`[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 1566 Placed on Calendar Senate (PCS)]







                                                       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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Commodity Exchange Reauthorization 
Act of 2005''.

SEC. 2. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.

    Section 4b of the Commodity Exchange Act (7 U.S.C. 6b) is amended--
            (1) by redesignating subsections (b) and (c) as subsections 
        (c) and (d), respectively; and
            (2) by striking ``Sec. 4b'' and all that follows through 
        the end of subsection (a) and inserting the following:

``SEC. 4B. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.

    ``(a) Unlawful Actions.--It shall be unlawful--
            ``(1) for any person, in or in connection with any order to 
        make, or the making of, any contract of sale of any commodity 
        in interstate commerce or for future delivery that is made, or 
        to be made, on or subject to the rules of a designated contract 
        market, for or on behalf of any other person; or
            ``(2) for any person, in or in connection with any order to 
        make, or the making of, any contract of sale of any commodity 
        for future delivery, or other agreement, contract, or 
        transaction subject to paragraphs (1) and (2) of section 5a(g), 
        that is made, or to be made, for or on behalf of, or with, any 
        other person, other than on or subject to the rules of a 
        designated contract market--
                    ``(A) to cheat or defraud or attempt to cheat or 
                defraud such other person;
                    ``(B) willfully to make or cause to be made to such 
                other person any false report or statement or willfully 
                to enter or cause to be entered for such other person 
                any false record;
                    ``(C) willfully to deceive or attempt to deceive 
                such other person by any means whatsoever in regard to 
                any order or contract or the disposition or execution 
                of any order or contract, or in regard to any act of 
                agency performed, with respect to any order or contract 
                for or, in the case of paragraph (2), with such other 
                person; or
                    ``(D)(i) to bucket an order if such order is either 
                represented by such person as an order to be executed, 
                or is required to be executed, on or subject to the 
                rules of a designated contract market; or
                    ``(ii) to fill an order by offset against the order 
                or orders of any other person, or willfully and 
                knowingly and without the prior consent of such other 
                person to become the buyer in respect to any selling 
                order of such other person, or become the seller in 
                respect to any buying order of such other person, if 
                such order is either represented by such person as an 
                order to be executed, or is required to be executed, on 
                or subject to the rules of a designated contract market 
                unless such order is executed in accordance with the 
                rules of the designated contract market.
    ``(b) Clarification.--Subsection (a)(2) shall not obligate any 
person, in or in connection with a transaction in a contract of sale of 
a commodity for future delivery, or other agreement, contract or 
transaction subject to paragraphs (1) and (2) of section 5a(g), with 
another person, to disclose to such other person nonpublic information 
that may be material to the market price, rate or level of such 
commodity or transaction, except as necessary to make any statement 
made to such other person in or in connection with such transaction, 
not misleading in any material respect.''.

SEC. 3. CRIMINAL AND CIVIL PENALTIES.

    (a) Enforcement Powers of the Commission.--Section 6(c) of the 
Commodity Exchange Act (7 U.S.C. 9, 15) is amended in paragraph (3) of 
the 10th sentence--
            (1) by inserting ``(A)'' after ``assess such person''; and
            (2) by inserting after ``each such violation'' the 
        following: ``, or (B) in any case of manipulation of, or 
        attempt to manipulate, the price of any commodity, a civil 
        penalty of not more than the greater of $1,000,000 or triple 
        the monetary gain to such person for each such violation,''.
    (b) Nonenforcement of Rules of Government or Other Violations.--
Section 6b of the Commodity Exchange Act (7 U.S.C. 13a) is amended--
            (1) in the 1st sentence, by inserting before the period at 
        the end the following: ``, or, in any case of manipulation of, 
        or an attempt to manipulate, the price of any commodity, a 
        civil penalty of not more than $1,000,000 for each such 
        violation''; and
            (2) in the 2nd sentence, by inserting before the period at 
        the end the following: ``, except that if the failure or 
        refusal to obey or comply with the order involved any offense 
        under section 9(a)(2), the registered entity, director, 
        officer, agent, or employee shall be guilty of a felony and, on 
        conviction, shall be subject to penalties under section 
        9(a)(2)''.
    (c) Action to Enjoin or Restrain Violations.--Section 6c(d) of the 
Commodity Exchange Act (7 U.S.C. 13a-1(d)) is amended by striking 
``(d)'' and all that follows through the end of the paragraph (1) and 
inserting the following:
    ``(d) Civil Penalties.--
            ``(1) In general.--In any action brought under this 
        section, the Commission may seek and the court shall have 
        jurisdiction to impose, on a proper showing, on any person 
        found in the action to have committed any violation--
                    ``(A) a civil penalty in the amount of not more 
                than the greater of $100,000 or triple the monetary 
                gain to the person for each violation; or
                    ``(B) in any case of manipulation of, or an attempt 
                to manipulate, the price of any commodity, a civil 
                penalty in the amount of not more than the greater of 
                $1,000,000 or triple the monetary gain to the person 
                for each violation.''.
    (d) Violations Generally.--
            (1) In general.--Section 9 of the Commodity Exchange Act (7 
        U.S.C. 13) is amended--
                    (A) in subsection (a), in the matter preceding 
                paragraph (1)--
                            (i) by striking ``(or $500,000 in the case 
                        of a person who is an individual)''; and
                            (ii) by striking ``five years'' and 
                        inserting ``10 years'';
                    (B) by redesignating subsection (f) as subsection 
                (e);
                    (C) in paragraph (1) of subsection (e) (as 
                redesignated by subparagraph (B)), by striking the 
                period at the end and inserting ``; or''; and
                    (D) by adding at the end the following:
    ``(f) Commission Administrative and Civil Authority.--The 
Commission may bring an administrative or civil action under this Act 
for an alleged violation of any provision of this section.''.
            (2) Effect of clarification.--The amendment made by 
        paragraph (1)(D) restates, without substantive change, 
        Commission civil enforcement authority in effect on the date of 
        enactment of this Act, which continues to apply to any action 
        pending on or commenced after the date of enactment of this Act 
        for any alleged violation occurring before, on, or after, that 
        date.

SEC. 4. CLARIFICATION OF AUTHORITY.

    Section 2(c)(2) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)) is 
amended by striking subparagraphs (B) and (C) and inserting the 
following:
                    ``(B) Agreements, contracts, and transactions in 
                retail foreign currency.--
                            ``(i) In general.--This Act applies to, and 
                        the Commission shall have jurisdiction over, 
                        any agreement, contract, or transaction in 
                        foreign currency (including agreements, 
                        contracts, or transactions described in 
                        subsection (a)(1)(A)), and any person who 
                        engages in any activity in connection with any 
                        agreement, contract, or transaction in foreign 
                        currency, that is--
                                    ``(I) offered to, or entered into 
                                with, a person that is not an eligible 
                                contract participant;
                                    ``(II) offered, or entered into, on 
                                a leveraged, margined, or financed on a 
                                similar basis; and
                                    ``(III) offered, or entered into, 
                                for purposes other than commercial or 
                                personal use of such foreign currency, 
                                except that personal use shall include 
                                only those agreements, contracts, or 
                                transactions in which a person takes 
                                immediate ownership and possession of 
                                foreign currency.
                            ``(ii) Exclusions.--Subparagraph (B)(i) 
                        shall not apply if the counterparty, or the 
                        person offering to be the counterparty, of the 
                        person that is not an eligible contract 
                        participant is--
                                    ``(I) a financial institution;
                                    ``(II) a broker or dealer 
                                registered under section 15(b) of the 
                                Securities Exchange Act of 1934 (15 
                                U.S.C. 78o(b)) (except notice 
                                registration under paragraph (11)(A) of 
                                that section) or under section 15C of 
                                that Act (15 U.S.C. 78o-5), provided 
                                that each person who participates in 
                                the solicitation or recommendation of 
                                the agreement, contract, or transaction 
                                is--
                                            ``(aa) registered under 
                                        section 15(b) or 15C of that 
                                        Act (15 U.S.C. 78o(b), 78o-5);
                                            ``(bb) an individual 
                                        registered with a securities 
                                        association registered under 
                                        section 15A(a) of that Act (15 
                                        U.S.C. 78o-3(a)); and
                                            ``(cc) a member or 
                                        associate of a securities 
                                        association registered under 
                                        section 15A(a) of that Act (15 
                                        U.S.C. 78o-3(a));
                                    ``(III) a person that is registered 
                                as a futures commission merchant under 
                                this Act, provided that each person who 
                                participates in the solicitation or 
                                recommendation of the agreement, 
                                contract, or transaction is--
                                            ``(aa) registered under 
                                        section 4d, 4k, or 4m; and
                                            ``(bb) a member or 
                                        associate of a futures 
                                        association registered under 
                                        section 17;
                                    ``(IV) an insurance company 
                                described in section 1a(12)(A)(ii), or 
                                a regulated subsidiary or affiliate of 
                                such an insurance company;
                                    ``(V) a financial holding company 
                                (as defined in section 2 of the Bank 
                                Holding Company Act of 1956 (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)).
                    ``(C) Notwithstanding subclause (III) of 
                subparagraph (B)(ii), agreements, contracts, or 
                transactions described in subparagraph (B), and persons 
                who engage in any activity in connection with 
                agreements, contracts, or transactions described in 
                subparagraph (B), shall be subject to subsection 
                (a)(1)(B) and sections 4(b), 4b, 4c(b), 4o, 6(c) and 
                6(d) (except to the extent that sections 6(c) and 6(d) 
                prohibit manipulation of the market price of any 
                commodity in interstate commerce, or for future 
                delivery on or subject to the rules of any market), 6c, 
                6d, 8(a), 13(a), and 13(b) if the agreements, 
                contracts, or transactions are offered, or entered 
                into, by a person that is registered as a futures 
                commission merchant under this Act.
                    ``(D) Sections 4(b) and 4b shall apply to any 
                agreement, contract, or transaction in foreign currency 
                described in subparagraphs (B) and (C) as though the 
                agreement, contract, or transaction were a contract of 
                sale of a commodity for future delivery.''.

SEC. 5. AUTHORIZATION OF APPROPRIATIONS.

    Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is 
amended by striking ``2005'' and inserting ``2010''.

SEC. 6. LIAISON WITH DEPARTMENT OF JUSTICE.

    Section 2(a)(9) of the Commodity Exchange Act (7 U.S.C. 2(a)(9)) is 
amended by adding at the end the following:
                    ``(C) Liaison with department of justice.--
                            ``(i) In general.--The Commission shall, in 
                        cooperation with the Attorney General, maintain 
                        a liaison between the Commission and the 
                        Department of Justice to coordinate civil and 
                        criminal investigations and prosecutions of 
                        violations of this Act as appropriate.
                            ``(ii) Designation.--The Attorney General 
                        shall designate a person as liaison and take 
                        such steps as are necessary to facilitate 
                        communications described in clause (i).''.

SEC. 7. SINGLE STOCK FUTURES MARGINING PILOT PROGRAM.

    Section 2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2(a)(1)) is 
amended--
            (1) in subparagraph (C)(v)--
                    (A) in subclause (I)--
                            (i) by striking ``other than'' both places 
                        it appears and inserting ``or''; and
                            (ii) by striking ``contract or option'' and 
                        inserting ``contract, option, or security 
                        futures product'';
                    (B) in the first sentence of subclause (II), by 
                striking ``other than'' and inserting ``or''; and
                    (C) in subclause (III), by striking ``other than'' 
                and inserting ``or''; and
            (2) in subparagraph (D)(i)--
                    (A) by striking ``(XI) The margin requirements'' 
                and inserting the following:
                                    ``(XI) Margin requirements.--
                                            ``(aa) In general.--The 
                                        margin requirement;''; and
                    (B) by adding at the end the following:
                                            ``(bb) Pilot program for 
                                        margining security futures 
                                        products.--Notwithstanding any 
                                        other provision of law, for a 
                                        period of 2 years beginning on 
                                        the date of enactment of this 
                                        item, an entity that is 
                                        designated or registered as a 
                                        contract market or derivatives 
                                        transaction execution facility 
                                        under section 5 and that is 
                                        also notice-registered as a 
                                        national securities exchange 
                                        under section 6(g) of the 
                                        Securities Exchange Act of 1934 
                                        (15 U.S.C. 78f(g)), and its 
                                        clearing organization, a 
                                        futures commission merchant 
                                        registered under this Act, and 
                                        a broker or dealer registered 
                                        under section 15(b) of that Act 
                                        (15 U.S.C. 78o(b)), shall not 
                                        be required to comply with item 
                                        (aa) or subparagraph 
                                        (C)(v)(IV).
                                            ``(cc) Acting in 
                                        reliance.--Any entity acting in 
                                        reliance upon item (bb) shall 
                                        not be required to comply with 
                                        regulations promulgated under 
                                        section 7(c)(2)(B) of the 
                                        Securities Exchange Act of 1934 
                                        (15 U.S.C. 78g(c)(2)(B)), or 
                                        with the rules of a self-
                                        regulatory organization (as 
                                        defined in section 3(a)(26) of 
                                        that Act (15 U.S.C. 
                                        78c(a)(26)), pertaining to 
                                        levels of initial and 
                                        maintenance margin, or with any 
                                        regulation that operates to 
                                        preclude the implementation of 
                                        risk-based portfolio margining 
                                        systems.
                                            ``(dd) Promulgation of 
                                        final rules.--Subject to item 
                                        (ee), an entity designated or 
                                        registered as a contract market 
                                        or derivatives transaction 
                                        execution facility under 
                                        section 5 and that is notice-
                                        registered as a national 
                                        securities exchange under 
                                        section 6(g) of the Securities 
                                        Exchange Act of 1934 (15 U.S.C. 
                                        78f(g)) and its clearing 
                                        organization shall be permitted 
                                        to promulgate final rules to--

                                                    ``(AA) set margin 
                                                requirements for 
                                                security futures 
                                                products, held in any 
                                                account, in accordance 
                                                with subparagraph 
                                                (C)(v)(I); and

                                                    ``(BB) permit 
                                                futures commission 
                                                merchants registered 
                                                under this Act, and 
                                                brokers and dealers 
                                                registered under 
                                                section 15(b) of the 
                                                Securities Exchange Act 
                                                of 1934 (15 U.S.C. 
                                                78o(b)), to collect 
                                                initial and maintenance 
                                                margin for security 
                                                futures products, held 
                                                in any account, in 
                                                accordance with the 
                                                rules.

                                            ``(ee) Effective date and 
                                        reviewability of final rules.--
                                        Final rules promulgated by any 
                                        entity under item (dd) shall 
                                        become effective in accordance 
                                        with section 5c(c), and, 
                                        notwithstanding any other 
                                        provision of law, shall not be 
                                        subject to any other approval 
                                        or review requirements.
                                            ``(ff) Report.--Not later 
                                        than 2 years after the date of 
                                        enactment of this item, the 
                                        Board of Governors of the 
                                        Federal Reserve System, after 
                                        consultation with the 
                                        Commission and the Securities 
                                        and Exchange Commission, shall 
                                        submit to the Committee on 
                                        Agriculture of the House of 
                                        Representatives and the 
                                        Committee on Agriculture, 
                                        Nutrition, and Forestry of the 
                                        Senate a report describing the 
                                        results of the pilot program 
                                        for margining security futures 
                                        products.
                                            ``(gg) Continuation of 
                                        pilot program.--The pilot 
                                        program for margining security 
                                        futures products shall continue 
                                        to apply unless the report 
                                        under item (ff) concludes that 
                                        the pilot program has resulted 
                                        in undue risks to the financial 
                                        integrity of the relevant 
                                        contract markets or derivatives 
                                        transaction execution 
                                        facilities, or to their 
                                        respective clearing systems, or 
                                        has resulted in systemic risk 
                                        to financial markets or undue 
                                        risk to customers.''.

SEC. 8. BROAD-BASED INDEX DEFINITIONS.

    (a) In General.--Not later than 180 days after the date of 
enactment of this Act, the Commodity Futures Trading Commission and the 
Securities and Exchange Commission shall exercise the authority 
described in section 1a(25)(B)(vi) of the Commodity Exchange Act (7 
U.S.C. 1a(25)(B)(vi)) and section 3(a)(55)(C)(vi) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(55)(C)(vi)) jointly to 
promulgate a final rule, regulation, or order to exclude from the 
definition of the term ``narrow-based security index'' indexes based 
on--
            (1) United States debt instruments;
            (2) other United States securities;
            (3) foreign equities; and
            (4) foreign debt instruments.
    (b) Requirements.--The final rule, regulation, or order established 
under subsection (a) shall--
            (1) be consistent with the capitalization, trading 
        patterns, and trade reporting conditions in the market for 
        securities described in subsection (a); and
            (2) exclude from the definition of the term ``narrow-based 
        security index'' indexes that include a representative sample 
        of a class of securities in the relevant market if the index is 
        not readily susceptible 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`