II 

Calendar No. 191 

109TH CONGRESS 

1ST SESSION S. 1566 

[Report No. 109–119] 

To reauthorize the Commodity Exchange Act, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JULY 29, 2005 

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

reported the following original bill; which was read twice and placed on 

the calendar 

A BILL

To reauthorize the Commodity Exchange Act, and for other 

purposes.

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Commodity Exchange 

5 Reauthorization Act of 2005’’. 

6 SEC. 2. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD. 

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

8 6b) is amended— 
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1 (1) by redesignating subsections (b) and (c) as 

2 subsections (c) and (d), respectively; and 

3 (2) by striking ‘‘Sec. 4b’’ and all that follows 

4 through the end of subsection (a) and inserting the 

5 following: 

6 ‘‘SEC. 4b. CONTRACTS DESIGNED TO DEFRAUD OR MIS7 LEAD. 

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

9 ‘‘(1) for any person, in or in connection with 

10 any order to make, or the making of, any contract 

11 of sale of any commodity in interstate commerce or 

12 for future delivery that is made, or to be made, on 

13 or subject to the rules of a designated contract mar14 ket, for or on behalf of any other person; or 

15 ‘‘(2) for any person, in or in connection with 

16 any order to make, or the making of, any contract 

17 of sale of any commodity for future delivery, or 

18 other agreement, contract, or transaction subject to 

19 paragraphs (1) and (2) of section 5a(g), that is 

20 made, or to be made, for or on behalf of, or with, 

21 any other person, other than on or subject to the 

22 rules of a designated contract market— 

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

24 cheat or defraud such other person; 
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1 ‘‘(B) willfully to make or cause to be made 

2 to such other person any false report or state3 ment or willfully to enter or cause to be entered 

4 for such other person any false record; 

5 ‘‘(C) willfully to deceive or attempt to de6 ceive such other person by any means whatso7 ever in regard to any order or contract or the 

8 disposition or execution of any order or con9 tract, or in regard to any act of agency per10 formed, with respect to any order or contract 

11 for or, in the case of paragraph (2), with such 

12 other person; or 

13 ‘‘(D)(i) to bucket an order if such order is 

14 either represented by such person as an order 

15 to be executed, or is required to be executed, on 

16 or subject to the rules of a designated contract 

17 market; or 

18 ‘‘(ii) to fill an order by offset against the 

19 order or orders of any other person, or willfully 

20 and knowingly and without the prior consent of 

21 such other person to become the buyer in re22 spect to any selling order of such other person, 

23 or become the seller in respect to any buying 

24 order of such other person, if such order is ei25 ther represented by such person as an order to 
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1 be executed, or is required to be executed, on or 

2 subject to the rules of a designated contract 

3 market unless such order is executed in accord4 ance with the rules of the designated contract 

5 market. 

6 ‘‘(b) CLARIFICATION.—Subsection (a)(2) shall not 

7 obligate any person, in or in connection with a transaction 

8 in a contract of sale of a commodity for future delivery, 

9 or other agreement, contract or transaction subject to 

10 paragraphs (1) and (2) of section 5a(g), with another per11 son, to disclose to such other person nonpublic information 

12 that may be material to the market price, rate or level 

13 of such commodity or transaction, except as necessary to 

14 make any statement made to such other person in or in 

15 connection with such transaction, not misleading in any 

16 material respect.’’. 

17 SEC. 3. CRIMINAL AND CIVIL PENALTIES. 

18 (a) ENFORCEMENT POWERS OF THE COMMISSION.—

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

20 9, 15) is amended in paragraph (3) of the 10th sentence— 

21 (1) by inserting ‘‘(A)’’ after ‘‘assess such per22 son’’; and 

23 (2) by inserting after ‘‘each such violation’’ the 

24 following: ‘‘, or (B) in any case of manipulation of, 

25 or attempt to manipulate, the price of any com-
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1 modity, a civil penalty of not more than the greater 

2 of $1,000,000 or triple the monetary gain to such 

3 person for each such violation,’’. 

4 (b) NONENFORCEMENT OF RULES OF GOVERNMENT

5 OR OTHER VIOLATIONS.—Section 6b of the Commodity 

6 Exchange Act (7 U.S.C. 13a) is amended— 

7 (1) in the 1st sentence, by inserting before the 

8 period at the end the following: ‘‘, or, in any case 

9 of manipulation of, or an attempt to manipulate, the 

10 price of any commodity, a civil penalty of not more 

11 than $1,000,000 for each such violation’’; and 

12 (2) in the 2nd sentence, by inserting before the 

13 period at the end the following: ‘‘, except that if the 

14 failure or refusal to obey or comply with the order 

15 involved any offense under section 9(a)(2), the reg16 istered entity, director, officer, agent, or employee 

17 shall be guilty of a felony and, on conviction, shall 

18 be subject to penalties under section 9(a)(2)’’. 

19 (c) ACTION TO ENJOIN OR RESTRAIN VIOLATIONS.—

20 Section 6c(d) of the Commodity Exchange Act (7 U.S.C. 

21 13a–1(d)) is amended by striking ‘‘(d)’’ and all that fol22 lows through the end of the paragraph (1) and inserting 

23 the following: 

24 ‘‘(d) CIVIL PENALTIES.— 
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1 ‘‘(1) IN GENERAL.—In any action brought 

2 under this section, the Commission may seek and 

3 the court shall have jurisdiction to impose, on a 

4 proper showing, on any person found in the action 

5 to have committed any violation— 

6 ‘‘(A) a civil penalty in the amount of not 

7 more than the greater of $100,000 or triple the 

8 monetary gain to the person for each violation; 

9 or 

10 ‘‘(B) in any case of manipulation of, or an 

11 attempt to manipulate, the price of any com12 modity, a civil penalty in the amount of not 

13 more than the greater of $1,000,000 or triple 

14 the monetary gain to the person for each viola15 tion.’’. 

16 (d) VIOLATIONS GENERALLY.— 

17 (1) IN GENERAL.—Section 9 of the Commodity 

18 Exchange Act (7 U.S.C. 13) is amended— 

19 (A) in subsection (a), in the matter pre20 ceding paragraph (1)— 

21 (i) by striking ‘‘(or $500,000 in the 

22 case of a person who is an individual)’’; 

23 and 

24 (ii) by striking ‘‘five years’’ and in25 serting ‘‘10 years’’; 
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1 (B) by redesignating subsection (f) as sub2 section (e); 

3 (C) in paragraph (1) of subsection (e) (as 

4 redesignated by subparagraph (B)), by striking 

5 the period at the end and inserting ‘‘; or’’; and 

6 (D) by adding at the end the following: 

7 ‘‘(f) COMMISSION ADMINISTRATIVE AND CIVIL AU8 THORITY.—The Commission may bring an administrative 

9 or civil action under this Act for an alleged violation of 

10 any provision of this section.’’. 

11 (2) EFFECT OF CLARIFICATION.—The amend12 ment made by paragraph (1)(D) restates, without 

13 substantive change, Commission civil enforcement 

14 authority in effect on the date of enactment of this 

15 Act, which continues to apply to any action pending 

16 on or commenced after the date of enactment of this 

17 Act for any alleged violation occurring before, on, or 

18 after, that date. 

19 SEC. 4. CLARIFICATION OF AUTHORITY. 

20 Section 2(c)(2) of the Commodity Exchange Act (7 

21 U.S.C. 2(c)(2)) is amended by striking subparagraphs (B) 

22 and (C) and inserting the following: 

23 ‘‘(B) AGREEMENTS, CONTRACTS, AND

24 TRANSACTIONS IN RETAIL FOREIGN CUR25 RENCY.— 
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1 ‘‘(i) IN GENERAL.—This Act applies 

2 to, and the Commission shall have jurisdic3 tion over, any agreement, contract, or 

4 transaction in foreign currency (including 

5 agreements, contracts, or transactions de6 scribed in subsection (a)(1)(A)), and any 

7 person who engages in any activity in con8 nection with any agreement, contract, or 

9 transaction in foreign currency, that is— 

10 ‘‘(I) offered to, or entered into 

11 with, a person that is not an eligible 

12 contract participant; 

13 ‘‘(II) offered, or entered into, on 

14 a leveraged, margined, or financed on 

15 a similar basis; and 

16 ‘‘(III) offered, or entered into, 

17 for purposes other than commercial or 

18 personal use of such foreign currency, 

19 except that personal use shall include 

20 only those agreements, contracts, or 

21 transactions in which a person takes 

22 immediate ownership and possession 

23 of foreign currency. 

24 ‘‘(ii) EXCLUSIONS.—Subparagraph 

25 (B)(i) shall not apply if the counterparty, 
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1 or the person offering to be the 

2 counterparty, of the person that is not an 

3 eligible contract participant is— 

4 ‘‘(I) a financial institution; 

5 ‘‘(II) a broker or dealer reg6 istered under section 15(b) of the Se7 curities Exchange Act of 1934 (15 

8 U.S.C. 78o(b)) (except notice registra9 tion under paragraph (11)(A) of that 

10 section) or under section 15C of that 

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

12 each person who participates in the 

13 solicitation or recommendation of the 

14 agreement, contract, or transaction 

15 is— 

16 ‘‘(aa) registered under sec17 tion 15(b) or 15C of that Act (15 

18 U.S.C. 78o(b), 78o–5); 

19 ‘‘(bb) an individual reg20 istered with a securities associa21 tion registered under section 

22 15A(a) of that Act (15 U.S.C. 

23 78o–3(a)); and 

24 ‘‘(cc) a member or associate 

25 of a securities association reg-
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1 istered under section 15A(a) of 

2 that Act (15 U.S.C. 78o–3(a)); 

3 ‘‘(III) a person that is registered 

4 as a futures commission merchant 

5 under this Act, provided that each 

6 person who participates in the solici7 tation or recommendation of the 

8 agreement, contract, or transaction 

9 is— 

10 ‘‘(aa) registered under sec11 tion 4d, 4k, or 4m; and 

12 ‘‘(bb) a member or associate 

13 of a futures association reg14 istered under section 17; 

15 ‘‘(IV) an insurance company de16 scribed in section 1a(12)(A)(ii), or a 

17 regulated subsidiary or affiliate of 

18 such an insurance company; 

19 ‘‘(V) a financial holding company 

20 (as defined in section 2 of the Bank 

21 Holding Company Act of 1956 (12 

22 U.S.C. 1841)); or 

23 ‘‘(VI) an investment bank hold24 ing company (as defined in section 
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1 17(i) of the Securities Exchange Act 

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

3 ‘‘(C) Notwithstanding subclause (III) of 

4 subparagraph (B)(ii), agreements, contracts, or 

5 transactions described in subparagraph (B), 

6 and persons who engage in any activity in con7 nection with agreements, contracts, or trans8 actions described in subparagraph (B), shall be 

9 subject to subsection (a)(1)(B) and sections 

10 4(b), 4b, 4c(b), 4o, 6(c) and 6(d) (except to the 

11 extent that sections 6(c) and 6(d) prohibit ma12 nipulation of the market price of any com13 modity in interstate commerce, or for future de14 livery on or subject to the rules of any market), 

15 6c, 6d, 8(a), 13(a), and 13(b) if the agree16 ments, contracts, or transactions are offered, or 

17 entered into, by a person that is registered as 

18 a futures commission merchant under this Act. 

19 ‘‘(D) Sections 4(b) and 4b shall apply to 

20 any agreement, contract, or transaction in for21 eign currency described in subparagraphs (B) 

22 and (C) as though the agreement, contract, or 

23 transaction were a contract of sale of a com24 modity for future delivery.’’. 
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1 SEC. 5. AUTHORIZATION OF APPROPRIATIONS. 

2 Section 12(d) of the Commodity Exchange Act (7 

3 U.S.C. 16(d)) is amended by striking ‘‘2005’’ and insert4 ing ‘‘2010’’. 

5 SEC. 6. LIAISON WITH DEPARTMENT OF JUSTICE. 

6 Section 2(a)(9) of the Commodity Exchange Act (7 

7 U.S.C. 2(a)(9)) is amended by adding at the end the fol8 lowing: 

9 ‘‘(C) LIAISON WITH DEPARTMENT OF JUS10 TICE.— 

11 ‘‘(i) IN GENERAL.—The Commission 

12 shall, in cooperation with the Attorney 

13 General, maintain a liaison between the 

14 Commission and the Department of Jus15 tice to coordinate civil and criminal inves16 tigations and prosecutions of violations of 

17 this Act as appropriate. 

18 ‘‘(ii) DESIGNATION.—The Attorney 

19 General shall designate a person as liaison 

20 and take such steps as are necessary to fa21 cilitate communications described in clause 

22 (i).’’. 

23 SEC. 7. SINGLE STOCK FUTURES MARGINING PILOT PRO24 GRAM. 

25 Section 2(a)(1) of the Commodity Exchange Act (7 

26 U.S.C. 2(a)(1)) is amended— 
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1 (1) in subparagraph (C)(v)— 

2 (A) in subclause (I)— 

3 (i) by striking ‘‘other than’’ both 

4 places it appears and inserting ‘‘or’’; and 

5 (ii) by striking ‘‘contract or option’’ 

6 and inserting ‘‘contract, option, or security 

7 futures product’’; 

8 (B) in the first sentence of subclause (II), 

9 by striking ‘‘other than’’ and inserting ‘‘or’’; 

10 and 

11 (C) in subclause (III), by striking ‘‘other 

12 than’’ and inserting ‘‘or’’; and 

13 (2) in subparagraph (D)(i)— 

14 (A) by striking ‘‘(XI) The margin require15 ments’’ and inserting the following: 

16 ‘‘(XI) MARGIN REQUIRE17 MENTS.— 

18 ‘‘(aa) IN GENERAL.—The 

19 margin requirement;’’; and 

20 (B) by adding at the end the following: 

21 ‘‘(bb) PILOT PROGRAM FOR

22 MARGINING SECURITY FUTURES

23 PRODUCTS.—Notwithstanding 

24 any other provision of law, for a 

25 period of 2 years beginning on 
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1 the date of enactment of this 

2 item, an entity that is designated 

3 or registered as a contract mar4 ket or derivatives transaction 

5 execution facility under section 5 

6 and that is also notice-registered 

7 as a national securities exchange 

8 under section 6(g) of the Securi9 ties Exchange Act of 1934 (15 

10 U.S.C. 78f(g)), and its clearing 

11 organization, a futures commis12 sion merchant registered under 

13 this Act, and a broker or dealer 

14 registered under section 15(b) of 

15 that Act (15 U.S.C. 78o(b)), 

16 shall not be required to comply 

17 with item (aa) or subparagraph 

18 (C)(v)(IV). 

19 ‘‘(cc) ACTING IN RELI20 ANCE.—Any entity acting in reli21 ance upon item (bb) shall not be 

22 required to comply with regula23 tions promulgated under section 

24 7(c)(2)(B) of the Securities Ex25 change Act of 1934 (15 U.S.C. 
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1 78g(c)(2)(B)), or with the rules 

2 of a self-regulatory organization 

3 (as defined in section 3(a)(26) of 

4 that Act (15 U.S.C. 78c(a)(26)), 

5 pertaining to levels of initial and 

6 maintenance margin, or with any 

7 regulation that operates to pre8 clude the implementation of risk9 based portfolio margining sys10 tems. 

11 ‘‘(dd) PROMULGATION OF

12 FINAL RULES.—Subject to item 

13 (ee), an entity designated or reg14 istered as a contract market or 

15 derivatives transaction execution 

16 facility under section 5 and that 

17 is notice-registered as a national 

18 securities exchange under section 

19 6(g) of the Securities Exchange 

20 Act of 1934 (15 U.S.C. 78f(g)) 

21 and its clearing organization 

22 shall be permitted to promulgate 

23 final rules to— 

24 ‘‘(AA) set margin re25 quirements for security fu-
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1 tures products, held in any 

2 account, in accordance with 

3 subparagraph (C)(v)(I); and 

4 ‘‘(BB) permit futures 

5 commission merchants reg6 istered under this Act, and 

7 brokers and dealers reg8 istered under section 15(b) 

9 of the Securities Exchange 

10 Act of 1934 (15 U.S.C. 

11 78o(b)), to collect initial and 

12 maintenance margin for se13 curity futures products, held 

14 in any account, in accord15 ance with the rules. 

16 ‘‘(ee) EFFECTIVE DATE AND

17 REVIEWABILITY OF FINAL

18 RULES.—Final rules promulgated 

19 by any entity under item (dd) 

20 shall become effective in accord21 ance with section 5c(c), and, not22 withstanding any other provision 

23 of law, shall not be subject to any 

24 other approval or review require25 ments. 
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1 ‘‘(ff) REPORT.—Not later 

2 than 2 years after the date of en3 actment of this item, the Board 

4 of Governors of the Federal Re5 serve System, after consultation 

6 with the Commission and the Se7 curities and Exchange Commis8 sion, shall submit to the Com9 mittee on Agriculture of the 

10 House of Representatives and the 

11 Committee on Agriculture, Nutri12 tion, and Forestry of the Senate 

13 a report describing the results of 

14 the pilot program for margining 

15 security futures products. 

16 ‘‘(gg) CONTINUATION OF

17 PILOT PROGRAM.—The pilot pro18 gram for margining security fu19 tures products shall continue to 

20 apply unless the report under 

21 item (ff) concludes that the pilot 

22 program has resulted in undue 

23 risks to the financial integrity of 

24 the relevant contract markets or 

25 derivatives transaction execution 
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1 facilities, or to their respective 

2 clearing systems, or has resulted 

3 in systemic risk to financial mar4 kets or undue risk to cus5 tomers.’’. 

6 SEC. 8. BROAD-BASED INDEX DEFINITIONS. 

7 (a) IN GENERAL.—Not later than 180 days after the 

8 date of enactment of this Act, the Commodity Futures 

9 Trading Commission and the Securities and Exchange 

10 Commission shall exercise the authority described in sec11 tion 1a(25)(B)(vi) of the Commodity Exchange Act (7 

12 U.S.C. 1a(25)(B)(vi)) and section 3(a)(55)(C)(vi) of the 

13 Securities Exchange Act of 1934 (15 U.S.C. 

14 78c(a)(55)(C)(vi)) jointly to promulgate a final rule, regu15 lation, or order to exclude from the definition of the term 

16 ‘‘narrow-based security index’’ indexes based on— 

17 (1) United States debt instruments; 

18 (2) other United States securities; 

19 (3) foreign equities; and 

20 (4) foreign debt instruments. 

21 (b) REQUIREMENTS.—The final rule, regulation, or 

22 order established under subsection (a) shall— 

23 (1) be consistent with the capitalization, trading 

24 patterns, and trade reporting conditions in the mar25 ket for securities described in subsection (a); and 
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1 (2) exclude from the definition of the term 

2 ‘‘narrow-based security index’’ indexes that include a 

3 representative sample of a class of securities in the 

4 relevant market if the index is not readily suscep5 tible to manipulation. 
Calendar No. 191 

109TH CONGRESS 

1ST SESSION S. 1566 

[Report No. 109–119] 

A BILL

To reauthorize the Commodity Exchange Act, and 

for other purposes. 

JULY 29, 2005 

Read twice and placed on the calendar