```

[Senate Report 106-390]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 766
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-390

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

 
              COMMODITY FUTURES MODERNIZATION ACT OF 2000

                                _______
                                

                August 25, 2000.--Ordered to be printed

                                _______
                                

Mr. Lugar, from the Committee on Agriculture, Nutrition, and Forestry, 
                        submitted the following

                              R E P O R T

    The Committee on Agriculture, Nutrition, and Forestry, 
having considered an original bill to reauthorize and amend the 
Commodity Exchange Act to promote legal certainty, enhance 
competition, and reduce systemic risk in markets for futures 
and over-the-counter derivatives; and for other purposes, 
reports favorably thereon and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose, need and background.....................................1
 II. Section-by-section analysis......................................5
III. Legislative history and votes in the Committee..................13
 IV. Regulatory impact statement.....................................16
  V. Budgetary impact of the bill....................................17
 VI. Changes in existing law.........................................20

                    I. Purpose, Need and Background

    Signed into law in 1974, the modern Commodity Exchange Act 
(``CEA'' or ``the Act'') is the body of law that governs the 
futures industry in the United States. Enforced by the 
Commodity Futures Trading Commission (``CFTC''), this Act 
attempts to ensure that futures market participants are not 
defrauded and that the markets remain efficient, transparent 
and free from manipulation. Authorization for the funding of 
the CFTC expires on September 30th of this year.
    The Commodity Futures Modernization Act of 2000 would 
reauthorize appropriations for the CFTC for five additional 
years and would reform the CEA in three primary ways. First, it 
would incorporate the unanimous recommendations of the 
President's Working Group (``Working Group'' or ``PWG''), 
consisting of the principals from the U.S. Treasury Department 
(``Treasury''), the Federal Reserve System (``Fed''), the 
Securities and Exchange Commission (``SEC'') and the CFTC on 
the proper legal and regulatory treatment of over-the-counter 
(``OTC'') derivatives. Second, it would codify the regulatory 
relief proposal of the CFTC to ensure that futures exchanges 
are appropriately regulated and remain competitive. Third, this 
legislation would reform the Shad-Johnson jurisdictional 
accord, which sought to establish jurisdictional boundaries 
between the agencies and banned the trading of single stock 
futures 18 years ago.
    Derivative instruments, both exchange-traded and those 
traded over-the-counter, have played a significant role in our 
economy's current economic expansion due to their innovative 
nature and their risk-transferring attributes. According to the 
International Swaps and Derivatives Association, the global 
derivatives market has a notional value that exceeds $58 
trillion. Identified by Alan Greenspan as the `most significant 
event in finance of the past decade,' the development of the 
derivatives marketplace has substantially added to the 
productivity and wealth of our nation.
    Derivatives enable companies to unbundle and transfer risk 
to those entities who are willing and able to accept it. By 
doing so, efficiency is enhanced as firms are able to 
concentrate on their core business objectives. A farmer can 
purchase a futures contract, one type of derivative, in order 
to lock in a price for a crop at harvest. Automobile 
manufacturers, whose profits earned overseas can fluctuate with 
changes in currency values, can minimize this uncertainty 
through derivatives, allowing them to focus on the business of 
building cars. Banks significantly lessen their exposure to 
interest rate movements by entering into derivatives contracts 
known as interest rate swaps, which enable these institutions 
to hedge their risk by exchanging variable and fixed rates of 
interest.
    The CEA primarily governs one class of derivative 
transaction--futures contracts. The Act requires that these 
contracts be traded on a CFTC-regulated futures exchange. If a 
futures contract is being traded off of an exchange, a court of 
law could rule the contract to be illegal and unenforceable. 
When Congress enacted the CEA and created the CFTC to enforce 
it, the meanings of ``futures contract'' and ``exchange'' were 
relatively apparent and the OTC derivatives business was in its 
infancy. However, in the 26 years since the statute's creation, 
the growth of the OTC derivatives market has significantly 
outpaced the exchange-traded futures market. Along with this 
expansion, the boundaries between exchanges and OTC markets and 
between futures and swaps began to blur both practically and in 
legal status and treatment.

                          cftc concept release

    In 1998, the CFTC issued its concept release on OTC 
derivatives, which was perceived by many as foreshadowing 
possible regulation of these instruments as futures. The 
possibility of regulatory action had considerable 
ramifications, given the size and importance of the OTC market. 
This action significantly magnified the longstanding legal 
uncertainty surrounding these instruments, raising concerns in 
the OTC market, including suggestions it would cause portions 
of the business to move overseas.
    This prospect led the Treasury, the Fed and the SEC to 
oppose the concept release and request that Congress enact a 
moratorium on the CFTC's ability to regulate these instruments 
until after the Working Group could complete a study on the 
issue. As a result, Congress passed a six-month moratorium on 
the CFTC's ability to regulate OTC derivatives. In November 
1999, the Working Group completed its unanimous recommendations 
on OTC derivatives and presented Congress with these findings.

              Adoption of President's Working Group Report

    This legislation adopts many of the recommendations of the 
PWG report. The bill contains several mechanisms for ensuring 
that legal certainty is attained and that certain transactions 
remain outside the CEA. The electronic trading facility 
exclusion would exclude transactions in certain financial and 
other intangible commodities from the Act if conducted: (1) on 
a principal to principal basis; (2) between institutions or 
persons with high net worth; and (3) on an electronic trading 
facility. A second exclusion would exclude certain transactions 
from the CEA if (1) conducted between institutions or persons 
with high net worth; and (2) not traded on a trading facility. 
A third exclusion confirms and clarifies the Treasury Amendment 
language already contained in the CEA by excluding all 
transactions in foreign currency and government securities from 
the Act unless those transactions are futures contracts and 
traded on an organized exchange. As recommended by the Working 
Group, the bill would clarify the CFTC's jurisdiction over off-
exchange retail futures transactions in foreign currency that 
are not effected with a regulated entity. A fourth exclusion 
for hybrid securities and depository instruments clarifies 
circumstances under which structured securities and depository 
instruments with embedded futures- and commodity option-like 
payments are excluded from regulations under the CEA. Another 
important recommendation of the PWG was to authorize clearing 
organizations, including futures clearinghouses, to clear OTC 
derivatives in an effort to lessen systemic risk. This bill 
incorporates this recommendation and establishes a regulatory 
framework for this activity.

        Adoption of the CFTC's Regulatory Modernization Proposal

    The second major portion of this legislation addresses 
regulatory modernization and reform for the futures industry. 
When the CEA was enacted in 1974, the futures industry was 
primarily agricultural in nature. Farmers, agri-businesses and 
speculators traded futures contracts in open-outcry pits on 
futures exchanges in an effort to transfer volatile price risk. 
Realizing that futures trading was an effective way to transfer 
all types of risks, the financial sector began to develop and 
trade financial futures, and this market has flourished. Today 
non-agricultural futures comprise approximately 85 percent of 
the volume on U.S. futures exchanges. With the widespread 
adoption of computer technology, electronic exchanges began to 
compete head-to-head with open-outcry futures exchanges at a 
fraction of the cost. Last year witnessed the Swiss-German 
electronic futures exchange, Eurex, overtaking the Chicago 
Board of Trade as the global leader in futures trading volume. 
Many industry observers believe that the regulatory structure 
of the CEA has had a significant competitive impact on the U.S. 
futures exchanges and has inhibited the development of the OTC 
markets.
    In February of 2000, the CFTC issued a proposal that would 
provide regulatory reform to futures exchanges and their 
customers. Instead of listing specific requirements for 
complying with the CEA, the proposal would require exchanges to 
meet internationally agreed-upon core principles. The CFTC 
proposal creates tiers of regulation for exchanges based on 
whether the underlying commodities being traded are susceptible 
to manipulation or whether the users of the exchange are 
limited to institutional customers.
    The legislation incorporates a similar framework and 
provides for three levels of regulation. A board of trade that 
is designated as a contract market would receive the highest 
level of oversight due to the fact that products offered on a 
contract market are susceptible to manipulation or are offered 
to retail customers. The bill provides for a second level of 
regulation under which, in lieu of contract market designation, 
a board of trade may register as a derivatives transaction 
execution facility (``DTEF'') if the products being offered by 
the board of trade are not susceptible to manipulation and are 
traded among institutional customers or retail customers who 
utilize large futures commission merchants (``FCMs''). A third 
option provided in the bill allows a board of trade to choose 
to be an exempt board of trade (``XBOT'') and not be subject to 
the Act (except for the CFTC's anti-manipulation authority) if 
the products being offered are traded among institutions or 
high net worth persons and the instruments are not susceptible 
to manipulation. This bill would allow a board of trade that is 
a DTEF or an XBOT to opt to trade derivatives that are 
otherwise excluded from the Act. To the extent that these 
products are traded on these facilities, the CFTC would have 
exclusive jurisdiction over them. With this provision, it was 
the intent of the Committee to provide these facilities that 
trade certain specified derivatives with a choice--if 
regulation is beneficial, the facility may choose to be 
regulated. If not, the facility may choose to be excluded or 
exempted from the Act.

            Reform of the Shad-Johnson Jurisdictional Accord

    The third portion of the bill addresses the Shad-Johnson 
jurisdictional accord. In 1982, SEC Chairman John Shad and CFTC 
Chairman Phillip Johnson reached an agreement on allocating 
between the agencies jurisdiction over futures on securities. 
Known as the Shad-Johnson Accord, this agreement prohibited the 
trading of futures on non-exempt securities and narrow-based 
indices of non-exempt securities (as defined by the Securities 
Act of 1933 and the Securities Exchange Act of 1934), allocated 
to the SEC jurisdiction over options on securities and 
securities indices, and allocated to the CFTC jurisdiction over 
futures on exempt securities and broad-based indices of 
securities.
    Many have suggested that the Shad-Johnson accord, meant as 
a temporary agreement, should now be repealed. The Working 
Group unanimously agreed that the Accord can be repealed if 
regulatory disparities are resolved between the regulation of 
futures and securities. In April 2000, the General Accounting 
Office (``GAO'') found no legitimate policy reason for 
maintaining the ban on single stock futures. The GAO noted in 
its report that these products are already being traded in 
foreign markets, synthetically in the options markets, and that 
economically equivalent transactions are being conducted in the 
OTC market.
    Despite an eight month effort to get the two agencies to 
reach an agreement on lifting the ban on single stock futures, 
the SEC and the CFTC were unable to come to any agreement 
before this bill was introduced. Furthermore, they were unable 
to reach agreement before the bill was reported out of the 
Committee despite continued urging from the Chairmen of the 
Senate Agriculture and Banking Committees.
    This legislation would repeal the prohibition on single 
stock futures and narrow-based stock index futures. It would 
allow these products, termed designated futures on securities, 
to trade on either a CFTC-regulated contract market or a SEC-
regulated national securities exchange or association. The SEC 
would maintain its insider trading and anti-fraud enforcement 
authority over these products even though traded on a futures 
exchange and the CFTC would maintain its anti-manipulation 
authority, including the ability to enforce its large trader 
reporting requirements, over these products even though traded 
on a national securities exchange or association. Each agency 
would be required to provide the other regulator with notice 
before exercising theseauthorities affecting markets outside 
their primary jurisdictions. Under the bill, margin levels on these 
products would be required to be harmonized with the options markets. 
The bill allows for the creation of an Intermarket Margin Board, 
consisting of members from the Fed, the CFTC and the SEC, to set and 
maintain margin levels for these products. The bill provides a one year 
period before the repeal of Shad-Johnson is effective in order to 
provide the regulators adequate time to implement the regulatory 
safeguards contained in the bill.
    The various sections of this legislation have support from 
a broad spectrum of regulators and industry participants. Input 
has been solicited and received throughout the drafting process 
from numerous groups, including the CFTC, the Treasury, the 
Fed, the Chicago Board of Trade, the Chicago Mercantile 
Exchange, the New York Mercantile Exchange, the International 
Swaps and Derivatives Association, the National Futures 
Association, the Coalition of Commercial and Investment Banks, 
the Securities Industry Association, the Coalition of 
Commercial and Investment Banks, the American Farm Bureau 
Federation, the National Cattlemen's Beef Association, the 
American Bankers Association, the New York Stock Exchange, the 
U.S. Securities Markets Coalition, the Bond Market Association, 
the Foreign Exchange Committee, the Futures Industry 
Association, and the Financial Services Roundtable.

                    II. Section-by-Section Analysis

    Sec. 1. Short Title and Table of Contents. The Act is 
entitled the Commodity Futures Modernization Act of 2000.
    Sec. 2. Purposes. The section lists 8 purposes for the bill 
including reauthorizing and streamlining the CEA; eliminating 
unnecessary regulation for the futures exchanges; clarifying 
the jurisdiction of the CFTC over certain retail foreign 
currency transactions; transforming the role of the CFTC; 
providing a legislative and regulatory framework for the 
trading of futures on securities; promoting innovation and 
reducing systemic risk for futures and OTC derivatives; 
allowing clearing of OTC derivatives; and enhancing the 
competitive position of the U.S. financial institutions and 
markets.
    Sec. 3. Definitions. The section adds definitions to 
section 1(a) of the CEA for the following terms: derivatives 
clearing organization; designated future on a security; 
electronic trading facility; eligible commercial participant; 
eligible contract participant; exclusion-eligible commodity; 
exempted security; financial commodity; financial institution; 
hybrid instrument; national securities exchange; option; 
organized exchange; registered entity; security and trading 
facility.
    Sec. 4. Agreements, Contracts, and Transactions in Foreign 
Currency, Government Securities and Certain Other Commodities. 
The section strikes clause (ii) of subparagraph 2(a)(1)(A) (the 
current law Treasury Amendment) and replaces it with a new 
subsection 2(c), which states that nothing in the CEA applies 
to transactions in foreign currency, government securities and 
other similar instruments unless these instruments are futures 
or commodity options traded on an organized exchange. The bill 
defines ``organized exchange'' as a trading facility that 
either serves retail customers, permits brokered or similar 
agency trades, or performs a self regulatory role. New section 
2(c)(2) also excludes from CFTC regulation foreign currency 
transactions (other than those conducted on an organized 
exchange) between specified regulated entities and persons who 
are not eligible contract participants (i.e. retail customers). 
These excluded transactions include transactions executed on an 
electronic facility on which only a single firm is entitled to 
act as a market-maker and on which non-market maker 
counterparties may not accept bids and offers of other non-
market-maker counterparties (either directly or through the 
market-maker running a matched book in which non-market-maker 
counterparties' bids and offers become bids and offers of the 
market-maker).
    The Committee intends that new section 2(c) of the 
Commodity Exchange Act codify the decision in Dunn v. Commodity 
Futures Trading Commission, 519 U.S. 465 (1997). Accordingly, 
the meaning of the phrase ``transactions in'' that is 
referenced in section 2(c) should be interpreted in a manner 
consistent with the holding of that decision. In making these 
clarifications, the Committee does not intend to draw any 
distinction between the use of the words ``in'' or 
``involving'' contained elsewhere in the CEA.
    Sec. 5. Legal Certainty for Over-the-Counter Transactions. 
The section amends section 2 of the CEA to create a new 
subsection 2(d), which provides two exclusions from the CEA for 
OTC derivatives. Paragraph (1) of subsection 2(d) provides that 
nothing in the CEA applies to transactions in an exclusion-
eligible commodity if the transaction: (1) is between eligible 
contract participants (institutions or high net worth persons) 
and (2) is not executed on a trading facility. The second 
exclusion in paragraph 2(d)(2) provides that nothing in the CEA 
shall apply to a transaction in an exclusion-eligible commodity 
if the transaction: (1) is entered into on a principal to 
principal basis between parties trading for their own accounts; 
(2) is between eligible contract participants (large, 
institutional entities) and (3) is executed on an electronic 
trading facility.
    The exclusion for transactions conducted on a trading 
facility only applies to principal to principal transactions. 
The exclusion does not apply if an eligible contract 
participant: (1) acts as broker or in an equivalent agency 
capacity for any other party; or (2) trades in its own name for 
the economic risk and benefit of any other party. This 
limitation does not preclude an eligible contract participant 
from transacting with a counterparty and contemporaneously 
entering into an economically identical hedging transaction, 
for the eligible contract participant's own account and risk, 
on a trading facility. The limitation also does not preclude 
certain regulated eligible contract participants from acting in 
a discretionary investment management or equivalent fiduciary 
capacity for another eligible contract participant as 
contemplated under the definition of eligible contract 
participant.
    Finally, transactions between participants that are 
otherwise conducted on a principal to principal basis are not 
ineligible for the exclusion merely because the trading 
facility itself or its sponsor acts in the capacity of an 
inter-participant broker by bringing buyers and sellers 
together.
    Sec. 6. Excluded Electronic Trading Facilities. The section 
amends section 2 of the CEA to create a new subsection 2(e) 
that clarifies that trading instruments that are otherwise 
excluded from the CEA on an electronic trading facility does 
not subject the transactions to regulation under the CEA. 
Paragraph (2) of subsection 2(e) states that nothing in the CEA 
shall prohibit a contract market or derivatives transaction 
execution facility from establishing and operating an excluded 
electronic trading facility.
    Sec. 7. Hybrid Instruments. The section amends section 2 of 
the CEA to create a new subsection 2(f) that provides that 
nothing in the CEA applies to a hybrid instrument that is 
predominantly a security or depository instrument. Paragraph 
(2) of subsection 2(f) definespredominant in terms of 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. Paragraph (3) of subsection 2(f) clarifies that 
mark-to-marketing requirements do not include the obligation of an 
issuer of a secured debt instrument to increase the amount of 
collateral securing its obligations under the instrument.
    New section 2(f)(2)(C) refers to mark-to-market margining 
requirements between the purchaser and the issuer of the hybrid 
instrument, and it is not intended to preclude a hybrid 
instrument from qualifying for the exclusion based on the 
issuer being subject to mark-to-market margining requirements 
when hedging the initial transaction on a regulated futures 
exchange or in another market.
    Sec. 8. Futures on Securities. Subsection (a) amends 
section 2 of the CEA by adding a new subsection 2(g) that 
repeals the Shad Johnson jurisdictional accord. The new 
paragraph 2(g)(1) is a savings clause to ensure that excluded 
OTC equity derivatives remain outside the CEA and the 
jurisdiction of the CFTC. This paragraph also prohibits the 
CFTC from designating a board of trade as a contract market in 
options on securities (as in current law).
    Paragraph (2) allows the trading of futures on security 
indexes on contract markets and gives the CFTC exclusive 
jurisdiction in regulating these futures. In order for these 
products to be designated as a contract market, the contracts 
must be cash settled and must not be susceptible to 
manipulation (applies to both the price of the contract or the 
underlying securities (or an option on such securities)).
    Paragraph (3) allows the trading of designated futures on 
securities (defined in the bill as a contract for future 
delivery on a single non-exempted security, an index based on 
fewer than 5 non-exempted securities or any index in which a 
single stock predominates by its value accounting for more than 
30 percent of the index's total value). The Act authorizes 
these products to be traded on designated contract markets and 
national securities exchanges or associations.
    Paragraph (4) provides criteria for contract market 
designation of these products including: cash settlement; real-
time audit trails; insusceptibility to price manipulation (both 
of the contract and the underlying stock or an option on that 
stock); eligibility for listing on a national securities 
exchange; margin requirements; conflict of interest rules; and 
making information available to the regulators.
    Paragraph (5) authorizes the SEC to enforce the securities 
laws related to insider trading and fraud with respect to 
designated futures on securities listed on a contract market 
after providing the CFTC with notice. This paragraph also 
requires the SEC and the CFTC, beginning three years from the 
date of enactment, to jointly compile a report on the 
implementation of this new authority and, four years after the 
date of enactment, to submit the report to Congress.
    Paragraph (6) authorizes the CFTC to enforce its large 
trader reporting and other anti-fraud and anti-manipulation 
authorities for designated futures on securities listed on a 
national securities exchange after providing the SEC with 
notice. It requires national securities exchanges to provide 
the CFTC with information to enforce these provisions.
    Paragraph (7) provides the process for listing a designated 
future on a security on either a futures exchange or a national 
securities exchange.
    As in current law, paragraph (8) provides the Federal 
Reserve with the authority to set margin requirements and 
delegate this authority. The paragraph would allow the Fed to 
create a three member board consisting of principals of the 
CFTC, SEC and the Fed, or their confirmed designees to set and 
maintain margin levels on designated futures on securities. 
Paragraph (9) would allow futures commission merchants to offer 
to U.S. customers futures on foreign stock or foreign stock 
indices listed on foreign boards of trade as long as the U.S. 
is not the primary market for such products. New section 
2(g)(9) of the Act confirms the scope of the Commission's 
interest in futures contracts on foreign securities or foreign 
securities indices listed for trading on a foreign exchange. 
Except as set forth in this section, the Commission, consistent 
with existing law, will have no authority to review or approve 
any futures contract (or option thereon) on a foreign security 
or foreign security index listed for trading on a foreign 
exchange.
    Paragraph (10) mandates that a registered futures 
association adopt customer suitability rules for the trading of 
designated futures on securities.
    Subsection (b) of section 8 of the bill contains a sense of 
the Senate that Congress, to the extent necessary, should 
harmonize the tax treatment of equity options and designated 
futures on securities and the transaction fees for equity 
options and designated futures on securities prior to section 8 
of the bill taking effect.
    Sec. 9. Exempted Transactions. The section adds a new 
section that would allow for an exemption for transactions 
other than agricultural products that are traded between 
institutional entities on a bilateral basis. The CFTC would 
retain its anti-fraud, anti-manipulation authorities over these 
transactions.
    Although this exemption is limited to transactions between 
eligible contract participants that occur off of a trading 
facility, the CFTC is encouraged to use its current exemptive 
authority, as appropriate and consistent with the public 
interest, under section 4(c) of the CEA to exempt transactions 
between eligible contract participants that occur on an 
electronic trading facility.
    Sec. 10. Protection of the Public Interest. Replaces 
section 3 of the CEA with a new section listing the 
responsibilities of the CFTC in protecting the public interest.
    Sec. 11. Prohibited Transactions. Re-writes the current 
section 4c for clarity.
    Sec. 12. Designation of Boards of Trade as Contract 
Markets. Strikes current law sections 5 and 5a and adds 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; 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 would be automatically designated 
``contract markets'' under this section.
    Subsection (d) sets out the 17 core principles that must be 
met to maintain designation as a contract market. This 
subsection provides that a board of trade must: monitor and 
enforce compliance with the contract market rules; list only 
contracts that are not susceptible to manipulation; monitor 
trading to prevent manipulation, price distortion and delivery 
or settlement disruptions; adopt position limits for 
speculators; adopt rules to provide for the exercise 
ofemergency 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; ensure that the composition of 
the governing board represents the market participants and a diversity 
of interests (in the case of mutually owned exchanges); maintain 
records and make them available at any time for inspection by the 
Attorney General; and avoid taking any action that restrains trade or 
imposes anticompetitive burdens on the markets.
    Sec. 13. Derivatives Transaction Execution Facilities. The 
section amends the CEA by adding a new section 5a authorizing a 
new trading designation, the 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: (1) has a nearly inexhaustible supply; 
(2) is not susceptible to manipulation; (3) does not have a 
cash market in commercial practice; or (4) is determined by the 
CFTC (based on market characteristics and the facility's 
surveillance history, capacity, and self-regulatory role) to be 
unlikely to be susceptible to manipulation. This subsection 
allows eligible commercial participants to trade on a DTEF 
contracts in non-agricultural commodities. In order to be 
eligible to trade on a DTEF, a person must (1) be authorized to 
trade on the DTEF by the exchange and (2) be either an eligible 
contract participant or a person trading through a registered 
FCM that has capital of at least $20,000,000. For purposes of 
this section, the term `authorized' should not be construed to 
require a board of trade to approve individually every customer 
trading through a qualified FCM on a DTEF.
    Boards of trade that have been designated as contract 
markets may operate 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.
    Subsection (c) provides requirements for boards of trade 
that wish to register as DTEFs, including: establishing and 
enforcing trading rules that will deter abuses and provide 
market participants impartial access to the markets and capture 
information that may be used in rule enforcement; define 
trading procedures to be used; and provide for the financial 
integrity of DTEF transactions.
    To maintain registration as a DTEF, the board of trade must 
comply with 8 core principles listed in subsection (d): 
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; maintain records and make 
them available at any time for inspection by the Attorney 
General; and avoid taking any action that restrains trade or 
imposes anticompetitive burdens on the markets.
    Subsection (e) allows a broker-dealer or a bank 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 the broker-dealer holds the 
DTEF customer funds or accounts for more than 1 business day, 
the broker-dealer must be a registered FCM and a member of a 
registered futures association. The CFTC and SEC are to 
coordinate in adopting rules to implement this subsection.
    In complying with the implementation of this subsection, 
the Commission, in coordination with the SEC, shall endeavor to 
subject broker-dealers and financial institutions trading on a 
DTEF to record-keeping and reporting requirements that are 
comparable to and consistent with the requirements faced by 
futures commission merchants trading on a DTEF.
    Under (f), the CFTC may adopt regulations to allow FCMs to 
provide their customers with the right to opt out of 
segregating customer funds for purposes of trading on the DTEF.
    Subsection (g) clarifies that a DTEF may trade derivatives 
that otherwise would be excluded from the CEA. The CFTC has 
exclusive jurisdiction over these instruments to the extent 
that these instruments are traded on a DTEF.
    Sec. 14. Derivatives Clearing Organizations. The section 
amends the CEA to create a new section 5b regarding derivatives 
clearing organizations. Under subsection (a), these clearing 
entities, which are allowed to clear derivatives (that are not 
a security), must register with the CFTC and meet a set of 13 
core principles set out in subsection (d), including principles 
on financial resources of the clearing facility, participant 
eligibility, risk management systems, settlement procedures, 
treatment of client funds, default rules, rule enforcement, 
system safeguards, reporting, record keeping, public 
information disclosure, information sharing, and minimizing 
competitive restraints.
    Under subsection (b), a derivatives clearing organization 
will not have to register with the CFTC if it is registered 
with another federal financial regulator and it does not clear 
futures. This is intended to encompass those clearing 
facilities registered with other financial regulators as well 
as those clearing facilities that have previously received an 
exemption from registration from these financial regulators. 
Under subsection (c), a derivatives clearing organization that 
is exempt from registration may opt to register with the CFTC. 
Subsection (e) provides that an existing clearing entity that 
clears futures contracts on a designated contract market will 
automatically be deemed a derivatives clearing organization for 
purposes of this section.
    Sec. 15. Common Provisions Applicable to Registered 
Entities. The section amends the CEA to create a new section 5c 
that contains provisions affecting all registered entities 
(contract markets, derivatives transaction execution facilities 
and derivatives clearing organizations).
    Subsection (a) would allow the CFTC to issue or approve 
interpretations to describe what would constitute an acceptable 
business practice under the core principles for registered 
entities.
    Subsection (b) would allow 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) would enable the registered entity to trade 
new products or adopt or amend rules by providing the CFTC (and 
the Treasury Department for contracts in governmentsecurities) 
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. This subsection would require the CFTC to pre-
approve any rule changes with regard to open interest agricultural 
contracts.
    Subsection (d) grants the CFTC the authority to informally 
resolve potential violations of the core principles for 
registered entities.
    Subsection (e) provides that nothing in this section limits 
or affects the emergency authorities of the CFTC.
    Subsection (f) directs the CFTC to implement core 
principles for intermediaries. In carrying out this subsection, 
the Commission shall conduct a study of the Act and the 
Commission's rules, regulations and orders governing the 
conduct of persons required to be registered with the 
Commission. Within one year after the date of the enactment of 
the bill, the Commission would file a report with the Senate 
Committee on Agriculture, Nutrition and Forestry and the House 
Committee on Agriculture. The report would identify: (1) the 
core principles and interpretations of acceptable business 
practices that the Commission has adopted as substitutes for 
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 that 
it can effect the changes identified in paragraph (1) through 
its exemptive authority under section 4(c) of the Act; and (4) 
the regulatory functions that the Commission currently performs 
that can be delegated to a registered futures association and 
the regulatory functions that the Commission has determined 
must be retained and the reasons therefor.
    Subsection (g) adds a new provision (sec. 4c(a)(3)(B)) to 
allow futures commission merchants to trade futures off the 
floor of a futures exchange as long as the board of trade 
allows such transactions and the FCMs report, record and clear 
the transactions in accordance with the rules of the contract 
market or derivatives trading execution facility.
    Sec. 16. Exempt Boards of Trade. The 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 if (1) 
participants are eligible contract participants (large 
institutional investors) and (2) the commodity underlying the 
futures contract is not a security, has an inexhaustible 
deliverable supply, is not subject to manipulation, or has no 
cash market. Subsection (c) subjects futures contracts traded 
on an exempt board of trade to the 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.
    Sec. 17. Suspension or Revocation of Designation as 
Registered Entity. The section designates current section 5b as 
5e and amends it to authorize the CFTC to suspend the 
registration of a registered entity for 180 days for any 
violation of the CEA.
    Sec. 18. Authorization of Appropriations. The section 
amends section 12(d) of the CEA by striking 2000 and 
reauthorizing appropriations through fiscal year 2005.
    Sec. 19. Preemption. The section rewrites paragraph 
12(e)(2) of the CEA for clarity and to conform with changes 
made in the bill. Re-states the current provisions that the CEA 
supersedes 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 or 
covered by a section 4(c) exemption, the CEA supersedes and 
preempts state gaming and bucket shop laws (except for the 
anti-fraud provisions of those laws that are generally 
applicable). It is not a requirement that the underlying 
transaction be a futures contract or commodity option in order 
to be eligible for the preemption from these state law 
provisions.
    Sec. 20. Predispute Resolution Agreements for Institutional 
Customers. The section amends section 14 of the CEA to clarify 
that futures commission merchants, as a condition of doing 
business, may require customers that are eligible contract 
participants to waive their right to file a reparations claim 
with the CFTC.
    Sec. 21. Consideration of Costs and Benefits. The section 
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 their action. 
This does not apply to orders associated with an adjudicatory 
or investigative process, emergency actions or findings of fact 
regarding compliance with CFTC rules.
    Sec. 22. Contract Enforcement Between Eligible 
Counterparties. The section amends section 22 of the CEA to 
provide a safe harbor so that 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.
    Sec. 23. Legal Certainty for Swaps. The section provides 
that nothing in the bill gives the SEC or CFTC jurisdiction 
over swap agreements. It requires the President's Working Group 
to conduct a study on the regulatory treatment of swaps in 
relation to the securities laws.
    Sec. 24. Repeal of Deficiency Orders. The section repeals 
section 8e of the Commodity Exchange Act.
    Sec. 25. Technical and Conforming Amendments. The section 
makes technical and conforming amendments throughout the CEA to 
reflect changes made by the bill.
    Sec. 26. Effective Date. The Act takes effect on the date 
of enactment, except section 8 (dealing with futures on 
securities), which takes effect one year after enactment.

              III. Legislative History and Committee Votes

    On July 30,1998, the Senate Committee on Agriculture, 
Nutrition and Forestry held a hearing on the CFTC's concept 
release on OTC derivatives. Many industry observers believed 
that this document was the first step leading to regulating 
these transactions as futures. If these transactions were found 
to be off-exchange futures, a court of law could rule them to 
be illegal and unenforceable. This possibility posed the risk 
of this trillion dollar industry moving off-shore. Federal 
Reserve Chairman Alan Greenspan, Deputy Treasury Secretary 
Lawrence Summers and SEC Chairman Arthur Levitt testified in 
opposition to the CFTC's stance and urged Congress to adopt a 
regulatory moratorium on the CFTC until the President's Working 
Group could study and report to Congress on this issue. CFTC 
Chair Brooksley Born testified in support of the concept 
release and urged the Committee to refrain from taking this 
action. Tom Jasper, managingdirector of Salomon Smith Barney 
and William Miller, president of the End Users of Derivatives 
Association also testified regarding this subject.
    In October 1998, Congress agreed to impose a six month 
regulatory moratorium on the CFTC with regard to OTC 
derivatives. This moratorium was contained in the annual 
agricultural appropriations bill.
    On December 16, 1998, the Senate Committee on Agriculture, 
Nutrition and Forestry held a hearing regarding the status of 
the CFTC concept release on OTC derivatives and the near 
collapse of Long Term Capital Management hedge fund. All five 
CFTC commissioners testified, including Chair Brooksley Born, 
Commissioner David Spears, Commissioner John Tull, Commissioner 
Barbara Holum, and Commissioner James Newsome. Testifying on a 
second panel were Roger Anderson, Deputy Assistant Secretary 
for Federal Finance of the Treasury, Patrick Parkinson, 
Director of the Division of Research and Statistics of the Fed, 
Richard Lindsay, Director of the Division of Market Regulation 
of the SEC and Dan Waldman, General Counsel of the CFTC. A 
third panel, consisting of former CFTC chairs, included Susan 
Philips, Dean of the George Washington School of Business and 
Public Management; Wendy Gramm, James Buchanan Center of George 
Mason University; William Albrecht, Professor of Economics at 
the University of Iowa; and Martin Mayer, Guest Scholar at the 
Brookings Institute. The Committee also released for public 
comment 48 public policy questions regarding CEA 
reauthorization.
    On February 25 and 26, 1999, the Senate and House 
Agriculture Committees held a joint Roundtable on Futures, 
Derivatives and Public Policy. Hosted by former CFTC chair 
Phillip Johnson and National Futures Association President Bob 
Wilmouth, this roundtable assembled a diverse group of eighteen 
individuals from the industry and academia to discuss 
derivatives policy and possible legislative solutions. These 
participants included Jack Coffee, Columbia University; George 
Crapple, Millburn Ridgefield Corp.; David Downey, Timber Hill 
LLC; Jerry Gulke, Strategic Marketing Services and farmer; 
Robert Kohlmeyer, World Perspectives; Howard Kramer, Schiff, 
Hardin & Waite; Robert Mackay, National Economic Research 
Associates Assoc.; Leo Melamed, Sakura Dellsher, INC.; Merton 
Miller, University of Chicago; Ernest T. Patrikis, American 
International Group; Todd Petzel, Common Fund; David Pryde, JP 
Morgan Futures; Thomas Russo, Lehman Brothers; Rich Sandor, 
Environmental Financial Products; Charles Smithson, CIBC World 
Markets; Steven Spence, Merrill Lynch; and Jack Wing, Illinois 
Institute of Technology.
    On May 5, 1999, the Senate Committee on Agriculture, 
Nutrition and Forestry held a hearing regarding agricultural 
trade options and how these instruments might benefit producers 
in managing the risks of farming. In 1997, the CFTC began a 
pilot program to allow these products to trade on a conditional 
basis. As of the hearing date, no one in the industry had 
signed up to participate in the program. The Committee heard 
from Commissioner David Spears regarding the CFTC's pilot 
program on agricultural trade options and whether additional 
rulemaking or legislation was necessary to fix it. Other 
witnesses included Jerry Slocum, President, North Mississippi 
Grain Company; Dan Dye, Vice President, Cargill; Scott Stewart, 
National Introducing Brokers Association; Steve Manaster, 
Director, Financial Risk Management Pamplin College of 
Business, Virginia Tech; Kenneth Ackerman, Risk Management 
Agency, United States Department of Agriculture; and Dave 
Rempe, Extension Assistant, Department of Agricultural 
Economics, Kansas State University.
    On September 23, 1999, the Senate Committee on Agriculture, 
Nutrition and Forestry held a hearing to explore the impact of 
electronic trading on the derivatives industry and its 
regulation. Specifically, the Committee heard testimony 
regarding how this industry will look in the near- and long-
term as a result of technological advances; what types of 
electronic trading activity should be regulated under the CEA; 
and whether electronic exchanges should be regulated 
differently than open outcry exchanges. The first panel, 
consisting of representatives from the futures exchanges and 
electronic OTC trading facilities, addressed the policies that 
should drive whether transactions are regulated. These 
witnesses included Roger Barton, BrokerTec; David P. Brennan 
and Thomas Donovan, Chicago Board of Trade; Shawn Dorsch, 
Derivatives Net, Inc. (Blackbird); Howard Lutnick, Cantor 
Fitzgerald; Leo Melamed, Chicago Mercantile Exchange; and 
Edward J. Rosen, Coalition of Commercial and Investment Banks. 
The second panel provided the Committee with demonstrations on 
electronic trading and commentary on the future of the 
industry. These witnesses included Phillip McBride Johnson, 
Skadden, Arps, Slate, Meagher & Flom; David Downey, InterActive 
Brokers; and Matt Andresen, Island ECN.
    On February 10, 2000, the Senate Committee on Agriculture, 
Nutrition and Forestry held a hearing on the release of the 
President's Working Group report on OTC derivatives and the 
CEA. Senate Agriculture Committee Chairman Richard Lugar and 
House Agriculture Committee Chairman Bob Smith had requested 
this report subsequent to the regulatory moratorium that 
Congress placed on the CFTC regarding OTC derivatives. This 
unanimous report made recommendations to Congress on the proper 
regulatory treatment for over-the-counter derivatives. Treasury 
Secretary Lawrence Summers, Federal Reserve Chairman Alan 
Greenspan, CFTC Chairman William Rainer, and Annette Nazareth, 
Director of the Division of Market Regulation of the SEC, 
testified in support of the report's recommendations. Also 
providing testimony were Chairman David Brennan, Chicago Board 
of Trade; Chairman Daniel Rappaport, New York Mercantile 
Exchange; Jerry Salzman, counsel for the Chicago Mercantile 
Exchange; Richard Grove, CEO and President of the International 
Swaps and Derivatives Association (ISDA); and Edward J. Rosen, 
counsel for the Coalition of Commercial and Investment Banks.
    On June 8, 2000, Senate Agriculture Committee Chairman 
Richard Lugar, along with Senate Banking Committee Chairman 
Phil Gramm and Senator Peter Fitzgerald, introduced S. 2967, 
The Commodity Futures Modernization Act of 2000, legislation to 
reauthorize and amend the Commodity Exchange Act.
    On June 21, 2000, the Senate Committee on Agriculture, 
Nutrition and Forestry and the Senate Committee on Banking, 
Housing, and Urban Affairs held a joint hearing to consider S. 
2697, the Commodity Futures Modernization Act of 2000. 
Witnesses included members of the President's Working Group on 
Financial Markets consisting of Fed Chairman Alan Greenspan, 
Treasury Secretary Lawrence Summers, CFTC Chairman William 
Rainer and SEC Chairman Arthur Levitt.

                             Committee Vote

    In compliance with paragraph 7 of rule XXVI of the Standing 
Rules of the Senate, the following statements are made 
concerning the votes of the Committee in its consideration of 
the bill:
    The Committee met in open session on Thursday, June 29, 
2000, to mark up this bill. The bill was agreed to unanimously 
by voice vote. The Committee then ordered that the bill be 
favorably reported by a voice vote.

                    IV. Regulatory Impact Statement

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the following evaluation is made 
concerning the regulatory impact of enacting this legislation:
    The number of individuals and businesses who would be 
impacted by regulations issued under this bill is substantial. 
The entire futures industry in the United States would be 
directly affected by this legislation. Its impact would be one 
of lower cost both to the businesses and to individuals in the 
futures markets due to the expanded market opportunities opened 
under the bill and the decrease in the cost of implementing the 
regulations under the legislation. As for the record keeping 
requirements under the bill, the records that futures exchanges 
are required to keep are less circumscribed and therefore the 
cost will be lower for the futures exchanges. This cost savings 
will result in lower transaction costs to individuals and 
businesses trading on the exchanges.
    The securities industry would likewise be affected as they 
would have new business opportunities opened to them with the 
repeal of the ban on single stock futures. Firms in the 
financial services business would experience a growth in 
opportunities as would individuals trading futures on these 
markets. Individuals and businesses in the securities markets 
would be better situated to manage their risk.
    With the legislation's language to provide legal certainty 
for OTC derivatives transactions, firms and banks would 
experience decreased legal and paperwork costs associated with 
these transactions.
    This bill would not affect the personal privacy of the 
individuals affected by the changes. The amount of additional 
paperwork that will result from the regulations to be 
promulgated pursuant to the bill, is moderate. The futures 
exchanges would be the most impacted as they would have new 
levels of regulations under which they could choose to operate. 
During the transition period when new regulations are being 
implemented, the paperwork burden on the futures exchanges 
might be relatively high. But as the shift to the new 
structures is accomplished, the paperwork burden will decrease 
resulting in less paper work for the regulated industry.
    The National Futures Association (``NFA'') and its members 
will be impacted as well by the bill. Section 8 of the bill 
mandates that the NFA adopt rules requiring its members who 
recommend purchase or sales of futures on securities to 
ascertain the suitability of the recommendation for that 
customer. This cost would be small because the NFA has had a 
substantially similar rule in effect since 1985. The bill also 
allows futures exchanges to delegate their self regulatory 
functions to a registered futures association, thus potentially 
increasing the NFA's responsibilities under the Act.

                    V. Budgetary Impact of the Bill

    In accordance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the following letter has been 
received from the Congressional Budget Office regarding the 
budgetary impact of the bill:

               Congressional Budget Office Cost Estimate

S. 2697--Commodity Futures Modernization Act of 2000

    Summary: S. 2697 would reauthorize funding for the 
activities of the Commodity futures Trading Commission (CFTC) 
during the 2001-2005 period. The bill would also allow the 
trading of single stock futures under certain conditions, with 
oversight being shared by the CFTC and the Securities and 
Exchange Commission (SEC). In addition, S. 2697 would clarify 
that certain over-the-counter derivative transactions are 
outside of the jurisdiction of the CFTC. The bill also would 
authorize the CFTC to designate boards of trade as contract 
markets or execution facilities for derivatives transactions.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing this legislation would cost $363 
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 $3 million a year to regulate single stock futures. 
S. 2697 also would increase governmental receipts, because the 
bill would make single stock futures subject to fees charged by 
the SEC. Although CBO estimates that this increase in fee 
collections would not be significant, pay-as-you-go procedures 
would apply.
    S. 2697 contains an intergovernmental mandate 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). The bill also contains a new private-sector mandate 
as defined by UMRA, but CBO estimates the costs of this mandate 
would not exceed the threshold established in the act ($109 
million in 2000, adjusted annually for inflation).
    Estimated Cost to the Federal Government: The estimated 
budgetary impact of S. 2697 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\1\

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.............................         3         3         3         3         3
    Estimated outlays.........................................         3         3         3         3         3
Total changes in spending:
    Estimated authorization level.............................        70        72        75        77        80
    Estimated outlays.........................................        63        71        74        76        79
----------------------------------------------------------------------------------------------------------------
\1\ CBO estimates that enactment of S. 2697 also would result in an insignificant increase in revenues over the
  2001-2005 period.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted by the end of fiscal year 2000 and that 
the necessary amounts will be appropriated by the start of each 
fiscal year. Provisions related to the regulation of single 
stock futures would take effect one year after enactment. CBO 
estimates that S. 2697 would cost $363 million over the 2001-
2005 period, and would have a negligible effect on revenues.

Spending subject to appropriation

    S. 2697 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. 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 CFTC would share oversight of single stock 
futures transactions with the SEC. The bill also clarifies that 
the CFTC does not have jurisdiction over certain over-the-
counter derivatives transactions. The CFTC also would be 
authorized to designate boards of trade as contract markets or 
execution facilities for derivatives transactions with the SEC. 
CBO estimates that these changes to the CFTC's regulatory 
responsibilities would require the agency to hire new staff.
    S. 2697 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 $3 
million a year during the 2001-2005 period.
    Finally, CBO estimates that S. 2697 would increase the 
amount of offsetting collections received by the SEC, although 
the increase would not be significant. The bill would allow 
single stock futures to be traded on a national securities 
association and would therefore make them subject to 
transaction fees collected by the SEC. Under current law, fees 
on transactions conducted on national securities associations 
are recorded as offsetting collections, which are credited as 
an offset to discretionary spending. However, based on 
information from the CFTC, the SEC, and private groups, CBO 
does not expect that the volume of transactions of single stock 
futures that would be conducted on national securities 
associations would be large enough to generate a significant 
increase in offsetting collections.

Revenues

    Under current law, transactions conducted on national 
securities exchanges are also subject to certain SEC fees that 
are accounted for as governmental receipts (revenues). These 
fees are equal to 1/300 of a percent of the aggregate dollar 
amount of securities sales.
    S. 2697 would allow the trading of single stock futures on 
national securities exchanges. By creating a new category of 
financial transactions that would be subject to SEC fees, this 
bill would increase revenues collected by the SEC. However, 
based on information provided by the CFTC, the SEC, and by 
private groups, CBO estimates that any increase in revenues 
would not be significant.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting receipts or direct spending. S. 2697 
would affect receipts by adding a new set of financial 
transactions that would be subject to fees collected by the 
SEC. However, CBO estimates that the amount of additional 
receipts would not be significant.
    Estimated impact on State, local, and tribal governments: 
S. 2697 would preempt state laws affecting certain commodities 
transactions that are conducted in markets regulated by the 
Commodities Futures Trading Commission. Such a preemption would 
be a mandate as defined by UMRA. CBO estimates that the costs 
of this mandate, 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: Section 8 of the 
bill would require a registered futures association to adopt 
rules requiring a futures commission merchant, a commodity 
trading advisor, or an introducing broker that recommends a 
purchase or sale of a futures on a security, to ascertain the 
suitability of that recommendation for that customer. The 
national futures association already adopted a ``know your 
customer'' rule in 1985. According to industry sources, the 
requirements of that rule are very similar to the requirements 
of a suitability rule. Thus, CBO estimates that the direct 
costs of complying with this mandate would be negligible.
    Previous CBO estimate: On June 29, 2000, CBO transmitted a 
cost estimate for H.R. 4541, the Commodity Futures 
Modernization Act of 2000, as ordered reported by the House 
Committee on Agriculture on June 27, 2000. Assuming 
appropriation of the necessary amounts, CBO estimates that H.R. 
4541 would cost $353 million over the 2001-2005 period. In 
comparison, CBO estimates that the costs of S. 2697 would total 
$363 million during that time period. Although the two bills 
are similar in many respects, CBO estimates that the costs of 
S. 2697 would be higher because the SEC would require 
additional staff to regulate the trading of single stock 
futures on national securities exchanges and associations. S. 
2697 also would increase the revenues and offsetting 
collections received by the SEC, although we estimate that 
these increases would not be significant.
    Estimate prepared by: Federal Costs: Kenneth Johnson. 
Impact on the State, Local and Tribal Governments: Susan Sieg 
Tompkins. Impact on the Private Sector: Judith Ruud.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      VI. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made in 
the bill, as reported are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
material 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:

           *       *       *       *       *       *       *

          (4) 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) 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--

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (7) Cooperative association of producers.--The term 
        ``cooperative association of producers'' * * *
          (8) 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 (other than 
                a security)--
                          (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 participants 
                        in the derivatives clearing 
                        organization; or
                          (iii) otherwise provides clearing 
                        services or arrangements that mutualize 
                        or transfer among participants in the 
                        derivatives clearing organization the 
                        credit risk arising from such 
                        agreements, contracts, or transactions 
                        executed by the participants.
                  (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.
          (9) Designated future on a security.--The term 
        ``designated future on a security'' means a contract of 
        sale (or option on such a contract) for future delivery 
        of--
                  (A) a single nonexempted security;
                  (B) an index based on fewer than 5 
                nonexempted securities; or
                  (C) an index in which during at least 3 of 
                the 4 calendar quarters preceding the date of 
                any transaction in the index, a single 
                nonexempted security accounted for a daily 
                average of 30 percent or more of the value of 
                the index.
          (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 an eligible 
        contract participant described in clause (i), (ii), 
        (v), or (vii) of paragraph (12)(A) or in subparagraph 
        (12)(C) that--
                  (A) in connection with its business has a 
                demonstrable capacity or ability, directly or 
                through separate contractual agreements, to 
                make or take delivery of the underlying 
                physical commodity;
                  (B) incurs risk, 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 such eligible contract 
                participants.
          (12) Eligible contract participant.--The term 
        ``eligible contract participant'' means--
                  (A) acting for its own account--
                          (i) a financial institution;
                          (ii) an insurance company (as defined 
                        in section 2 of the Bank Holding 
                        Company Act of 1956 (12 U.S.C. 1841));
                          (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 
                                        adviser subject to 
                                        regulation under the 
                                        Investment Advisers Act 
                                        of 1940 (15 U.S.C. 80b-
                                        1 et seq.) or a 
                                        commodity trading 
                                        advisor subject to 
                                        regulation under this 
                                        Act;
                                          (bb) a foreign person 
                                        performing a role or 
                                        function similar to 
                                        that of such an 
                                        investment adviser or 
                                        commodity trading 
                                        advisor subject to 
                                        foreign regulation in 
                                        the performance of that 
                                        role or function;
                                          (cc) a financial 
                                        institution; or
                                          (dd) an insurance 
                                        company (as defined in 
                                        section 2 of the Bank 
                                        Holding Company Act of 
                                        1956 (12 U.S.C. 1841));
                          (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) 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);
                          (ix) 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);
                          (x) a floor broker or floor trader 
                        subject to regulation under this Act, 
                        to the extent that the floor broker or 
                        floor trader trades on or through the 
                        facilities of a registered entity or 
                        exempt board of trade or any affiliate 
                        of a registered entity or exempt board 
                        of trade; or
                          (xi) a natural person with total 
                        assets exceeding $10,000,000;
                  (B)(i) a person described in any of clauses 
                (i) through (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)(I) an investment adviser subject to 
                regulation under the Investment Advisers Act of 
                1940 (15 U.S.C. 80b-1 et seq.);
                  (II) a commodity trading advisor subject to 
                regulation under this Act;
                  (III) a foreign person performing a role or 
                function similar to that of such an investment 
                adviser or commodity trading advisor subject to 
                foreign regulation in the performance of that 
                role or function; or
                  (IV) a person described in any of clauses (i) 
                through (x) of subparagraph (A) or in 
                subparagraph (C), that is acting as an 
                investment manager or fiduciary (but excluding 
                a person acting as a broker or performing an 
                equivalent agency function) for another person 
                described in subparagraph (A) or (C) and that 
                is authorized by the other person to commit the 
                other 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.
          (13) Exclusion-eligible commodity.--
                  (A) In general.--The term ``exclusion-
                eligible commodity'' means--
                        (i) a financial commodity; and
                        (ii) a commodity that has no cash 
                        market.
                  (B) Exclusion.--The term ``exclusion-eligible 
                commodity'' does not include any commodity 
                described in paragraph (3) that is an 
                agricultural commodity.
          (14) Exempted security.--
                  (A) In general.--The term ``exempted 
                security'' means a security that is an exempted 
                security under section 3(a) of the Securities 
                Act of 1933 (15 U.S.C. 77c(a)) or section 3(a) 
                of the Securities Exchange Act of 1934 (15 
                U.S.C. 78c(a)).
                  (B) Exclusion.--The term ``exempted 
                security'' does not include a municipal 
                security (as defined in section 3(a) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 
                78c(a))).
          (15) Financial commodity.--The term ``financial 
        commodity'' means--
                  (A) an interest rate, exchange rate, 
                currency, security, security index, credit 
                risk, debt or equity instrument, or index or 
                measure of inflation; or
                  (B) any other rate, differential, index, or 
                measure of economic risk, return, or value 
                (excluding any rate, differential, index, or 
                measure based on a commodity not described in 
                subparagraph (A) that has a finite supply).
          (16) 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 trust company; or
                  (H) a regulated subsidiary or affiliate of an 
                entity described in any of subparagraphs (A) 
                through (G).
          [(8)] (17) 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 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 or derivatives transaction execution 
        facility * * *
          [(9)] (18) 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)] (19) Foreign futures authority.--The term 
        ``foreign futures authority'' * * *
          [(11)] (20) Future delivery.--The term ``future 
        delivery'' * * *
          [(12)] (21) 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 * * *

           *       *       *       *       *       *       *

          (22) 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)] (23) Interstate commerce.--The term 
        ``interstate commerce'' * * *
          [(14)] (24) 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.
          [(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 or given members' trading 
        privileges thereon.
          (26) National securities exchange.--The term 
        ``national securities exchange'' means--
                  (A) an exchange that is registered as a 
                national securities exchange under section 6 of 
                the Securities Exchange Act of 1934 (15 U.S.C. 
                78f); or
                  (B) an association that is registered as a 
                national securities association under section 
                15A of the Securities Exchange Act of 1934 (15 
                U.S.C. 78o-3).
          (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--
                          (i) trading by or on behalf of a 
                        person that is not an eligible contract 
                        participant; or
                          (ii) trading 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'' * * *
          (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; or
                  (C) a derivatives clearing organization 
                registered under section 5b.
          (31) Security.--The term ``security'' has the meaning 
        given the term in section 3(a) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)).
          (32) 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 with 
                                other participants as a result 
                                of the communications exchanged 
                                between the participants and 
                                not from interaction of 
                                multiple orders within a 
                                centralized, predetermined, 
                                nondiscretionary, automated 
                                trade matching algorithm; or
                                  (II)(aa) is a derivatives 
                                clearing organization; or
                                  (bb) permits participants to 
                                submit agreements, contracts, 
                                or transactions to 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) a facility on which bids and 
                        offers and acceptances of bids and 
                        offers effected on the facility are not 
                        binding.

           *       *       *       *       *       *       *

[SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF 
                    AGENT.]

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

    [(a)(1)(A)(i) The]
      (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] subsection (g), 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 * * *

           *       *       *       *       *       *       *

    [(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) Notwithstanding any other provision of law--
          [(i) This Act shall not apply to and the Commission 
        shall have no jurisdiction to designate a board of 
        trade as a contract market for any transaction whereby 
        any party to such transaction acquires any put, call, 
        or other option on one or more securities (as defined 
        in section 2(1) of the Securities Act of 1933 or 
        section 3(a)(10) of the Securities Exchange Act of 1934 
        on the date of enactment of the Futures Trading Act of 
        1982), including any group or index of such securities, 
        or any interest therein or based on the value thereof.
          [(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);
                  [(II) Trading in such contract (or option on 
                such contract) shall not be readily susceptible 
                to manipulation of the price of such contract 
                (or option on such contract), 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; and
                  [(III) Such group or index of securities 
                shall be predominately composed of the 
                securities of unaffiliated issuers and shall be 
                a widely published measure of, and shall 
                reflect, the market for all publicly traded 
                equity or debt securities or a substantial 
                segment thereof, or shall be comparable to such 
                measure.
          [(iii) Upon application by a board of trade for 
        designation as a contract market with respect to any 
        contract of sale (or option on such contract) for 
        future delivery involving a group or index of 
        securities, the Commission shall provide an opportunity 
        for public comment on whether such contracts (or 
        options on such contracts) meet the minimum 
        requirements set forth in clause (ii) of this 
        subparagraph.
          [(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 review 
        thereof 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, 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.
          [(V) Any action taken by the Board, or by the 
        Commission acting under the delegation of authority 
        under subclause III,2-095 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.]

           *       *       *       *       *       *       *

    (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)(B)(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 theapplication, 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 
action under this Act (including 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 other 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

           *       *       *       *       *       *       *

    (b) For the purposes of this Act (but not in any wise 
limiting the foregoing definition of interstate commerce) a 
transaction in respect to any article shall be considered to be 
in interstate commerce if such article is part of that current 
of commerce usual in the commodity trade whereby commodities 
and commodity products and by-products thereof are sent from 
one State with the expectation that they will end their 
transit, after purchase, in another, including, in addition to 
cases within the above general description, all cases where 
purchase or sale is either for shipment to another State, or 
for manufacture within the State and the shipment outside the 
State of the products resulting from such manufacture. Articles 
normally in such current of commerce shall not be considered 
out of such commerce through resort being had to any means or 
device intended to remove transactions in respect thereto from 
the provisions of this Act. For the purpose of this paragraph 
the word ``State'' includes Territory, the District of 
Columbia, possession of the United States, and foreign nation.
    (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) sales and resales of installment loan 
                contracts;
                  (F) purchase transactions and repurchase 
                transactions in a financial commodity; or
                  (G) mortgages or mortgage purchase or sale 
                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--
                          (i)(I) is a contract of sale of a 
                        commodity for future delivery (or an 
                        option on such a contract); and
                          (II) is executed or traded on an 
                        organized exchange;
                          (ii)(I) is an option on a commodity 
                        other than foreign currency or a 
                        security; and
                          (II) is executed or traded on an 
                        organized exchange; or
                          (iii)(I) is an option on foreign 
                        currency; and
                          (II) is executed or traded on an 
                        organized exchange that is not a 
                        national securities exchange.
                  (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--
                                  (I) a contract of sale for 
                                future delivery; or
                                  (II) 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 (as 
                                defined in section 2 of the 
                                Bank Holding Company Act of 
                                1956 (12 U.S.C. 1841));
                                  (V) a financial holding 
                                company (as defined in section 
                                2 of the Bank Holding Company 
                                Act of 1956 (12 U.S.C. 1841)); 
                                or
                                  (VI) an investment bank 
                                holding company (as defined in 
                                section 17(i) of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 
                                78q(i))).
    (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 exclusion-
        eligible 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 5b or 12(e)(2)(B)) 
        governs or applies to an agreement, contract, or 
        transaction in an exclusion-eligible 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(11)(B)(ii);
                  (B) the agreement, contract, or transaction 
                is entered into only between persons that are 
                eligible contract participants (as defined in 
                subparagraph (A), (B)(ii), or (C) of section 
                1a(11)) 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.
          (3) Exception to prevent manipulation.--
        Notwithstanding paragraphs (1) and (2), any agreement, 
        contract, or transaction in an exclusion-eligible 
        commodity (other than a financial commodity) that is 
        susceptible to a material risk of manipulation shall be 
        subject to sections 6(c) and 9(a)(2).
    (e) 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 the facility to 
        transactions that satisfy the requirements of 
        subsection (d)(2).
          (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 electronic trading facility excluded under this Act 
        by 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) Futures on Securities.--
          (1) Exclusions.--
                  (A) Exclusion of over-the-counter equity 
                instruments.--Nothing in this subsection 
                governs or applies to--
                          (i) an agreement, contract, or 
                        transaction in a commodity that is 
                        excluded under subsection (c) or (d);
                          (ii) an electronic trading facility 
                        that is excluded under subsection (e); 
                        or
                          (iii) 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).
                  (B) Exclusion of security options.--This Act 
                does not apply to, and the Commission shall 
                have no jurisdiction to designate a board of 
                trade as a contract market or register a 
                derivatives transaction execution facility for, 
                any transaction under which a party to the 
                transaction acquires an option on 1 or more 
                securities, group or index of securities, or 
                interest in, or interest that is based on the 
                value of, a security.
          (2) Inclusion of trading of nondesignated futures on 
        securities on a contract market.--
                  (A) In general.--This Act applies to, and the 
                Commission shall have exclusive jurisdiction 
                with respect to and may designate a board of 
                trade as a contract market in, accounts, 
                agreements, and transactions involving a 
                contract of sale (or option on such a contract) 
                for future delivery of a group or index of 
                nonexempted securities (or an interest in, or 
                interest that is based on the value of, such 
                securities), none of which is a designated 
                future on a security.
                  (B) Requirements for designation.--
                          (i) In general.--No board of trade 
                        shall be designated as a contract 
                        market with respect to any contract of 
                        sale (or option on such a contract) for 
                        future delivery under subparagraph (A) 
                        unless--
                                   (I) the board of trade files 
                                with the Commission an 
                                application for designation; 
                                and
                                  (II) the board of trade 
                                demonstrates and the Commission 
                                expressly finds that the 
                                specific contract (or option on 
                                such a contract) with respect 
                                to which the application is 
                                made meets the minimum 
                                requirements of clauses (ii) 
                                and (iii).
                          (ii) Means of effectuation of 
                        settlement or delivery.--Settlement of 
                        or delivery on a contract (or option on 
                        such a contract) described in 
                        subparagraph (A) shall be effected in 
                        cash or by means other than the 
                        transfer or receipt of a security other 
                        than an exempted security.
                          (iii) Susceptibility to price 
                        manipulation.--Trading in a contract 
                        (or option on such a contract) 
                        described in subparagraph (A) shall not 
                        be readily susceptible to--
                                  (I) manipulation of the price 
                                of the contract (or option on 
                                such a contract); or
                                  (II) causing or being used in 
                                the manipulation of the price 
                                of any underlying security, 
                                option on a security, or option 
                                on a group or index that 
                                includes a security.
          (3) Trading of designated futures on securities on a 
        contract market or national securities exchange.--No 
        person shall offer to enter into, enter into, or 
        confirm the execution of a designated future on a 
        security, or an interest in or interest that is based 
        on the value of a designated future on a security, 
        unless the contract--
                  (A) is transacted on or subject to the rules 
                of--
                          (i) a board of trade that has been 
                        designated by the Commission as a 
                        contract market for the commodity that 
                        is the subject of the contract; or
                          (ii) a securities exchange that is 
                        registered with the Securities and 
                        Exchange Commission as a national 
                        securities exchange; and
                  (B) meets the requirements of clauses (ii) 
                through (vii) of paragraph (4)(B).
          (4) Minimum requirements for designated futures on 
        securities traded on a contract market.--
                  (A) In general.--Subject to paragraph (5), 
                this Act applies to, and the Commission shall 
                have jurisdiction with respect to and may 
                designate a board of trade as a contract market 
                in, accounts, agreements, and transactions 
                involving a designated future on a security.
                  (B) Requirements for designation.--
                          (i) In general.--No board of trade 
                        shall be designated as a contract 
                        market with respect to any contract of 
                        sale (or option on such a contract) 
                        under subparagraph (A) unless--
                                  (I) the board of trade files 
                                with the Commission an 
                                application for designation; 
                                and
                                  (II) the board of trade 
                                demonstrates and the Commission 
                                expressly finds that the 
                                specific contract (or option on 
                                such a contract) with respect 
                                to which the application is 
                                made meets the minimum 
                                requirements of clauses (ii) 
                                through (viii).
                          (ii) Means of effectuation of 
                        settlement or delivery.--Settlement of 
                        or delivery on a contract (or option on 
                        such a contract) described in 
                        subparagraph (A) shall be effected in 
                        cash or by means other than the 
                        transfer or receipt of a security other 
                        than an exempted security.
                          (iii) Real-time audit trail.--Trading 
                        in a contract (or option on such a 
                        contract) described in subparagraph (A) 
                        shall occur on a contract market that 
                        executes trades by means of a system 
                        that provides a real-time audit trail.
                          (iv) Susceptibility to price 
                        manipulation.--Trading in a contract 
                        (or option on such a contract) 
                        described in subparagraph (A) shall not 
                        be readily susceptible to--
                                  (I) manipulation of the price 
                                of the contract (or option on 
                                such a contract); or
                                  (II) causing or being used in 
                                the manipulation of the price 
                                of any underlying security, 
                                option on a security, or option 
                                on a group or index that 
                                includes a security.
                          (v) Underlying security approved for 
                        listing on national securities 
                        exchange.--Each security that underlies 
                        a designated future on a security 
                        shall--
                                  (I) meet all requirements for 
                                the listing of an option on 
                                that security on a national 
                                securities exchange: or
                                  (II) be the subject of 
                                options trading on a national 
                                securities exchange.
                          (vi) Margins for futures contracts.--
                                  (I) In general.--The contract 
                                described in subparagraph (A) 
                                shall be traded on a board of 
                                trade that establishes and 
                                maintains margin levels for 
                                designated futures on 
                                securities that are consistent 
                                with the margin levels 
                                established and maintained on 
                                an option contract on the same 
                                underlying security that is 
                                listed on any national 
                                securities exchange.
                                  (II) Consistency.--For the 
                                purposes of subclause (I), a 
                                margin for designated futures 
                                on securities and options on 
                                securities shall be considered 
                                to be consistent if the margin 
                                provides a similar level of 
                                protection against defaults by 
                                counterparties, taking into 
                                account any differences in--
                                          (aa) the price 
                                        volatility of the 
                                        contracts;
                                          (bb) the frequency 
                                        with which compliance 
                                        with margin 
                                        requirements is 
                                        assessed;
                                          (cc) the length of 
                                        time permitted to cure 
                                        any margin deficiency; 
                                        and
                                          (dd) the degree of 
                                        leverage permitted by 
                                        the margin.
                          (vii) Conflicts of interest.--The 
                        contract described in subparagraph (A) 
                        shall be traded on a board of trade 
                        that establishes and enforces rules 
                        that protect the customer from 
                        conflicts of interest and related 
                        trading abuses on the part of brokers 
                        or any other person performing similar 
                        roles or functions.
                          (viii) Provision of information 
                        necessary for enforcement.--The 
                        contract described in subparagraph (A) 
                        shall be traded on a board of trade 
                        that, in accordance with regulations 
                        promulgated by the Commission, 
                        collects, maintains, and promptly 
                        provides to the Securities and Exchange 
                        Commission on request such information 
                        as the Commission and the Securities 
                        and Exchange Commission jointly 
                        determine to be appropriate for the 
                        performance of the enforcement 
                        responsibilities described in paragraph 
                        (5).
          (5) SEC enforcement authority for designated futures 
        on securities contracts listed on a contract market.--
                  (A) In general.--On notice to the Commission, 
                the Securities and Exchange Commission may 
                enforce the provisions of the securities laws 
                specified in subparagraph (B) against any 
                person that purchases or sells a designated 
                future on a security to the same extent as if 
                the person had purchased or sold an option on a 
                security.
                  (B) Provisions of the securities laws.--The 
                provisions of the securities laws referred to 
                in subparagraph (A) are--
                          (i) section 16 of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78p); 
                        and
                          (ii) section 10(b) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 
                        78j(b)).
                  (C) Authority of sec.--Nothing in this 
                paragraph expands the authority of the 
                Securities and Exchange Commission with respect 
                to registered entities or contracts of sale of 
                a commodity for future delivery (or options on 
                such contracts) except as specifically provided 
                in this paragraph.
                  (D) Report.--Not earlier than the date that 
                is 3 years after the date of enactment of this 
                subsection, the Commission and the Securities 
                and Exchange Commission shall begin to compile, 
                and not later than the date that is 4 years 
                after the date of enactment of this subsection, 
                the Commission and the Securities and Exchange 
                Commission shall submit to Congress, a report 
                on the implementation of this subsection.
          (6) CFTC enforcement authority for designated futures 
        on securities listed on a national securities 
        exchange.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the Securities and Exchange 
                Commission shall have jurisdiction over a 
                designated future on a security to the extent 
                that the designated future on a security is 
                traded on a national securities exchange.
                  (B) Large trader reporting, anti-fraud, and 
                anti-manipulation authority.--On notice to the 
                Securities and Exchange Commission, the 
                Commission shall enforce sections 4b, 4i, 4o, 
                6(c), and 9(a)(2) against any person that 
                purchases or sells a designated future on a 
                security on a national securities exchange.
                  (C) Provision of information necessary for 
                enforcement.--A designated future on a security 
                shall be traded on a national securities 
                exchange that, in accordance with regulations 
                promulgated by the Securities and Exchange 
                Commission, collects, maintains, and promptly 
                provides to the Commission on request such 
                information as the Securities and Exchange 
                Commission and the Commission jointly determine 
                to be appropriate for the performance of the 
                enforcement responsibilities described in 
                subparagraph (B).
          (7) Process for listing futures on a security.--
                  (A) Contract market process.--
                          (i) In general.--The Commission shall 
                        transmit to the Securities and Exchange 
                        Commission a copy of any application 
                        that is submitted by a board of trade 
                        for designation as a contract market 
                        with respect to a contract of sale (or 
                        option on such a contract) for future 
                        delivery of a nonexempted security or a 
                        group or index of nonexempted 
                        securities.
                          (ii) Hearing.--
                                  (I) Objection by sec.--If, 
                                not later than 15 days 
                                following transmittal of an 
                                application under clause (i), 
                                the Securities and Exchange 
                                Commission submits to the 
                                Commission an objection to 
                                designation of the board of 
                                trade as a contract market in 
                                the contract (or option on such 
                                a contract) based on evidence 
                                (including an economic analysis 
                                of relevant factors including 
                                benefits and costs) that any 
                                minimum requirement under 
                                paragraph (2)(B) or (4)(B) is 
                                not met, the Commission shall 
                                afford the Securities and 
                                Exchange Commission an 
                                opportunity for a hearing on 
                                the record before the 
                                Commission.
                                  (II) Timing.--A hearing under 
                                subclause (I) shall be held 
                                before the Commission takes 
                                action on the application, and 
                                not less than 30 nor more than 
                                45 days after the Securities 
                                and Exchange Commission submits 
                                the objection.
                  (B) National securities exchange process.--
                          (i) In general.--The Securities and 
                        Exchange Commission shall transmit to 
                        the Commission a copy of any 
                        application that is submitted by a 
                        person for listing of a designated 
                        future on a security on a national 
                        securities exchange.
                          (ii) Objection by the commission.--
                        If, not later than 15 days following 
                        transmittal of an application under 
                        clause (i), the Commission submits to 
                        the Securities and Exchange Commission 
                        an objection to listing of a designated 
                        future on a security on a national 
                        securities exchange based on evidence 
                        (including an economic analysis of 
                        relevant factors including benefits and 
                        costs) that any minimum requirement 
                        under paragraph (4)(B) is not met, the 
                        Securities and Exchange Commission 
                        shall afford the Commission an 
                        opportunity for a hearing on the record 
                        before the Securities and Exchange 
                        Commission.
          (8) Margin.--
                  (A) In general.--Notwithstanding any other 
                provision of this Act, any designated contract 
                market in a contract for sale of future 
                delivery of a nonexempted security or 
                nonexempted securities index (or option on such 
                a contract) shall file with the Board of 
                Governors of the Federal Reserve System any 
                rule establishing or changing the level of 
                initial margin or maintenance margin for the 
                nonexempted security or nonexempted securities 
                index futures contract (or option on such a 
                contract).
                  (B) Request to set margin.--
                          (i) In general.--The Board may at any 
                        time request a contract market to set 
                        the margin for a nonexempted security 
                        or nonexempted securities index futures 
                        contract (or option on a nonexempted 
                        security or nonexempted securities 
                        index futures contract) at a level that 
                        the Board determines is appropriate 
                        to--
                                  (I) preserve the financial 
                                integrity of the contract 
                                market or of the clearing 
                                system of the contract market;
                                  (II) prevent competitive 
                                distortions between markets 
                                offering similar products; or
                                  (III) prevent systemic risk.
                          (ii) Failure to set margin.--If the 
                        contract market fails to comply with a 
                        request under clause (i) within the 
                        time specified by the Board in the 
                        request, the Board may direct the 
                        contract market to alter or supplement 
                        the rules of the contract market as 
                        specified in the request.
                  (C) Delegation of authority to the 
                commission.--Subject to such conditions as the 
                Board may determine, the Board may delegate any 
                or all of its authority with respect to margin 
                levels--
                          (i) in the case of a designated 
                        future on a security or other stock 
                        index futures contract or related 
                        option, to the Commission, if the 
                        contract or option is traded on a 
                        designated contract market or 
                        derivatives transaction execution 
                        facility; or
                          (ii) in the case of a designated 
                        future on a security--
                                  (I) to the Securities and 
                                Exchange Commission, if the 
                                designated future on a security 
                                is listed on a national 
                                securities exchange; or
                                  (II) to the intermarket 
                                margin board established under 
                                subparagraph (D).
                  (D) Intermarket margin board.--
                          (i) Establishment.--With the 
                        concurrence of the Securities and 
                        Exchange Commission and the Commission, 
                        the Board may establish an intermarket 
                        margin board consisting of the Chairman 
                        of the Board, the Chairman of the 
                        Commission, and the Chairman of the 
                        Securities and Exchange Commission, or 
                        their designees.
                          (ii) Duties.--The intermarket margin 
                        board established under clause (i) may 
                        set and maintain margin levels and 
                        rules pertaining to margin for a 
                        designated future on a security listed 
                        on a contract market or on a national 
                        securities exchange.
                          (iii) Requirement as to designees.--
                        An individual may not be designated as 
                        a member of the intermarket margin 
                        board unless the individual is an 
                        officer of the United States appointed 
                        by the President with the advice and 
                        consent of the Senate.
                  (E) Relationship to other authority.--Nothing 
                in this section supersedes or limits the 
                authority of the Commission under section 
                8a(9).
                  (F) Judicial review.--
                          (i) In general.--Any action taken by 
                        the Board (or by the Commission acting 
                        under the delegation of authority under 
                        subparagraph (C) or by the intermarket 
                        margin board established under 
                        subparagraph (D)) under this paragraph 
                        directing a contract market to alter or 
                        supplement a contract market rule shall 
                        be subject to review only in the United 
                        States Court of Appeals for the 
                        judicial 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.
                          (ii) Basis for review.--Review under 
                        clause (i) shall be based on the 
                        examination of all information before 
                        the Board (or the Commission, 
                        Securities and Exchange Commission, or 
                        intermarket margin board) at the time 
                        at which the action was taken.
                          (iii) Standard of review.--The court 
                        reviewing an action of the Board (or 
                        the Commission, Securities and Exchange 
                        Commission, or intermarket margin 
                        board) shall not enter a stay or order 
                        of mandamus unless the court 
                        determines, after notice and hearing, 
                        that the action was arbitrary, 
                        capricious, an abuse of discretion, or 
                        otherwise not in accordance with law.
          (9) Futures on securities listed on foreign 
        exchanges.--Nothing in this Act requires or authorizes 
        the Commission to review or approve any contract, rule, 
        regulation, or action adopted by a foreign board of 
        trade, exchange, or market, or a clearinghouse for such 
        a board of trade, exchange, or market, relating to any 
        transaction involving a contract of sale for future 
        delivery (or option on such a contract) in any 
        security, including any foreign government debt 
        security, or group or index of such securities, if--
                  (A)(i) in the case of a contract of sale for 
                future delivery (or option on such a contract) 
                in a single equity security, the United States 
                is not the primary trading market for the 
                underlying security; or
                  (ii) in the case of a contract of sale for 
                future delivery (or option on such a contract) 
                in or involving a group or index of equity 
                securities, less than 25 percent of the 
                weighting of the group or index is derived from 
                securities for which the United States is the 
                primary trading market for the securities 
                underlying the contract for future delivery (or 
                option on the contract); and
                  (B) settlement of or delivery on the contract 
                for future delivery (or option on such a 
                contract) is to be effected in cash or by means 
                other than the transfer or receipt of a 
                security in the United States other than an 
                exempted security.
          (10) Suitability standards.--
                  (A) Rules.--
                          (i) In general.--Not later than 270 
                        days after the date of enactment of 
                        this subsection, a registered futures 
                        association shall adopt rules requiring 
                        a futures commission merchant, a 
                        commodity trading advisor, or an 
                        introducing broker that recommends to 
                        any customer the purchase or sale of a 
                        designated future on a security to 
                        ascertain through reasonable due 
                        diligence that the recommendation is 
                        suitable for that customer in light of 
                        the customer's financial position and 
                        trading goals.
                          (ii) Procedure.--Before adopting a 
                        rule under clause (i), a registered 
                        futures association shall--
                                  (I) consult with the 
                                Commission and the Securities 
                                and Exchange Commission; and
                                  (II) submit the proposed rule 
                                to the Commission for approval 
                                in accordance with section 
                                17(j).
                          (iii) Timing.--If the Commission 
                        fails to disapprove a proposed rule 
                        within 90 days after the date on which 
                        the rule is submitted for approval, the 
                        rule shall become effective on the day 
                        after that date.
                  (B) Compliance.--No futures commission 
                merchant, commodity trading advisor, or 
                introducing broker shall recommend to any 
                customer the purchase or sale of a designated 
                future on a security unless the futures 
                commission merchant, commodity advisor, or 
                introducing broker complies with the rules, 
                adopted under subparagraph (A,) of a registered 
                futures association of which suchmerchant, 
                advisor, or broker is a member.
    (h) Exempted Transactions.--
          (1) Exemption.--Except as provided in paragraph (2) 
        and except with respect to a contract, agreement, or 
        transaction in or involving an agricultural commodity 
        specified in section 1a(3), nothing in this Act applies 
        to a contract, agreement, or transaction--
                  (A) that is entered into solely between 
                eligible contract participants;
                  (B) that is not entered into or traded on or 
                through a trading facility; and
                  (C) except for contract, agreement, or 
                transaction submitted for clearance or 
                settlement to a clearinghouse as provided under 
                section 5b, in which the creditworthiness of 
                any party having an actual or potential 
                obligation under the contract, agreement, or 
                transaction would be a material consideration 
                in entering into or determining the terms of 
                the contract, agreement, or transaction 
                (including pricing, cost, credit enhancement 
                terms).
          (2) Reservation of authority.--A contract, agreement, 
        or transaction described in paragraph (1) shall be 
        subject to--
                  (A) sections 4b, 4n, 5b and 12(e)(2)(B);
                  (B) any anti-fraud regulation promulgated by 
                the Commission under section 4c(b); and
                  (C) sections 6(c) and 9(a)(2), to the extent 
                that those provisions prohibit manipulation of 
                the market price of any commodity in interstate 
                commerce or for future delivery.
    [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. FINDING AND PURPOSES.

    (a) Finding.--Congress finds that 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, in that such futures 
contracts and options contracts provide 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) Purposes.--The purposes of this Act are--
          (1) to serve the public interest 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; and
          (2) to authorize the Commission--
                  (A) to deter and prevent price manipulation 
                or any other disruptions to market integrity;
                  (B) to ensure the financial integrity of all 
                transactions subject to this Act and the 
                avoidance of systemic risk;
                  (C) to protect all market participants from 
                fraudulent or other abusive sales practices and 
                misuse of customer assets; and
                  (D) to promote responsible innovation and 
                fair competition among boards of trade, other 
                markets, and market participants.
    Sec. 4. (a) Unless exempted by operation of section 5d or 
unless exempted by the Commission * * *
          (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)] 
section 2(g)), if the Commission determines that the exemption 
would be consistent with the public interest.

           *       *       *       *       *       *       *

    (2)(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. EXCESSIVE SPECULATION AS BURDEN ON INTERSTATE COMMERCE.

    (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 facilities 
as the Commission

           *       *       *       *       *       *       *

    (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 derivatives transaction 
        execution facilities or markets 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 
        facilities in excess of any position limit fixed by the 
        Commission for or with respect to such commodity.

           *       *       *       *       *       *       *

    (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, 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 transactionexecution 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. CONTACTS DESIGNED TO DEFRAUD OR MISLEAD.

    (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

           *       *       *       *       *       *       *

[SEC. 4C PROHIBITED TRANSACTIONS

    [(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.
    (b) No person shall offer to enter into, * * *

           *       *       *       *       *       *       *

    (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 or 
derivatives transaction execution facility who is present on 
the floor at the time such order is placed.

SEC. 4D. DEALING BY UNREGISTERED FUTURES COMMISSION MERCHANTS OR 
                    INTRODUCING MERCHANTS PROHIBITED.

    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 futuredelivery, on or subject to the rules of any 
contract market or derivatives transaction execution facility unless--

           *       *       *       *       *       *       *

          (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, 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. REQUIRED REGISTRATION OF FLOOR TRADERS AND FLOOR BROKERS.

    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. REGISTRATION OF FUTURES COMMISSION MERCHANTS, INTRODUCING 
                    BROKERS, AND FLOOR BROKERS.

    (a) 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.
    (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 or derivatives transaction 
execution facility in its bylaws, rules, regulations, or 
resolutions and approved by the Commission as adequate to 
effectuate the purposes of this subsection * * *

           *       *       *       *       *       *       *

                  (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. REPORTING AND RECORDKEEPING.

           *       *       *       *       *       *       *

    (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 entity when such determinations are warranted in the 
judgment of the Commission.

SEC. 4H. FALSE SELF-REPRESENTATION AS [CONTRACT MARKET] REGISTERED 
                    ENTITY MEMBER PROHIBITED.

    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. REPORTS OF DEALS EQUAL TO OR IN EXCESS OF TRADING LIMIT.

    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--

           *       *       *       *       *       *       *

[SEC. 4J. TRADES AND EXECUTIONS BY FLOOR BROKERS.

    [(a)(1) The Commission shall issue regulations to prohibit 
the privilege of dual trading on each contract market which has 
not been exempted from such regulations under paragraph (3). 
The regulations issued by the Commission under this paragraph--
          [(A) shall provide that the prohibition of dual 
        trading thereunder shall take effect not less than 
        thirty days after the issuance of the regulations;
          [(B) shall provide for exceptions, as the Commission 
        determines necessary and appropriate, to ensure 
        fairness and orderly trading in affected contract 
        markets, including--
                  [(i) transition measures and a reasonable 
                phase-in period,
                  [(ii) exceptions for spread transactions and 
                the correction of trading errors,
                  [(iii) allowance for a customer to designate 
                in writing not less than once annually a named 
                floor broker to execute orders for such 
                customer, notwithstanding the regulations to 
                prohibit the privilege of dual trading required 
                under this paragraph, and
                  [(iv) other measures reasonably designed to 
                accommodate unique or special characteristics 
                of individual boards of trade or contract 
                markets, to address emergency or unusual market 
                conditions, or otherwise to further the public 
                interest;
          [(C) shall establish procedures for the application 
        for and issuance of exemptions under paragraph (3) 
        which, among other things, shall specify the relevant 
        data required to be submitted by the board of trade 
        with each application;
          [(D) shall specify the methodology by which it shall 
        determine the average daily trading volume on a 
        contract market for purposes of paragraph (4) based on 
        a moving daily average of either six or twelve months; 
        and
          [(E) shall establish an expeditious procedure to 
        revoke an exemption granted under paragraph (3) 
        providing sufficient notice, opportunity for hearing, 
        and findings to assure fundamental fairness.
    [(2) As used in this section, the term ``dual trading'' 
means the execution of customer orders by a floor broker during 
any trading session in which the floor broker executes any 
trade in the same contract market for--
          [(A) the account of such floor broker;
          [(B) an account for which such floor broker has 
        trading discretion; or
          [(C) an account controlled by a person with whom such 
        floor broker is subject to trading restrictions under 
        section 4j(d).
    [(3) The Commission shall exempt a contract market 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) with regard to violations attributable to dual 
        trading at such contract market; or
          [(B)(i) there is a substantial likelihood that a dual 
        trading suspension would harm the public interest in 
        hedging or price basing at such contract market, and
          [(ii) other corrective actions, such as those 
        described in section 8e, are sufficient and appropriate 
        to bring the contract market into compliance with the 
        standard in subparagraph (A).
    [(4)(A) The regulations issued by the Commission under 
paragraph (1) shall not apply to any contract market in which 
the Commission determines that the average daily trading volume 
is less than the threshold trading level established for the 
contract market under this paragraph.
    [(B) The threshold trading level shall be set initially at 
eight thousand contracts.
    [(C) The Commission may, by rule or order--
          [(i) increase, or
          [(ii) at any time following the date three years 
        after the date of enactment of this paragraph, 
        decrease, the threshold trading level for specific 
        contract markets after taking into consideration the 
        actual or potential effects of a dual trading ban on 
        the public interest in hedging or price basing at the 
        affected contract market.
    [(D) The Commission shall provide the affected contract 
market with adequate notice of any such increase or decrease.
    [(5) Before the Commission denies an application for an 
exemption under paragraph (3) or exempts a contract market 
subject to conditions, it shall--
          [(A) provide the affected board of trade with notice 
        of the reason or reasons that the application was not 
        approved as submitted, including--
                  [(i) any reason the Commission has to believe 
                that the trade monitoring system in place at 
                the contract market does not satisfy the 
                requirements of paragraph (3)(A) and the basis 
                for such reason;
                  [(ii) any corrective action or actions, such 
                as those described in section 8e, that the 
                Commission believes the affected contract 
                market must take to satisfy the requirements of 
                paragraph (3)(A), and an acceptable timetable 
                for such corrective action; and
                  [(iii) any conditions or limitations that the 
                Commission proposes to attach to the exemption 
                under paragraph (3);
          [(B) provide the affected board of trade 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 board of trade, 
        through an oral presentation of views and comments to 
        the Commission, in order to make the demonstration 
        required under paragraph (3) or otherwise to petition 
        the Commission with respect to its application; and
          [(C) make findings, based on the information, views, 
        and arguments placed before it in connection with the 
        application, as to whether--
                  [(i) the standard in either paragraph (3)(A) 
                or (3)(B) applies, and
                  [(ii) any conditions or limitations which the 
                Commission proposes to attach under paragraph 
                (3) are appropriate in light of the purposes of 
                this subsection.
The Commission shall publish in the Federal Register notice of 
any exemptive petitions filed under paragraph (3) and any 
proposed or final actions the Commission may take on such 
petitions. Unless the Commission determines that more immediate 
action is appropriate in the public interest, any Commission 
order denying an application or exempting a contract market 
conditionally shall not take effect for at least twenty days 
following the issuance of the order.
    [(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 or 
        6(a).
    [(7) Any board of trade which has applied to the Commission 
to exempt a contract market from the regulations issued under 
paragraph (1) may obtain judicial review of any final action of 
the Commission to deny such application, to issue an exemption 
subject to conditions, or to revoke an exemption, 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.
    [(8)(A) The Commission shall issue the regulations required 
under paragraph (1) not later than two hundred and seventy days 
after the enactment of this section. If, prior to the effective 
date of the prohibition on dual trading under such regulations, 
a board of trade submits to the Commission an application for 
an exemption for a contract market under paragraph (3), the 
Commission shall not apply the prohibition against dual trading 
under paragraph (1) to the contract market until the Commission 
has approved or denied the application.
    [(B) The Commission shall approve or deny any application 
for an exemption under paragraph (3) within seventy-five days 
after receipt of the application, or as soon as practicable.
    [(b) If, in addition to the regulations issued pursuant to 
subsection (a), the Commission has reason to believe that dual 
trading-related or facilitated abuses are not being or cannot 
be effectively addressed by subsection (a), the Commission 
shall make a determination, after notice and opportunity for 
hearing, whether or not a floor broker may trade for his own 
account or any account in which such broker has trading 
discretion, and also execute a customer's order for future 
delivery and, if the Commission determines that such trades and 
such executions shall be permitted, the Commission shall 
further determine the terms, conditions, and circumstances 
under which such trades and such executions shall be conducted: 
Provided, That any such determination shall, at a minimum, take 
into account the effect upon the liquidity of trading of each 
market: And provided further, That nothing herein shall be 
construed to prohibit the Commission from making separate 
determinations for different contract markets when such are 
warranted in the judgment of the Commission, or to prohibit 
contract markets from setting terms and conditions more 
restrictive than those set by the Commission.
    [(c) The Commission shall within nine months after the 
effective date of the Commodity Futures Trading Commission Act 
of 1974, and subsequently when it determines that changes are 
required, make a determination, after notice and opportunity 
for hearing, whether or not a futures commission merchant may 
trade for its own account or any proprietary account, as 
defined by the Commission, and if the Commission determines 
that such trades shall be permitted, the Commission shall 
further determine the terms, conditions, and circumstances 
under which such trades shall be conducted: Provided, That any 
such determination, at a minimum, shall take into account the 
effect upon the liquidity of trading of each market: And 
provided further, That nothing herein shall be construed to 
prohibit the Commission from making separate determinations for 
different contract markets when such are warranted in the 
judgment of the Commission, or to prohibit contract markets 
from setting terms and conditions more restrictive than those 
set by the Commission.
    [(d)(1) Except as provided in paragraph (2), a floor broker 
may not execute an order of a customer if such floor broker 
knows the opposite party to the transaction to be a floor 
broker or floor trader with whom such trader or broker has a 
relationship involving trading on such contract market as--
          [(A) a partner in a partnership;
          [(B) an employer or employee; or
          [(C) Such other affiliation as the Commission may 
        specify by rule.
    [(2) Paragraph (1) shall not apply--
          [(A) if the Commission has adopted rules that the 
        Commission certifies to Congress require procedures and 
        standards designed to prevent violations of this Act 
        attributable to the trading described in paragraph (1); 
        or
          [(B) to any contract market that has implemented 
        rules designed to prevent violations of this Act 
        attributable to the trading described in paragraph (1), 
        except that, if the Commission determines, by rule or 
        order, that such rules are not adequate to prevent such 
        violations, paragraph (1) shall become effective with 
        respect to such contract market after a reasonable 
        period determined by the Commission.]

SEC. 4[K]J. REGISTRATION OF ASSOCIATES OF FUTURES COMMISSION MERCHANTS, 
                    COMMODITY POOL OPERATORS, AND COMMODITY TRADING 
                    ADVISORS.

           *       *       *       *       *       *       *

SEC. 4[L]K. COMMODITY TRADING ADVISORS AND COMMODITY POOL OPERATORS.

    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--

           *       *       *       *       *       *       *

          (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. 4[M]L. USE OF MAILS OR OTHER MEANS OR INSTRUMENTALITIES OF 
                    INTERSTATE COMMERCE BY COMMODITY TRADING ADVISORS 
                    AND COMMODITY POOL OPERATORS.

           *       *       *       *       *       *       *

SEC. 4[N]M. REGISTRATION OF COMMODITY TRADING ADVISORS AND COMMODITY 
                    POOL OPERATORS.

           *       *       *       *       *       *       *

SEC. 4[O]N. FRAUD AND MISREPRESENTATION BY COMMODITY TRADING ADVISORS, 
                    COMMODITY POOL OPERATORS, AND ASSOCIATED PERSONS.

           *       *       *       *       *       *       *

SEC. 4[P]O. STANDARDS AND EXAMINATIONS.

    (a) * * * 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.

           *       *       *       *       *       *       *

    (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. 5. DESIGNATION OF BOARD OF TRADE AS ``CONTRACT MARKET''

    [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 and conducted 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. DUTIES OF CONTRACT MARKETS

    [(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 board thereof 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 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 the Commission'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;
                  [(ii) continually provides such data to the 
                contract market;
                  [(iii) identifies such time, to the extent 
                practicable as determined by the Commission--
                          [(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. 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.
          (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 designated 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 data 
        entry and 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 (including a 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 board of trade, 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 provide for meaningful 
        representation on its governing board of the diversity 
        of interests that trade on that contract market.
          (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 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 
                during that 2-year period 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 appropriate to 
        achieve the purposes of this Act, the board of trade 
        shall avoid--
                  (A) adopting any rule or taking any action 
                that results in any unreasonable restraint of 
                trade; or
                  (B) imposing any material anticompetitive 
                burden on trading on the contract market.

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) that is 
        not a designated future on a security 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 highly unlikely to be 
                susceptible to manipulation;
                  (C) the underlying commodity has no cash 
                market;
                  (D)(i) the underlying commodity is not an 
                agricultural commodity specified in section 
                1a(3); and
                  (ii) trading access to the derivatives 
                transaction execution facility is limited to 
                eligible commercial participants trading for 
                their own account; or
                  (E) the Commission determines, based on the 
                market characteristics, surveillance history, 
                self-regulatory record, and capacity of the 
                facility that trading in the futures contract 
                is unlikely to be 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 adjusted 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.
    (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 
        paragraph.
          (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.
          (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 
        derivatives transaction execution 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 representative of the Commission or the 
                Department of Justice.
          (9) Antitrust considerations.--Unless appropriate to 
        achieve the purposes of this Act, the board of trade 
        shall avoid--
                  (A) adopting any rule or taking any action 
                that results in any unreasonable restraint of 
                trade; or
                  (B) imposing any material anticompetitive 
                burden on trading on the derivatives 
                transaction execution facility.
    (e) Use of Broker-Dealers and 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) a broker-dealer be in good standing with 
                the Securities and Exchange Commission and a 
                depository institution or institution of the 
                Farm Credit System be in good standing, as 
                determined by the appropriate Federal banking 
                agency (as defined in section 3 of the Federal 
                Deposit Insurance Act (12 U.S.C. 1813)) 
                (including the Farm Credit Administration), as 
                applicable; and
                  (B) if a 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 Transactions.--
          (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 that are excluded from this Act under 
        subsection (c) or (d) of section 2.
          (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(8).
    (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 contract of sale for future 
        delivery, option on a contract of sale for future 
        delivery, or option on a commodity that is not a 
        security (unless the contract or option is excluded 
        under subsection (c) or (d) of section 2).
    (c) Voluntary Registration.--A derivatives clearing 
organization that is 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 
                appropriate to achieve the purposes of this 
                Act, the derivatives clearing organization 
                shall avoid--
                          (i) adopting any rule or taking any 
                        action that results in any unreasonable 
                        restraint of trade; or
                          (ii) imposing 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 
        the core principles for registered entities specified 
        in sections 5(d), 5a(d), and 5b(d)(2) to describe what 
        would constitute an acceptable business practice under 
        the core principles.
          (2) Timing.--If any person submits to the Commission 
        a request for an interpretation or for approval of an 
        interpretation under paragraph (1), the Commission 
        shall issue the interpretation or shall approve or 
        disapprove the interpretation not later than 45 days 
        after receiving the request.
          (3) Effect of interpretation.--An interpretation 
        issued under paragraph (1) shall not provide the 
        exclusive means for complying with the core principles.
    (b) Delegation of Functions Under Core Principles.--
          (1) In general.--A registered entity 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 registered entity 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.--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, rule, or rule 
        amendment that relates to or affects a government 
        security) 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) 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.
                  (C) Agricultural contracts.--Notwithstanding 
                any other provision of this section, a 
                designated contract market shall submit for 
                prior approval by the Commission each rule 
                amendment that materially changes a term or 
                condition in any contract of sale of a 
                commodity for future delivery or related option 
                traded through the facilities of the designated 
                contract market, if--
                          (i) the commodity is specifically 
                        listed in section 1a(3); and
                          (ii) the rule amendment applies to 
                        contracts and delivery months that have 
                        previously been listed for trading and 
                        have open interest.
          (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) Violation of Core Principles.--
          (1) In general.--If the Commission determines, on the 
        basis of substantial evidence, that a registered entity 
        is violating any of the applicable core principles 
        specified in sections 5(d), 5a(d), and 5b(d)(2), the 
        Commission shall--
                  (A) notify the registered entity of the 
                determination; and
                  (B) afford the registered entity an 
                opportunity to make appropriate changes to 
                bring the registered entity into compliance 
                with the core principles.
          (2) Failure to make changes.--If, not later than 30 
        days after receiving a notification under paragraph 
        (1), a registered entity fails to make changes that, in 
        the opinion of the Commission, are necessary to 
        accomplish the objectives of the core principles, the 
        Commission may take further action in accordance with 
        this Act.
    (e) Reservation of Emergency Authority.--Notwithstanding 
any other provision of this section, the Commission shall 
retain the full scope of its emergency powers under section 
8a(9) to direct any contract market to take emergency action in 
compliance with the provisions and standards of section 8a(9).
    (f) Core Principles for Intermediaries.--The Commission 
shall--
          (1) review the provisions of this Act relating to 
        registered entities and intermediaries (including the 
        regulations and interpretations applying those 
        provisions); and
          (2) to the extent appropriate and consistent with 
        this Act, administer those provisions in a manner that 
        is consistent with core principles and interpretations 
        of acceptable business practices for intermediaries as 
        described in this section.
    (g) Effect of Act.--Nothing in this Act--
          (1) prohibits an exchange of--
                  (A) futures in connection with a cash 
                commodity transaction;
                  (B) futures for cash commodities;
                  (C) transfer trades or office trades; or
                  (D) futures for swaps; or
          (2) prohibits a futures commission merchant, acting 
        as a principal or agent, from entering into or 
        confirming the execution of a contract for the purchase 
        or sale of a commodity for future delivery if the 
        contract is reported, recorded, and cleared in 
        accordance with the rules of the contract market.

 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 
                manipulation; or
                  (C) no cash market;
          (2) that are entered into only between persons that--
                  (A) are eligible contract participants at the 
                time at which the persons enter into the 
                contract; or
                  (B) enter into the contract or option for the 
                benefit only of eligible contract participants; 
                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) Anti-manipulation 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 for future 
delivery, or related option, to the extent that such an 
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 
establishinga separate subsidiary or other legal entity and 
otherwise satisfying the requirements of this section.

[SEC. 5B. SUSPENSION OR REVOCATION OF DESIGNATION AS ``CONTRACT 
                    MARKET''

    [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 commission5b-1 
thereunder, shall be cause for suspending for a period not to 
exceed six months or 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. 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. 6. APPLICATION FOR DESIGNATION AS ``[CONTRACT MARKET] REGISTERED 
                    ENTITY''.

    (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 registered entity 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 registered entity 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 therefore, such board of trade] 
designate or register as a registered entity any person that 
has made application therefore, 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 registered entity on a showing that such 
[board of trade] 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 sections 5 through 5c or that 
such [board of trade] registered entity, 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] 
registered entity 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) Exclusion of Persons From Privilege of ``[Contract 
Markets] Registered Entity; Enforcement Powers of Commission.--
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] 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 or any 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] 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.
    The first, second, and tenth sentences through the end of 
section 6(c) are classified to 7 U.S.C. 9. The third through 
the ninth sentence of section 6(c) are classified to 7 U.S.C. 
15.
    (d) Manipulations or Other Violations.--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, * * *

           *       *       *       *       *       *       *

    (e) Assessment of Money Penalties.--
          (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 thesatisfaction 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
                  (B) if such person is registered with the 
                Commission, such registration shall be 
                suspended automatically.
          If the person against whom the money penalty is 
        assessed fails to pay such penalty after the lapse of 
        the period allowed for appeal or after the affirmance 
        of such penalty, the Commission may refer the matter to 
        the Attorney General who shall recover such penalty by 
        action in the appropriate United States district court.

SEC. 6A. COOPERATIVE ASSOCIATIONS AND CORPORATIONS, EXCLUSION FROM 
                    BOARD OF TRADE.

      (a) No board of trade which has been designated as a 
[``contract market''] designated or registered as a contract 
market or a derivatives transaction execution facility shall 
exclude from membership in, and all privileges on, such board 
of trade, any association or corporation

           *       *       *       *       *       *       *

    (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

           *       *       *       *       *       *       *

SEC. 6B. NONENFORCEMENT OF RULES OF GOVERNMENT OR OTHER VIOLATIONS.

    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 sections 5 through 
5c, or if any [contract market] registered entity, or any 
director, officer, agent, or employee of any contract market 
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 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. ACTION TO ENJOIN OR RESTRAIN VIOLATIONS.

    (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 any commodity for future delivery,

           *       *       *       *       *       *       *

SEC. 6D. JURISDICTION OF STATES.

    (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

           *       *       *       *       *       *       *

SEC. 7. VACATION OF REQUEST OF DESIGNATION AS ``[CONTRACT MARKET] 
                    REGISTERED ENTITY.

    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. PUBLIC DISCLOSURE.

           *       *       *       *       *       *       *

    (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

           *       *       *       *       *       *       *

SEC. 8A. THE COMMISSION IS AUTHORIZED.

           *       *       *       *       *       *       *

          (1)(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 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;

           *       *       *       *       *       *       *

          (2)(F) if such person is subject to an outstanding 
        order of the Commission denying [trading privileges] 
        privileges on any contract market to such person, 
        denying, suspending * * *

           *       *       *       *       *       *       *

          (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;

           *       *       *       *       *       *       *

          (N) any principal, as defined in paragraph (2) of 
        this section, of such person has been or could be 
        refused registration

           *       *       *       *       *       *       *

          (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,* * * Nothing herein shall be deemed 
        to limit the meaning or interpretation given by a 
        [contract market] registered entity to the terms 
        ``market emergency'', ``emergency'', or equivalent 
        language in its own bylaws, rules, regulations, or 
        resolutions;

SEC. 8B. TRADING BAN VIOLATIONS.

    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.

SEC. 8C. DISCIPLINARY ACTIONS.

    (a)(1) Any exchange or the Commission if the exchange fails 
to act, may suspend, expel, or otherwise discipline any person 
who is a member of that exchange, or deny any person access to 
the exchange. Any such action shall be taken solely in 
accordance with the rules of that exchange.
    (2) Any suspension, expulsion, disciplinary, or access 
denial procedure established by an exchange rule shall provide 
for written notice to the Commission and to the person who is 
suspended, expelled, or disciplined, or denied access, within 
thirty days, which includes the reasons for the exchange action 
in the form and manner the Commission prescribes. An exchange 
shall make public its findings and the reasons for the exchange 
action in any such proceeding, including the action taken or 
the penalty imposed, but shall not disclose the evidence 
therefor, except to the person who is suspended, expelled, or 
disciplined, or denied access, and to the Commission.
    (b) The Commission may, in its discretion and in accordance 
with such standards and procedures as it deems appropriate, 
review any decision by an exchange whereby a person is 
suspended, expelled, otherwise disciplined, or denied access to 
the exchange. In addition, the Commission may, in its 
discretion and upon application of any person who is adversely 
affected by any other exchange action, review such action.
    (c) The Commission may affirm, modify, set aside, or remand 
any exchange decision it reviews pursuant to subsection (b), 
after a determination on the record whether the action of 
theexchange was in accordance with the policies of this Act. Subject to 
judicial review, any order of the Commission entered pursuant to 
subsection (b) shall govern the exchange in its further treatment of 
the matter.
    (d) The Commission, in its discretion, may order a stay of 
any action taken pursuant to subsection (a) pending review 
thereof.
    (e)(1) The Commission shall issue regulations requiring 
each [contract market] registered entity 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.
    (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 individual who is found to 
have committed any major violation from service on the 
governing board of any [contract market] registered entity or 
registered futures association, or on any disciplinary 
committee thereof

           *       *       *       *       *       *       *

SEC. 9. VIOLATIONS GENERALLY.

    (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:

           *       *       *       *       *       *       *

          (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)] section 4n(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 * * *

           *       *       *       *       *       *       *

          (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 was obtained 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 * * *

SEC. 12. COMMISSION OPERATIONS.

           *       *       *       *       *       *       *

    (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 anti-fraud 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 
        (including any regulation) 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 (including any 
                regulation), in the case of 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); and
                          (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 anti-fraud provisions of 
                general applicability) in the case of--
                          (i) an excluded trading facility 
                        under section 2(e); or
                          (ii) an agreement, contract, or 
                        transaction that--
                                  (I) is excluded under 
                                subsection (c), (d), or (f) of 
                                section 2; or
                                  (II) 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
          (3) the application * * *

           *       *       *       *       *       *       *

SEC. 14. COMPLAINTS AGAINST REGISTERED PERSONS.

    (a)(1) Any person complaining of any violation * * *

           *       *       *       *       *       *       *

                  (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 days after the expiration of such 
stay, unless prior thereto the judgment of the court has been 
satisfied.
    [(g) The provisions of this section shall not become 
effective until fifteen months after the date of its enactment: 
Provided, That claims which arise within one year immediately 
prior to the effective date of this section may be heard by the 
Commission after such 15-month period.]
    (g) Predispute Resolution Agreements for Institutional 
Customers.--Nothing in this Act prohibits a registered futures 
commission merchant from requiring a customer that is an 
eligible contract participant, as a condition to the commission 
merchant's conducting a transaction for the customer, to enter 
into an agreement--
          (1) waiving the right to file a claim under this 
        section; and
          (2) otherwise agreeing to submit any claim the 
        customer may have against the futures commission 
        merchant to binding arbitration pursuant to the rules 
        and procedures of a registered entity or registered 
        futures association or any other forum authorized to 
        hear such claims.

[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] 
registered entity or registered futures association established 
pursuant to section 17 of this Act.

SEC. 15. 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] registered entities or 
registered futures association established pursuant to section 
17 of this Act.

           *       *       *       *       *       *       *

SEC. 17. REGISTERED FUTURES ASSOCIATIONS

           *       *       *       *       *       *       *

    (b) An applicant association shall not be registered as a 
futures association unless the Commission finds, under 
standards established by the Commission, that

           *       *       *       *       *       *       *

          (2) the rules of the association provide that any 
        person registered under this Act, [contract market] 
        registered entities, 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 * * * 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 entities or has been and is barred 
        or suspended from being associated with all members of 
        such [contract market] registered entities, for 
        violation of any rule of such [contract market] 
        registered entities;
          (3) * * *
                  (A) has been and is suspended or expelled 
                from a registered futures association or from a 
                [contract market] registered entities 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 entities, for 
                violation of any rule of such association or 
                [contract market] registered entities 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 entities, 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 
                entities 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 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 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 entities, such procedure shall 
        provide, to the extent appropriate--

           *       *       *       *       *       *       *

    (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 entities 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)(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 entities, 
or on any disciplinary committee thereof * * *

           *       *       *       *       *       *       *

SEC. 22. PRIVATE RIGHTS OF ACTION.

    (a)(1) Any person (other than a contract market, clearing 
organization of a [contract market, licensed board of trade] 
registered entity, 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 * * *

           *       *       *       *       *       *       *

          (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)] 
``sections 5(d)(13), 5b(d)(2)(H)(i),'', 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 * * *
    (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--

           *       *       *       *       *       *       *

    (4) Contract enforcement between eligible counterparties.--
No agreement, contract, or transaction between eligible 
contract participants shall be void, voidable, or 
unenforceable, and no such 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)] sections 5 through 
5c of this Act, (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 either case 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 inparagraph (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

           *       *       *       *       *       *       *

                              ----------                              

     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.

                                  

```