibition against dual 
                trading in section 4j of the Commodity Exchange 
                Act (7 U.S.C. 6j) and the rules and regulations 
                thereunder or the provisions of section 11(a) 
                of this title and the rules and regulations 
                thereunder, except to the extent otherwise 
                permitted under this title and the rules and 
                regulations thereunder;
                  (H) require that trading in the security 
                future product not be readily susceptible to 
                manipulation of the price of such security 
                future product, nor to causing or being used in 
                the manipulation of the price of any underlying 
                security, option on such security, or option on 
                a group or index including such securities;
                  (I) require that procedures be in place for 
                coordinated surveillance among the market on 
                which the security future product is traded, 
                any market on which any security underlying the 
                security future product is traded, and other 
                markets on which any related security is traded 
                to detect manipulation and insider trading;
                  (J) require that the market on which the 
                security future product is traded has in place 
                audit trails necessary or appropriate to 
                facilitate the coordinated surveillance 
                required in subparagraph (I);
                  (K) require that the market on which the 
                security future product is traded has in place 
                procedures to coordinate trading halts between 
                such market and any market on which any 
                security underlying the security future product 
                is traded and other markets on which any 
                related security is traded; and
                  (L) require that the margin requirements for 
                a security future product be consistent with 
                the margin requirements for comparable option 
                contracts traded on an exchange registered 
                pursuant to section 6(a) of this title and that 
                initialand maintenance margin levels for a 
security future product not be lower than the levels of margin required 
for comparable option contracts traded on an exchange registered 
pursuant to section 6(a) of this title, except that nothing in this 
subparagraph shall be construed to prevent a national securities 
exchange or national securities association from requiring higher 
margin levels for a security future product when it deems such action 
to be necessary or appropriate.
          (4) Authority to modify certain listing standard 
        requirements.--The Commission and the Commodity Futures 
        Trading Commission, by rule, regulation, or order, may 
        jointly modify the listing standard requirements 
        specified in subparagraph (A), (B), or (D) of paragraph 
        (3) to the extent such modification fosters the 
        development of fair and orderly markets in security 
        future products, is necessary or appropriate in the 
        public interest, and is consistent with the protection 
        of investors.
          (5) Requirements for other persons trading security 
        future products.--It shall be unlawful for any person 
        (other than a national securities exchange or a 
        national securities association registered pursuant to 
        section 15A(a)) to constitute, maintain, or provide a 
        marketplace or facilities for bringing together 
        purchasers and sellers of security future products or 
        to otherwise perform with respect to security future 
        products the functions commonly performed by a stock 
        exchange as that term is generally understood, unless a 
        national securities association registered pursuant to 
        section 15A(a)--
                  (A) has in place procedures for coordinated 
                surveillance among such person, the market 
                trading the securities underlying the security 
                future products, and other markets trading 
                related securities to detect manipulation and 
                insider trading;
                  (B) has rules to require audit trails 
                necessary or appropriate to facilitate the 
                coordinated surveillance required in 
                subparagraph (A); and
                  (C) has rules to require such person to 
                coordinate trading halts with markets trading 
                the securities underlying the security future 
                products and other markets trading related 
                securities.
          (6) Deferral of options on security futures 
        trading.--No person shall offer to enter into, enter 
        into, or confirm the execution of any put, call, 
        straddle, option, or privilege on a security future, 
        except that, after 3 years after the date of enactment 
        of this subsection, the Commission and the Commodity 
        Futures Trading Commission may by order jointly 
        determine to permit trading of puts, calls, straddles, 
        options, or privileges on any security future 
        authorized to be traded under the provisions of this 
        Act and the Commodity Exchange Act. Before any such 
        determination, the Commission and the Commodity Futures 
        Trading Commission shall conduct a study of the effect 
        of the trading of security futures on the markets for 
        futures contracts, securities, and options and the 
        adequacy of protections for investors and other market 
        participants.

                          margin requirements

  Sec. 7. (a) For the purpose of preventing the excessive use 
of credit for the purchase or carrying of securities, the Board 
of Governors of the Federal Reserve System shall, prior to the 
effective date of this section and from time to time 
thereafter, prescribe rules and regulations with respect to the 
amount of credit that may be initially extended and 
subsequently maintained on any security (other than an exempted 
security or a security future product). For the initial 
extension of credit, such rules and regulations shall be based 
upon the following standard: An amount not greater than 
whichever is the higher of--
          (1)  * * *

           *       *       *       *       *       *       *

  (c) Unlawful Credit Extension to Customers.--
          (1) Prohibition.--It shall be unlawful for any member 
        of a national securities exchange or any broker or 
        dealer, directly or indirectly, to extend or maintain 
        credit or arrange for the extension or maintenance of 
        credit to or for any 
        customer--
                  (A) on any security (other than an exempted 
                security), except as provided in paragraph (2), 
                in contravention of the rules and regulations 
                which the Board of Governors of the Federal 
                Reserve System (hereafter in this section 
                referred to as the ``Board'') shall prescribe 
                under subsections (a) and (b); and

           *       *       *       *       *       *       *

          (2) Margin regulations.--
                  (A) Compliance with margin rules required.--
                It shall be unlawful for any broker, dealer, or 
                member of a national securities exchange to, 
                directly or indirectly, extend or maintain 
                credit to or for, or collect margin from any 
                customer on, any security future product unless 
                such activities comply with the rules and 
                regulations which the Commission, after 
                consultation with the Commodity Futures Trading 
                Commission shall prescribe pursuant to 
                subparagraph (B).
                  (B) Criteria for issuance of rules.--The 
                Commission shall issue such regulations to 
                establish margin requirements, including the 
                establishment of levels of margin (initial and 
                maintenance) and use of collateral for security 
                future products under such terms, and at such 
                levels, as the Commission deems appropriate--
                          (i) to preserve the financial 
                        integrity of markets trading security 
                        future products;
                          (ii) to prevent systemic risk;
                          (iii) to make consistent the margin 
                        levels (initial and maintenance) and 
                        other margin requirements between 
                        security future products and comparable 
                        options contracts traded on a national 
                        securities exchange; and
                          (iv) to ensure that the margin 
                        requirements (other than levels of 
                        margin) including the type, form, and 
                        use of collateral for security future 
                        products, are andremain consistent with 
the requirements established by the Federal Reserve Board, pursuant to 
subparagraphs (A) and (B) of paragraph (1).
          [(2)] (3) Exception.--This subsection and the rules 
        and regulations issued under this subsection shall not 
        apply to any credit extended, maintained, or arranged 
        by a member of a national securities exchange or a 
        broker or dealer to or for a member of a national 
        securities exchange or a registered broker or dealer--
                  (A)  * * *

           *       *       *       *       *       *       *

          prohibition against manipulation of security prices

  Sec. 9. (a)  * * *

           *       *       *       *       *       *       *

  (b) It shall be unlawful for any person to effect, by use of 
any facility of a national securities exchange, in 
contravention of such rules and regulations as the Commission 
may prescribe as necessary or appropriate in the public 
interest or for the protection of investors--
          (1) any transaction in connection with any security 
        whereby any party to such transaction acquires (A) any 
        put, call, straddle, or other option or privilege of 
        buying the security from or selling the security to 
        another without being bound to do so[; or], or (B) any 
        security future product on the security; or
          (2) any transaction in connection with any security 
        with relation to which he has, directly or indirectly, 
        any interest in any (A) such put, call, straddle, 
        option, or privilege[; or], or (B) such security future 
        product delivery; or
          (3) any transaction in any security for the account 
        of any person who he has reason to believe has, and who 
        actually has, directly or indirectly, any interest in 
        any (A) such put, call, straddle, option, or privilege, 
        or (B) such security future product with relation to 
        such security.

           *       *       *       *       *       *       *

  (g)(1) Notwithstanding any other provision of law, the 
Commission shall have the authority to regulate the trading of 
any put, call, straddle, option, or privilege on any security, 
certificate of deposit, or group or index of securities 
(including any interest therein or based on the value thereof), 
or any put, call, straddle, option, or privilege entered into 
on a national securities exchange relating to foreign currency 
(but not, with respect to any of the foregoing, an option on a 
contract for future delivery other than a security future 
product).
  (2) Notwithstanding the Commodity Exchange Act, the 
Commission shall have the authority to regulate the trading of 
any security future product to the extent provided in the 
securities laws.

           *       *       *       *       *       *       *

     national market system for securities; securities information 
                               processors

  Sec. 11A. (a)  * * *

           *       *       *       *       *       *       *

  (e) National Markets System for Security Future Products.--
          (1) Consultation and cooperation required.--With 
        respect to security future products, the Commission and 
        the Commodity Futures Trading Commission shall consult 
        and cooperate so that, to the maximum extent 
        practicable, their respective regulatory 
        responsibilities may be fulfilled and the rules and 
        regulations applicable to security future products may 
        foster a national market system for security future 
        products if the Commission and the Commodity Futures 
        Trading Commission jointly determine that such a system 
        would be consistent with the congressional findings in 
        subsection (a)(1). In accordance with this objective, 
        the Commission shall, at least 15 days prior to the 
        issuance for public comment of any proposed rule or 
        regulation under this section concerning security 
        future products, consult and request the views of the 
        Commodity Futures Trading Commission.
          (2) Application of rules by order of cftc.--No rule 
        adopted pursuant to this section shall be applied to 
        any person with respect to the trading of security 
        future products on an exchange that is registered under 
        section 6(g) unless the Commodity Futures Trading 
        Commission has issued an order directing that such rule 
        is applicable to such persons.

                registration requirements for securities

  Sec. 12. (a) It shall be unlawful for any member, broker, or 
dealer to effect any transaction in any security (other than an 
exempted security) on a national securities exchange unless a 
registration is effective as to such security for such exchange 
in accordance with the provisions of this title and the rules 
and regulations thereunder. The provisions of this subsection 
shall not apply in respect of a security future product listed 
on a national securities exchange.

           *       *       *       *       *       *       *

  (g)(1)  * * *

           *       *       *       *       *       *       *

  (5) For the purposes of this subsection the term ``class'' 
shall include all securities of an issuer which are of 
substantially similar character and the holders of which enjoy 
substantially similar rights and privileges. The Commission may 
for the purpose of this subsection define by rules and 
regulations the terms ``total assets'' and ``held of record'' 
as it deems necessary or appropriate in the public interest or 
for the protection of investors in order to prevent 
circumvention of the provisions of this subsection. For 
purposes of this subsection, a security future product shall 
not be considered aclass of equity security of the issuer of 
the securities underlying the security future product.

           *       *       *       *       *       *       *

  (k) Trading Suspensions; Emergency Authority.--
          (1) Trading suspensions.--If in its opinion the 
        public interest and the protection of investors so 
        require, the Commission is authorized by order--
                  (A)  * * *

           *       *       *       *       *       *       *

        The action described in subparagraph (B) shall not take 
        effect unless the Commission notifies the President of 
        its decision and the President notifies the Commission 
        that the President does not disapprove of such 
        decision. If the actions described in subparagraph (A) 
        or (B) involve a security future product, the 
        Commission shall consult with and consider the views of 
        the Commodity Futures Trading Commission.
          (2) Emergency orders.--(A)  * * *

           *       *       *       *       *       *       *

          (B) An order of the Commission under this paragraph 
        (2) shall continue in effect for the period specified 
        by the Commission, and may be extended, except that in 
        no event shall the Commission's action continue in 
        effect for more than 10 business days, including 
        extensions. If the actions described in subparagraph 
        (A) involve a security future product, the Commission 
        shall consult with and consider the views of the 
        Commodity Futures Trading Commission. In exercising its 
        authority under this paragraph, the Commission shall 
        not be required to comply with the provisions of 
        section 553 of title 5, United States Code, or with the 
        provisions of section 19(c) of this title.

           *       *       *       *       *       *       *

           registration and regulation of brokers and dealers

  Sec. 15. (a)  * * *

           *       *       *       *       *       *       *

  (b)(1)  * * *

           *       *       *       *       *       *       *

    (11) Broker/dealer registration with respect to 
transactions in security future products.--
          (A) Notice registration.--
                  (i) Contents of notice.--Notwithstanding 
                paragraphs (1) and (2), a broker or dealer 
                required to register only because it effects 
                transactions in security future products on an 
                exchange registered pursuant to section 6(g) 
                may register for purposes of this section by 
                filing with the Commission a written notice in 
                such form and containing such information 
                concerning such broker or dealer and any 
                persons associated with such broker or dealer 
                as the Commission, by rule, may prescribe as 
                necessary or appropriate in the public interest 
                or for the protection of investors. A broker or 
                dealer may not register under this paragraph 
                unless that broker or dealer is a member of a 
                national securities association registered 
                under section 15A(k).
                  (ii) Immediate effectiveness.--Such 
                registration shall be effective immediately 
                upon filing of the written notice with the 
                Commission, except that such registration shall 
                not be effective if the registration would be 
                subject to suspension or revocation under 
                paragraph (4).
                  (iii) Suspension.--Such registration shall be 
                suspended immediately if a national securities 
                association registered pursuant to section 
                15A(k) of this title suspends the membership of 
                that broker or dealer.
                  (iv) Termination.--Such registration shall be 
                terminated immediately if any of the above 
                stated conditions for registration set forth in 
                this paragraph are no longer satisfied.
          (B) Exemptions for registered brokers and dealers.--A 
        broker or dealer registered pursuant to the 
        requirements of subparagraph (A) shall be exempt from 
        the following provisions of this title and the rules 
        thereunder with respect to transactions in security 
        future products:
                  (i) Section 8.
                  (ii) Subsection (a) of section 10.
                  (iii) Section 11.
                  (iv) Subsections (c)(3) and (c)(5) of this 
                section.
                  (v) Section 15B.
                  (vi) Section 15C.
                  (vii) Subsections (d), (e), (f), (g), (h), 
                and (i) of section 17.
    (12) Exemption for security future product exchange 
members.--
          (A) Registration exemption.--A natural person shall 
        be exempt from the registration requirements of this 
        section if such person--
                  (i) is a member of a designated contract 
                market registered with the Commission as an 
                exchange pursuant to section 6(g);
                  (ii) effects transactions only in securities 
                on the exchange of which such person is a 
                member; and
                  (iii) has no direct contact with public 
                customers.
          (B) Other exemptions.--A natural person exempt from 
        registration pursuant to subparagraph (A) shall also be 
        exempt from the following provisions of this title and 
        the rules thereunder:
                  (i) Section 8.
                  (ii) Subsection (a) of section 10.
                  (iii) Section 11.
                  (iv) Subsections (c)(3), (c)(5), and (e) of 
                this section.
                  (v) Section 15B.
                  (vi) Section 15C.
                  (vii) Subsections (d), (e), (f), (g), (h), 
                and (i) of section 17.

           *       *       *       *       *       *       *

  (i) Rulemaking To Extend Requirements to New Hybrid 
Products.--
          (1)  * * *

           *       *       *       *       *       *       *

          (6) Definitions.--For purposes of this subsection:
                  (A) New hybrid product.--The term ``new 
                hybrid product'' means a product that--
                          (i) was not subjected to regulation 
                        by the Commission as a security prior 
                        to the date of the enactment of the 
                        Gramm-Leach-Bliley Act;
                          (ii) is not an identified banking 
                        product as such term is defined in 
                        section 206 of such Act; [and]
                          (iii) is not an equity swap within 
                        the meaning of section 206(a)(6) of 
                        such Act[.]; and
                          (iv) is not a security future 
                        product.

           *       *       *       *       *       *       *

                   registered securities associations

  Sec. 15A. (a)  * * *

           *       *       *       *       *       *       *

  (k) Limited Purpose National Securities Association.--
          (1) Regulation of members with respect to security 
        future products.--A futures association registered 
        under section 17 of the Commodity Exchange Act shall be 
        a registered national securities association for the 
        limited purpose of regulating the activities of members 
        who are registered as brokers or dealers in security 
        future products pursuant to section 15(b)(11).
          (2) Requirements for registration.--Such a securities 
        association shall--
                  (A) be so organized and have the capacity to 
                carry out the purposes of the securities laws 
                applicable to security future products and to 
                comply, and (subject to any rule or order of 
                the Commission pursuant to section 19(g)(2)) to 
                enforce compliance by its members and persons 
                associated with its members, with the 
                provisions of the securities laws applicable to 
                security future products, the rules and 
                regulations thereunder, and its rules;
                  (B) have rules that--
                          (i) are designed to prevent 
                        fraudulent and manipulative acts and 
                        practices, to promote just and 
                        equitable principles of trade, and, in 
                        general, to protect investors and the 
                        public interest, including rules 
                        governing sales practices and the 
                        advertising of security future products 
                        comparable to those of other national 
                        securities associations registered 
                        pursuant to subsection (a); and
                          (ii) are not designed to regulate by 
                        virtue of any authority conferred by 
                        this title matters not related to the 
                        purposes of this title or the 
                        administration of the association;
                  (C) have rules that provide that (subject to 
                any rule or order of the Commission pursuant to 
                section 19(g)(2)) its members and persons 
                associated with its members shall be 
                appropriately disciplined for violation of any 
                provision of the securities laws applicable to 
                security future products, the rules or 
                regulations thereunder, or the rules of the 
                association, by expulsion, suspension, 
                limitation of activities, functions, and 
                operations, fine, censure, being suspended or 
                barred from being associated with a member, or 
                any other fitting sanction; and
                  (D) have rules that ensure that members and 
                natural persons associated with members meet 
                such standards of training, experience, and 
                competence necessary to effect transactions in 
                security future products and are tested for 
                their knowledge of securities and security 
                future products.
          (3) Exemption from rule change submission.--Such a 
        securities association shall be exempt from submitting 
        proposed rule changes pursuant to section 19(b) of this 
        title, except that--
                  (A) the association shall file proposed rule 
                changes related to higher margin levels, fraud 
                or manipulation, recordkeeping, reporting, 
                listing standards, or decimal pricing for 
                security future products, sales practices, 
                advertising of security future products, or 
                standards of training, experience, competence, 
                or other qualifications for security future 
                products for persons who effect transactions in 
                security future products or rules effectuating 
                the association's obligation to enforce the 
                securities laws pursuant to section 19(b)(7);
                  (B) the association shall file pursuant to 
                sections 19(b)(1) and 19(b)(2) proposed rule 
                changes related to margin, except for changes 
                resulting in higher margin levels; and
                  (C) the association shall file pursuant to 
                section 19(b)(1) proposed rule changes that 
                have been abrogated by the Commission pursuant 
                to section 19(b)(7)(C).
          (4) Other exemptions.--Such a securities association 
        shall be exempt from and shall not be required to 
        enforce compliance by its members, and its members 
        shall not, solely with respect to their transactions 
        effected in security future products, be required to 
        comply, with the following provisions of this title and 
        the rules thereunder:
                  (A) Subsections (b)(1), (b)(3), (b)(4), 
                (b)(5), (b)(8), (b)(10), (b)(11), (b)(12), 
                (b)(13), (c), (d), (e), (f), (g), (h), and (i) 
                of this section.
                  (B) Subsections (d), (f), and (k) of section 
                17.
                  (C) Subsections (a), (f), and (h) of section 
                19.
  (l) Procedures and Rules for Security Future Products.--A 
national securities association registered pursuant to 
subsection (a) shall, not later than one year after the date of 
enactment of the Commodity Futures Modernization Act of 2000, 
implement the procedures specified in section 6(h)(5)(A) of 
this title and adopt the rules specified in subparagraphs (B) 
and (C) of section 6(h)(5) of this title.

           *       *       *       *       *       *       *

            directors, officers, and principal stockholders

  Sec. 16. (a)  * * *

           *       *       *       *       *       *       *

  (f) Treatment of Transactions in Security Future Products.--
The provisions of this section shall apply to ownership of and 
transactions in security future products as if they were 
ownership of and transactions in the underlying equity 
security. The Commission may adopt such rules and regulations 
as it deems necessary or appropriate in the public interest to 
carry out the purposes of this section.

           *       *       *       *       *       *       *

  accounts and records, examinations of exchanges, members, and others

  Sec. 17. (a)  * * *

           *       *       *       *       *       *       *

  [(b) All records of persons described in subsection (a) of 
this section are subject at any time, or from time to time, to 
such reasonable periodic, special, or other examinations by 
representatives of the Commission and the appropriate 
regulatory agency for such persons as the Commission or the 
appropriate regulatory agency for such persons deems necessary 
or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of this 
title: Provided, however, That the Commission shall, prior to 
conducting any such examination of a registered clearing 
agency, registered transfer agent, or registered municipal 
securities dealer for which it is not the appropriate 
regulatory agency, give notice to the appropriate regulatory 
agency for such clearing agency, transfer agent, or municipal 
securities dealer of such proposed examination and consult with 
such appropriate regulatory agency concerning the feasibility 
and desirability of coordinating such examination with 
examinations conducted by such appropriate regulatory agency 
with a view to avoiding unnecessary regulatory duplication or 
undue regulatory burdens for such clearing agency, transfer 
agent, or municipal securities dealer. Nothing in the proviso 
to the preceding sentence shall be construed to impair or limit 
(other than by the requirement of prior consultation) the power 
of the Commission under this subsection to examine any clearing 
agency, transfer agent, or municipal securities dealer or to 
affect in any way the power of the Commission under any other 
provision of this title or otherwise to inspect, examine, or 
investigate any such clearing agency, transfer agent, or 
municipal securities dealer.]
  (b) Records Subject to Examination.--
          (1) Procedures for cooperation with other agencies.--
        All records of persons described in subsection (a) are 
        subject at any time, or from time to time, to such 
        reasonable periodic, special, or other examinations by 
        representatives of the Commission and the appropriate 
        regulatory agency for such persons as the Commission or 
        the appropriate regulatory agency for such persons 
        deems necessary or appropriate in the public interest, 
        for the protection of investors, or otherwise in 
        furtherance of the purposes of this title if the 
        Commission, prior to conducting any such examination of 
        a--
                  (A) registered clearing agency, registered 
                transfer agent, or registered municipal 
                securities dealer for which it is not the 
                appropriate regulatory agency, gives notice to 
                the appropriate regulatory agency for such 
                clearing agency, transfer agent, or municipal 
                securities dealer, of such proposed examination 
                and consults with the appropriate regulatory 
                agency concerning the feasibility and 
                desirability of coordinating such examinations 
                conducted by the appropriate regulatory agency 
                with a view to avoiding unnecessary regulatory 
                duplication or undue regulatory burdens for 
                such clearing agency, transfer agent, or 
                municipal securities dealer; or
                  (B) broker or dealer registered pursuant to 
                section 15(b)(11), exchange registered pursuant 
                to section 6(g), or national securities 
                association registered pursuant to section 
                15A(k) gives notice to the Commodity Futures 
                Trading Commission of such proposed examination 
                and consults with the Commodity Futures Trading 
                Commission concerning the feasibility and 
                desirability of coordinating such examination 
                with examinations conducted by the Commodity 
                Futures Trading Commission with a view to 
                avoiding unnecessary regulatory duplication or 
                undue regulatory burdens for such broker or 
                dealer or exchange.
          (2) Furnishing data and reports to cftc.--The 
        Commission shall notify the Commodity Futures Trading 
        Commission of any examination conducted of any broker 
        or dealer registered pursuant to section 15(b)(11), 
        exchange registered pursuant to section 6(g), or 
        national securities association registered pursuant to 
        section 15A(k) and, upon request, furnish to the 
        Commodity Futures Trading Commission any examination 
        report and data supplied to the Commission in 
        connection with such examination.
          (3) Use of cftc reports.--The Commission shall, to 
        the fullest extent possible, use the reports of 
        examinations of any broker or dealer registered 
        pursuant to section 15(b)(11) or exchange registered 
        pursuant to section 6(g) made by the Commodity Futures 
        Trading Commission, a national securities association 
        registered pursuant to section 15A(k), or an exchange 
        registered pursuant to section 6(g).
          (4) Large trader reporting.--The Commission and the 
        Commodity Futures Trading Commission shall jointly 
        prescribe rules to require large trader reporting with 
        respect to security future products. Such rules shall 
        specify a reporting level for each security future 
        product, a format for reporting, and the procedures for 
        filing such reports with the Commission and the 
        Commodity Futures Trading Commission.
          (5) Rule of construction.--Nothing in this subsection 
        shall be construed to impair or limit (other than by 
        the requirement of prior consultation) the power of the 
        Commission under this subsection to examine any 
        clearing agency, transfer agent, or municipal 
        securities dealer, broker or dealer registered pursuant 
        to section 15(b)(11), exchange registered pursuant 
tosection 6(g), or national securities association registered pursuant 
to section 15A(k), or to affect in any way the power of the Commission 
under any other provision of this title or otherwise to inspect, 
examine, or investigate any clearing agency, transfer agent, or 
municipal securities dealer, broker or dealer registered pursuant to 
section 15(b)(11), exchange registered pursuant to section 6(g), or 
national securities association registered pursuant to section 15A(k).

           *       *       *       *       *       *       *

national system for clearance and settlement of securities transactions

  Sec. 17A. (a)(1) The Congress finds that--
          (A)  * * *

           *       *       *       *       *       *       *

          (E) The clearance and settlement of transactions in 
        over-the-counter derivatives through clearing agencies 
        registered with the Commission will reduce systemic 
        risk and provide stability to financial markets during 
        times of market disorder.
  (2)(A) The Commission is directed, therefore, having due 
regard for the public interest, the protection of investors, 
the safeguarding of securities and funds, and maintenance of 
fair competition among brokers and dealers, clearing agencies, 
and transfer agents, to use its authority under this title--
          (i)  * * *
          (ii) to facilitate the establishment of linked or 
        coordinated facilities for clearance and settlement of 
        transactions in securities, securities options, 
        contracts of sale for future delivery and options 
        thereon, [and commodity options] commodity options, and 
        over-the-counter derivatives;
in accordance with the findings and to carry out the objectives 
set forth in paragraph (1) of this subsection.

           *       *       *       *       *       *       *

  (b)(1)  * * *

           *       *       *       *       *       *       *

  (3) A clearing agency shall not be registered unless the 
Commission determines that--
          (A) Such clearing agency is so organized and has the 
        capacity to be able to facilitate the prompt and 
        accurate clearance and settlement of securities 
        transactions and derivative agreements, contracts, and 
        transactions for which it is responsible, to safeguard 
        securities and funds in its custody or control or for 
        which it is responsible, to comply with the provisions 
        of this title and the rules and regulations thereunder, 
        to enforce (subject to any rule or order of the 
        Commission pursuant to section 17(d) or 19(g)(2) of 
        this title) compliance by its participants with the 
        rules of the clearing agency, and to carry out the 
        purposes of this section.

           *       *       *       *       *       *       *

          (F) The rules of the clearing agency are designed to 
        promote the prompt and accurate clearance and 
        settlement of securities transactions and, to the 
        extent applicable, derivative agreements, contracts, 
        and transactions, to assure the safeguarding of 
        securities and funds which are in the custody or 
        control of the clearing agency or for which it is 
        responsible, to foster cooperation and coordination 
        with persons engaged in the clearance and settlement of 
        securities transactions, to remove impediments to and 
        perfect the mechanism of a national system for the 
        prompt and accurate clearance and settlement of 
        securities transactions, and, in general, to protect 
        investors and the public interest; and are not designed 
        to permit unfair discrimination in the admission of 
        participants or among participants in the use of the 
        clearing agency, or to regulate by virtue of any 
        authority conferred by this title matters not related 
        to the purposes of this section or the administration 
        of the clearing agency.

           *       *       *       *       *       *       *

  (7) A clearing agency that is regulated directly or 
indirectly by the Commodity Futures Trading Commission through 
its association with a designated contract market for security 
future products, and that performs the functions of a clearing 
agency only with respect to security future products and 
transactions in securities effected pursuant to the rules of 
the designated contract market with which such agency is 
associated, is exempted from the provisions of this section and 
the rules and regulations thereunder, except that any clearing 
agency that performs the functions of a clearing agency with 
respect to security future products must coordinate with and 
develop fair and reasonable links with any and all other 
clearing agencies that perform the functions of a clearing 
agency with respect to security future products, in order to 
permit security future products to be purchased on a national 
securities exchange or national securities association 
registered pursuant to section 15A(a) and offset on another 
national securities exchange or national securities association 
registered pursuant to section 15A(a).
  (8) A registered clearing agency shall be permitted to 
provide facilities for the clearance and settlement of any 
derivative agreements, contracts, or transactions that are 
excluded from the Commodity Exchange Act, subject to the 
requirements of this section and to such rules and regulations 
as the Commission may prescribe as necessary or appropriate in 
the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of this title.

           *       *       *       *       *       *       *

   registration, responsibilities, and oversight of self-regulatory 
                             organizations

  Sec. 19. (a)  * * *

           *       *       *       *       *       *       *

  (b)(1)  * * *

           *       *       *       *       *       *       *

  (7) Security future product rule changes.--
          (A) Filing required.--A self-regulatory organization 
        that is an exchange registered with the Commission 
        pursuant to section 6(g) of this title or that is a 
        national securitiesassociation registered pursuant to 
section 15A(k) of this title shall file with the Commission, in 
accordance with such rules as the Commission may prescribe, copies of 
any proposed rule change or any proposed change in, addition to, or 
deletion from the rules of such self-regulatory organization 
(hereinafter in this paragraph collectively referred to as a ``proposed 
rule change'') that relates to higher margin levels, fraud or 
manipulation, recordkeeping, reporting, listing standards, or decimal 
pricing for security future products, sales practices for security 
future products for persons who effect transactions in security future 
products or rules effectuating such self-regulatory organization's 
obligation to enforce the securities laws. Such proposed rule change 
shall be accompanied by a concise general statement of the basis and 
purpose of such proposed rule change. The Commission shall, upon the 
filing of any proposed rule change, publish notice thereof together 
with the terms of substance of the proposed rule change or a 
description of the subjects and issues involved. The Commission shall 
give interested persons an opportunity to submit written data, views, 
and arguments concerning such proposed rule change.
          (B) Filing with cftc.--A proposed rule change filed 
        with the Commission pursuant to subparagraph (A) shall 
        be filed concurrently with the Commodity Futures 
        Trading Commission. Such proposed rule change may take 
        effect upon filing of a written certification with the 
        Commodity Futures Trading Commission, upon a 
        determination by the Commodity Futures Trading 
        Commission that review of the proposed rule change is 
        not necessary or upon approval of the proposed rule 
        change by the Commodity Futures Trading Commission.
          (C) Abrogation of rule changes.--Any proposed rule 
        change of a self-regulatory organization that has taken 
        effect pursuant to subparagraph (B) may be enforced by 
        such self-regulatory organization to the extent such 
        rule is not inconsistent with the provisions of this 
        title, the rules and regulations thereunder, and 
        applicable Federal law. At any time within 60 days of 
        the date of the filing of a written certification with 
        the Commodity Futures Trading Commission, the date the 
        Commodity Futures Trading Commission determines that 
        review of such proposed rule change is not necessary, 
        or the date the Commodity Futures Trading Commission 
        approves such proposed rule change, the Commission, 
        after consultation with the Commodity Futures Trading 
        Commission, summarily may abrogate the proposed rule 
        change and require that the proposed rule change be 
        refiled in accordance with the provisions of paragraph 
        (1), if it appears to the Commission that such proposed 
        rule change unduly burdens competition, conflicts with 
        the securities laws, does not promote efficiency, or is 
        inconsistent with the public interest and the 
        protection of investors. Commission action pursuant to 
        the preceding sentence shall not affect the validity or 
        force of the rule change during the period it was in 
        effect and shall not be reviewable under section 25 nor 
        deemed to be a final agency action for purposes of 
        section 704 of title 5, United States Code.
          (D) Review of resubmitted abrogated rules.--
                  (i) Proceedings.--Within 35 days of the date 
                of publication of notice of the filing of a 
                proposed rule change that is abrogated in 
                accordance with subparagraph (C) and refiled in 
                accordance with paragraph (1), or within such 
                longer period as the Commission may designate 
                up to 90 days after such date if the Commission 
                finds such longer period to be appropriate and 
                publishes its reasons for so finding or as to 
                which the self-regulatory organization 
                consents, the Commission shall--
                          (I) by order approve such proposed 
                        rule change; or
                          (II) after consultation with the 
                        Commodity Futures Trading Commission, 
                        institute proceedings to determine 
                        whether the proposed rule change should 
                        be disapproved.
                Proceedings under subclause (II) shall include 
                notice of the grounds for disapproval under 
                consideration and opportunity for hearing and 
                be concluded within 180 days after the date of 
                publication of notice of the filing of the 
                proposed rule change. At the conclusion of such 
                proceedings, the Commission, by order, shall 
                approve or disapprove such proposed rule 
                change. The Commission may extend the time for 
                conclusion of such proceedings for up to 60 
                days if it finds good cause for such extension 
                and publishes its reasons for so finding or for 
                such longer period as to which the self-
                regulatory organization consents.
                  (ii) Grounds for approval.--The Commission 
                shall approve a proposed rule change of a self-
                regulatory organization under this subparagraph 
                if it finds that such proposed rule change 
                promotes efficiency, does not unduly burden 
                competition, does not conflict with the 
                securities laws, and is not inconsistent with 
                the public interest or the protection of 
                investors. The Commission shall disapprove such 
                a proposed rule change of a self-regulatory 
                organization if it does not make such finding. 
                The Commission shall not approve any proposed 
                rule change prior to the 30th day after the 
                date of publication of notice of the filing 
                thereof, unless the Commission finds good cause 
                for so doing and publishes its reasons for so 
                finding.
  (8) Decimal pricing.--Not later than 9 months after the later 
of the dates specified in section 6(g)(5), all self-regulatory 
organizations listing or trading security future products shall 
file proposed rule changes necessary to implement decimal 
pricing of security future products. The Commission may not 
require such rules to contain equal minimum increments in such 
decimal pricing.
  (9) Consultation with cftc.--
          (A) Consultation required.--The Commission shall 
        consult with and consider the views of the Commodity 
        Futures Trading Commission prior to approving a 
        proposed rule change filed by a national securities 
        association registered pursuant to section 15A(a) or a 
        national securities exchange subject to the provisions 
        of subsection (a) that primarily concerns conduct 
        related to transactions in security futures products, 
        except where the Commission determines that an 
        emergency exists requiring expeditious or summary 
        action and publishes its reasons therefor.
          (B) Responses to cftc comments and findings.--If the 
        Commodity Futures Trading Commission comments in 
        writing to the Commission on a proposed rule that has 
        been published for comment, the Commission shall 
        respond in writing to such written comment before 
        approving the proposed rule. If the Commodity Futures 
        Trading Commission determines, and notifies the 
        Commission, that such rule, if implemented or as 
        applied, would--
                  (i) adversely affect the liquidity or 
                efficiency of the market for security future 
                products; or
                  (ii) impose any burden on competition not 
                necessary or appropriate in furtherance of the 
                purposes of this section,
                the Commission shall, prior to approving the 
                proposed rule, find that such rule is necessary 
                and appropriate in furtherance of the purposes 
                of this section notwithstanding the Commodity 
                Futures Trading Commission's determination.
          (C) Considerations of existing regulation.--In 
        approving rules described in subparagraph (A), the 
        Commission shall consider the sufficiency and 
        appropriateness of then existing laws and rules 
        applicable to security futures products.

           *       *       *       *       *       *       *

  (d)(1)  * * *

           *       *       *       *       *       *       *

  (3) The provisions of this subsection shall apply to an 
exchange registered pursuant to section 6(g) of this title or a 
national securities association registered pursuant to section 
15A(k) of this title only to the extent that such exchange or 
association imposes any final disciplinary sanction for--
          (A) a violation of the federal securities laws or the 
        rules and regulations thereunder; or
          (B) a violation of a rule of such exchange or 
        association, as to which a proposed change would be 
        required to be filed under section 19 of this title, 
        except that, to the extent that the exchange or 
        association rule violation relates to any account, 
        agreement, or transaction, this subsection shall apply 
        only to the extent such violation involves a security 
        future product.

           *       *       *       *       *       *       *

     liability of controlling persons and persons who aid and abet 
                               violations

  Sec. 20. (a)  * * *

           *       *       *       *       *       *       *

  (d) Wherever communicating, or purchasing or selling a 
security while in possession of, material nonpublic information 
would violate, or result in liability to any purchaser or 
seller of the security under any provision of this title, or 
any rule or regulation thereunder, such conduct in connection 
with a purchase or sale of a put, call, straddle, option, [or 
privilege] privilege, or security future product with respect 
to such security or with respect to a group or index of 
securities including such security, shall also violate and 
result in comparable liability to any purchaser or seller of 
that security under such provision, rule, or regulation.

           *       *       *       *       *       *       *

        investigations; injunctions and prosecution of offenses

  Sec. 21. (a)  * * *

           *       *       *       *       *       *       *

  (i) Information to CFTC.--The Commission shall provide the 
Commodity Futures Trading Commission with notice of the 
commencement of any proceeding and a copy of any order entered 
by the Commission against any broker or dealer registered 
pursuant to section 15(b)(11) or any exchange registered 
pursuant to section 6(g).

                  civil penalties for insider trading

    Sec. 21A. (a) Authority To Impose Civil Penalties.--
          (1) Judicial actions by commission authorized.--
        Whenever it shall appear to the Commission that any 
        person has violated any provision of this title or the 
        rules or regulations thereunder by purchasing or 
        selling a security while in possession of material, 
        nonpublic information in, or has violated any such 
        provision by communicating such information in 
        connection with, a transaction on or through the 
        facilities of a national securities exchange or from or 
        through a broker or dealer, and which is not part of a 
        public offering by an issuer of securities other than 
        [standardized options, the Commission--] standardized 
        options or security future products, the Commission--
                  (A)  * * *

           *       *       *       *       *       *       *

                         effect on existing law

  Sec. 28. (a) Except as provided in subsection (f), the rights 
and remedies provided by this title shall be in addition to any 
and all other rights and remedies that may exist at law or in 
equity; but no person permitted to maintain a suit for damages 
under the provisions of this title shall recover, through 
satisfaction of judgment in one or more actions, a total amount 
in excess of his actual damages on account of the act 
complained of. Except as otherwise specifically provided in 
this title, nothing in this title shall affect thejurisdiction 
of the securities commission (or any agency or officer performing like 
functions) of any State over any security or any person insofar as it 
does not conflict with the provisions of this title or the rules and 
regulations thereunder. No State law which prohibits or regulates the 
making or promoting of wagering or gaming contracts, or the operation 
of ``bucket shops'' or other similar or related activities, shall 
invalidate any put, call, straddle, option, privilege, or other 
security subject to this title, or apply to any activity which is 
incidental or related to the offer, purchase, sale, exercise, 
settlement, or closeout of [any such instrument, if such instrument is 
traded pursuant to rules and regulations of a self-regulatory 
organization that are filed with the Commission pursuant to section 
19(b) of this Act] any such security.

           *       *       *       *       *       *       *

  (e)(1)  * * *

           *       *       *       *       *       *       *

  (4) The provisions of this subsection shall not apply with 
regard to securities that are security future products.

           *       *       *       *       *       *       *

                              ----------                              

SECURITIES INVESTOR PROTECTION ACT OF 1970

           *       *       *       *       *       *       *

SEC. 3. SECURITIES INVESTOR PROTECTION CORPORATION.

  (a) Creation and Membership.--
          (1)  * * *

           *       *       *       *       *       *       *

          (2) Membership.--
                  (A) Members of sipc.--SIPC shall be a 
                membership corporation the members of which 
                shall be all persons registered as brokers or 
                dealers under section 15(b) of the 1934 Act, 
                other than--
                          (i) persons whose principal business, 
                        in the determination of SIPC, taking 
                        into account business of affiliated 
                        entities, is conducted outside the 
                        United States and its territories and 
                        possessions; [and]
                          (ii) persons whose business as a 
                        broker or dealer consists exclusively 
                        of (I) the distribution of shares of 
                        registered open end investment 
                        companies or unit investment trusts, 
                        (II) the sale of variable annuities, 
                        (III) the business of insurance, or 
                        (IV) the business of rendering 
                        investment advisory services to one or 
                        more registered investment companies or 
                        insurance company separate accounts[.]; 
                        and
                          (iii) persons who are registered as a 
                        broker or dealer pursuant to section 
                        15(b)(11)(A) of the Securities Exchange 
                        Act of 1934.

           *       *       *       *       *       *       *

SEC. 16. DEFINITIONS.

  For purposes of this Act, including the application of the 
Bankruptcy Act to a liquidation proceeding:
          (1)  * * *

           *       *       *       *       *       *       *

          (14) Security.--The term ``security'' means any note, 
        stock, treasury stock, bond, debenture, evidence of 
        indebtedness, any collateral trust certificate, 
        preorganization certificate or subscription, 
        transferable share, voting trust certificate, 
        certificate of deposit, certificate of deposit for a 
        security, or any security future as that term is 
        defined in section 3(a)(55)(A) of the Securities 
        Exchange Act of 1934, any investment contract or 
        certificate of interest or participation in any profit-
        sharing agreement or in any oil, gas, or mineral 
        royalty or lease (if such investment contract or 
        interest is the subject of a registration statement 
        with the Commission pursuant to the provisions of the 
        Securities Act of 1933), any put, call, straddle, 
        option, or privilege on any security, or group or index 
        of securities (including any interest therein or based 
        on the value thereof), or any put, call, straddle, 
        option, or privilege entered into on a national 
        securities exchange relating to foreign currency, any 
        certificate of interest or participation in, temporary 
        or interim certificate for, receipt for, guarantee of, 
        or warrant or right to subscribe to or purchase or sell 
        any of the foregoing, and any other instrument commonly 
        known as a security. Except as specifically provided 
        above, the term ``security'' does not include any 
        currency, or any commodity or related contract or 
        futures contract, or any warrant or right to subscribe 
        to or purchase or sell any of the foregoing.
                              ----------                              

SECURITIES ACT OF 1933

           *       *       *       *       *       *       *

                              definitions

  Sec. 2. (a) Definitions.--When used in this title, unless the 
context otherwise requires--
          (1) The term ``security'' means any note, stock, 
        treasury stock, security future, bond, debenture, 
        evidence of indebtedness, certificate of interest or 
        participation in any profit-sharing agreement, 
        collateral-trust certificate, preorganization 
        certificate or subscription, transferable share, 
        investment contract, voting-trust certificate, 
        certificate of deposit for a security, fractional 
        undivided interest in oil, gas, or other mineral 
        rights, any put, call, straddle, option, or privilege 
        on any security, certificate of deposit, or group or 
        index of securities (including any interest therein or 
        based on the value thereof), or any put, call, 
        straddle, option, or privilege entered into on a 
        national securities exchange relating to foreign 
        currency, or, in general, any interest or instrument 
        commonly known as a ``security'', or any certificate of 
        interest or participation in, temporary or interim 
        certificate for, receipt for, guarantee of, orwarrant 
or right to subscribe to or purchase, any of the foregoing.

           *       *       *       *       *       *       *

          (3) The term ``sale'' or ``sell'' shall include every 
        contract of sale or disposition of a security or 
        interest in a security, for value. The term ``offer to 
        sell'', ``offer for sale'', or ``offer'' shall include 
        every attempt or offer to dispose of, or solicitation 
        of an offer to buy, a security or interest in a 
        security, for value. The terms defined in this 
        paragraph and the term ``offer to buy'' as used in 
        subsection (c) of section 5 shall not include 
        preliminary negotiations or agreements between an 
        issuer (or any person directly or indirectly 
        controlling or controlled by an issuer, or under direct 
        or indirect common control with an issuer) and any 
        underwriter or among underwriters who are or are to be 
        in privity of contract with an issuer (or any person 
        directly or indirectly controlling or controlled by an 
        issuer, or under direct or indirect common control with 
        an issuer). Any security given or delivered with, or as 
        a bonus on account of, any purchase of securities or 
        any other thing, shall be conclusively presumed to 
        constitute a part of the subject of such purchase and 
        to have been offered and sold for value. The issue or 
        transfer of a right or privilege, when originally 
        issued or transferred with a security, giving the 
        holder of such security the right to convert such 
        security into another security of the same issuer or of 
        another person, or giving a right to subscribe to 
        another security of the same issuer or of another 
        person, which right cannot be exercised until some 
        future date, shall not be deemed to be an offer or sale 
        of such other security; but the issue or transfer of 
        such other security upon the exercise of such right of 
        conversion or subscription shall be deemed a sale of 
        such other security. Any offer or sale of a security 
        future product by or on behalf of the issuer of the 
        securities underlying the security future product, an 
        affiliate of the issuer, or an underwriter, shall 
        constitute a contract for sale of, sale of, offer for 
        sale, or offer to sell the underlying securities.

           *       *       *       *       *       *       *

          (16) The terms ``security future'', ``narrow-based 
        security index'', and ``security future product'' have 
        the same meanings as provided in section 3(a)(55) of 
        the Securities Exchange Act of 1934.

           *       *       *       *       *       *       *

                          exempted securities

  Sec. 3. (a) Except as hereinafter expressly provided, the 
provisions of this title shall not apply to any of the 
following classes of securities:
          (1)  * * *

           *       *       *       *       *       *       *

          (14) Any security future product that is--
                  (A) cleared by a clearing agency registered 
                under section 17A of the Securities Exchange 
                Act of 1934 or exempt from registration under 
                subsection (b)(7) of such section 17A; and
                  (B) listed on a national securities exchange 
                or a national securities association registered 
                pursuant to section 15A(a) of the Securities 
                Exchange Act of 1934.

           *       *       *       *       *       *       *

     civil liabilities arising in connection with prospectuses and 
                             communications

  Sec. 12. (a) In General.--Any person who--
          (1) offers or sells a security in violation of 
        section 5, or
          (2) offers or sells a security (whether or not 
        exempted by the provisions of section 3, other than 
        [paragraph (2)] paragraphs (2) and (14) of subsection 
        (a) thereof), by the use of any means or instruments of 
        transportation or communication in interstate commerce 
        or of the mails, by means of a prospectus or oral 
        communication, which includes an untrue statement of a 
        material fact or omits to state a material fact 
        necessary in order to make the statements, in the light 
        of the circumstances under which they were made, not 
        misleading (the purchaser not knowing of such untruth 
        or omission), and who shall not sustain the burden of 
        proof that he did not know, and in the exercise of 
        reasonable care could not have known, of such untruth 
        or omission,
shall be liable, subject to subsection (b), to the person 
purchasing such security from him, who may sue either at law or 
in equity in any court of competent jurisdiction, to recover 
the consideration paid for such security with interest thereon, 
less the amount of any income received thereon, upon the tender 
of such security, or for damages if he no longer owns the 
security.

           *       *       *       *       *       *       *

                              ----------                              

            SECTION 2 OF THE INVESTMENT COMPANY ACT OF 1940

                          general definitions

  Sec. 2. (a) When used in this title, unless the context 
otherwise requires--
          (1)  * * *

           *       *       *       *       *       *       *

          (36) ``Security'' means any note, stock, treasury 
        stock, security future, bond, debenture, evidence of 
        indebtedness, certificate of interest or participation 
        in any profit-sharing agreement, collateral-trust 
        certificate, preorganization certificate or 
        subscription, transferable share, investment contract, 
        voting-trust certificate, certificate of deposit for a 
        security, fractional undivided interest in oil, gas, or 
        other mineral rights, any put, call, straddle, option, 
        or privilege on any security (including a certificate 
        of deposit) or on any group or index of securities 
        (including any interest therein or based on the value 
        thereof), or any put, call, straddle, option, or 
        privilege entered into on anational securities exchange 
relating to foreign currency, or, in general, any interest or 
instrument commonly known as a ``security'', or any certificate of 
interest or participation in, temporary or interim certificate for, 
receipt for, guarantee of, or warrant or right to subscribe to or 
purchase, any of the foregoing.

           *       *       *       *       *       *       *

          (52) The terms ``security future'' and ``narrow-based 
        security index'' have the same meanings as provided in 
        section 3(a)(55) of the Securities Exchange Act of 
        1934.

           *       *       *       *       *       *       *

                              ----------                              

INVESTMENT ADVISERS ACT OF 1940

           *       *       *       *       *       *       *

TITLE II--INVESTMENT ADVISERS

           *       *       *       *       *       *       *

                              definitions

  Sec. 202. (a) When used in this title, unless the context 
otherwise requires, the following definitions shall apply:
          (1)  * * *

           *       *       *       *       *       *       *

          (18) ``Security'' means any note, stock, treasury 
        stock, security future, bond, debenture, evidence of 
        indebtedness, certificate of interest or participation 
        in any profit-sharing agreement, collateral-trust 
        certificate, preorganization certificate or 
        subscription, transferable share, investment contract, 
        voting-trust certificate, certificate of deposit for a 
        security, fractional undivided interest in oil, gas, or 
        other mineral rights, any put, call, straddle, option, 
        or privilege on any security (including a certificate 
        of deposit) or on any group or index of securities 
        (including any interest therein or based on the value 
        thereof), or any put, call, straddle, option, or 
        privilege entered into on a national securities 
        exchange relating to foreign currency, or, in general, 
        any interest or instrument commonly known as a 
        ``security'', or any certificate of interest or 
        participation in, temporary or interim certificate for, 
        receipt for, guaranty of, or warrant or right to 
        subscribe to or purchase any of the foregoing.

           *       *       *       *       *       *       *

          (27) The terms ``security future'' and ``narrow-based 
        security index'' have the same meanings as provided in 
        section 3(a)(55) of the Securities Exchange Act of 
        1934.

           *       *       *       *       *       *       *

                  registration of investment advisers

  Sec. 203. (a)  * * *
  (b) The provisions of subsection (a) shall not apply to--
          (1)  * * *

           *       *       *       *       *       *       *

          (4) any investment adviser that is a charitable 
        organization, as defined in section 3(c)(10)(D) of the 
        Investment Company Act of 1940, or is a trustee, 
        director, officer, employee, or volunteer of such a 
        charitable organization acting within the scope of such 
        person's employment or duties with such organization, 
        whose advice, analyses, or reports are provided only to 
        one or more of the following:
                  (A) any such charitable organization;
                  (B) a fund that is excluded from the 
                definition of an investment company under 
                section 3(c)(10)(B) of the Investment Company 
                Act of 1940; or
                  (C) a trust or other donative instrument 
                described in section 3(c)(10)(B) of the 
                Investment Company Act of 1940, or the 
                trustees, administrators, settlors (or 
                potential settlors), or beneficiaries of any 
                such trust or other instrument; [or]
          (5) any plan described in section 414(e) of the 
        Internal Revenue Code of 1986, any person or entity 
        eligible to establish and maintain such a plan under 
        the Internal Revenue Code of 1986, or any trustee, 
        director, officer, or employee of or volunteer for any 
        such plan or person, if such person or entity, acting 
        in such capacity, provides investment advice 
        exclusively to, or with respect to, any plan, person, 
        or entity or any company, account, or fund that is 
        excluded from the definition of an investment company 
        under section 3(c)(14) of the Investment Company Act of 
        1940[.]; or
          (6) any investment adviser that is registered with 
        the Commodity Futures Trading Commission as a commodity 
        trading advisor whose business does not consist 
        primarily of acting as an investment adviser, as 
        defined in section 202(a)(11) of this title, and that 
        does not act as an investment adviser to (A) an 
        investment company registered under title I of this 
        Act, or (B) a company which has elected to be a 
        business development company pursuant to section 54 of 
        title I of this Act and has not withdrawn its election.

           *       *       *       *       *       *       *

                                
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