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106TH CONGRESS REPT. 106–711 " ! HOUSE OF REPRESENTATIVES 2d Session Part 4

COMMODITY FUTURES MODERNIZATION AND FINANCIAL

CONTRACT NETTING IMPROVEMENT ACT OF 2000

OCTOBER 19, 2000.—Ordered to be printed

Mr. LEACH, from the Committee on Banking and Financial

Services, submitted the following

SUPPLEMENTAL REPORT

[To accompany H.R. 4541]

This supplemental report shows the report of the Congressional

Budget Office on the private sector effects with respect to the bill

(H.R. 4541), as reported by the Committee on Banking and Financial Services and the vote of the committee on an amendment to

the bill, which were not included in part 2 of the report submitted

by the Committee on Banking and Financial Services on September

6, 2000, (H. Rept. 106–711, pt. 2).

This supplemental report is submitted in accordance with clause

3(a)(2) of rule XIII of the Rules of the House of Representatives.

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, October 3, 2000.

Hon. JAMES A. LEACH,

Chairman, Committee on Banking and Financial Services,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed estimate of private-sector effects of H.R. 4541,

the Commodity Futures Modernization and Financial Contract Netting Improvement Act of 2000. CBO completed a federal cost estimate and an assessment of the bill’s effects on state, local, and

tribal governments on September 6.

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

to provide them. The CBO staff contacts are Judy Ruud and Tim

VandenBerg.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

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CONGRESSIONAL BUDGET OFFICE ESTIMATE OF COSTS OF PRIVATESECTOR MANDATES

H.R. 4541—Commodity Futures Modernization and Financial Contract Netting Improvement Act of 2000

Summary: H.R. 4541 would impose three new private-sector

mandates as defined by the Unfunded Mandates Reform Act

(UMRA) on insured depository institutions, registered futures associations, and retail swap market participants. CBO estimates that

the direct costs of those mandates would be below the annual

threshold established by UMRA for private-sector mandates ($109

million in 2000, adjusted for inflation).

Private-sector mandates contained in the bill: H.R. 4541 would

impose three new private-sector mandates as defined by UMRA.

First, the bill would require insured depository institutions to keep

more detailed records for certain financial contracts. Section 209

would authorize the Federal Deposit Insurance Corporation (FDIC)

to prescribe additional recordkeeping requirements for certain

qualified financial contracts held by depository institutions. Under

the Federal Deposit Insurance Act, qualified financial contracts are

defined for five types of financial contracts: securities contracts,

commodity contracts, forward contracts, repurchase agreements,

and swap agreements. The FDIC anticipates that under the new

requirements, institutions would essentially have to ensure that

certain data that they already collect (and record) on such contracts

are organized in a manner that would be accessible to the FDIC.

Consequently, CBO experts that the direct costs of this mandate

would not be large.

Second, H.R. 4541 would require a registered futures association

to adopt ‘‘suitability rules’’ for its members, regarding advising customers on the purchase or sale of newly authorized futures on single stocks and futures on narrow stock indexes. Such rules would

require that a future commission merchant, a commodity trading

advisor, or an introducing broker that recommends such a purchase

or sale to ascertain the suitability of that recommendation for their

customers. According to industry representatives, such suitability

rules would be similar to the ‘‘know your customer requirements’’

that the National Futures Association adopted in 1985. Thus, CBO

expects that the direct costs of issuing suitability rules would be

negligible.

Third, the bill would authorize the Federal Reserve and the Secretary of the Treasury, in consultation with the Securities and Exchange Commission and the Commodity Futures Trading Commission, to jointly prescribe customer protection regulations that apply

to sales practices relating to retail swap transactions. According to

regulatory and industry representatives, the retain market for

swaps may develop in the future, but such transactions are currently limited, if any. Thus, this mandate would have no immediate

cost.

Estimate prepared by: Judy Ruud and Tim VandenBerg.

Estimate approved by: Roger Hitchner, Assistant Director for

Microeconomics and Financial Studies Division.

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ERRATA

On page 58 of Report 106–711 Part 2 under COMMITTEE CONSIDERATION AND VOTES add the following:

The Committee considered an amendment by Mrs. Maloney of

New York to delete the provision providing a partial exclusion from

the CEA for exempt commodities entered into solely between eligible contract participants and executed on an electronic trading facility. The amendment was defeated 12–20.

YEAS NAYS

Mr. King Mr. Leach

Mr. LaFalce Mrs. Roukema

Ms. Waters Mr. Bereuter

Mrs. Maloney, (NY) Mr. Baker

Mr. Gutierrez Mr. Campbell

Mr. Watt Mr. Royce

Mr. Maloney, (CT) Mr. Lucas

Ms. Hooley Mr. Metcalf

Mr. Sherman Mrs. Kelly

Ms. Lee Dr. Weldon

Mr. Inslee Mr. Ryun, (KS)

Ms. Schakowsky Mr. Cook

Mr. Riley

Mr. Hill, (MT)

Mr. Ryan, (WI)

Mrs. Biggert

Mr. Terry

Mr. Green, (WI)

Mr. Toomey

Mr. Bentsen

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